Document:

Exhibit 10.1

 

EXECUTION COPY

 

STOCKHOLDERS AGREEMENT

 

STOCKHOLDERS AGREEMENT, dated as of February 8,
2005, 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, (i) POI Acquisition owns two-thirds
of the outstanding shares of common stock of POI Acquisition I, Inc (“PAII”),
which directly owns approximately 88% of the outstanding shares of common stock
of the Company, and QDRF owns one-third of the outstanding shares of common
stock of PAII and (ii) POI Acquisition owns two-thirds of the lenders’ rights
under a Revolving Credit Facility with Protection One Alarm Monitoring, Inc, (“POAM”)
a wholly-owned Subsidiary of the Company, dated December 21, 1998 (as
modified, amended, renewed, extended or restated from time to time, the “Credit
Facility”) and QDRF owns one-third of the lenders’ rights under the Credit
Facility;

 

WHEREAS, pursuant to an exchange agreement
dated as of November 12, 2004 (the “Exchange Agreement”), in
connection with discharge of certain indebtedness under the Credit Facility,
the Company will issue 10,666,667 Common Shares (as defined below) to POI
Acquisition and 5,333,333 Common Shares to QDRF (the “Restructuring”);
and

 

WHEREAS, in connection with the Restructuring
the Company and each of the Stockholders desire to make certain arrangements
among themselves with respect to the matters set forth herein;

 

NOW, THEREFORE, in consideration of the
premises and of the mutual covenants and agreements herein contained, the
parties hereto hereby agree 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.

 

Closing:  As defined in the Exchange Agreement.

 

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,

 

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officer, employee, partner, creditor, customer, supplier or other
person and (y) who does not have a relationship with the Company that may
interfere with his exercise of independence from management and the Company.

 

Listing Event:  Approval of the Company’s application to list
its Common Shares on the New York Stock Exchange or the NASDAQ Stock Market.

 

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.

 

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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 five directors of
whom:

 

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

 

(ii)                                  one
shall be designated by QDRF (the “QDRF Designee”);

 

(iii)                               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.

 

(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
Closing, 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 Closing, 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.

 

(c)                        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 Closing, QDRF
shall cease to have the right to designate a director to the Board of Directors
pursuant to Section 2.1(a) above and QDRF shall promptly cause its QDRF
Designee 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

 

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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 Listing 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)) and
Mr. Ginsburg shall remain entitled to serve as a director (subject to Section 2.1(d)).

 

(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 Closing, 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 one additional director and designate a
new director (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 the Board of Directors to be increased to include a director 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 one and (ii) at such time as POI Acquisition shall cease
to own Common Shares in an amount equal to at least 40% of the Common Shares
issued and outstanding as of the Closing, 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.

 

(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 

 

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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)                       QDRF
shall be entitled to designate an employee, director or officer of QDRF or its
Affiliates to serve as a nonvoting observer to the Board of Directors (an “Observer”)
at any time that QDRF 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
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 Stockholders shall vote to amend the bylaws of the Company as in
effect on the date hereof to provide that, in addition to any vote or consent
of the Board of Directors or the stockholders of the Company required by law or
the Company’s certificate of incorporation, if and for so long as QDRF retains
the right to designate the QDRF Designee pursuant to Section 2.1(a), the
Company shall not take any of the following actions without the consent of
QDRF:

 

(i)                                     voluntarily
initiate any bankruptcy, dissolution or winding up or any analogous proceeding
in any jurisdiction with respect to any of the Protection One Entities;

 

(ii)                                  merge
or consolidate with any other Person (other than (i) a transaction between the
Company and one or more of its wholly-owned Subsidiaries, (ii) a transaction
subject to the provisions of Section 4.3 or (iii) a transaction occurring
more than two years after the Closing);

 

(iii)                               sell
all or substantially all of the assets of the Company; or

 

(iv)                              obligate
or otherwise commit to do any of the foregoing.

 

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(b)  If
and for so long as the consent of QDRF described in Section 2.2(a) above
is required, without the prior consent of QDRF, neither the Company nor any
other Stockholder shall take any action to amend the bylaws of the Company in
any manner that would impair QDRF’s exercise of such rights.

 

(c) 
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), including, without limitation, Common
Shares held by PAII.

 

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.

 

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 

 

7

 

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 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 

 

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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 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

 

9

 

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 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, 

 

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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
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 

 

11

 

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.

 

(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; 

 

12

 

(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 6.3.                                   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 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.

 

13

 

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:  John M. Jennings

 

 

(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: David Tanner

 

(3)                                  If
to QDRF:

 

c/o Quadrangle Group LLC

375 Park Avenue

New York, New York 10152

Telephone: 212-418-1700

Facsimile: 212-418-1701

Attention: Michael Weinstock

 

 

14

 

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:  Alan M. Klein

 

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.

 

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.

 

15

 

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
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.

 

16

 

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 mater 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:

  	
  /s/ Eric Griffin

  	
   

  
	
   

  	
  Name: Eric Griffin

  	
   

  
	
   

  	
  Title: Vice President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  POI ACQUISITION, L.L.C.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David A. Tanner

  	
   

  
	
   

  	
  Name: David A. Tanner

  	
   

  
	
   

  	
  Title: Member

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  QUADRANGLE MASTER FUNDING LTD

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael Weinstock

  	
   

  
	
   

  	
  Name: Michael Weinstock

  	
   

  
	
   

  	
  Title: MemberExhibit 10.2

 

EXECUTED COPY

 

REGISTRATION
RIGHTS AGREEMENT

 

THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”)
is made and entered into as of February 8, 2005, by and among Quadrangle
Master Funding Ltd, a Cayman Islands limited company (“QDRF”), POI Acquisition,
LLC, a Delaware limited liability company (“POI Acquisition”), and
Protection One, Inc., a Delaware corporation (the “Company”), and each
other Person who becomes a Holder (as defined below) hereunder.

