8-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 8-K

Current Report Pursuant

to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of report	February 8, 2005
(Date of earliest event reported)

Protection One, Inc.	Protection One Alarm Monitoring, Inc.
(Exact Name of Registrant as Specified in Charter)	(Exact Name of Registrant as Specified in Charter)
Delaware	Delaware
(State or Other Jurisdiction of Incorporation)	(State or Other Jurisdiction of Incorporation)
1-12181-01	1-12181
(Commission File Number)	(Commission File Number)
93-1063818	93-1065479
(I.R.S. Employer Identification No.)	(I.R.S. Employer Identification No.)
1035 N. 3RD St. Suite 101 Lawrence, Kansas 66044	1035 N. 3RD St. Suite 101 Lawrence, Kansas 66044
(Address of Principal Executive Offices, Including Zip Code)	(Address of Principal Executive Offices, Including Zip Code)
(785) 575-1707	(785) 575-1707
(Registrant’s Telephone Number, Including Area Code)	(Registrant’s Telephone Number, Including Area Code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchage Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01  Entry into a Material Definitive Agreement.

As described in the Company’s Form 8-K filed with the Securities and Exchange Commission on February 9, 2005, the contents of which are incorporated herein by reference, on February 8, 2005, in connection with an out-of-court restructuring (the “Restructuring”), Protection One, Inc., together with its subsidiaries, (the “Company”) completed a debt-for-equity exchange (the “Exchange”) with affiliates of Quadrangle Group LLC (collectively, “Quadrangle”), the Company’s lenders under its credit facility and its majority equity-holders.  Pursuant to the Exchange, Quadrangle reduced the Company’s obligations under the credit facility (as amended and restated, the “Credit Facility”) by $120 million in exchange for 16 million shares of the Company’s common stock (the “Shares”).

In connection with the Restructuring and the Exchange, the Company entered into, adopted and amended several agreements and management incentive plans as of February 8, 2005, the material terms of which are described below:

•Credit Facility: In addition to the $120 million reduction described above, the Company’s Credit Facility with Quadrangle was amended and restated to include, among other things, the following terms:

(i)interest rate increased to 700 basis points over the London Interbank Offered Rate (“LIBOR”) and a requirement that all loans be in LIBOR, as opposed to base rate;

(ii)mandatory prepayment of 100% of net asset sale or debt proceeds or excess cash on a monthly basis, if any, subject to the Company’s ability to maintain a minimum cash balance as specified in the Credit Facility;

(iii)assignment of loans or change of agent will not require consent of the Company, subject to certain exceptions;

(iv)a one-time fee of $1.15 million paid upon consummation of the Exchange in connection with the Exchange and amendment and restatement of the credit facility; and

(v)the removal of the letter of credit subfacility and the ability to reborrow a loan once repaid.

Quadrangle also waived and released all defaults and events of default under the Credit Facility existing immediately prior to the consummation of the Exchange.  The Credit Facility as adopted was substantially in the form that was filed as Annex I to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004.  The final maturity date under the Credit Facility is August 15, 2005; provided that the Company may elect to extend the maturity date to January 15, 2006 upon certification that no defaults or events of default then exist and payment of an extension fee of 1% of the total commitment outstanding on August 15, 2005.

•Stockholders Agreement: Pursuant to the Stockholders Agreement between the Company and Quadrangle, the parties are generally required to use their reasonable best efforts to cause the Company’s Board of Directors to consist of five members, including the Company’s President and Chief Executive Officer, Richard Ginsburg, three members designated by Quadrangle and one independent director selected by a majority of the

other directors.  The independent director has not been selected.  The Stockholders Agreement also contemplates that the Company will amend its bylaws at the first board meeting following the Restructuring to allow Quadrangle to have the ability to prevent the Company from (i) voluntarily filing for bankruptcy, (ii) merging or consolidating with another entity for a period of two years after closing or (iii) from selling all or substantially all of its assets.

The Stockholders Agreement also includes voting agreements with respect to the election of directors, certain restrictions on the transfer of the Company’s common stock and drag-along and tag-along rights in favor of Quadrangle, subject to certain customary exceptions.  In addition, the Stockholders Agreement provides Quadrangle with the right to participate on a proportional basis in any future equity issuance by the Company, except for issuances pursuant to registered public offerings, business combination transactions or officer, employee, director or consultant arrangements.  The Stockholders Agreement is attached hereto as Exhibit 10.1.

•Registration Rights Agreement: Pursuant to the Registration Rights Agreement between the Company and Quadrangle, upon notice from Quadrangle, the Company will register shares of its common stock owned by Quadrangle. Quadrangle is permitted up to six demand registrations, subject to certain conditions.  Quadrangle also received piggyback registration rights whereby it shall have the opportunity to register its securities pursuant to any registration statement the Company may file in the future, subject to certain conditions.  The Registration Rights Agreement is attached hereto as Exhibit 10.2 and incorporated by reference herein.

•2004 Stock Option Plan (the “Option Plan”):  Pursuant to the Option Plan, which the Company’s stockholders approved on February 8, 2005, the Company granted its officers and selected management employees options to purchase an aggregate of 1,782,947 shares of the Company’s common stock, of which options to purchase an aggregate of 1,596,947 shares were granted to the Named Executive Officers (as defined below).  The terms of the Option Plan require that the per share exercise price of any options granted under the Plan be not less than the greater of $7.50 or the fair market value of a share of common stock on the effective date of grant. After consideration of a third party independent valuation, the special compensation committee of the Board of Directors granted options with an exercise price of $7.50 to officers and employees.  Options initially granted under the Option Plan will vest ratably each month during the 48 months after the date of grant, subject to accelerated vesting, in the case of the Named Executive Officers under certain circumstances following a qualified sale (as defined in the SAR Plan).  Under the option agreements applicable to the options granted, any shares of stock purchased through the exercise of options generally will be issued and delivered to the option holder, and any net payment due to such holder in accordance with Section 7(b) of the Plan will be paid to such holder, upon (and only upon) the earlier of: (1) specified dates following the occurrence of a certain permissible distribution events (as defined in the SAR Plan) and (2) February 8, 2011 (and provided that if an option holder’s right to receive stock is converted pursuant to Section 7(b) of the Option Plan into a right to receive cash, the amount of cash payable will be credited with interest at six percent (6%) per annum, compounded annually, from the date such conversion is effective until the applicable payment date).  The Option Plan, form of award agreement for the Named Executive Officers (as defined below) and form of award agreement for the non-Named Executive Officers are attached hereto as Exhibits 10.3, 10.4 and 10.5, respectively, and incorporated by reference herein.

•Stock Appreciation Rights Plan (the “SAR Plan”): The Company’s Board of Directors adopted the SAR Plan and granted an aggregate of 1,996,184 stock appreciation rights (“SARs”) to Richard Ginsburg, Darius G. Nevin, Peter J. Pefanis and Steve V. Williams (the “Named Executive Officers”). The exercise price of the SARs is $4.50, increased by 9% per annum, compounded annually, beginning on February 8, 2006. SARs vest and become payable upon the earlier of (i) a qualified sale (as defined in the SAR Plan) of Protection One, Inc. common stock (provided that if the qualified sale is not a permissible distribution event (as defined in the SAR Plan) the payment will be made, with interest, in connection with a subsequent permissible distribution event) and (ii) February 8, 2011.  The SAR Plan and form of award agreement are attached hereto as Exhibits 10.6 and 10.7 and incorporated by reference herein.

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•Amendment to Employment Agreements: The employment agreements for the Named Executive Officers and the Company’s other executive officers were amended to conform certain provisions in those agreements regarding vesting of awards and other benefits with the Option Plan and SAR Plan.

•Management Stockholder Agreements: In accordance with the management incentive plan term sheet filed as Annex II to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, pursuant to a Management Stockholder Agreement, between the Company and each of its Named Executive Officers and the Company’s other executive officers, such individuals invested an aggregate of $1.75 million in the Company and received 233,334 shares of the Company’s common stock (resulting in a sale price of $7.50 per share).  The form of Management Stockholder Agreement is attached hereto as Exhibit 10.8.

•Amendment to Senior Management 2004 Short-Term Incentive Plan (as amended, the “STIP”): Due to, among other things, the enactment of Internal Revenue Code Section 409A, the Company amended and restated its Senior Management 2004 Short-Term Incentive Plan.  The STIP reflects changes made by the Board of Directors of the Company to the payment schedule and acceleration/deferral rights under the STIP and to the manner in which future target goals and award criteria are determined.  In addition, the Company made the 2004 cash payments in the aggregate amount of approximately $1.15 million to its named executive officers pursuant to the STIP.  The STIP is attached hereto as Exhibit 10.9 and incorporated by reference herein.

Item 3.02  Unregistered Sales of Equity Securities.

The description of the Exchange in Item 1.01 is incorporated into this item 3.02 by reference.  The issuance of the Shares pursuant to the Exchange was exempt from the registration requirements of the Securities Act of 1933 (the “Securities Act”) pursuant to Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.  Such issuance did not involve a public offering, was made to two accredited investors (as defined in Regulation D) without general solicitation or advertising, and no underwriting commissions or discounts were paid.

The description of the Management Stockholder Agreements in Item 1.01 is incorporated into this Item 3.02 by reference.  The sale of the Company’s common stock pursuant to the Management Stockholder Agreements was exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.  Such issuance did not involve a public offering, was made to eight accredited investors (as defined in Regulation D) without general solicitation or advertising, and no underwriting commissions or discounts were paid.

Item 3.03  Material Modifications to Rights of Security Holders.

The disclosure set forth in Item 5.03 below is incorporated by reference herein.

Item 5.02  Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

On February 8, 2005, in connection with the Exchange and as contemplated by the Stockholders Agreement and the exchange agreement between the Company and Quadrangle dated as of November 12, 2004, the Boards of Directors of the Company and Protection One Alarm Monitoring, Inc. (the “Board”) increased the size of the Board to four directors and

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appointed David Tanner, Steven Rattner and Michael Weinstock to the Board.  Ben M. Enis, a Company director since 1994, and James Q. Wilson, a Company director since 1996, resigned from the Board to accommodate these additions.  Our President and Chief Executive Officer, Richard Ginsburg, continues to serve as a director.

Messrs. Tanner, Rattner and Weinstock are managing principals of Quadrangle.  On February 17, 2004, Westar Industries, Inc., a wholly owned subsidiary of Westar Energy, Inc. (collectively, “Westar”), sold approximately 86.8% of the issued and outstanding shares of the Company’s common stock to Quadrangle.  As part of the sale transaction, Westar also assigned to Quadrangle its rights and obligations as the lender under the Company’s credit facility.  Quadrangle initially paid approximately $122.2 million to Westar as consideration for both the common stock and the credit facility, including accrued interest of $2.2 million, with approximately $1.7 million of the initial payment being consideration for the common stock.  In addition, Westar received a right to additional consideration related to post-closing events, and on November 12, 2004, Quadrangle paid Westar $32.5 million as additional consideration.

The disclosure set forth in Item 1.01 is incorporated into this Item 5.02 by reference.

Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

On February 8, 2005, in connection with the Exchange and as described in the Company’s Definitive Information Statement on Schedule 14C filed with the Securities and Exchange Commission on January 14, 2005, the Company amended and restated its certificate of incorporation (the “Amended and Restated Charter”) to:

•effectuate a one-share-for-fifty-share reverse stock split of its outstanding shares of common stock;

•eliminate its Series F non-voting cumulative preferred stock and its 11% Series H cumulative redeemable convertible preferred stock, no shares of which are issued and outstanding; and

•elect not to be governed by Section 203 of the Delaware General Corporation Law.

At a stockholder meeting held on February 8, 2005, the Company’s stockholders approved the Amended and Restated Charter, which is attached hereto as Exhibit 3.1 and incorporated by reference herein.

Item 9.01 Financial Statements and Exhibits.

(c) Exhibits

Exhibit 3.1	Amended and Restated Certificate of Incorporation, effective as of February 8, 2005
Exhibit 10.1	Stockholders Agreement, dated as of February 8, 2005, by and between the Company and Quadrangle
Exhibit 10.2	Registration Rights Agreement, dated as of February 8, 2005, by and between the Company and Quadrangle

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Exhibit 10.3	2004 Stock Option Plan
Exhibit 10.4	Form of Award Agreement for Named Executive Officers under 2004 Stock Option Plan
Exhibit 10.5	Form of Award Agreement for Non-Named Executive Officers under 2004 Stock Option Plan
Exhibit 10.6	Stock Appreciation Rights Plan
Exhibit 10.7	Form of Award Agreement under Stock Appreciation Rights Plan
Exhibit 10.8	Form of Management Stockholder Agreement, dated as of February 8, 2005
Exhibit 10.9	Senior Management 2004 Short-Term Incentive Plan, as amended

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	PROTECTION ONE, INC.
Date: February 14, 2005	By:	/s/ Darius G. Nevin
	Name: Darius G. Nevin
	Title: Executive Vice President and
	Chief Financial Officer
	PROTECTION ONE ALARM
	MONITORING, INC.
Date: February 14, 2005	By:	/s/ Darius G. Nevin
	Name: Darius G. Nevin
	Title: Executive Vice President and
	Chief Financial Officer

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EX-3.1

Exhibit 3.1

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PROTECTION ONE, INC.

*    *    *    *
Adopted in accordance with the provisions
of §242 and §245 of the General Corporation Law
of the State of Delaware
*    *    *    *

The undersigned, on behalf of Protection One, Inc., a corporation duly organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “Corporation”), DOES HEREBY CERTIFY as follows:

FIRST:The Corporation filed its original Certificate of Incorporation with the Delaware Secretary of State on June 21, 1991 (the “Original Certificate”) under the name of P1 Acquisition Corporation.

SECOND:The Board of Directors of the Corporation duly adopted resolutions in accordance with Section 242 and Section 245 of the General Corporation Law of the State of Delaware authorizing the Corporation to amend, integrate and restate the Certificate of Incorporation of the Corporation in its entirety to read as set forth in Exhibit A attached hereto and made a part hereof (the “Amended and Restated Certificate”).

THIRD:In accordance with Section 228, Section 242 and Section 245 of the General Corporation Law of the State of Delaware, the Amended and Restated Certificate was duly approved and adopted pursuant to a written consent signed by the holders of at least a majority of the issued and outstanding shares of capital stock entitled to vote as a class, whether or not entitled to vote thereon, of the Corporation.  Written notice has been given to the stockholders who have not consented in writing.