 

RECITALS

 

WHEREAS, (i) POI Acquisition owns two-thirds of the
outstanding shares of common stock of POI Acquisition I, Inc (“PAII”),
which directly owns approximately 88% of the outstanding shares of common stock
of the Company, and QDRF owns one-third of the outstanding shares of common
stock of PAII and (ii) POI Acquisition owns two-thirds of the lenders’ rights
under a Revolving Credit Facility with Protection One Alarm Monitoring, Inc, (“POAM”)
a wholly-owned subsidiary of the Company, dated December 21, 1998 (as
modified, amended, renewed, extended or restated from time to time, the “Credit
Facility”) and QDRF owns one-third of the lenders’ rights under the Credit
Facility;

 

WHEREAS, pursuant to an exchange agreement dated as of
November 12, 2004 (the “Exchange Agreement”), in connection with discharge
of certain indebtedness under the Credit Facility, the Company will issue
10,666,667 Common Shares (as defined below) to POI Acquisition and 5,333,333
Common Shares to QDRF (the “Restructuring”); and

 

WHEREAS, the execution and delivery of this Agreement
by the parties hereto is a condition precedent to the consummation of the
Restructuring.

 

NOW, THEREFORE, in consideration of the mutual
promises and agreements set forth herein and in the Exchange Agreement, and
other valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:

 

SECTION 1.           Definitions.  For purposes of this Agreement, the following
capitalized terms have the following meanings:

 

“Common Shares” means the shares of common
stock, par value $0.01 per share, of the Company.

 

“Exchange Act” means the United States
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder, all as the same shall be in effect from time to time.

 

“Holders” means POI Acquisition and QDRF and
each of their respective transferees of Registrable Securities who agrees to be
bound by the provisions of this Agreement in accordance with Section 9(g)
hereof.

 

“Person” means any individual, firm,
corporation, partnership, limited liability company, trust, joint venture,
governmental authority or other entity.

 

 

“Prospectus” means the prospectus included in
any Registration Statement (including, without limitation, a prospectus that
discloses information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and all other amendments and
supplements to such prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such prospectus.

 

“Registrable Securities” means all Common
Shares held as of the date hereof by the Holders (including, without
limitation, any Common Shares beneficially owned by the Holders through their
equity interests in PAII) and any Conversion Securities as defined in Section 9(f).  As to any particular Registrable Securities,
such securities shall cease to be Registrable Securities when they have been
distributed by the Holder thereof to the public pursuant to an offering
registered under the Securities Act or sold to the public through a broker,
dealer or market maker in compliance with Rule 144 under the Securities Act (or
any similar rule then in force) or repurchased by the Company or any subsidiary
of the Company.

 

“Registration Statement” means any registration
statement of the Company under the Securities Act that covers any of the
Registrable Securities pursuant to the provisions of this Agreement, including
the related Prospectus, any preliminary prospectus, all amendments and
supplements to such registration statement (including post-effective
amendments), all exhibits and all material incorporated by reference or deemed
to be incorporated by reference in such registration statement.

 

“S-3 Eligible” means the ability of the Company
to file a Registration Statement on Form S-3 under the Securities Act.

 

“SEC” means the United States Securities and
Exchange Commission.

 

“Securities Act” means the United States
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder, all as the same shall be in effect from time to time.

 

“Underwritten Offering” means a distribution,
registered pursuant to the Securities Act, in which securities of the Company
are sold to the public through one or more underwriters in a “firm commitment” underwriting.

 

SECTION 2.           Demand
Registration.

 

(a)                                  Requests for Registration.

 

(i)                                     Subject
to the terms and conditions set forth in this Agreement, each Holder will have
the right, by written notice delivered to the Company (a “Demand Notice”),
to request that the Company register Registrable Securities held by such
Holder(s) under and in accordance with the provisions of the Securities Act (a “Demand
Registration”); provided that a Holder may not provide a Demand Notice for
so long as such Holder is able to sell its Registrable Securities pursuant to
Rule 144(k) under the Securities Act (or any similar rule then in force).

 

2

 

(ii)                                  (x)
POI Acquisition may make up to four (4) Demand Registrations pursuant to Section 2(a)(i)
and (y) QDRF may make up to two (2) Demand Registrations pursuant to Section 2(a)(i)
(provided, that QDRF may make up to two (2) additional Demand Registrations if
and for so long as the Company is S-3 Eligible), except that no Demand Notice
may be given prior to six (6) months after the Effectiveness Date (as defined
below) of the immediately preceding Demand Registration.

 

(b)                                 Filing and Effectiveness.

 

(i)                                     The
Company will file a Registration Statement relating to any Demand Registration
as promptly as reasonably practicable (but in any event within 90 days in the
case of a registration made on Form S-1, or a comparable successor form, as
applicable, or 45 days in the case of any registration made on Form S-3 or a
comparable successor form, as applicable) following the date on which the
Demand Notice is given and will use its reasonable efforts to cause the same to
be declared effective by the SEC as soon as reasonably practicable thereafter,
but in any event will use its reasonable efforts to cause the same to be
declared effective by the SEC within 150 days thereafter in the case of any
registration made on Form S-1 (or a comparable successor form) and within 90
days thereafter in the case of any registration made on Form S-3 (or a comparable
successor form) (in each such case, such date being the “Effectiveness Date”).

 

(ii)                                  The
Company will use its reasonable best efforts to comply with all necessary
provisions of the federal securities laws in order to keep each Registration
Statement relating to a Demand Registration effective for a period of (i) in
the case of an Underwritten Offering, three (3) months from its Effectiveness
Date, and (ii) in the case of any registration made pursuant to Rule 415 under
the Securities Act, six (6) months from its Effectiveness Date, or, in any
case, such shorter period that will terminate when all Registrable Securities
covered by such Registration Statement have been sold pursuant to such
Registration Statement (in each case, such period being the “Effective
Period”), provided, however, that if any Black-Out (as defined below)
occurs during an Effectiveness Period, then such Effectiveness Period will be
tolled for the duration of the Black-Out.

 

Within ten (10) business days after receipt of such
Demand Notice, the Company will serve written notice thereof (the “Notice”)
to all other Holders and will, subject to the provisions of Sections 2(c) and
3(b)(y), include in any registration required under this Section 2 all
Registrable Securities with respect to which the Company receives written
requests for inclusion therein within fifteen (15) days after such Notice is
given to the applicable Holder.  The
Holder requesting such Demand Registration will be permitted to withdraw in
good faith all or part of the Registrable Securities from a Demand Registration
at any time prior to the Effectiveness Date of such Demand Registration, in
which event the Company will promptly amend or, if applicable, terminate or
withdraw the related Registration Statement (whether or not other Holders have
elected to include Registrable Securities in such Registration Statement) and,
in the event of such a withdrawal, subject to the provisions of Section 8,
such withdrawn Registration Statement shall not be considered a Demand Registration
for purposes of Section 2(a)(ii).

 

(c)                                  Priority on Demand Registration. 
Notwithstanding the foregoing and subject to the restrictions set forth
in Section 3(b)(y), if the managing underwriter or underwriters of an
Underwritten Offering to which such Demand Registration relates advises the

 

3

 

Company
that the total amount of Registrable Securities that the Holder or Holders
intend to include in such Demand Registration, together with any Piggyback Shares
(as defined below) requested to be included in such registration by any other
Holder(s) pursuant to Section 2(b)(ii) above or any other Person pursuant
to similar registration rights, is in the aggregate such as to materially and
adversely affect the success of such offering (including by affecting the price
per share in the offering), then the number of Registrable Securities to be
included in such Demand Registration will, if necessary, be reduced pro rata in
accordance with Section 3(b)(y) and there will be included in such
Underwritten Offering the largest number of Registrable Securities that, in the
opinion of such managing underwriter or underwriters, can be sold without
materially and adversely affecting the success of such Underwritten Offering.

 

(d)                                 Limitations on Demand Registration. 
Notwithstanding anything to the contrary in any other provision of this
Agreement, the Company will not be required to effect a Demand Registration
pursuant to this Section 2:

 

(i)                                     during
the period starting with the date of filing of, and ending on the last day of
the Effectiveness Period relating to a registration statement in which such
Holder had the right to participate pursuant to Section 3 (or with respect
to which such Holder provided a Demand Notice), including a Registration
Statement in which the managing underwriter reduced the Holder’s participation
pursuant to Section 3(b); or

 

(ii)                                  if
the Company shall furnish to Holders requesting a registration statement
pursuant to this Section 2 a certificate stating that in the good faith
judgment of the Board of Directors of the Company, such registration and
offering could materially interfere with a bona  fide financing transaction of the Company, including without
limitation a primary offering of securities, or any other material business
transaction of the Company, or would require disclosure of information, the
premature disclosure of which could materially and adversely affect the
Company, in which event the Company shall have the right to defer the filing or
effectiveness of a Registration Statement for a period of not more than
one-hundred twenty (120) days after receipt of the request of a Holder pursuant
to Section 2; provided that such right to delay a request shall be
exercised by the Company not more than once in any consecutive twelve-month
period.

 

SECTION 3.           Piggyback
Registration.

 

(a)                                  Right to Piggyback. 
If at any time the Company proposes to file a Registration Statement,
whether or not for sale for the Company’s own account, on a form and in a manner
that would also permit registration of Registrable Securities (other than in
connection with a registration statement on Forms S-4 or S-8 or any similar or
successor form), the Company shall give to Holders holding Registrable
Securities written notice of such proposed filing at least thirty (30) days
before the anticipated filing.  The
notice referred to in the preceding sentence shall offer such Holders the
opportunity to register such amount of Registrable Securities as each such
Holder may request (a “Piggyback Registration”).  Subject to Section 3(b), the Company
will include in each such Piggyback Registration (and any related qualification
under state blue sky laws and other compliance filings, and in any underwriting
involved therein) all Registrable Securities with respect to which the Company
has received written requests for inclusion therein within fifteen (15) days
after the written notice from the Company is given.  Each such Holder will be permitted to
withdraw all or part of its Registrable

 

4

 

Securities
from a Piggyback Registration at any time prior to the effective date of such
Piggyback Registration.

 

(b)                                 Priority on Piggyback Registrations. 
The Company will use its reasonable best efforts to cause the managing
underwriter or underwriters of a proposed Underwritten Offering to permit
Holders holding Registrable Securities requested to be included in the
registration for such offering to include therein all such Registrable
Securities requested to be so included (such securities, together with any
other shares of the same class requested to be included in such registration by
any other Person pursuant to similar registration rights, the “Piggyback
Shares”) on the same terms and conditions as any securities of the Company
included therein (other than the indemnification by the Holders, which will be
limited as set forth in Section 7(b) hereof and provided, that the
Holders give customary covenants, representations and warranties).  The Company shall cooperate with any such
Holder of Registrable Securities in order to seek to limit any representations
and warranties to, or agreements with, the Company or the underwriters to be
made by such Holder only to those representations, warranties or agreements
regarding such Holder, such Holder’s Registrable Securities and such Holder’s
intended method of distribution and any other representations required by
law.  Notwithstanding the foregoing, if
the managing underwriter or underwriters of such Underwritten Offering advises
the Company to the effect that the total amount of securities that such
Holders, the Company and any other Person propose to include in such
Underwritten Offering is such as to materially and adversely affect the success
of such offering (including by affecting the price per share in the offering),
then the Company will include in such registration:

 

(x)                                   in
the case of a registration in connection with a sale of securities for the
Company’s own account, (i) first, 100% of the securities that the Company
proposes to sell for its own account, (ii) second, to the extent that the
number of securities in clause (i) above is less than the number of securities
which the Company has been advised can be sold in such offering without having
the adverse effect referred to above, the number of Piggyback Shares of each
Holder and the number of Piggyback Shares requested to be included in such
offering by any other Persons pursuant to similar registration rights,
determined pro rata on the basis of the number of Common Shares beneficially
owned by each Holder requesting registration and such other Persons requesting
registration, collectively; and

 

(y)                                 in
the case of a Demand Registration or other sale of securities on account of any
Person other than the Company, (i) first, 100% of the number of Registrable
Securities requested to be included in such Demand Registration or other sale
by the applicable Holder or other Person, as the case may be, (ii) second, to
the extent that the number of securities in clause (i) above, if applicable, is
less than the number of securities which the Company has been advised can be
sold in such offering without having the adverse effect referred to in Section 2(c)
above, the number of Piggyback Shares requested to be included in such offering
by any other Holder or any other Persons pursuant to similar registration
rights, determined pro rata on the basis of the number of Common Shares
beneficially owned by each such Person requesting registration and (iii) third,
to the extent that the number of securities in clauses (i) and (ii) above is
less than the number of securities which the Company has been advised can be
sold in such offering without having the adverse effect referred to in Section 2(c)
above, the securities sought to be included by the Company in the offering.