IN WITNESS WHEREOF, the undersigned on behalf of the Corporation for the purpose of amending and restating the Certificate of Incorporation of the Corporation pursuant to the General Corporation Law of the State of Delaware, under penalties of perjury does hereby declare and certify that this is the act and deed of the Corporation and the facts stated herein are true, and accordingly has hereunto signed this Certificate of Amended and Restated Certificate of Incorporation this 8^th day of February, 2005.

Protection One, Inc., a Delaware corporation
By:	/s/ Eric Griffin
	Name:	Eric Griffin
	Title:	Secretary

Exhibit A

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

PROTECTION ONE, INC.

Pursuant to Section 245 of the General
Corporation Law of the State of Delaware

FIRST:  The name of the corporation is Protection One, Inc. (the “Corporation”).

SECOND:  The address, including street, number, city and county, of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle 19801.  The name of the registered agent of the Corporation in the State of Delaware at such address is The Corporation Trust Company.

THIRD:  The purpose for which the Corporation is formed is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware.

FOURTH:  The total number of shares of all classes of stock that the Corporation shall have the authority to issue is 155,000,000, of which 150,000,000 shall be voting common stock, par value One Cent ($0.01) per share (“Common Stock”), and 5,000,000 shall be preferred stock, par value Ten Cents ($0.10) per share (“Preferred Stock”).

The shares of Preferred Stock may be issued from time to time in one or more series.  The Board of Directors of the Corporation is hereby authorized from time to time to designate each series, to establish the number of shares to be included in such series, and to determine the rights, preferences and privileges of the shares of each such series and the qualifications, limitations or restrictions thereof, including but not limited to the determination or alteration of the dividend rights, dividend rate, conversion rights, voting powers and rights, rights and terms of redemption, redemption price or prices, and the liquidation preference of any wholly unissued series of shares of Preferred Stock, or any of them, and to increase or decrease the number of shares of any series either prior to or subsequent to the issue of the shares of such series, but not below the number of shares of such series then outstanding.  In case the number of shares of any series should be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.

Immediately upon the filing of this Amended and Restated Certificate of Incorporation, each share of Common Stock of the Corporation issued and outstanding

immediately prior to the filing of this Amended and Restated Certificate of Incorporation shall immediately and without any action by the holders thereof be combined, changed and reclassified such that each shareholder shall receive one (1) share of Common Stock for every fifty (50) shares of Common Stock held by his or her account at the time.  If the reverse stock split described in the immediately preceding sentence would result in the issuance of any fractional share, the Corporation shall, in lieu of issuing any fractional share, pay cash equal to the product of such fraction multiplied by $15.50.

FIFTH:  The Board of Directors is authorized to adopt, amend or repeal the By-Laws of the Corporation.

SIXTH:  Meetings of stockholders shall be held at such place, within or without the State of Delaware, as may be designated by or in the manner provided in the By-Laws, or, if not so designated or provided, at the registered office of the Corporation in the state of Delaware.  Elections of directors need not be by written ballot unless and to the extent that the By-Laws so provide.

SEVENTH:  No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that the foregoing clause shall not apply to any liability of a director to the extent provided by applicable law (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware or (iv) for any transaction from which the director derived an improper personal benefit.  Neither the amendment nor repeal of this Article SEVENTH, nor the adoption of any provision of this Amended and Restated Certificate of Incorporation inconsistent with this Article SEVENTH, shall be effective with respect to any cause of action, suit, claim or other matter that, but for this Article SEVENTH, would accrue or arise prior to such amendment, repeal or adoption of an inconsistent provision.

EIGHTH:  Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of §291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of §279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs.  If a majority in number representing three fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation.

NINTH:  The Corporation reserves the right to amend, alter or repeal any provision contained in this Amended and Restated Certificate of Incorporation in the manner now or hereafter prescribed by statute, and all rights of stockholders herein are subject to this reservation.

TENTH:  The Corporation elects not to be governed by Section 203 of the General Corporation Law of the State of Delaware.

***                                     0;    *

EX-10.1

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

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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

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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 20days 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

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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 extensionto 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;

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(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.

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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. 3^rd 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

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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.

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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.

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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.

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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

EX-10.2

Exhibit 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).

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(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

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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

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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.

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(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

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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

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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

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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

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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

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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 Holdersin 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

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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

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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

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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

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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

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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).

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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 Agreementconstitute 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]

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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

EX-10.3

Exhibit 10.3

PROTECTION ONE, INC.
2004 STOCK OPTION PLAN

1.PURPOSE.

The purpose of the Plan is to assist the Company in attracting, retaining, motivating and rewarding key employees, and to promote the creation of long-term value for stockholders by closely aligning the interests of key employees with those of stockholders.

2.DEFINITIONS.

For purposes of the Plan, the following terms shall be defined as set forth below:

(a)“Affiliate” means, with respect to any entity, any other entity that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such entity.

(b)“Board” means the Board of Directors of the Company.

(c)“Cause” means, in the absence of any employment, consulting or other agreement between a Participant and the Employer otherwise defining Cause, (i) material acts of fraud, personal dishonesty, gross negligence or willful misconduct on the part of Participant in the course of his or her employment or services, (ii) a Participant’s engagement in conduct that is materially injurious to the Company or an Affiliate, (iii) a material misappropriation by Participant of the assets or business opportunities of the Company or its Affiliates; (iv) material embezzlement or other material financial fraud committed by Participant, at his direction, or with his or her personal knowledge; (v) a Participant’s conviction by a court of competent jurisdiction of, or pleading “guilty” or “no contest” to, a felony or any other criminal charge (other than minor traffic violations) that could reasonably be expected to have a material adverse impact on the Company’s or an Affiliate’s reputation or business; or (vi) failure by a Participant to follow the lawful directions of a superior officer or the Board with respect to material business of the Company.  In the event there is an employment, consulting or other agreement between a Participant and the Employer defining Cause, “Cause” shall have the meaning provided in such agreement.

(d)“Closing Date” has the meaning ascribed thereto in the Exchange Agreement.

(e)“Code” means the Internal Revenue Code of 1986, as amended.

(f)“Committee” means a committee of two or more directors designated by the Board to administer the Plan; provided, however, that directors appointed as members of the Committee shall not be employees of the Company or any Subsidiary.  In appointing members of the Committee, the Board will consider whether a member is or will be a Qualified Member, but such members are not required to be Qualified Members at the time of appointment or during

their term of service on the Committee, and no action of the Committee shall be void or invalid due to the participation of a member who is not a Qualified Member.

(g)“Company” means Protection One, Inc., a Delaware corporation.

(h)“Disability” means the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code.

(i)“Eligible Person” means each employee of the Company or of any Subsidiary, including each such person who may also be a director of the Company, and any person who has been offered employment by the Company or a Subsidiary, provided that such prospective employee may not exercise any right relating to an Option until such person has commenced employment with the Company or a Subsidiary.  An employee on an approved leave of absence may be considered as still in the employ of the Company or a Subsidiary for purposes of eligibility for participation in the Plan.

(j)“Employer” means either the Company or a Subsidiary that the Participant (determined without regard to any permitted transfer of an Option) is employed by or provides services to, as applicable.

(k)“Exchange Agreement” means that certain Exchange Agreement dated as of November 12, 2004, to which the Company is a party.

(l)“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, including rules thereunder and successor provisions and rules thereto.

(m)“Expiration Date” means the date upon which the term of an Option expires, as determined under 6(b) hereof.

(n)“Fair Market Value” means (i) if the Stock is listed on a national securities exchange, the closing price reported as having occurred on the primary exchange with which the Stock is listed and traded on the date prior to such date, or, if there is no such sale on that date, then on the last preceding date on which such a sale was reported, (ii) if the Stock is not listed on any national securities exchange but is quoted in the National Market System of the National Association of Securities Dealers Automated Quotation System (“NASDAQ-NMS”) the closing price on the date prior to such date, or, if there is no such sale on that date then on the last preceding date on which such a sale was reported, or (iii) if the Stock is not quoted on NASDAQ-NMS or listed on an exchange, or representative quotes are not otherwise available, the Fair Market Value shall mean the amount determined by the Board in good faith to be the fair market value per share of Stock.

(o)“Good Reason” with respect to any Participant, has the meaning ascribed thereto in such Participant’s employment agreement with the Company.  When used in this Plan, the term “Good Reason” shall apply only to those Participants who are parties to employment agreements defining such term.

(p)“Option” means a conditional right, granted to a Participant under Section 6 hereof, to purchase Stock at a specified price during specified time periods.  Options under the

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Plan are intended to qualify as incentive stock options to the extent permissible under the requirements of Section 422 of the Code.

(q)“Option Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of an individual Option.

(r)“Option Stock” means shares of Stock acquired by a Participant through the exercise of Options.

(s)“Participant” means an Eligible Person who has been granted an Option under the Plan that remains outstanding, or if applicable, such other person or entity who holds an outstanding Option.

(t)“Plan” means this Protection One, Inc. Stock Option Plan.

(u)“Quadrangle Parties” has the meaning ascribed thereto in the Exchange Agreement.

(v)“Qualified Member” means a member of the Committee who is a “Non-Employee Director” within the meaning of Rule 16b-3 and an “outside director” within the meaning of Regulation 1.162-27(e)(3) under Section 162(m) of the Code.

(w)“Qualified Public Offering” means (i) an underwritten public offering(either primary or secondary) of Stock that is registered under the Securities Act with an aggregate offering value of at least $40 million or (ii) an offering of Stock that is registered under the Securities Act in connection with a merger, consolidation, exchange offer or other business combination transaction, or an exchange offer for securities of the Company, in each case with an aggregate offering value (based on the Fair Market Value of the Stock offered determined as of the date of the closing of the applicable transaction) of at least $40 million.

(x)“Qualified Sale” means the first transaction that results in the Quadrangle Parties and their affiliated entities, as a group, having sold, assigned or otherwise transferred (including, without limitation, by merger, consolidation or distribution), in one or more transactions, to one or more parties that are not entities affiliated with the Quadrangle Parties, an aggregate of at least 60% of the aggregate number of shares, adjusted in accordance with Section 7(a) below, of Stock owned by the Quadrangle Parties, as a group, on the Closing Date.

(y)“Rule 16b-3” means Rule 16b-3, as from time to time in effect and applicable to the Plan and Participants, promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act.

(z)“Securities Act” means the Securities Act of 1933, as amended from time to time, including rules thereunder and successor provisions and rules thereto.

(aa)“Stock” means the common stock, $.0.01 per share, of the Company.

(bb)“Subsidiary” means a corporation that is a “subsidiary corporation” of the Company as that term is defined in Section 424 of the Code.

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3.ADMINISTRATION.

(a)Authority of the Committee.  Except as otherwise provided below, the Plan shall be administered by the Committee.  The Committee shall have full and final authority, in each case subject to and consistent with the provisions of the Plan, to (i) select Eligible Persons to become Participants; (ii) grant Options, taking into account recommendations of the Company’s Chief Executive Officer; (iii) determine the type, number, and other terms and conditions of, and all other matters relating to, Options; (iv) prescribe Option agreements (which need not be identical for each Participant) and rules and regulations for the administration of the Plan; (v) construe and interpret the Plan and Option agreements and correct defects, supply omissions, or reconcile inconsistencies therein; and (vi) make all other decisions and determinations as the Committee may deem necessary or advisable for the administration of the Plan.  The foregoing notwithstanding, the Board shall perform the functions of the Committee for purposes of granting Options under the Plan to directors.  In any case in which the Board is performing a function of the Committee under the Plan, each reference to the Committee herein shall be deemed to refer to the Board, except where the context otherwise requires.  Any action of the Committee shall be final, conclusive and binding on all persons, including, without limitation, the Company, its Subsidiaries, Affiliates, Eligible Persons, Participants and beneficiaries of Participants.

(b)Manner of Exercise of Committee Authority.  At any time that a member of the Committee is not a Qualified Member, (i) any action of the Committee relating to an Option intended by the Committee to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code and regulations thereunder may be taken by a subcommittee, designated by the Committee or the Board, composed solely of two or more Qualified Members; and (ii) any action relating to an Option granted or to be granted to a Participant who is then subject to Section 16 of the Exchange Act in respect of the Company will be taken either by such a subcommittee or by the Committee but with each such member who is not a Qualified Member abstaining or recusing himself or herself from such action, provided that, upon such abstention or recusal, the Committee remains composed of two or more Qualified Members or, if the Committee would not remain composed of two or more Qualified Members upon such abstention or recusal, by the Board.  Such action, authorized by such a subcommittee or by the Committee upon the abstention or recusal of such non-Qualified Member(s) or by the Board, shall be the action of the Committee for purposes of the Plan.  The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee.

(c)Delegation.  The Committee may delegate to officers or employees of the Company or any Affiliate, or committees thereof, the authority, subject to such terms as the Committee shall determine, to perform such functions, including but not limited to administrative functions, as the Committee may determine appropriate.  The Committee may appoint agents to assist it in administering the Plan.  Notwithstanding the foregoing or any other provision of the Plan to the contrary, any Option granted under the Plan to any person or entity who is not an employee of the Company or any of its Affiliates shall be expressly approved by the Committee.

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4.SHARES AVAILABLE UNDER THE PLAN.

(a)Number of Shares Available for Delivery.  Subject to adjustment as provided in Section 7 hereof, the total number of shares of Stock reserved and available for delivery in connection with Options under the Plan shall be 1,996,184 (on a post-Reverse Stock Split (as defined below) basis) (all of which shares may be, but are not required to be, issued pursuant to incentive stock options).  Shares of Stock delivered under the Plan shall consist of authorized and unissued shares or previously issued shares of Stock reacquired by the Company on the open market or by private purchase.

(b)Share Counting Rules.  The Committee may adopt reasonable counting procedures to ensure appropriate counting and make adjustments if the number of shares of Stock actually delivered differs from the number of shares previously counted in connection with an Option.  To the extent that an Option expires or is canceled, forfeited, settled in cash or otherwise terminated or concluded without a delivery to the Participant of the full number of shares to which the Option related, the undelivered shares will again be available for Options.  Shares withheld in payment of the exercise price or taxes relating to an Option and shares equal to the number surrendered in payment of any exercise price or taxes relating to an Option shall be deemed to constitute shares not delivered to the Participant and shall be deemed to again be available for Options under the Plan; provided, however, that, where shares are withheld or surrendered more than ten years after the date of the most recent shareholder approval of the Plan or any other transaction occurs that would result in shares becoming available under this Section 4(b), such shares shall not become available if and to the extent that it would constitute a material revision of the Plan subject to shareholder approval under then applicable rules of the principle stock exchange or automated quotation system on which the shares are then listed or designated for trading.