 

5

 

(c)                                  Right to Terminate Registration. 
The Company shall have the right to postpone, terminate or withdraw any
registration initiated by it under this Section 3 prior to the
effectiveness of such registration whether or not the Holders have elected to
include Registrable Securities in such registration.

 

SECTION 4.           Registration
Procedures.  In connection with the
Company’s registration obligations pursuant to, and subject to the terms and
conditions contained in, Sections 2 and 3, the Company will use its reasonable
best efforts to effect such registrations to permit the sale of such
Registrable Securities in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company will as expeditiously as
reasonably practicable, and in each case to the extent applicable:

 

(a)                                  Prepare and file with the SEC a
Registration Statement or Registration Statements on any appropriate form under
the Securities Act available for the sale of the Registrable Securities by the
holders thereof in accordance with the intended method or methods of
distribution thereof, and use reasonable efforts to cause each such
Registration Statement to become effective and remain effective as provided
herein; provided, however, that before filing a Registration
Statement or Prospectus or any amendments or supplements thereto (including
documents that would be incorporated or deemed to be incorporated therein by
reference) the Company will furnish to (i) the Holders holding Registrable
Securities covered by such Registration Statement, (ii) not more than one
counsel chosen by Holders holding a majority of the Registrable Securities
included in the Demand Notice or, in the case of a Piggyback Registration, the
Holders holding a majority of the Registrable Securities being registered (“Special
Counsel”) and (iii) the
managing underwriters, if any, copies of all such documents proposed to be
filed, which documents will be subject to the review of such Holders, such
Special Counsel and such underwriters, and the Company will not file any such
Registration Statement or amendment thereto or any Prospectus or any supplement
thereto (excluding such documents that, upon filing, will be incorporated or
deemed to be incorporated by reference therein) to which the Holders holding a
majority of the Registrable Securities covered by such Registration Statement
or the managing underwriter, if any, shall reasonably object.

 

(b)                                 Prepare and file with the SEC such
amendments and post-effective amendments to each Registration Statement as may
be necessary to keep such Registration Statement continuously effective for the
applicable Effectiveness Period specified in Section 2; cause the related
Prospectus to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 (or any similar provisions then
in force) under the Securities Act; and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such Registration Statement during the applicable Effectiveness Period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such Registration Statement as so amended or in such Prospectus as so
supplemented.

 

(c)                                  Notify the selling Holders and the
managing underwriters, if any, reasonably promptly, and (if requested by any
such Person) confirm such notice in writing, (i) when a Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to a Registration Statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the SEC or any other federal
or state governmental authority for amendments or supplements to a Registration
Statement or related Prospectus or for

 

6

 

additional
information, (iii) of the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that purpose,
(iv) if at any time the representations and warranties of the Company contained
in any agreement contemplated by Section 4(l) (including any underwriting
agreement) cease to be true and correct in any material respect, (v) of the
receipt by the Company of any notification with respect to the suspension of
the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, (vi) of the occurrence of any event that makes any
statement made in such Registration Statement or related Prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in a
Registration Statement, Prospectus or any such document so that, in the case of
the Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and, in the case of
the Prospectus, it will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and (vii) of the Company’s reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.

 

(d)                                 Use its reasonable best efforts to
obtain the withdrawal of any order suspending the effectiveness of a
Registration Statement, or the lifting of any suspension of the qualification
(or exemption from qualification) of any of the Registrable Securities for sale
in any jurisdiction, at the earliest possible moment.

 

(e)                                  Furnish to each selling Holder and
each managing underwriter, if any, without charge, at least one conformed copy
of the Registration Statement and any post-effective amendment thereto (but
excluding schedules, all documents incorporated or deemed incorporated therein
by reference and all exhibits, unless requested in writing by such Holder or
underwriter).

 

(f)                                    Deliver to each selling Holder and
the underwriters, if any, without charge as many copies of the Prospectus or
Prospectuses relating to such Registrable Securities (including each
preliminary prospectus) and any amendment or supplement thereto as such persons
may reasonably request; and, subject to Section 5(e), the Company hereby
consents to the use of such Prospectus or each amendment or supplement thereto
by each of the selling Holders and the underwriters, if any, in connection with
the offering and sale of the Registrable Securities covered by such Prospectus
or any amendment or supplement thereto.

 

(g)                                 Prior to any public offering of
Registrable Securities, to register or qualify or cooperate with the selling
Holders, the underwriters, if any, and their respective counsel in connection
with the registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or blue sky laws of such jurisdictions within the United States as
any seller or underwriter reasonably requests in writing; use all reasonable
efforts to keep such registration or qualification (or exemption therefrom)
effective during the period the applicable Registration Statement is required
to be kept effective and do any and all other acts or things necessary or
advisable to enable the disposition in each such jurisdiction of the
Registrable Securities covered by the applicable Registration Statement; provided,
however, that the Company will not be required to (i) qualify to do business
in any jurisdiction where it is not then so qualified, (ii) conform its

 

7

 

capitalization
or the composition of its assets at the time to the securities or blue sky laws
of such jurisdiction, or (iii) take any action that would subject it to
taxation or service of process in any such jurisdiction where it is not then so
subject.

 

(h)                                 Cooperate with the selling Holders
and the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and
enable such Registrable Securities to be in such denominations and registered
in such names as the managing underwriters, if any, shall request at least two
business days prior to any sale of Registrable Securities to the underwriters.

 

(i)                                     Upon the occurrence of any event
contemplated by Section 4(c)(ii), Section 4(c)(vi) or 4(c)(vii),
prepare a supplement or post-effective amendment to each Registration Statement
or a supplement to the related Prospectus or any document incorporated therein
by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities being sold
thereunder, such Prospectus will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.

 

(j)                                     Use its reasonable efforts to cause
all Registrable Securities covered by such Registration Statement to be listed
on the principal securities exchange or exchanges or qualified for trading on
the principal over the counter market, if any, on which securities issued by
the Company of the same class are then listed or qualified or, if no such
securities issued by the Company are then so listed or qualified, on such
securities exchange or over the counter market as the Company shall determine.

 

(k)                                  As needed, (i) engage an appropriate
transfer agent and provide the transfer agent with printed certificates for the
Registrable Securities in a form eligible for deposit with The Depository Trust
Company and (ii) provide a CUSIP number for the Registrable Securities.

 

(l)                                     Enter into such customary agreements
(including, in the event of an Underwritten Offering, an underwriting agreement
in form, scope and substance as is customary in underwritten offerings) and
take all such other commercially reasonable and customary actions in connection
therewith (including in the event of an Underwritten Offering, those reasonably
requested by the managing underwriters) in order to facilitate the disposition
of such Registrable Securities and in such connection, but only where an
underwriting agreement is entered into in connection with an Underwritten
Offering, (i) make such representations and warranties to the underwriters with
respect to the businesses of the Company and its subsidiaries, the Registration
Statement, Prospectus and documents incorporated by reference or deemed
incorporated by reference therein, if any, in each case, in form, substance and
scope as are customarily made by issuers to underwriters in underwritten
offerings and confirm the same if and when requested; (ii) use reasonable best
efforts to obtain opinions of counsel to the Company and updates thereof, which
counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters, if any, addressed to each of the
underwriters covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably requested by
such underwriters; (iii) use reasonable best efforts to obtain “comfort”
letters and updates thereof from the independent certified public accountants
of the Company (and, if necessary, any other certified public

 

8

 

accountants
of any subsidiary of the Company or of any business acquired by the Company for
which financial statements and financial data is, or is required to be,
included in the Registration Statement), addressed to each of the underwriters,
such letters to be in customary form and covering matters of the type
customarily covered in “comfort” letters in connection with underwritten offerings;
and (iv) in the case of any Underwritten Offering where the proposed maximum
aggregate offering price for the Registrable Securities offered thereunder
exceeds $30 million, cause the Company’s management to be made reasonably
available for, and assist in, the marketing and disposition of such Registrable
Securities in the manner and to the extent reasonably requested by the
underwriters including, without limitation, participation by management in
customary road shows, investor conferences and other similar
presentations.  The foregoing actions
will be taken in connection with each closing under such underwriting agreement
as and to the extent required thereunder.

 

(m)                               Make available for reasonable
inspection during normal business hours by a representative of the Holders
holding Registrable Securities being sold, any underwriter participating in any
disposition of Registrable Securities, and any attorney or accountant retained
by such selling Holders or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and cause the officers, directors and employees of the Company
and its subsidiaries to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with such
Registration Statement; provided, however, that
any records, information or documents that are designated by the Company in
writing as confidential at the time of delivery of such records, information or
documents will be kept confidential by such Persons unless (i) such records,
information or documents are in the public domain or otherwise publicly
available, (ii) disclosure of such records, information or documents is
required by court or administrative order; provided, that such Holder
notifies the Company of any such requirement and cooperates with the Company in
seeking a protective or restraining order limiting such disclosure, or (iii)
disclosure of such records, information or documents, in the reasonable opinion
of counsel to such Person, after consultation with the Company, is otherwise
required by law (including, without limitation, pursuant to the requirements of
the Securities Act).

 

(n)                                 Use its reasonable best efforts to
comply with all applicable rules and regulations of the SEC and make generally
available to its security holders earnings statements satisfying the provisions
of Section 11(a) of the Securities Act and Rule 158 thereunder (or any
similar rule promulgated under the Securities Act) no later than 45 calendar
days after the end of any 12-month period (or 90 calendar days after the end of
any 12-month period if such period is a fiscal year) (i) commencing at the end
of any fiscal quarter in which Registrable Securities are sold to underwriters
in a firm commitment or best efforts Underwritten Offering, or (ii) if not sold
to underwriters in such an offering, commencing on the first day of the first
fiscal quarter of the Company, after the effective date of a Registration
Statement, which statements shall cover such 12-month period.

 

SECTION 5.           Certain
Covenants.  The Company’s
registration obligations to a Holder shall be conditioned upon compliance with
the following:

 

(a)                                  such Holder shall cooperate with the
Company in connection with the preparation of the Registration Statement, and
such Holder will provide to the Company, in writing, for use in the
Registration Statement, all information regarding such Holder and such other
information as may be necessary to enable the Company to prepare the
Registration

 

9

 

Statement and Prospectus
covering the Registrable Securities and to maintain the currency and
effectiveness thereof;

 

(b)                                 such Holder shall enter into such
agreements with the Company and any underwriter, broker-dealer or similar
securities industry professional containing representations, warranties,
indemnities and agreements as are in each case customarily entered into and
made by selling stockholders, and will cause its counsel to give any legal
opinions customarily given, in secondary distributions under similar
circumstances;

 

(c)                                  during such time as such Holder may
be engaged in a distribution of the Registrable Securities, such Holder will
use its best efforts to comply with all laws applicable to such distribution,
including, but not limited to Regulation M promulgated under the Exchange Act,
and pursuant thereto will, among other things, to the extent applicable:  (i) not engage in any stabilization activity
in connection with the securities of the Company in contravention of such
rules; (ii) distribute the Registrable Securities owned by such Holder solely
in the manner described in the Registration Statement; (iii) cause to be
furnished to each underwriter, agent or broker-dealer to or through whom the
Registrable Securities owned by such Holder may be offered, or to the offeree
if an offer is made directly by the Holder, such copies of the Prospectus (as
amended and supplemented to such date) and documents incorporated by reference
therein as may be required by such underwriter, agent, broker-dealer or
offeree; and (iv) not bid for or purchase any securities of the Company or
attempt to induce any person to purchase any securities of the Company other
than as permitted under the Exchange Act;