5.ELIGIBILITY; LIMITATIONS ON OPTIONS.

(a)Grants to Eligible Persons.  Options may be granted under the Plan only to Eligible Persons.

(b)162(m) Limitation.  Subject to Section 7 relating to adjustments, no Employee shall be eligible to be granted Options covering more than 898,283 shares (on a post-Reverse Stock Split basis) of Stock during any calendar year.

6.OPTIONS.

(a)General.  Options granted hereunder shall be in such form and shall contain such terms and conditions as the Committee shall deem appropriate.  The provisions of separate Options shall be set forth in an Option Agreement, which agreements need not be identical.

(b)Term.  The term of each Option shall be set by the Committee at the time of grant; provided, however, that no Option granted hereunder shall be exercisable after the expiration of ten (10) years from the date it was granted.

(c)Exercise Price.  The exercise price per share of Stock for each Option shall be set by the Committee at the time of grant but shall not be less than the Fair Market Value of a share of Stock on the date such Option is granted.

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(d)Payment for Stock.  Payment for shares of Stock to be acquired pursuant to Options granted hereunder shall be made in full, upon exercise of the Options (i) in immediately available funds in United States dollars, by certified or bank cashier’ s check or by wire transfer; (ii) by surrender to the Company of shares of Stock already owned by the Participant for at least six months (including, without limitation, by attestation to the ownership of such Stock); (iii) by a combination of (i) and (ii); or (iv) by any other means approved by the Committee, consistent with applicable law, rules and regulations.  Anything herein to the contrary notwithstanding, the Company shall not directly or indirectly extend or maintain credit, or arrange for the extension of credit, in the form of a personal loan to or for any director or executive officer of the Company through the Plan in violation of Section 402 of the Sarbanes-Oxley Act of 2002 (“Section 402 of SOX”), and to the extent that any form of payment would, in the opinion of the Company’s counsel, result in a violation of Section 402 of SOX, such form of payment shall not be available.

(e)Vesting.  Options shall vest and become exercisable in such manner and on such date or dates set forth in the Option Agreement, as may be determined by the Committee; provided, however, that notwithstanding any vesting dates contained herein or otherwise set by the Committee, the Committee may in its sole discretion accelerate the vesting of an Option, which acceleration shall not affect the terms and conditions of any such Option other than with respect to vesting.  Unless otherwise specifically provided herein, determined by the Committee or as set forth in the Option Agreement, the vesting of an Option shall occur only while the Participant is employed or rendering services to the Company or an Affiliate and all vesting shall cease upon a Participant’s termination of employment or services for any reason.

(f)Transferability of Options.  Except as otherwise provided by the Committee, Options shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant.  The Committee shall prescribe rules whereby Options (other than “incentive stock options” under Section 422 of the Code) may be transferred to a Participant’s immediate family members, or to trusts or partnerships exclusively for the benefit of such family members, in each case for legitimate estate tax planning purposes.

(g)Termination of Employment.  Except as may otherwise be provided by the Committee in the applicable Option Agreement:

(i)If prior to the Expiration Date, a Participant voluntarily terminates employment with the Employer other than for Good Reason (if applicable), (1) all vesting with respect to the Options shall cease, (2) any unvested Options shall expire as of the date of such termination, and (3) any vested Options shall remain exercisable until the earlier of the Expiration Date or ninety (90) days after the date of such termination.

(ii)If prior to the Expiration Date, a Participant’s employment is terminated by the Employer without Cause, or by the Participant for Good Reason (if applicable), (1) the Participant will be credited with 12 additional months of vesting service, less one month for each two months elapsed from the Closing Date through the termination date, (2) any unvested Options shall expire as of the date of such termination (after giving effect to the accelerated vesting provision in clause (1)), and (3) any vested

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Options shall remain exercisable until the earlier of the Expiration Date or the first anniversary of such termination.

(iii)If prior to the Expiration Date, a Participant’s employment with the Employer terminates by reason of such Participant’s death, Disability or a sale of a Subsidiary employing the Participant, (1) all vesting with respect to the Options shall cease, (2) any unvested Options shall expire as of the date of such termination, and (3) any vested Options shall expire on the earlier of the Expiration Date or the first anniversary of the date of such termination.  In the event of a Participant’s death, the Options shall remain exercisable by the person or persons to whom a Participant’s rights under the Options pass by will or the applicable laws of descent and distribution.

(iv)If prior to the Expiration Date, a Participant’s employment with the Employer is terminated by the Employer for Cause, all Options (whether or not vested) shall immediately expire as of the date of such termination.

(h)Initial Option Grant.  The allocation of the initial grant of Options under the Plan shall be determined by the Committee prior to the Closing Date.  The initial grant of Options under the Plan shall occur and be effective not later than the second business day after the Closing Date.  The per share exercise price of such Options shall be not less than the greater of $7.50 (on a post-reverse stock split basis) or Fair Market Value of a share of Stock on the effective date of grant.

7.ADJUSTMENT FOR RECAPITALIZATION, MERGER, ETC.

(a)Capitalization Adjustments.  The aggregate number of shares of Stock which may be granted or purchased pursuant to Options granted hereunder, the number of shares of Stock covered by each outstanding Option, the kind of security or other consideration subject to such option, the maximum number of shares of Stock with respect to which any one person may be granted Options in any calendar year, and the price per share thereof in each such Option shall be equitably and proportionally adjusted or substituted, as determined by the Committee in good faith and in its sole discretion, as to the number, price or kind of security or other consideration subject to such Options or as otherwise determined by the Committee in good faith to be fair and equitable (i) in the event of changes in the outstanding Stock or in the capital structure of the Company by reason of stock dividends, stock splits, reverse stock splits, recapitalizations, reorganizations, mergers, consolidations, combinations, exchanges, or other relevant changes in capitalization occurring after the date of grant of any such Option, (ii) in the event of any change in applicable laws or any change in circumstances which results in or would result in any substantial dilution or enlargement of the rights granted to, or available for, Participants in the Plan, or (iii) for any other reason which the Committee determines, in its sole discretion and acting in good faith, to otherwise warrant equitable adjustment.

(b)Corporate Events.  Notwithstanding the foregoing, except as may otherwise be provided in an Option Agreement, in the event of (i) a merger or consolidation involving the Company in which the Company is not the surviving corporation, (ii) a merger or consolidation involving the Company in which the Company is the surviving corporation but the holders of shares of Stock receive securities of another corporation and/or other property,

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including cash, (iii) the sale of all or substantially all of the assets of the Company, (iv) the reorganization or liquidation of the Company or (v) a sale of greater than fifty percent (50%) of the securities of the Company entitled to vote in the election of directors to the Board (each, a “Corporate Event”), in lieu of providing the adjustment set forth in subsection (a) above, the Committee may, in its discretion, provide that all outstanding Options shall terminate as of the consummation of such Corporate Event, and provide that holders of such Options will receive a payment in respect of cancellation of their Options based on the amount of the per share consideration being paid for the Stock in connection with such Corporate Event less the applicable Option exercise price.  Payments to holders pursuant to the preceding sentence shall be made in cash, or, in the sole discretion of the Committee, in such other consideration necessary for a holder of an Option to receive property, cash or securities as such holder would have been entitled to receive upon the occurrence of the transaction if the holder had been, immediately prior to such transaction, the holder of the number of shares of Stock covered by the Option at such time.

(c)Fractional Shares.  Any such adjustment may provide for the elimination of any fractional share which might otherwise become subject to an Option.

8.RIGHT OF FIRST REFUSAL

(a)If, at any time prior to the date of consummation of the earlier of a Qualified Public Offering or a Qualified Sale, a Participant intends to sell or offer for sale any or all shares of his or her Option Stock (other than in connection with a Qualified Sale or pursuant to contractual “drag-along” or similar obligation under a contract to which the Company is a party) to one or more third parties (such shares of Option Stock that the Participant intends to sell or offer for sale, “Offered Shares”), the Participant shall notify the Company in writing of his or her intention to sell or offer for sale the Offered Shares.  The Participant’s notice to the Company shall contain an irrevocable offer to sell such Offered Shares to the Company (in the manner set forth below) at a purchase price specified by the Participant in such notice (the “Minimum Price”), pursuant to Section 8(b).  At any time within fifteen (15) days after the date of the receipt by the Company of the Participant’s notice, the Company shall have the right and option to purchase, or to arrange for a third party to purchase, all (but not less than all) of the Offered Shares, pursuant to Section 8(b).

(b)The Company shall exercise its right of first refusal by delivering a certified bank check or checks in the appropriate amount (or by wire transfer of immediately available funds, if the Participant provides to the Company wire transfer instructions) to the Participant against delivery of certificates or other instruments representing the Offered Shares so purchased, appropriately endorsed by the Participant.  If at the end of the 15-day period, the Company has not tendered the purchase price for such shares in the manner set forth above, the Participant may, during the succeeding 60-day period, sell to one or more third parties an aggregate number of shares of Option Stock less than or equal to the number of Offered Shares, in each case for a purchase price greater than or equal to the Minimum Price.  Promptly after any such sale, the Participant shall notify the Company of the consummation thereof and shall furnish such evidence of the completion and time of completion of such sale and of the terms thereof as may reasonably be requested by the Company.  To the extent that, at the end of sixty (60) days following the expiration of the 15-day period during which the Company is

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entitled to purchase the Offered Shares, the Participant has not completed the sale of all Offered Shares, all of the restrictions on sale, transfer or assignment contained in this Plan shall, to the extent applicable, again be in effect with respect to any Offered Shares that have not been sold.

9.REPURCHASE RIGHTS UPON TERMINATION OF EMPLOYMENT.

If, prior to a Qualified Public Offering or a Qualified Sale, a Participant’s employment with the Employer terminates for any reason, the Company shall thereafter have the right to repurchase such Participant’s Option Stock.  Such repurchase right may be exercised by written notice to a Participant, delivered within 60 days of such termination of employment, indicating the number of shares of Stock to be repurchased and the date on which the repurchase is to be effected, such date to be not more than thirty (30) days nor less than five (5) days after the date of such notice.  The certificates representing the shares of Option Stock to be repurchased shall be delivered to the Company, and the Company shall deliver cash to the Participant in an amount equal to the repurchase price, prior to the close of business on the date specified for the repurchase.  Repurchase under this Section 9 shall be made at a price equal to the Fair Market Value of the Option Stock as of the date of such repurchase; provided, that in the event a Participant’s employment with the Employer was terminated for Cause, the repurchase shall be the exercise price paid by the Participant for the Option Stock or, if lower, the Fair Market Value of the Option Stock as of the date of repurchase.

10.USE OF PROCEEDS.

The proceeds received from the sale of Stock pursuant to the Plan shall be used for general corporate purposes.

11.RIGHTS AND PRIVILEGES AS A STOCKHOLDER.

Except as otherwise specifically provided in the Plan, no person shall be entitled to the rights and privileges of stock ownership in respect of shares of Stock which are subject to Options hereunder until such shares have been issued to that person.

12.EMPLOYMENT OR SERVICE RIGHTS.

No individual shall have any claim or right to be granted an Option under the Plan or, having been selected for the grant of an Option, to be selected for a grant of any other Option.  Neither the Plan nor any action taken hereunder shall be construed as giving any individual any right to be retained in the employ or service of the Company or an Affiliate.

13.COMPLIANCE WITH LAWS.

The obligation of the Company to make payment of Options in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required.  Notwithstanding any terms or conditions of any Option to the contrary, the Company shall be under no obligation to offer to sell or to sell and shall be prohibited from offering to sell or selling any shares of Stock pursuant to an Option unless such shares have been properly registered for sale pursuant to the Securities Act with the Securities and Exchange Commission or unless the Company has received an opinion of counsel,

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satisfactory to the Company, that such shares may be offered or sold without such registration pursuant to an available exemption therefrom and the terms and conditions of such exemption have been fully complied with.  The Company shall be under no obligation to register for sale or resale under the Securities Act any of the shares of Stock to be offered or sold under the Plan or any shares of Stock issued upon exercise or settlement of Options.  If the shares of Stock offered for sale or sold under the Plan are offered or sold pursuant to an exemption from registration under the Securities Act, the Company may restrict the transfer of such shares and may legend the Stock certificates representing such shares in such manner as it deems advisable to ensure the availability of any such exemption.  Promptly after the date of the consummation of the debt-for-equity exchange contemplated by the Exchange Agreement, dated as of November 12, 2004 (the “Exchange Agreement”), by and among the Company and the Quadrangle Parties, the Company shall file a registration statement on Form S-8 under the Securities Act covering the shares of Stock issuable upon the exercise of Options and will use reasonable best efforts to maintain the effectiveness of such registration, and the current status of the prospectus contained therein, until the exercise or expiration of the Options or, if earlier, until Stock ceases to be registered under Section 12 (or any successor provision) of the Securities Exchange Act of 1934, as amended.

14.MARKET STANDOFF AGREEMENT.

As a condition of receiving any Option hereunder, the Participant agrees that in connection with any registration of the Stock in connection with an underwritten public offering, upon the request of the Committee or the underwriters managing any public offering of the Stock, the Participant will not sell or otherwise dispose of any Option Stock without prior written consent of the Committee or such underwriters, as the case may be, for a period of time (not to exceed 180 days) from the effective date of such registration as the Committee or the underwriters may specify for employee-shareholders generally.

15.WITHHOLDING OBLIGATIONS.

As a condition to the exercise of any Option, the Committee may require that a Participant satisfy, through deduction or withholding from any payment of any kind otherwise due to the Participant, or through such other arrangements as are satisfactory to the Committee, the minimum amount of all Federal, state and local income and other taxes of any kind required or permitted to be withheld in connection with such exercise.  The Committee, in its discretion, may permit shares of Stock to be used to satisfy tax withholding requirements and such shares shall be valued at their Fair Market Value as of the settlement date of the Option; provided, however, that the aggregate Fair Market Value of the number of shares of Stock that may be used to satisfy tax withholding requirements may not exceed the minimum statutory required withholding amount with respect to the exercise of such Option.

16.AMENDMENT OF THE PLAN OR OPTIONS.

(a)Amendment of Plan.  The Board at any time, and from time to time, may amend the Plan; provided, however, that without further stockholder approval the Board shall not make any amendment to the Plan which would increase the maximum number of shares of Stock which may be issued pursuant to Options under the Plan, except as contemplated by Section 7

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hereof, or which would otherwise violate the shareholder approval requirements of the national securities exchange on which the Stock is listed or NASDAQ-NMS, as applicable.

(b)No Impairment of Rights.  Rights under any Option granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless the Participant consents in writing.

(c)Amendment of Stock Options.  The Committee, at any time, and from time to time, may amend the terms of any one or more Options; provided, however, that the rights under any Option shall not be impaired by any such amendment unless the Participant consents in writing.

17.TERMINATION OR SUSPENSION OF THE PLAN.

The Board may suspend or terminate the Plan at any time.  Unless sooner terminated, the Plan shall terminate on the day before the tenth (10^th) anniversary of the date the Plan is adopted by the Board.No Options may be granted under the Plan while the Plan is suspended or after it is terminated.   Rights under any Option granted before suspension or termination of the Plan shall not be impaired by any suspension or termination of the Plan unless the Participant consents in writing.

18.EFFECTIVE DATE OF THE PLAN; NUMBERS OF SHARES.

The Plan shall be effective as of the date the Plan is approved by the Board, subject to approval of the Company’s stockholders at the Company’s next meeting at which a quorum is present and subject to the consummation of the debt-for-equity exchange contemplated by the Exchange Agreement.  Prior to the consummation of the debt-for-equity exchange contemplated by the Exchange Agreement, the Company will effectuate a one-share-for-fifty reverse stock split (the “Reverse Stock Split”).  All references in the Plan to numbers of shares of Stock refer to shares on a post-Reverse Stock Split basis. This Plan and any Options shall be void and of no effect if the Plan is not approved by the Company’s stockholders at the Company’s next meeting at which a quorum is present or if the debt-for-equity exchange contemplated by the Exchange Agreement is not consummated.

19.MISCELLANEOUS.

(a)Options to Participants Outside of the United States.  The Committee may modify the terms of any Option under the Plan made to or held by a Participant who is then resident or primarily employed outside of the United States in any manner deemed by the Committee to be necessary or appropriate in order that such Option shall conform to laws, regulations and customs of the country in which the Participant is then resident or primarily employed, or so that the value and other benefits of the Option to the Participant, as affected by foreign tax laws and other restrictions applicable as a result of the Participant’s residence or employment abroad, shall be comparable to the value of such Option to a Participant who is resident or primarily employed in the United States.  An Option may be modified under this Section 19(a) in a manner that is inconsistent with the express terms of the Plan, so long as such modifications will not contravene any applicable law or regulation or result in actual liability under Section 16(b) of the Exchange Act for the Participant whose Option is modified.

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(b)No Liability of Committee Members.  No member of the Committee shall be personally liable by reason of any contract or other instrument executed by such member or on his behalf in his capacity as a member of the Committee nor for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each member of the Committee and each other employee, officer or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan unless arising out of such person’s own fraud or willful bad faith; provided, however, that approval of the Board shall be required for the payment of any amount in settlement of a claim against any such person.  The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Articles of Incorporation or By-Laws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

(c)Payments Following Accidents or Illness.  If the Committee shall find that any person to whom any amount is payable under the Plan is unable to care for his affairs because of illness or accident, or is a minor, or has died, then any payment due to such person or his estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so directs the Company, be paid to his spouse, child, relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment.  Any such payment shall be a complete discharge of the liability of the Committee and the Company therefor.

(d)Designation and Change of Beneficiary.  Each Participant may file with the Company a written designation of one or more persons as the beneficiary who shall be entitled to receive the rights or amounts payable with respect to an Option due under the Plan upon his death.  A Participant may, from time to time, revoke or change his beneficiary designation without the consent of any prior beneficiary by filing a new designation with the Committee.  The last such designation received by the Company shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Company prior to the Participant’s death, and in no event shall it be effective as of a date prior to such receipt.  If no beneficiary designation is filed by the Participant, the beneficiary shall be deemed to be his or her spouse or, if the Participant is unmarried at the time of death, his or her estate.  Any beneficiary of the Participant receiving an Option hereunder shall remain subject to the terms of the Plan and the applicable Option agreement.

(e)Governing Law.  The Plan shall be governed by and construed in accordance with the internal laws of the State of Delaware without reference to the principles of conflicts of laws thereof.

(f)Funding.  No provision of the Plan shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes.

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Participants shall have no rights under the Plan other than as unsecured general creditors of the Company, except that insofar as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other employees under general law.

(g)Reliance on Reports.  Each member of the Committee and each member of the Board shall be fully justified in relying, acting or failing to act, and shall not be liable for having so relied, acted or failed to act in good faith, upon any report made by the independent public accountant of the Company and its Affiliates and upon any other information furnished in connection with the Plan by any person or persons other than himself.

(h)Titles and Headings.  The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings shall control.

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EX-10.4

Exhibit 10.4

OPTION AGREEMENT

Protection One, Inc. (the “Company”), pursuant to its 2004 Stock Option Plan (the “Plan”), hereby grants to the Participant Options to purchase the number of shares of Stock set forth below.  The Options are subject to all of the terms and conditions set forth herein as well as all of the terms and conditions of the Plan, all of which are incorporated herein in their entirety.  Capitalized terms not otherwise defined herein shall have the same meaning as set forth in the Plan; provided that (A) the terms “Permissible Distribution Event” and “Qualified Sale” shall have the meaning set forth in the Protection One, Inc. Stock Appreciation Rights Plan, and (B) the term “Qualifying Termination” shall have the meaning set forth in the Employment Agreement dated July 23, 2004 between the Company and the Participant, provided Section 1(i)(E) of such Employment Agreement shall be disregarded for purposes of determining whether or not a “Qualifying Termination” has occurred for purposes of this Option.

In the event of a conflict or inconsistency between the terms and provisions of the Plan and the provisions of this Agreement, the Plan shall govern and control.

Participant:
Date of Grant:	February 8, 2005
Number of Shares of Stock Subject to the Options:
Exercise Price per Share:	$7.50
Expiration Date:	Six years from the date of grant.
Type of Option:	The Options granted hereby are intended to qualify as incentive stock options (“ISOs”) to the extent permissible under the requirements of Section 422 of the Code (and shall constitue nonqualifeid stock options to the extent such Options do not qualify as ISOs).
Vesting Schedule:	Subject to the Participant’s continued employment through the applicable vesting date and subject to Section 6(g) of the Plan, Options covering one-forty-eighth (1/48th) of the total shares of Stock set forth above shall vest and become exercisable on the last day of each full calendar month following the date of grant. Notwithstanding the foregoing, all Options shall vest and become exercisable immediately on a Qualifying Termination that occurs on or after a Qualified Sale and shall remain exercisable until the earlier of the Expiration Date or the first anniversary of such termination.

Exercise of Options

A Participant may exercise (subject to Section 6(g) and other provisions of the Plan) vested Options in whole or in part at any time and from time to time prior to their expiration; provided that, notwithstanding anything to the contrary in Section 6(g) of the Plan, outstanding Options that are vested at the time of, or in connection with, a Permissible Distribution Event shall expire if such Options are not exercised, or terminated in exchange for a net payment (if any) in accordance with Section 7(b) of the Plan, (1) within 6 months of the date of such Permissible Distribution Event, if such Permissible Distribution Event is an event described in paragraph (i), (ii) or (iii) of Section 409A(a)(2)(A) of the Code, or (2) within 10 calendar days of such Permissible Distribution Event, if such Permissible Distribution Event is an event described in paragraph (v) of Section 409A(a)(2)(A) of the Code (provided, for the avoidance of doubt, that outstanding Options that are unvested at the time of a Permissible Distribution Event shall not expire as a result of this proviso); and provided, further, thatregardless of when exercise occurs, the shares of Stock (as adjusted pursuant to the Plan) to be issued upon such exercise shall only be issued and delivered to the Participant according to the terms set forth below (and any such shares shall be issued and delivered according to the terms set forth below regardless of whether the Participant’s employment with the Company has terminated, for any reason, prior to the date on which such shares are to be so issued and delivered).

Delivery of Shares

Any shares of Stock that a Participant has purchased through the exercise of Options will be issued and delivered to the Participant, and any net payment due to a Participant in accordance with Section 7(b) of the Plan shall be paid to the Participant, upon (and only upon) the earlier of: (1) 6 months after a Permissible Distribution Event that is described in paragraphs (i), (ii) or (iii) of Section 409A(2)(A) of the Code; or (2) 10 calendar days after a Permissible Distribution Event that is described in paragraph (v) of Section 409A(2)(A) of the Code; or (3) the sixth anniversary of the date of grant (the earlier of such dates, a “Payment Date”); provided, for the avoidance of doubt, that there may be more than one Payment Date in the event a Permissible

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Distribution Event occurs prior to the date that all of a Participant’s outstanding Options have vested; and provided, further, that shares of Stock issuable and deliverable to a Participant shall be subject to adjustment and substitution (but not accelerated delivery) as provided in Section 7 of the Plan (and upon such issuance and delivery the Company shall also issue, if applicable, and deliver to the Participant all dividends or other distributions (including cash or securities and including, if applicable, merger consideration) that would have accrued on or been issued or delivered in respect of such shares from the date of exercise with respect thereto through the date of such issuance and delivery had shares been issued and delivered on the date of exercise); and provided, further, that to the extent the Participant’s right to receive Stock is converted pursuant to Section 7(b) of the Plan into a right to receive cash, the amount of cash so payable shall be credited with interest at six percent (6%) per annum, compounded annually, from the date such conversion is effective until the applicable Payment Date.

Holding Period for Shares Issued Upon Exercise of ISOs

Participant will report to the Company any disposition of shares purchased upon exercise of an ISO prior to the expiration of the holding periods specified by Section 422(a)(1) of the Code. If and to the extent that such disposition imposes upon the Company federal, state, local or other withholding tax requirements, or any such withholding is required to secure for the Company an otherwise available tax deduction, the Participant shall remit to the Company an amount sufficient to satisfy those requirements.

THE UNDERSIGNED PARTICIPANT ACKNOWLEDGES RECEIPT OF THE PLAN AND, AS AN EXPRESS CONDITION TO THE GRANT OF OPTIONS UNDER THIS OPTION AGREEMENT, AGREES TO BE BOUND BY THE TERMS OF BOTH THE OPTION AGREEMENT AND THE PLAN.

PROTECTION ONE, INC.	PARTICIPANT
By:
Signature	Signature
Name:
Title:	Date:
Date:

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EX-10.5

Exhibit 10.5

OPTION AGREEMENT

Protection One, Inc. (the “Company”), pursuant to its 2004 Stock Option Plan (the “Plan”), hereby grants to the Participant Options to purchase the number of shares of Stock set forth below.  The Options are subject to all of the terms and conditions set forth herein as well as all of the terms and conditions of the Plan, all of which are incorporated herein in their entirety.  Capitalized terms not otherwise defined herein shall have the same meaning as set forth in the Plan; provided that the term “Permissible Distribution Event” shall have the meaning set forth in the Protection One, Inc. Stock Appreciation Rights Plan.  In the event of a conflict or inconsistency between the terms and provisions of the Plan and the provisions of this Agreement, the Plan shall govern and control.

Participant:
Date of Grant:	February 8, 2005
Number of Shares of Stock Subject to the Options:
Exercise Price per Share:	$7.50
Expiration Date:	Six years from the date of grant.
Type of Option:	The Options granted hereby are intended to qualify as incentive stock options (“ISOs”) to the extent permissible under the requirements of Section 422 of the Code (and shall constitue nonqualifeid stock options to the extent such Options do not qualify as ISOs).
Vesting Schedule:	Subject to the Participant’s continued employment through the applicable vesting date and subject to Section 6(g) of the Plan, Options covering one-forty-eighth (1/48th) of the total shares of Stock set forth above shall vest and become exercisable on the last day of each full calendar month following the date of grant.
Exercise of Options	A Participant may exercise (subject to Section 6(g) and other provisions of the Plan) vested Options in whole or in part at any time and from time to time prior to their expiration; provided that, notwithstanding anything to the contrary in Section 6(g) of the Plan, outstanding Options that are vested at the time of, or in connection with, a Permissible Distribution Event shall expire if such Options are not exercised, or terminated in exchange for a net payment (if any) in accordance with Section 7(b) of the Plan, (1) within 6 months of the date of such Permissible Distribution Event, if such Permissible Distribution Event is an event described in paragraph (i), (ii) or (iii) of Section 409A(a)(2)(A) of the Code, or (2) within 10 calendar days of such Permissible Distribution Event, if such Permissible Distribution Event is an event described

in paragraph (v) of Section 409A(a)(2)(A) of the Code (provided, for the avoidance of doubt, that outstanding Options that are unvested at the time of a Permissible Distribution Event shall not expire as a result of this proviso); and provided, further, thatregardless of when exercise occurs, the shares of Stock (as adjusted pursuant to the Plan) to be issued upon such exercise shall only be issued and delivered to the Participant according to the terms set forth below (and any such shares shall be issued and delivered according to the terms set forth below regardless of whether the Participant’s employment with the Company has terminated, for any reason, prior to the date on which such shares are to be so issued and delivered).

Delivery of Shares

Any shares of Stock that a Participant has purchased through the exercise of Options will be issued and delivered to the Participant, and any net payment due to a Participant in accordance with Section 7(b) of the Plan shall be paid to the Participant, upon (and only upon) the earlier of: (1) 6 months after a Permissible Distribution Event that is described in paragraphs (i), (ii) or (iii) of Section 409A(2)(A) of the Code; or (2) 10 calendar days after a Permissible Distribution Event that is described in paragraph (v) of Section 409A(2)(A) of the Code; or (3) the sixth anniversary of the date of grant (the earlier of such dates, a “Payment Date”); provided, for the avoidance of doubt, that there may be more than one Payment Date in the event a Permissible Distribution Event occurs prior to the date that all of a Participant’s outstanding Options have vested; and provided, further, that shares of Stock issuable and deliverable to a Participant shall be subject to adjustment and substitution (but not accelerated delivery) as provided in Section 7 of the Plan (and upon such issuance and delivery the Company shall also issue, if applicable, and deliver to the Participant all dividends or other distributions (including cash or securities and including, if applicable, merger consideration) that would have accrued on or been issued or delivered in respect of such shares from the date of exercise with respect thereto through the date of such issuance and delivery had shares been issued and delivered on the date of exercise); and provided, further, that to the extent the Participant’s right to receive Stock is converted pursuant to Section 7(b) of the Plan into a right to

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receive cash, the amount of cash so payable shall be credited with interest at six percent (6%) per annum, compounded annually, from the date such conversion is effective until the applicable Payment Date.