 

(d)                                 upon receipt of any notice from the
Company of the occurrence of any event of the kind described in Section 4(c)(ii),
4(c)(iii), 4(c)(v), 4(c)(vi) or 4(c)(vii) (“Suspension Notice”), such
Holder will forthwith discontinue disposition of such Registrable Securities
covered by such Registration Statement or Prospectus (a “Black-Out”)
until such Holder’s receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 4(i), or until it is advised in writing
(the “Advice”) by the Company that the use of the applicable Prospectus
may be resumed, and such Holder has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus.  Except as
expressly provided herein, there shall be no limitation with regard to the
number of Suspension Notices that the Company is entitled to give hereunder; provided,
however, that in each such event the Company will use its reasonable
best efforts to promptly cure the event giving rise to the Suspension Notice.

 

SECTION 6.           Registration
Expenses.  Subject to the penultimate
sentence of Section 8, all expenses in connection with any Registration
Statement, any qualification or compliance with federal or state laws required
in connection therewith, and the distribution of the Registrable Securities
shall, as between the Holders and the Company, be borne as follows:

 

(a)                                  the Company shall pay and be
responsible for (i) all registration and filing fees (including fees and expenses
for compliance with federal or state securities laws or state “blue sky” laws),
(ii) printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities in a form eligible for deposit with The
Depository Trust Company and of printing a reasonable number of prospectuses if
the printing of such prospectuses is requested by the Holders holding a
majority of the Registrable Securities included in any Registration Statement),
(iii) messenger, telephone and delivery expenses incurred by the Company, (iv)
fees and disbursements of counsel for the Company incurred by

 

10

 

the
Company, (v) fees and disbursements of all independent certified public
accountants referred to in Section 4(l)(iii) (including the expenses of
any special audit and “comfort” letter required by or incident to such
performance) incurred by the Company, (vi) reasonable and documented fees and
out-of-pocket expenses of one Special Counsel retained by the Holders in connection with the registration and
sale of their Registrable Securities (which counsel will be chosen by Holders
holding a majority of the Registrable Securities included in a Demand Notice
or, in the case of a Piggyback Registration, the Holders holding a majority of
the Registrable Securities being registered), and (vii) reasonable and
documented underwriter fees and out-of-pocket expenses.  In addition, the Company will pay internal
expenses (including without limitation all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the securities to be registered on any securities exchange on which securities
of the same class issued by the Company are then listed or for admission of any
securities for quotation and an inter-dealer quotation system, as applied and
the fees and expenses of any Person, including special experts, retained by the
Company.

 

(b)                                 the Holders shall pay (i) any
underwriting discount or selling commission with respect to any sale of
Registrable Securities held by them pursuant to this Agreement, (ii) any taxes
of any kind (including, without limitation, transfer taxes) with respect to any
disposition, sale or transfer of Registrable Securities and (iii) any legal,
accounting and other expenses incurred by them, except as provided above with
respect to Special Counsel, in connection with any Registration Statement.

 

SECTION 7.           Indemnification.

 

(a)                                  Indemnification by the Company. 
The Company will indemnify and hold harmless, to the fullest extent
permitted by law, each Holder holding Registrable Securities registered
pursuant to this Agreement, the officers, directors, partners, agents and
employees of each of them, each Person who controls such a Holder (within the
meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) and the officers, directors, partners, agents and employees of
any such controlling person (collectively, the “Holder Indemnified Parties”),
from and against all losses, claims, damages, liabilities, costs (including
without limitation the costs of investigation and attorneys’ fees) and expenses
(collectively, “Losses”), arising out of or based upon any untrue or
alleged untrue statement of a material fact contained in any Registration
Statement, Prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or any violation by the Company of any
federal, state or common law rule or regulation applicable to the Company and
relating to action required of or inaction by the Company in connection with
any such registration; provided, however, that the Company will
not indemnify or hold harmless any Holder Indemnified Party from or against any
such Losses (i) that arise out of or are based upon, in the case of a
non-Underwritten Offering, any failure by such Holder to give any purchaser of
Registrable Securities at or prior to the written confirmation of such sale, a
copy of the most recent Prospectus or (ii) if the untrue statement, omission or
allegation thereof upon which such Losses are based (x) was made in reliance
upon and in conformity with the information provided in writing by or on behalf
of any Holder Indemnified Party specifically for use or inclusion in the
Registration Statement or any Prospectus, or (y) was made in any Prospectus
used after such time as the Company advised such Holder that the filing of a
post-effective amendment or

 

11

 

supplement
thereto was required, except the Prospectus as so amended or supplemented, or
(z) was made in any Prospectus used after such time as the obligation of the
Company hereunder to keep the Registration Statement effective and current has
expired or been suspended hereunder.

 

(b)                                 Indemnification by Holders. 
In connection with any Registration Statement in which a Holder is
participating, such Holder will furnish to the Company in writing such
information as the Company reasonably requests for use in connection with any
Registration Statement, Prospectus or preliminary prospectus and will,
severally but not jointly, indemnify and hold harmless, to the fullest extent
permitted by law, the Company, its directors and officers, agents and employees,
each person who controls the Company (within the meaning of Section 15 of
the Securities Act and Section 20 of the Exchange Act), and the directors,
officers, agents or employees of such controlling persons (collectively, the “Company
Indemnified Parties”), from and against all Losses arising out of or based
upon (i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, the Prospectus or in any amendment or
supplement thereto or in any preliminary prospectus or arising out of or based
upon, any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, if the
statement or omission was made in reliance upon and in conformity with the
information provided in writing by or on behalf of such Holder or any person
who controls such Holder specifically for use or inclusion in the Registration
Statement or any Prospectus, (ii) the use of any Prospectus after such time as
the Company has advised such Holder that the filing of a post-effective
amendment or supplement thereto is required, except the Prospectus as so
amended or supplemented, (iii) the use of any Prospectus after such time as the
obligation of the Company hereunder to keep the Registration Statement
effective and current has expired or been suspended hereunder, or (iv) in the
case of a non-Underwritten Offering, any failure by such Holder to give any purchaser
of Registrable Securities at or prior to the written confirmation of such sale,
a copy of the most recent Prospectus.  In
no event will the liability of any selling Holder hereunder be greater in
amount than the dollar amount of the net proceeds received by such Holder upon
the sale of the Registrable Securities giving rise to such indemnification
obligation.