Holding Period for Shares Issued Upon Exercise of ISOs

Participant will report to the Company any disposition of shares purchased upon exercise of an ISO prior to the expiration of the holding periods specified by Section 422(a)(1) of the Code. If and to the extent that such disposition imposes upon the Company federal, state, local or other withholding tax requirements, or any such withholding is required to secure for the Company an otherwise available tax deduction, the Participant shall remit to the Company an amount sufficient to satisfy those requirements.

THE UNDERSIGNED PARTICIPANT ACKNOWLEDGES RECEIPT OF THE PLAN AND, AS AN EXPRESS CONDITION TO THE GRANT OF OPTIONS UNDER THIS OPTION AGREEMENT, AGREES TO BE BOUND BY THE TERMS OF BOTH THE OPTION AGREEMENT AND THE PLAN.

PROTECTION ONE, INC.	PARTICIPANT
By:
Signature	Signature
Name:
Title:	Date:
Date:

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EX-10.6

Exhibit 10.6

PROTECTION ONE, INC.
STOCK APPRECIATION RIGHTS PLAN

1.PURPOSE

The Plan provides long-term incentives to key employees of the Company and its Subsidiaries.  Its purposes are to attract, retain and motivate key employees and to promote the long-term growth and profitability of the Company.

2.DEFINITIONS

(a)“Base Price” means, with respect to each SAR, $0.09, representing the implied value of one share of Stock based on a hypothetical total enterprise value of the Company of $440 million on the Closing Date.

(b)“Board” means the Board of Directors of the Company.

(c)“Cause” has the meaning ascribed thereto in a Participant’s employment agreement with the Company.

(d)“Closing Date” has the meaning ascribed thereto in the Exchange Agreement.

(e)“Code” means the Internal Revenue Code of 1986, as amended.

(f)“Committee” means a committee of two or more directors designated by the Board to administer the Plan.

(g)“Company” means Protection One, Inc., a Delaware corporation.

(h)“Exchange Agreement” means that certain Exchange Agreement, dated as of November 12, 2004, to which the Company is a party.

(i)“Exit Price” means (i) for each SAR that vests and becomes payable as described in clauses (i) or (ii) of Section 4(a), the lesser of (a) the value of the consideration paid for one share of Stock in a Qualified Sale (or if such transaction does not involve a sale, the Fair Market Value (as defined in the Company’s 2004 Stock Option Plan) of the Stock as of the date of the Qualified Sale), and (b) the per share exercise price of stock options granted to Participants in the Initial Option Grant, or (ii) for each SAR that vests and becomes payable as described in clause (iii) of Section 4(a), $0.15.

(j)“Good Reason” has the meaning ascribed thereto in a Participant’s employment agreement with the Company.

(k)“Grant Agreement” means an agreement in the form attached in Appendix A hereof, evidencing an award of SARs under the Plan.

(l)“Initial Option Grant” means the grant of stock options described in Section 6(h) of the Protection One, Inc. Stock Option Plan.

(m)“Participant” means each key employee of the Company or any Subsidiary who has been selected by the Committee to participate in the Plan and who has executed a Grant Agreement agreeing to be bound by the terms of the Plan.

(n)“Permissible Distribution Event” means an event described in paragraph (i), (ii), (iii), or (v) of Section 409A(a)(2)(A) of the Code.

(o)“Plan” means the Protection One, Inc. Stock Appreciation Rights Plan.

(p)“Preferred Return” means 9% per annum, compounded annually on each anniversary of the Closing Date.

(q)“Quadrangle Parties” has the meaning ascribed thereto in the Exchange Agreement.

(r)“Qualified Sale” means the first transaction that results in the Quadrangle Parties and their affiliated entities, as a group, having sold, assigned or otherwise transferred (including, without limitation, by merger, consolidation or distribution), in one or more transactions, to one or more parties that are not entities affiliated with the Quadrangle Parties, an aggregate of at least 60% of the aggregate number of shares, adjusted in accordance with Section 3(b)(i) below, of Stock owned by the Quadrangle Parties, as a group, on the Closing Date.

(s)“Qualifying Termination” means termination of a Participant’s employment with the Company or a Subsidiary (i) by the Participant for Good Reason, (ii) by the Company without Cause or (iii) by reason of a sale of the Subsidiary employing the Participant.

(t)“Redemption Price” means the amount, if any, by which the Exit Price exceeds the Base Price.

(u)“SAR” means a stock appreciation right granted under the Plan.

(v)“Stock” means the common stock, par value $0.01 per share, of the Company.

(w)“Subsidiary” means a corporation that is a “subsidiary corporation” of the Company as that term is defined in Section 424 of the Code.

3.GRANT AND ADJUSTMENT OF SARS

(a)Effective as of the Closing Date, the Committee shall grant 99,809,187 SARs (on a pre-Reverse Stock Split basis) to key employees of the Company and its Subsidiaries, as determined in consultation with the Company’s Chief Executive Officer.  No additional SARs may be granted under the Plan; provided, that from and after the Closing Date

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and prior to the vesting and payment of outstanding SARs, any SARs forfeited by Participants pursuant to Section 4(c) shall be reallocated to other Participants, as determined by the highest-ranking employee Participant at such time, subject to approval by the Committee, such approval not to be unreasonably withheld.

(b)The number of SARs awarded to any Participant, the Base Price and Exit Price of SARs so awarded, and the provisions of the Plan affecting the value of outstanding SARs (i) shall be equitably adjusted or modified as necessary to preserve the intended economic benefit of the original grant in the event that there is a stock split, reverse stock split, stock dividend, recapitalization, reclassification, additional issuance or other similar capital adjustment of the Stock effected without the receipt of consideration, and (ii) may be adjusted or modified at the reasonable good faith discretion of the Committee in the event that there is (A) a merger, consolidation, spin-off, split-up, or other similar corporate transaction with respect to the Company, or (B) any other event for which the Committee, in its sole discretion, determines that such adjustment or modification is appropriate and equitable to prevent inappropriate penalties or windfalls with respect to the terms of the Plan or its applicability to any Participant.

4.VESTING AND PAYMENT.

(a)SARs shall vest and become payable only upon (i) a Qualified Sale, if such Qualified Sale qualifies as a Permissible Distribution Event, (ii) if a Qualified Sale occurs prior to the sixth anniversary of the Closing Date and does not qualify as a Permissible Distribution Event, the earlier of (A) the sixth anniversary of the Closing Date and (B) a Permissible Distribution Event, if such Permissible Distribution Event occurs on or after the Qualified Sale, or (iii) the sixth anniversary of the Closing Date, if the SARs have not otherwise vested and become payable under clauses (i) or (ii) of this Section 4(a) on or prior to such sixth anniversary.  With respect to SARs that vest and become payable pursuant to clause (ii)(B) of this Section 4(a), if the Permissible Distribution Event is an event described in Section 409A(a)(2)(A)(i) of the Code and the payee is a “specified employee” as defined in Section 409A(a)(2)(B)(i) of the Code, then the SARs shall become payable six months after the Permissible Distribution Event (or, if earlier, the date of the death of the employee).  Except as provided in Section 4(b), the amount payable in respect of each outstanding SAR shall be the Redemption Price.

(b)If SARs vest and become payable by reason of a Qualified Sale described in clause (ii) of Section 4(a), the aggregate Redemption Price payable in respect of all outstanding SARs shall be computed based on the price paid for the Stock in such Qualified Sale, and an amount equal to such aggregate Redemption Price shall be deposited in an irrevocable “rabbi trust,” pursuant to a trust agreement substantially in the form attached hereto as Exhibit A (the “Trust Agreement”), having an independent trustee who will be instructed to pay such amounts to Participants, with interest credited at six percent (6%) per annum and compounded annually, on the dates specified in clause (ii) of Section 4(a), except as otherwise provided by the terms of the Trust Agreement.

(c)A Participant shall be eligible for payment in respect of his SARs only if such Participant (i) is employed by the Company or a Subsidiary on the date of a Qualified Sale or, in the case of SARs that become payable as described in clause (iii) of Section 4(a), the sixth

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anniversary of the Closing Date, or (ii) terminates employment in a Qualifying Termination within one year prior to a Qualified Sale.  A Participant’s SARs shall be forfeited as of the first date upon which he is no longer eligible for payment in respect thereof.

5.ADJUSTMENT OF THE BASE PRICE

The Base Price of each SAR shall be increased by the Preferred Return through and including the date of a Qualified Sale or, if SARs vest and become payable as described in clause (iii) of Section 4(a), the sixth anniversary of the Closing Date.  If the Quadrangle Parties or their affiliates sell Stock to an unrelated party in a transaction that is not a Qualified Sale, the Base Price applicable to a percentage of the outstanding SARs shall be fixed based on the Preferred Return prorated to the date of such transaction.  The percentage so fixed shall be equal to the percentage of the Stock sold by the Quadrangle Parties or their affiliates, as a group, determined by reference to the number of shares of Stock owned by the Quadrangle Parties, as a group, on the Closing Date.

6.PRE-CLOSING SALE OF THE COMPANY

In the event that a majority of the Company’s voting stock is sold to a party other than the Quadrangle Parties or their affiliates prior to the Closing Date, the Committee, in consultation with the Company’s Chief Executive Officer, shall determine which employees would have been selected as Participants as of the Closing Date, and such employees shall be paid, in connection with such sale, the amounts which would have been payable to them under the Plan had they been granted SARs and such sale was a Qualified Sale except that, solely for purposes of this Section 6, the Exit Price shall be determined without regard to clause (i)(b) of Section 2(i).  Such amounts shall be paid on the date of such sale and shall be payable in lieu of any amounts to which such employees would otherwise have been entitled to receive in connection with the grant of SARs and the grant of stock options under the Protection One, Inc. Stock Option Plan.

7.AMENDMENT AND TERMINATION

(a)The Board may amend, suspend or terminate the Plan at any time; provided, however, that no amendment, suspension or termination of the Plan may materially and adversely affect the rights of a Participant with respect to outstanding SARs without the written consent of such Participant.

(b)The Plan and any SARs shall be void and of no effect if the Exchange Agreement dated November 12, 2004 among the Company and the Quadrangle Parties (the “Exchange Agreement”) is terminated prior to the earlier of a Qualified Sale or the consummation of the debt-for-equity exchange contemplated by the Exchange Agreement.  In connection with the consummation of the debt-for-equity exchange contemplated by the Exchange Agreement, the Company will effectuate a one-share-for-fifty shares reverse stock split (the “Reverse Stock Split”).  All references in the Plan with respect to numbers of shares of Stock and SARs, Base Price and Exit Price, refer to such numbers on a pre-Reverse Stock Split basis, and upon consummation of the Reverse Stock Split, such numbers shall be adjusted as contemplated by Section 3(b).

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8.UNFUNDED PLAN

The Plan shall be unfunded and no Participant shall have any right, title, or interest whatsoever in or to any investments which the Company may make to aid it in meeting its obligations under the Plan.  No officer, director or member of the Board or the Committee shall have any personal liability for failure to make payments of benefits under the Plan.  To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company.  The Plan is intended to be a “bonus plan” that is not subject to the Employee Retirement Income Security Act of 1974, as amended.

9.ASSIGNMENT AND ALIENATION OF BENEFITS

To the maximum extent permitted by law, a Participant’s rights and benefits under this Plan shall not be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge the same shall be void; provided, however that in the event of a Participant’s death, any such rights and benefits shall pass to such Participant’s beneficiaries or estate in accordance with the laws of descent and distribution.  Except as prohibited by law, payments or benefits payable to or with respect to a Participant pursuant to this Plan may be reduced by amounts the Participant may owe to the Company.

10.SUCCESSORS

The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business or assets of the Company to expressly assume the Plan and agree to perform obligations hereunder in the same manner and to the same extent that the Company would be required to perform if no such succession had occurred.

11.ADMINISTRATION

The Plan shall be administered by the Committee, which shall have sole authority, in a good faith exercise of discretion, (i) to construe and interpret the Plans; (ii) to establish, amend and revoke rules and regulations for the Plan administration; and (iii) to exercise such powers and to perform such acts as the Committee deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan.  All actions taken and all determinations made by the Committee in accordance with the power and authority conferred upon the Committee under this Plan shall be final, binding and conclusive on all parties, including the Company and all Participants.  In the event of any litigation between the Company and any Participant (or successor to a Participant’s interest, judicial review shall occur on a de novo basis, without deference to any Committee determinations.

12.MISCELLANEOUS

(a)The establishment of this Plan shall not be construed as granting any Participant the right to remain in the employ of the Company, nor shall this Plan be construed as

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limiting the right of the Company to discharge a Participant from employment at any time for any reason whatsoever, with or without Cause.

(b)The payment of any amounts due in respect of SARs shall be subject to withholding by the Company for all federal, state and local taxes required by law to be withheld.

(c)The Section headings in this Plan are for convenience only, form no part of the Plan and shall not affect its interpretation.

(d)This Plan shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to the principles of conflicts of laws.

(e)No member of the Committee or the Board, and no officer or other employee of the Company or a Subsidiary who has been delegated authority under the Plan, shall be personally liable by reason of any action taken in good faith in connection with the administration of the Plan, or in connection with any contract or other instrument executed by such individual, or on his or her behalf, in his or her capacity as a member of the Committee, a member of the Board, an officer or an employee, nor for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each member of the Committee, each member of the Board and each other employee, officer or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan unless arising out of such person’s own fraud or bad faith; provided, however, that approval of the Board shall be required for the payment of any amount in settlement of a claim against any such person.  The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s certificate of incorporation or by-laws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

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Exhibit A

PROTECTION ONE, INC.

GRANTOR TRUST AGREEMENT

PREAMBLE.  This Grantor Trust Agreement (the “Trust Agreement”) made this         day of               , 2005, by and between Protection One, Inc. and any successor to its interest (the “Company”) as creator and grantor, and                              as trustee (the “Trustee”).

WHEREAS, the Company has adopted the Protection One, Inc. Stock Appreciation Rights Plan attached as Exhibit A (the “Plan”) under which the Company has current or potential liability to individuals (the “Beneficiaries”) who are either covered by the Plan, are a party to the Plan, or are the designated beneficiary for any benefits payable under the Plan in the event of the death of an individual who is covered by or party to the Plan;

WHEREAS, it is the intention of the Company to establish this trust (the “Trust”) and to contribute assets to the Trust that shall be held therein, subject to the claims of the Company’s general creditors in the event of the Company’s Insolvency, as defined in Section 3(a) hereof, until paid to Beneficiaries of this Trust in such manner and at such times as specified in the Plan;

WHEREAS, it is the intention of the parties hereto that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as being unfunded for the purpose of providing deferred compensation for a select group of highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974; and

WHEREAS, it is the intention of the Company to make contributions to the Trust to enable the Trust to fully fund its liabilities under the Plan.

NOW, THEREFORE, the parties do hereby establish this Trust and agree that the Trust shall be established and administered as set forth herein:

Section 1.  Establishment of Trust

(a)The Company will shortly hereafter deposit $           with the Trustee in trust, which shall constitute the initial principal of the Trust to be held, administered and disbursed by the Trustee as provided for in this Trust Agreement.

(b)The Company, in its sole discretion, may at any time, or from time to time, make additional contributions of cash or other assets to the Trustee to augment the principal of the Trust to be held, administered and disbursed by the Trustee as provided for in this Trust Agreement.  Neither the Trustee nor any Beneficiary shall have any right to compel such additional contributions.

(c)Upon a “Qualified Sale” (as defined herein) that is described in clause (ii) of Section 4(a) of the Plan, the Company shall, as soon as possible but in no event later than ten business days

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Timmons & Company, Inc.

Grantor Trust Agreement

after the Qualified Sale, make an irrevocable contribution to this Trust in an amount that is projected to provide the Trust with sufficient funds to pay (i) each Beneficiary the benefits to which he or she is entitled pursuant to the Plan as in effect on the date of the Qualified Sale, and (ii) all fees associated with maintaining the Trust for the maximum period over which Beneficiaries are reasonably expected to be receiving payments from the Trust.  “Qualified Sale” shall have the meaning set forth in the Plan.  Any amendment to the Plan’s definition shall be deemed to apply with equal force, effect, and timing to the definition of Qualified Sale for purposes of this Trust, except that a modification that does or may adversely affect a Beneficiary shall be ineffectual as to the Beneficiary unless he or she consents in writing to be bound by the modification.

(d)Within 75 days following each December 31st after a Qualified Sale described in clause (ii) of Section 4(a) of the Plan occurs, the Company shall, if the Trustee deems necessary, be required to irrevocably deposit additional cash or other property to the Trust in an amount sufficient to pay each Participant or Beneficiary the benefits to which he or she is or may become entitled pursuant to the Plan.  The Trustee shall have the right to monitor, enforce and/or collect any amounts due and owing from the Company or to give notice of any default in the payment of benefits to Participants.

(e)The Trust hereby established shall be irrevocable.

(f)The Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended (the “Code”), and shall be construed accordingly.

(g)The principal of the Trust, and any earnings thereon, shall be held separate and apart from other funds of the Company, and shall be used exclusively for the uses and purposes of Beneficiaries and general creditors as herein set forth.  Beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any Trust assets.  Any rights created under the Plan and this Trust Agreement shall be unsecured contractual rights of the Beneficiaries, as provided for in this Agreement.  Any assets held by the Trust will be subject to the claims of the Company’s general creditors under federal and state law in the event of Insolvency, as defined in Section 3(a) herein.

Section 2.  Payments to Beneficiaries

(a)Upon a Permissible Distribution Event (as defined herein) that relates to any Beneficiary (or, if later, the sixth anniversary of the Closing Date (as defined herein)), the Company shall deliver to the Trustee a schedule (the “Payment Schedule”) which reflects the benefits payable with respect to each affected Beneficiary pursuant to Sections 4(a) and 4(b) of the Plan, a formula or other instructions acceptable to the Trustee for determining the benefits so payable, the form in which such benefits are to be paid (as provided for or available under the Plan), and the date of commencement for payment of such benefits.  Except as otherwise provided herein, the Trustee shall make payments to Beneficiaries in accordance with such Payment Schedule.  The Trustee shall make provisions for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plan and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts

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have been reported, withheld, and paid by the Company.  “Permissible Distribution Event” and “Closing Date” shall have the meanings set forth in the Plan.

(b)The entitlement of a Beneficiary to benefits under the Plan shall be determined by the Company or such party as may be designated under the Plan, and any claim for such benefits shall be considered and reviewed under the procedures set forth in the Plan.

(c)The Company may make payment of benefits directly to Beneficiaries as such benefits become due under the terms of the Plan.  The Company shall notify the Trustee of its decision to make such payment of benefits prior to the time benefits are payable to Beneficiaries.  In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Plan, the Company shall make the balance of each such payment as due.  The Trustee shall notify the Company when existing principal and earnings are insufficient under the Payment Schedule.

(d)The Trustee shall make such distributions in a manner reasonably intended to provide each Beneficiary with all of his or her benefits payable under the Plan.

Section 3.  Trustee Responsibility Regarding Payments to Trust Beneficiary When the Company Is Insolvent

(a)The Trustee shall cease payment of benefits to Beneficiaries if the Company is Insolvent.  The Company shall be considered “Insolvent” for purposes of this Trust Agreement if (i) the Company is unable to pay its debts when the same become due, or (ii) the Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code.

(b)At all times during the existence of this Trust, as provided in Section 1(d) hereof, the principal and income of the Trust shall be subject to claims of general creditors of the Company under federal and state law as set forth below.

(c)The Board of Directors and the Chief Executive Officer of the Company shall have the duty to inform the Trustee in writing of the Company’s Insolvency.  If a person claiming to be a creditor of the Company alleges in writing to the Trustee that the Company has become Insolvent, the Trustee shall determine whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to Beneficiaries.

(1)Unless the Trustee has actual knowledge of the Company’s Insolvency, or has received notice from the Company or a person claiming to be a creditor alleging that the Company is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent.  The Trustee may in all events rely on such evidence concerning the Company’s solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company’s solvency.

(2)If at any time the Trustee has determined that the Company is Insolvent, the Trustee shall discontinue payments to Beneficiaries, shall liquidate the Trust’s investment, if any, in common stock (“Common Stock”) of the Company, and shall hold the assets of the Trust for the benefit of the Company’s general creditors.  Nothing in this Trust Agreement shall in any way

9

diminish any rights of Beneficiaries as general creditors of the Company with respect to benefits due under the Plan or otherwise.

(3)The Trustee shall resume the payment of benefits to Beneficiaries in accordance with Section 2 of this Trust Agreement only after the Trustee has determined that the Company is not Insolvent or is no longer Insolvent.

(d)If the Trustee discontinues the payment of benefits from the Trust pursuant to Section 3(a) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Beneficiaries under the terms of the Plan for the period of such discontinuance, provided that there are sufficient assets to make such payments.  The aggregate amount of any payments to Beneficiaries by the Company, in lieu of the payments provided for hereunder during any such period of discontinuance, shall be deducted from any payments made by the Trustee hereunder.

Section 4.  Payments to the Company

After the Trust has become irrevocable, the Company shall have no right or power to direct the Trustee to return to the Company or to divert to others any of the Trust assets before all payment of benefits have been made to Beneficiaries pursuant to the terms of the Plan, except as provided for in Section 3 hereof.

Section 5.  Investment Authority

(a)The Trustee shall have the sole discretion as to the investment of Trust assets, provided that the Trustee shall invest Trust assets in a manner reasonably anticipated to provide the Trust with assets sufficient to fund the Company’s obligations under the Plan.

(b)All rights associated with assets of the Trust shall be exercised by the Trustee or the person designated by the Trustee, and shall in no event be exercisable by or through Beneficiaries.  The Company shall have the right, in its sole discretion, to substitute assets of equal fair market value for any assets held by the Trust.  This right is exercisable by the Company in a non-fiduciary capacity without consent of any person in a fiduciary capacity.

Section 6.  Disposition of Income

During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be reinvested.

Section 7.  Accounting by Trustee

The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements of all transactions, including such specific records as shall be agreed upon in writing between the Company and the Trustee.  Within 75 days following each December 31 after the execution of this Agreement, and within 20 days after the removal or resignation of the Trustee, the Trustee shall deliver (i) to each Beneficiary a statement, substantially in the form attached as Exhibit A, delineating his or her beneficial interest in the Trust, and (ii) to the Company a written account of

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its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, reflecting all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable recorded separately), and reflecting all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as applicable.

Section 8.  Responsibility of Trustee

(a)The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like objectives, provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Company which is contemplated by, and in conformity with, the terms of the Plan or this Trust Agreement and is given in writing by the Company.  In the event of a dispute between the Company and a party, the Trustee may apply to a court of competent jurisdiction to resolve the dispute.

(b)If the Trustee undertakes or defends any litigation arising in connection with this Trust, the Company agrees to indemnify the Trustee against Trustee’s costs, expense and liabilities (including, without limitation, attorneys’ fees and expenses) relating thereto and to be primarily liable for such payments, except in those cases where the Trustee shall have been found by a court of competent jurisdiction to have acted with negligence or willful misconduct.  If the Company does not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust.

(c)The Trustee may consult with legal counsel with respect to any of its duties or obligations hereunder.

(d)The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder.

(e)The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, the Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy.

(f)Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or to applicable law, the Trustee shall not have any power that may accord the Trust the authority to engage in a business and to receive the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Code.

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Section 9.  Compensation and Expenses of Trustee

The Company shall pay all administrative expenses and the Trustee’s fees and expenses relating to the Plan and this Trust.  If not so paid, the fees and expenses shall be paid from the Trust.

Section 10.  Resignation and Removal of Trustee

The Trustee may resign at any time by written notice to the Company, which resignation shall be effective 30 days after the Company receives such notice (unless the Company and the Trustee agree otherwise).  The Trustee may be removed by the Company on 30 days notice, or upon shorter notice accepted by the Trustee; provided that if such removal occurs on or after a Qualifying Sale, or within 90 days beforehand, the removal will be ineffective unless it is done with the written consent of Beneficiaries who are entitled to at least 75% of the Trust’s assets.

If the Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 11 hereof, by the effective date or resignation or removal under this section.  If no such appointment has been made, the Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions.  All expenses of the Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust.  Upon resignation or removal of the Trustee and appointment of a Successor Trustee, all assets shall subsequently be transferred to the Successor Trustee.  The transfer shall be completed within 60 days after receipt of a notice of resignation, removal or transfer, unless the Company extends the time for such transfer.

Section 11.  Appointment of Successor

If the Trustee resigns or is removed in accordance with Section 10 hereof, the Company may appoint any other party as a successor to replace the Trustee upon such resignation or removal.  The appointment shall be effective when accepted in writing by the new trustee, who shall have all of the rights and powers of the former trustee, including ownership rights in the Trust assets.  The former trustee shall execute any instrument necessary or reasonably requested by the Company or the Successor Trustee to evidence the transfer.  Notwithstanding the foregoing, if the Trustee resigns or is removed in connection with or following a Qualifying Sale, the Trustee that has resigned or is being removed shall appoint as its successor a third party financial institution that has trust powers, is independent of and unrelated to the Company, its affiliates, or their successors, and is agreed to in writing by Beneficiaries who are entitled to at least 75% of the Trust’s assets.

A Successor Trustee need not examine the records and acts of any prior trustee and may retain or dispose of existing Trust assets, subject to Sections 7 and 8 hereof.  The Successor Trustee shall not be responsible for, and the Company shall indemnify and defend the Successor Trustee from, any claim or liability resulting from any action or inaction of any prior trustee or from any other past event, or any condition existing at the time it becomes Successor Trustee.

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Section 12.  Amendment or Termination

(a)This Trust Agreement may be amended by a written instrument executed by the Trustee and the Company, provided that no such amendment shall either conflict with the terms of the Plan.

(b)Notwithstanding subsection (a) hereof, the provisions of this Trust Agreement and the Trust created thereby may not be amended, within six months before or at any time on or after a Qualifying Sale occurs, without the written consent of Beneficiaries who are entitled to at least 75% of the Trust’s assets.

(c)The Trust shall not terminate until the date on which no Beneficiary is entitled to benefits pursuant to the terms hereof or of the Plan.  Upon termination of the Trust, the Trustee shall return any assets remaining in the Trust to the Company.

(d)The Company may terminate this Trust prior to the payment of all benefits under the Plan only upon written approval of all Beneficiaries entitled to payment of such benefits.

Section 13.  Miscellaneous

(a)Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof.

(b)Benefits payable to Beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process, except pursuant to the terms of the Plan and this Trust Agreement.

(c)This Trust Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to the principles of conflicts of laws.

(d)The Trustee agrees to be bound by the terms of the Plan, as in effect from time to time.

Section 14.  Effective Date

The effective date of this Trust Agreement shall be the date referenced in the Preamble.

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IN WITNESS WHEREOF, the Company, by its duly authorized officer, has caused this Trust Agreement to be executed, and its corporate seal affixed, and the Trustee has executed this Trust Agreement, on the date referenced in the Preamble.

Witnessed by:	PROTECTION ONE, INC.
	By
	Its
Witnessed by:	TRUSTEE

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EX-10.7

Exhibit 10.7

Grant Agreement

I acknowledge receipt of a copy of the Protection One, Inc. Stock Appreciation Rights Plan (the “Plan) to which this Grant Agreement is attached.  As a condition of being selected as a Participant in the Plan, I agree to be bound by the terms of the Plan and to accept the decisions of the Committee taken in accordance with such terms.  Except as otherwise required by law or with the express prior written consent of the Committee, I agree to keep the existence and terms of this Plan, and the amount of my award, strictly confidential.  I further agree that the benefits, if any, that are paid or payable under the Plan shall in no event be taken into account for purposes of determining the amount of any severance or similar benefit to which I may be entitled under my employment agreement, or any other plan, agreement or practice of the Company, regardless of the date of implementation.

Grant Date:
Number of SARs Awarded:
Agreed and Accepted by
Print Name:
Signature:		Date:
PROTECTION ONE, INC.
By:		Date:
Print Name:
Title:	Chief Executive Officer

EX-10.8

EXIBIT 10.8

MANAGEMENT STOCKHOLDER’S AGREEMENT

This MANAGEMENT STOCKHOLDER’S AGREEMENT (this “Agreement”) is entered into as of February 8, 2005 (the “Effective Date”) by and among Protection One, Inc., a Delaware corporation (the “Company”), POI Acquisition, L.L.C., a Delaware limited liability company (“POI Acquisition”), Quadrangle Master Funding Ltd, a Cayman Islands limited liability company (“QDRF”) and the undersigned person (the “Management Stockholder”) (the Company, POI Acquisition, QDRF and the Management Stockholder being hereinafter collectively referred to as the “Parties”).

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 prior to the Restructuring, 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 (as amended, modified or supplemented, the “Exchange Agreement”), by and among the Company, POAM, POI Acquisition, PAII and QDRF, in connection with discharge of certain indebtedness under the Credit Facility, the Company will issue 10,666,667 shares of Common Stock to POI Acquisition and 5,333,333 shares of Common Stock to QDRF (the “Restructuring”);

WHEREAS, in connection with the Restructuring, the Management Stockholder wishes to acquire the number of shares of Common Stock set forth herein; and

WHEREAS, the execution and delivery of this Agreement by the Parties hereto is a condition precedent to the consummation of the Restructuring pursuant to Section 4.6 of the Exchange Agreement.