 

(c)                                  Conduct of Indemnification
Proceedings.  If any person shall become entitled to
indemnity hereunder (an “indemnified party”), such indemnified party
shall give prompt notice to the party from which such indemnity is sought (the “indemnifying
party”) of any claim or of the commencement of any action or proceeding
with respect to which such indemnified party seeks indemnification or contribution
pursuant hereto; provided, however, that the failure to so notify
the indemnifying party will not relieve the indemnifying party from any
obligation or liability except to the extent that the indemnifying party has
been prejudiced materially by such failure. 
All reasonable and documented fees and expenses (including any
reasonable fees and expenses incurred in connection with investigating or
preparing to defend such action or proceeding) will be paid to the indemnified
party (provided appropriate documentation for such expenses is also submitted
with such notice), as incurred, within five calendar days of written notice
thereof to the indemnifying party.  The
indemnifying party will not consent to entry of any judgment or enter into any
settlement or otherwise seek to terminate any action or proceeding in which any
indemnified party is or could be a party and as to which indemnification or
contribution could be sought by such indemnified party under this Section 7,
unless such judgment, settlement or other termination includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release, in form and substance reasonably satisfactory
to the indemnified party, from all liability in respect of such

 

12

 

claim or
litigation for which such indemnified party would be entitled to
indemnification hereunder.

 

(d)                                 Contribution. 
If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under Section 7(a) or 7(b) in respect
of any Losses or is insufficient to hold such indemnified party harmless, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, will, severally but not jointly, contribute to the amount paid or
payable by such indemnified party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party or indemnifying parties, on the one hand, and such indemnified party, on
the other hand, in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable
considerations.  The relative fault of
such indemnifying party or indemnifying parties, on the one hand, and such
indemnified party, on the other hand, will be determined by reference to, among
other things, whether any action in question, including any untrue or alleged
untrue statement of a material fact or omission or alleged omission of a
material fact, has been taken or made by, or related to information supplied
by, such indemnifying party or indemnified party, and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such action, statement or omission.  The
amount paid or payable by a party as a result of any Losses will be deemed to
include any legal or other fees or expenses incurred by such party in
connection with any action or proceeding.

 

The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by
pro  rata allocation or by any other method of allocation that
does not take into account the equitable considerations referred to in the
immediately preceding paragraph. 
Notwithstanding the provisions of this Section 7(d), an
indemnifying party that is a selling Holder will not be required to contribute
any amount in excess of the net proceeds received by such Holder upon the sale
of the Registrable Securities giving rise to such contribution obligation over
the amount of any damages that such indemnifying party has otherwise been
required to pay pursuant to Section 7(b) by reason of such untrue or
alleged untrue statement or omission or alleged omission.  No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) will be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.

 

The indemnity, contribution and expense reimbursement
obligations of the Company hereunder will be in addition to any liability the
Company may otherwise have hereunder or otherwise.  The provisions of this Section 7 will
survive any investigation made by or on behalf of such indemnified party and
shall survive the transfer of such securities by such seller or any termination
of this Agreement.

 

SECTION 8.           Underwritten
Registrations.  If any of the
Registrable Securities included in any Demand Registration are to be sold in an
Underwritten Offering, the Holders holding a majority of the Registrable Securities
included in the Demand Notice may select an investment banker or investment
bankers and manager or managers to manage the Underwritten Offering, provided
that such investment banker or bankers and managers is (are) reasonably
acceptable to the Company.  If any
Piggyback Registration is an Underwritten Offering, the Company will have the
exclusive right to select the investment banker or investment bankers and
managers to administer the offering.  If
requested by the underwriters for any Underwritten Offering in which a Holder
participates as selling shareholder, the Company shall enter into a customary
underwriting agreement with the underwriters. 
Such underwriting agreement shall be

 

13

 

reasonably satisfactory
in form and substance to the Holders if any such Holder is participating as a
selling Holder in such Underwritten Offering and shall contain such
representations and warranties by, and such other agreements on the part of,
the Company and such other terms as are generally prevailing in agreements of
that type, including, without limitation, indemnities and contribution
agreements on substantially the same terms as those contained herein; provided,
however, that the Company shall not be required to make any
representations or warranties to any Holder with respect to written information
specifically provided by a selling Holder for inclusion in the registration
statement.  Such underwriting agreement
shall also contain such representations and warranties by the participating
Holders with respect to title and ownership of shares as are customary in
agreements of that type.  Any Holder
participating in an Underwritten Offering may, before any Registration
Statement becomes effective, withdraw his or its Registrable Securities from
inclusion therein, should the terms of sale not be satisfactory to such Holder,
however, if the Holder who initiated the Underwritten Offering pursuant
to the exercise of its rights under Section 2 so withdraws, such
registration shall be deemed to have occurred for the purposes of Section 2(a)(ii),
unless such Holder pays within 20 days after any such withdrawal, all of the
out-of-pocket expenses of the Company incurred in connection with such
registration. The Company and the Holders agree that, in connection with any
Underwritten Offering hereunder, they shall agree to any restrictions required
by the underwriters on the sale of Common Shares or other securities by such
party after the completion of the Underwritten Offering; provided, however,
that the period of such restrictions shall not exceed 90 days in connection
with any offering.

 

SECTION 9.           Miscellaneous.