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 and Terms.

1.1Definitions:  As used in this Agreement, the following capitalized terms shall have the following meanings:

“Affiliate” shall mean, with respect to any entity, any other entity that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such entity.  For the purposes of this definition, control means the possession, direct

or indirect, of the power to direct or cause the direction of the management and policies of a Person (as such term is used for purposes of Section 13(d) or 14(d) of the Exchange Act), whether through the ownership of voting securities, by contract or otherwise.

“Agreement” shall have the meaning set forth in the introductory paragraph.

“Cash Equivalents” shall mean any of the following:

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

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

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

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

“Common Stock” shall mean the shares of common stock, $0.01 par value per share, of the Company.

“Company” shall have the meaning set forth in the introductory paragraph.

“Drag-Along Rights” shall have the meaning set forth in Section 5.2(a) hereof.

“Effective Date” shall have the meaning set forth in the introductory paragraph.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations promulgated thereunder.

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“Holder” shall have the meaning set forth in Section 6.2 hereof.

“Management Stockholder” shall have the meaning set forth in the introductory paragraph.

“Management Stockholder’s Estate” shall mean, as used in Section 3.1(b), the conservators, guardians, executors, administrators, testamentary trustees, legatees or beneficiaries of the Management Stockholder.

“Management Stockholder’s Trust” shall mean, as used in Section 3.1(c), a partnership, limited liability company, corporation, trust or custodianship, the beneficiaries of which may include only the Management Stockholder, his or her parents, his or her spouse (or ex-spouse) or lineal descendants (including adopted) or, if at any time after any such transfer there shall be no then living spouse or lineal descendants, then to the ultimate beneficiaries of any such trust or to the estate of a deceased beneficiary.

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

“Offeror” shall have the meaning set forth in Section 4.1 hereof.

“Other Selling Stockholders” shall mean any holders of shares of Common Stock, other than the Management Stockholder and POI Acquisition, possessing tag-along rights, drag-along rights or registration rights of similar terms and conditions as those provided to the Management Stockholder pursuant to this Agreement.

“Parties” shall have the meaning set forth in the introductory paragraph.

“Permanent Disability” shall mean “Disability” or “Permanent Disability” (as applicable) as such term may be defined in any employment agreement or change-in-control agreement in effect at the time of termination between the Management Stockholder and the Company or any of its Affiliates; or, if there is no such employment or change-in-control agreement, “Permanent Disability” shall mean the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended.

“Permitted Transfer” shall mean:  (i) a transfer to an Affiliate, (ii) a Registered Sale or (iii) a Rule 144 Sale.

“Piggyback Registration” shall have the meaning set forth in Section 6.1.

“Piggyback Shares” shall have the meaning set forth in Section 6.2.

“POI Acquisition” shall have the meaning set forth in the introductory paragraph.

“Purchase Stock” shall have the meaning set forth in Section 2.1 hereof.

“QDRF” shall have the meaning set forth in the introductory paragraph.

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“Qualified Public Offering” shall mean (i) an underwritten public offering (either primary or secondary) of shares of Common Stock that is registered under the Securities Act with an aggregate offering value of at least $40 million or (ii) an offering of shares of Common Stock that is registered under the Securities Act in connection with a merger, consolidation, exchange offer (but not an exchange offer for securities of the Company or any of its subsidiaries) or other business combination transaction, in each case with an aggregate offering value (based on the fair market value of the shares of Common Stock offered determined as of the date of the closing of the applicable transaction) of at least $40 million.

“Qualified Sale” shall mean the first transaction that results in the Quadrangle Parties (which has the meaning ascribed thereto in the Exchange Agreement) and their Affiliates, as a group, having sold, assigned or otherwise transferred (including, without limitation, by merger, consolidation or distribution), in one or more transaction, to one or more parties that are not affiliated with the Quadrangle Parties, an aggregate of at least 60% of the aggregate number of shares , adjusted in accordance with Section 10 below, of Common Stock owned by the Quadrangle Parties, as a group, on the Effective Date.

“Registered Sale” shall mean a sale of shares of Common Stock effected pursuant to an effective registration statement under the Securities Act.

“Restructuring” shall have the meaning set forth in the recitals.

“Rule 144 Sale” shall mean a sale of shares of Common Stock pursuant to Rule 144 promulgated under the Securities Act (or any similar rule then in effect).

“Securities Act” shall mean the Securities Act of 1933, as amended from time to time and the rules and regulations promulgated thereunder.

“Tag-Along Rights” shall have the meaning set forth in Section 5.1(b) hereof.

“Third Party Offer” shall have the meaning set forth in Section 4.1 hereof.

“Transfer” shall have the meaning set forth in Section 3.1 hereof.

“Underwritten Offering” shall mean 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.

1.2When used in this Agreement, the term “including” shall be deemed to mean “including, without limitation”, all references to “dollars” or “$” are to United States dollars, the masculine pronoun shall include the feminine and neuter, and the singular the plural, where the context so indicates.  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 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.

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SECTION 2.Purchase of Common Stock.

2.1Subject to the terms and conditions hereinafter set forth, at the Effective Date, the Company shall, or shall cause its duly authorized agent to, issue and deliver to Management Shareholder the number of shares of Common Stock specified on the signature page hereto (such shares, the “Purchase Stock”), and in consideration for such issuance and delivery, the Management Shareholder shall, or shall cause its duly authorized agent to, pay to the Company in immediately available funds the amount specified on the signature page hereto.

2.2The Effective Date shall be the same date as the “Closing Date” under the Exchange Agreement.

SECTION 3.Transfers.

3.1The Management Stockholder agrees not to, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise distribute or dispose of (any of the foregoing acts being referred to herein as a “transfer”), shares of Purchase Stock at any time prior to the date of consummation of the earlier of a Qualified Public Offering or a Qualified Sale; provided, however, that during such period the Management Stockholder may transfer shares of Purchase Stock pursuant to any of the following exceptions:

(a)a transfer made pursuant to and in accordance with Sections 3.2, 4, 5 or 6 hereof;

(b)a transfer upon the death or Permanent Disability of the Management Stockholder to the Management Stockholder’s Estate or a transfer to the executors, administrators, testamentary trustees, legatees or beneficiaries of a person who has become a holder of shares of Purchase Stock in accordance with the terms of this Agreement; provided that such transfer is made expressly subject to this Agreement and that the transferee agrees in writing to be bound by the terms and conditions hereof;

(c)a transfer made in compliance with the federal securities laws to a Management Stockholder’s Trust, provided that such transfer is made expressly subject to this Agreement and that the transferee agrees in writing to be bound by the terms and conditions hereof; and

(d)other transfers permitted, in writing, by POI Acquisition acting in its sole discretion.

No transfer of any such shares in violation hereof shall be made or recorded on the books of Company and any such transfer shall be void ab initio and of no effect.

3.2Notwithstanding the provisions of Section 3.1 above, if, at any time prior to the date of consummation of the earlier of a Qualified Public Offering or a Qualified Sale, POI Acquisition has transferred shares of Common Stock held by it (after giving effect to the Restructuring) as of the Effective Date, other than to an Affiliate, the Management Stockholder shall be permitted to transfer, in the aggregate (including transfers made pursuant to Sections 4, 5 and 6 hereof), the Pro Rata Portion (as defined below) of his or her shares of Purchase Stock.  As

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used in this subsection, “Pro Rata Portion” shall mean a fraction, the numerator of which is equal to the number of shares of Common Stock transferred by POI Acquisition, other than to an Affiliate, and the denominator of which is the aggregate number of shares of Common Stock held (after giving effect to the Restructuring) by POI Acquisition as of the Effective Date.

SECTION 4.Right of First Refusal.

4.1If, at any time prior to the date of consummation of the earlier of a Qualified Public Offering or a Qualified Sale, the Management Stockholder receives a bona fide offer to purchase any or all shares of his or her Purchase Stock (such shares, the “Offered Shares” and such offer, the “Third Party Offer”) from one or more third parties (the “Offeror”) (other than a transfer made pursuant to and in accordance with Section 3.1(b), Section 3.1(c), Section 3.1(d), Section 3.2, Section 5 or Section 6), which the Management Stockholder wishes to accept, the Management Stockholder shall notify POI Acquisition and QDRF (the “Quadrangle Purchasers”) in writing of his or her wish to accept the Third Party Offer.  The Management Stockholder’s notice to each Quadrangle Purchaser shall contain an irrevocable offer to sell the Offered Shares to such Quadrangle Purchaser (in the manner and subject to the provisions set forth below) at a purchase price equal to the price contained in, and on substantially the same terms and conditions of, the Third Party Offer.  At any time within fifteen (15) days after the date of the receipt by a Quadrangle Purchaser of the Management Stockholder’s notice, such Quadrangle Purchaser shall have the right and option to purchase, or to arrange for a third party (including, for purposes of this sentence, the Company)to purchase, up to its pro rata portion of the Offered Shares based on the number of shares of Common Stock held by each such Quadrangle Purchaser at the time the calculation is made relative to the aggregate number of shares of Common Stock held by all of the Quadrangle Purchasers at such time and, in the event that a Quadrangle Purchaser does not elect to purchase its pro rata portion of the Offered Shares, then the other Quadrangle Purchaser shall be entitled to purchase any such Offered Shares not elected to be purchased; provided, that any Quadrangle Purchaser electing to purchase Offered Shares shall notify the other Quadrangle Purchaser at least two days prior to tendering payment for such shares pursuant to Section 4.2.

4.2A Quadrangle Purchaser shall exercise its right of first refusal by delivering a certified bank check or checks in the appropriate amount (or by wire transfer of immediately available funds, if the Management Stockholder provides to the Quadrangle Purchaser wire transfer instructions) (and any such non-cash consideration to be paid) to the Management Stockholder against delivery of certificates or other instruments representing the Offered Shares so purchased, appropriately endorsed by the Management Stockholder.  If at the end of the 15-day period, the Quadrangle Purchaser(s) have not tendered the purchase price for any of the Offered Shares in the manner set forth above, the Management Stockholder may, during the succeeding 60-day period, sell to one or more third parties some or all of the Offered Shares on terms no less favorable to the Management Stockholder than those contained in the Third Party Offer.  Promptly after such sale, the Management Stockholder shall notify the Quadrangle Purchasers of the consummation thereof and shall furnish such evidence of the completion and time of completion of such sale and of the terms thereof as may reasonably be requested by the Quadrangle Purchasers.  To the extent that, at the end of sixty (60) days following the expiration of the 15-day period during which the Quadrangle Purchasers are entitled hereunder to purchase the Offered Shares, the Management Stockholder has not completed the sale of all Offered

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Shares, all of the restrictions on sale, transfer or assignment contained in this Agreement shall, to the extent applicable, again be in effect with respect to any Offered Shares that have not been sold.

SECTION 5.Tag-Along and Drag-Along Rights.

5.1Tag-Along Rights.

(a)In the event that POI Acquisition proposes to transfer (other than by way of a Permitted Transfer) a number of shares of Common Stock representing at least 25% of the total number of shares of Common Stock outstanding at such time (any of the foregoing, a “Sale”) at any time prior to the date of consummation of the earlier of a Qualified Public Offering or a Qualified Sale, then unless POI Acquisition is entitled to give and does give a Drag-Along Notice pursuant to Section 5.2, POI Acquisition shall give notice (a “Notice of Intention to Sell”) to the Management Stockholder and the Company promptly, and in any event not more than ten (10) days after the execution and delivery by all the parties thereto of the definitive agreement relating to the Sale, setting forth in reasonable detail the terms and conditions of such proposed Sale, including the number of shares of Common Stock proposed to be so transferred, the name of the third party purchaser, the proposed amount and the 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, POI Acquisition shall give written notice (an “Amended Notice”) of the amended terms and conditions of the proposed Sale promptly to the Management Stockholder and the Company.

(b)The Management Stockholder shall have the right, exercisable upon written notice to POI Acquisition within 20 days after the Management Stockholder’s receipt of any Notice of Intention to Sell, or, if later, within 20days of the Management Stockholder’s receipt of the most recent Amended Notice, to participate in the proposed Sale by POI Acquisition 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”).  The Management Stockholder may participate with respect to shares of his or her Purchase Stock in an amount equal to the product obtained by multiplying (i) the aggregate number of shares of his or her Purchase Stock at the time of Management Stockholder’s receipt of the Notice of Intention to Sell by (ii) a fraction, the numerator of which is equal to the number of shares of Common Stock proposed to be sold or transferred by POI Acquisition and the denominator of which is the aggregate number of shares of Common Stock owned by the POI Acquisition.  If the Management Stockholder has not notified POI Acquisition of his or her 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 Management 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 shares of Common Stock elected to be sold by POI Acquisition and the Management Stockholder, in addition to the number of shares of Common Stock elected to be sold by Other Selling Stockholders pursuant to similar tag-along rights as those contained in this Agreement, is greater than the number of shares of Common Stock specified in the Notice of Intention to Sell, the number of shares of Common Stock being sold by

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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 the number of shares of Common Stock specified in the Notice of Intention to Sell (based on the number of shares of Common Stock owned by such holder to the total number of shares of Common Stock owned by all of such electing holders).  If the Management Stockholder elects not to include the maximum number of shares of his or her Purchase Stock that would have been permitted for inclusion in a proposed Sale, POI Acquisition and the Other Selling Stockholders may sell in the proposed Sale a number of additional shares of Common Stock owned by any of them equal to their pro rata portion of the number of shares of Common Stock eligible to be included in the proposed Sale and not so elected to be included (based on the number of shares of Common Stock owned by such holder to the total number of shares of Common Stock owned by all of such electing holders).

(c)If the Management Stockholder exercises its rights under this Section 5.1, the closing of the sale of the shares of Common Stock with respect to which such rights have been exercised will take place concurrently with the closing of the sale of the shares of Purchase Stock to the purchaser.

(d)In connection with any Sale pursuant to this Section 5.1, the Management Stockholder shall make to the purchaser in the Sale the same representations, warranties, covenants, indemnities and agreements as POI Acquisition makes in connection with the proposed Sale (except that in the case of representations, warranties, covenants, indemnities and agreements pertaining specifically to POI Acquisition, the Management Stockholder exercising his or her “tag-along” rights shall make the comparable representations, warranties, covenants, indemnities and agreements pertaining specifically to his or herself); provided, that all representations, warranties, covenants and indemnities shall be made by POI Acquisition, the Management Stockholder and any Other Selling Stockholders severally and not jointly.  Each of POI Acquisition, the Management Stockholder and any Other Selling Stockholders 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 POI Acquisition, the Management Stockholder and any Other Selling Stockholders thereunder shall be borne by each of them on a pro rata basis based on the number of shares of Common Stock sold by each of them in such Sale.