 

(a)                                  Remedies. 
In the event of a breach by a party of its obligations under this
Agreement, each other party, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement.  Each party agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach by it
of any provision of this Agreement and hereby further agrees that, in the event
of any action for specific performance in respect of such breach, it will waive
the defense that a remedy at law would be adequate.

 

(b)                                 Rule 144. 
The Company covenants that (i) so long as it remains subject to the
reporting provisions of the Exchange Act, it will use its best efforts to
timely file the reports required to be filed by it under the Securities Act or
the Exchange Act (including, but not limited to, the reports under Sections 13
and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144
under the Securities Act), and (ii) will take such further action as any Holder
of Registrable Securities may reasonably request in writing, all to the extent
required from time to time to enable such Holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (A) Rule 144 under the Securities Act, as such Rule
may be amended from time to time, or (B) any similar rule or regulation
hereafter adopted by the SEC.  Upon the
request of any Holder of Registrable Securities, the Company will deliver to
such Holder a written statement as to whether it has complied with such
requirements.

 

(c)                                  Nominees for Beneficial Owners. 
If Registrable Securities are held by a nominee for the beneficial owner
thereof, the beneficial owner thereof may, at its option, be treated as the
Holder of such Registrable Securities for purposes of any request or other
action by any Holder or Holders of Registrable Securities pursuant to this
Agreement (or any 

 

14

 

determination
of any number or percentage of shares constituting Registrable Securities held
by any Holder or Holders of Registrable Securities contemplated by this
Agreement), provided that the Company shall have received assurances reasonably
satisfactory to it of such beneficial ownership.

 

(d)                                 Amendments and Waivers. 
The provisions of this Agreement may not be amended, modified or
supplemented without the prior written consent of (i) the Company, (ii) Holders
holding in excess of 50% of the Registrable Securities beneficially held by POI
Acquisition and its transferees and (iii) Holders holding in excess of 50% of
the Registrable Securities beneficially held by QDRF and its transferees.  No amendment that materially adversely
affects any particular Holder may be effected to this Agreement without the
consent of such Holder.

 

(e)                                  Notices. 
All notices required or permitted hereunder shall be in writing and
shall be deemed effectively given: (i) upon personal delivery to the party to
be notified; (ii) when sent by confirmed facsimile if sent during normal
business hours of the recipient, if not, then on the next business day; (iii)
upon delivery if sent by registered or certified mail, return receipt
requested, postage prepaid; or (iv) upon delivery if deposited with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):

 

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:  John M. Jennings

 

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: David Tanner

 

15

 

If to QDRF:

 

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:  Alan M. Klein

 

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

 

or to such other address
or addresses as shall be designated in writing. 
All notices shall be effective when received.

 

(f)                                    Merger, Amalgamation or
Consolidation of the Company.  If the
Company is a party to any merger, amalgamation, or consolidation pursuant to
which the Registrable Securities are converted into or exchanged for securities
or the right to receive securities of any other person (“Conversion
Securities”), the issuer of such Conversion Securities shall assume (in a
writing delivered to all Holders) all obligations of the Company
hereunder.  The Company will not effect
any merger, amalgamation, or consolidation described in the immediately
preceding sentence unless the issuer of the Conversion Securities complies with
this Section 9(f).

 

(g)                                 Successors and Assigns. 
Subject to the terms and conditions of the Stockholders Agreement dated
as of the date hereof among QDRF, POI Acquisition and the Company (the “Stockholders
Agreement”), any lawful transferee (other than pursuant to an offering
registered under the Securities Act or a sale to the public through a broker,
dealer or market maker in compliance with Rule 144 under the Securities Act (or
any similar rule then in force)) of all or a portion of the Registrable
Securities shall become a Holder hereunder to the extent it agrees in writing
to be bound by all of the provisions applicable hereunder to the transferring
Holder (such acknowledgment being evidenced by execution and delivery to the
Company of a Counterpart and Acknowledgment substantially in the form of Exhibit
A).

 

16

 

Subject
to the requirements of this Section 9(g), this Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of the
parties hereto.

 

(h)                                 PAII. 
QDRF and POI Acquisition agree to cause PAII to comply with the
provisions of this Agreement as if it were a Holder and a party hereto.

 

(i)                                     Counterparts. 
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.

 

(j)                                     Titles and Subtitles. 
The titles of the sections and subsections of this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement.

 

(k)                                  Governing Law. 
This Agreement shall be governed in all respects by the laws of the
State of New York without giving effect to conflicts of law principles.

 

(l)                                     Separability. 
In case any provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

 

(m)                               Entire Agreement. 
This Agreement and the other documents delivered pursuant hereto and the
Stockholders Agreement constitute
the full and entire understanding and agreement among the parties with regard
to the subjects thereto and no party shall be liable or bound to any other in any
manner by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.

 

(n)                                 No Inconsistent Agreements. 
The rights granted to the holders of Registrable Securities hereunder do
not in any way conflict with and are not inconsistent with any other agreements
to which the Company is a party or by which it is bound.  Without the prior written consent of POI
Acquisition and QDRF (in each case, for so long as they hold Registrable
Securities), neither the Company nor any Holder will, on or after the date of
this Agreement, enter into any agreement with respect to its securities which
conflicts with the provisions hereof, other than any lock-up agreement with the
underwriters in connection with any registered offering effected hereunder,
pursuant to which the Company shall agree not to register for sale, and the
Company shall agree not to sell or otherwise dispose of, Common Shares or any
securities convertible into or exercisable or exchangeable for Common Shares,
for a specified period following the registered offering.

 

[Signature page follows]

 

17

 

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

 

 

	
   

  	
  PROTECTION ONE, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Eric Griffin

  	
   

  
	
   

  	
   

  	
  Name: Eric Griffin

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  POI ACQUISITION, L.L.C.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David A. Tanner

  	
   

  
	
   

  	
   

  	
  Name: David A. Tanner

  
	
   

  	
   

  	
  Title: Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  QUADRANGLE
  MASTER FUNDING LTD

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael Weinstock

  	
   

  
	
   

  	
   

  	
  Name: Michael Weinstock

  
	
   

  	
   

  	
  Title: Member

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