5.2Drag-Along Rights.

(a)If at any time prior to the date of consummation of the earlier of a Qualified Public Offering or a Qualified Sale, (i) POI Acquisition 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 shares of Common Stock owned by POI Acquisition at such time, (ii) at least 90% of the fair market value of the consideration to be received by POI Acquisition in such offer is in the form of cash, Cash Equivalents or Marketable Securities and (iii) such offer is accepted by POI Acquisition, then the Management Stockholder hereby agrees that, if requested by POI Acquisition, it will transfer to such purchaser, subject to Section 5.2(b), on the terms of the offer so accepted by POI Acquisition, including time of payment, form of consideration and adjustments to purchase price, all of the shares of his or her Purchase Stock (the “Drag-Along Rights”).

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(b)POI Acquisition will give notice (the “Drag-Along Notice”) to the Management Stockholder of any proposed transfer giving rise to the rights of POI Acquisition set forth in Section 5.2(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 shares of Common Stock proposed to be so transferred, the name of the purchaser, the proposed amount and form of consideration, the number of shares of Common Stock sought and the other terms and conditions of the offer.  The Management Stockholder shall make to the purchaser in the Drag-Along Sale the same representations, warranties, covenants, indemnities and agreements as POI Acquisition makes in connection with the proposed Drag-Along Sale (except that in the case of representations, warranties, covenants, indemnities and agreements pertaining specifically to POI Acquisition, the Management Stockholder subject to this Drag-Along Rights shall make the comparable representations, warranties, covenants, indemnities and agreements pertaining specifically to his or herself); provided, that all representations, warranties, covenants and indemnities shall be made by POI Acquisition, the Management Stockholder and any Other Selling Stockholders severally and not jointly.  Each of POI Acquisition, the Management Stockholder and any Other Selling Stockholders participating in the Drag-Along Sale will be responsible for funding its proportionate share of any escrow arrangements in connection with the Drag-Along Sale and for its proportionate share of any withdrawals therefrom.  All fees, commissions, adjustments to purchase price, expenses and indemnities of POI Acquisition, the Management Stockholder and any Other Selling Stockholders under the applicable transaction agreement shall be borne by each of them on a pro rata basis based on the number of shares of Common Stock sold by each of them in such Drag-Along Sale.  If the Drag-Along Sale is not consummated within 90 days from the date of the Drag-Along Notice (subject to extensionto obtain any necessary regulatory approvals), POI Acquisition must deliver another Drag-Along Notice in order to exercise their rights under this Section 5.2 with respect to such Drag-Along Sale.

SECTION 6.“Piggyback” Registration Rights.

6.1Right to Piggyback.  If 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 shares of Purchase Stock (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 the Management Stockholder 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 the Management Stockholder the opportunity to register such amount of shares of Purchase Stock as the Management Stockholder may request (a “Piggyback Registration”).  Subject to Section 6.3,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) any shares of Purchase Stock 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.  The Management Stockholder will be permitted to withdraw all or part of the shares of his or her Purchase Stock from a Piggyback Registration at any time prior to the effective date of such Piggyback Registration.

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6.2Priority 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 the Management Stockholder, along with POI Acquisition and any Other Selling Stockholders having similar piggyback rights (together, the “Holders”), if requested to be included in the registration for such offering, to include therein all such shares of Common Stock requested to be so included (such securities, the “Piggyback Shares”) on the same terms and conditions as any securities of the Company included therein (other than the indemnification by the Holders, provided, that the Holders give customary covenants, representations and warranties).  The Company shall cooperate with the Management Stockholder in order to seek to limit any representations and warranties to, or agreements with, the Company or the underwriters to be made by the Management Stockholder only to those representations, warranties or agreements regarding such Management Stockholder, such Management Stockholder’s Piggyback Shares and such Management Stockholder’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 the Holders and the Company 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:

(a)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 the Holders, determined pro rata on the basis of the number of shares of Common Stock beneficially owned by each of the Holders; and

(b)in the case of a registration in connection with a sale of securities for the account of POI Acquisition or any other Holder (a “Demand Registration”), (i) first, 100% of the number of shares of Common Stock requested to be included in such Demand Registration by the demanding Holder, (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 above, the number of Piggyback Shares requested to be included in such offering by the other Holders, determined pro rata on the basis of the number of shares of Common Shares beneficially owned by each of the other Holders 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 above, the securities sought to be included by the Company in the offering.

6.3Right to Terminate Registration.  The Company shall have the right to postpone, terminate or withdraw any registration initiated by it under this Section 6 prior to the effectiveness of such registration whether or not the Holders have elected to include Piggyback Shares in such registration.

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SECTION 7.Management Stockholder’s Representations, Warranties and Agreements.

7.1In addition to agreeing to the restrictions on the transfer of shares of Purchase Stock set forth in Section 3, the Management Stockholder also agrees and acknowledges that he or she will not transfer any shares of Purchase Stock unless:

(a)the transfer is pursuant to an effective registration statement under the Securities Act and in compliance with applicable provisions of state securities laws; or

(b)(A) unless waived by the Company, counsel for the Management Stockholder (which counsel shall be reasonably acceptable to the Company) shall have furnished the Company with an opinion, reasonably satisfactory in form and substance to the Company, that no such registration under the Securities Act is required because of the availability of an exemption from registration under the Securities Act and (B) if the Management Stockholder is a citizen or resident of any country other than the United States, or the Management Stockholder desires to effect any transfer in any such country, counsel for the Management Stockholder (which counsel shall be reasonably satisfactory to the Company) shall have furnished the Company with an opinion or other advice reasonably satisfactory in form and substance to the Company to the effect that such transfer will comply with the securities laws of such jurisdiction.

Notwithstanding the conditions in this Section 7.1, the Company and POI Acquisition each acknowledges and agrees that any transfer permitted under Sections 3.1(b) or 3.1(c) is deemed to be in compliance with this Agreement (including without limitation any restrictions or prohibitions herein) and no opinion of counsel is required in connection therewith.

7.2The certificate (or certificates) representing any shares of Purchase Stock shall bear the following legend:

“THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON FEBRUARY 8, 2005, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER.  IN ADDITION, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF THE MANAGEMENT STOCKHOLDER’S AGREEMENT DATED AS OF FEBRUARY 8, 2005 AMONG PROTECTION ONE, INC., POI ACQUISITION, L.L.C. AND THE MANAGEMENT STOCKHOLDER NAMED ON THE FACE HEREOF (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF PROTECTION ONE, INC.).”

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7.3The Management Stockholder acknowledges that he or she has been advised that (i) a restrictive legend in the form heretofore set forth shall be placed on the certificates representing the Purchase Stock and (ii) a notation shall be made in the appropriate records of the Company indicating that the Purchase Stock is subject to restrictions on transfer and appropriate stop transfer restrictions will be issued to the Company’s transfer agent with respect to the Purchase Stock.  If the Management Stockholder is an Affiliate of the Company, the Management Stockholder also acknowledges that (1) the shares of Purchase Stock must be held indefinitely and the Management Stockholder must continue to bear the economic risk of the investment in the shares of Purchase Stock unless it is subsequently registered under the Securities Act or an exemption from such registration is available, (2) when and if shares of the Purchase Stock may be disposed of without registration in reliance on Rule 144 of the rules and regulations promulgated under the Securities Act, such disposition can be made only in limited amounts in accordance with the terms and conditions of such Rule and (3) if the Rule 144 exemption is not available, public sale without registration will require compliance with some other exemption under the Securities Act.

7.4If any shares of the Purchase Stock are to be disposed of in accordance with Rule 144 under the Securities Act or otherwise, the Management Stockholder shall promptly notify the Company of such intended disposition and shall deliver to the Company at or prior to the time of such disposition such documentation as POI Acquisition may reasonably request in connection with such sale, including an executed copy of any notice on Form 144 required to be filed with the SEC.

7.5The Management Stockholder agrees that, if any shares of Purchase Stock are offered to the public in an underwritten offering pursuant to an effective registration statement under the Securities Act (other than registration of securities issued on Form S-8, S-4 or any successor or similar form), the Management Stockholder will not effect any public sale or distribution of any shares of Purchase Stock not covered by such registration statement during the period beginning seven days before (as estimated by the Company in good faith, and set forth in a notice to the Management Stockholder) and ending ninety (90) days (or such shorter period as may be consented to by the managing underwriter or underwriters, if any) after, the effective date of such registration statement.

7.6The Management Stockholder represents and warrants that (i) with respect to the shares of Purchase Stock, he or she has received and reviewed the available information relating to the shares of Purchase Stock, including having received and reviewed the documents related thereto, and (ii) he or she has been given the opportunity to obtain any additional information or documents and to ask questions and receive answers about such information, the Company and the business and prospects of the Company which he or she deems necessary to evaluate the merits and risks related to his or her investment in the shares of Purchase Stock and to verify the information contained in the information received as indicated in this Section 7.6, and he or she has relied solely on such information.

7.7The Management Stockholder further represents and warrants that (i) his or her financial condition is such that he or she can afford to bear the economic risk of holding the shares of Purchase Stock for an indefinite period of time and has adequate means for providing for his or her current needs and personal contingencies, (ii) he or she can afford to suffer a

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complete loss of his or her investment in the shares of Purchase Stock, (iii) he or she understands and has taken cognizance of all risk factors related to the purchase of the shares of Purchase Stock, (iv) his or her knowledge and experience in financial and business matters are such that he or she is capable of evaluating the merits and risks of his or her purchase of the shares of Purchase Stock as contemplated by this Agreement and (v) he or she is an “accredited investor” as defined in Rule 501(a) promulgated under the Securities Act.

SECTION 8.Company’s Representations and Warranties.  The Company represents and warrants to the Management Stockholder that (i) this Agreement has been duly authorized, executed and delivered by Company and is enforceable against Company in accordance with its terms and (ii) the Purchase Stock, when issued and delivered in accordance with the terms hereof, will be duly and validly issued, fully paid and nonassessable.

SECTION 9.POI Acquisition’s Representations and Warranties.  POI Acquisition represents and warrants to the Management Stockholder that this Agreement has been duly authorized, executed and delivered by POI Acquisition and is enforceable against POI Acquisition in accordance with its terms.

SECTION 10.Recapitalizations, etc.  The provisions of this Agreement shall apply, to the full extent set forth herein with respect to the shares of Purchase Stock, to any and all shares of Common Stock or any capital stock, partnership units or any other security evidencing ownership interests in the Company or any successor or assign of Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for, or substitution of the shares of Purchase Stock by reason of any stock dividend, split, reverse split, combination, recapitalization, liquidation, reclassification, merger, consolidation or otherwise.

SECTION 11.Binding Effect.  The provisions of this Agreement shall be binding upon and accrue to the benefit of the parties hereto and their respective heirs, legal representatives, successors and permitted assigns.  In the case of a transferee permitted under Section 3.1 hereof (other than clause (a) thereof), such transferee shall be deemed the Management Stockholder hereunder; provided, however, that no transferee (including without limitation, transferees referred to in Section 3.1 hereof) shall derive any rights under this Agreement unless and until such transferee has delivered to POI Acquisition and the Company a valid undertaking and becomes bound by the terms of this Agreement.

SECTION 12.Amendment.  This Agreement may be amended only by a written instrument signed by the Parties hereto; provided that QDRF’s consent shall only be required with respect to amendments to Section 4.

SECTION 13.Assignability of Certain Rights by POI Acquisition.  POI Acquisition and QDRF shall have, without limitation, the right to assign any or all of its rights or obligations to purchase shares of Purchase Stock pursuant to this Agreement.

SECTION 14.APPLICABLE LAW.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

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SECTION 15.Severability.  If any provision of this Agreement shall be declared illegal, void or unenforceable by any court of competent jurisdiction, the other provisions shall not be affected, but shall remain in full force and effect.

SECTION 16.Notices.  All notices and other communications provided for herein shall be in writing.  Any notice or other communication hereunder shall be deemed duly given (i) upon electronic confirmation of facsimile, (ii) one business day following the date sent when sent by overnight delivery and (iii) five (5) business days following the date mailed when mailed by registered or certified mail return receipt requested and postage prepaid, in each case as follows:

(a)If to the Company:

Protection One, Inc
1035 N. 3^rd Street, Suite 101
Lawrence, Kansas 66044
Telephone:  785-575-1707
Facsimile:  785-575-1711
Attention:  Darius G. Nevin

(b)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

(c)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

(d)If to the Management Stockholder, to him or her at the address set forth below under his or her signature;

or at such other address as any Party shall have specified by notice in writing to the other Parties.

[Signatures on next page.]

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

PROTECTION ONE, INC.

By:

Name:

Title:

POI ACQUISITION, L.L.C.

By:

Name:

Title:

QUADRANGLE MASTER FUNDING LTD

By:

Name:

Title:

MANAGEMENT STOCKHOLDER:

Name:

ADDRESS:

SHARES:

PURCHASE PRICE:

EX-10.9

Exhibit 10.9

PROTECTION ONE, INC.
SENIOR MANAGEMENT
SHORT-TERM INCENTIVE PLAN

Effective January 1, 2004

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

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

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

(b)Award Criteria:  The Financial and Discretionary criteria described in Section 4, and as approved by the Board from time to time, and as same may be amended from time to time in accordance with the terms hereof.

(c)Base Compensation:  Annualized salary paid to an employee, excluding overtime, bonuses, commissions, or any pay element other than the base rate of compensation.

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

(e)CMS: Security Monitoring Services, Inc., a Florida corporation (d/b/a Computerized Monitoring Services, Inc., or CMS), and its successors and assigns.

(f)CMS Senior Management: The individual employed by CMS who holds the title of President of CMS.

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

(h)Designated Subsidiaries: CMS, POAMI and NMF.

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

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(j)Executive Officers:  Those individuals which hold the following officer positions: (i) President/Chief Executive Officer (“CEO”); (ii) any Executive Vice President (“EVP”) of the Company or POAMI, including without limitation the Executive Vice President and Chief Financial Officer (“CFO”), the Executive Vice President of Field Operations, and (iii) the President of NMF.

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

(l)NMF: Network Multi-Family Security Corporation, a Delaware corporation, and its successors and assigns.

(m)NMF Senior Management: Those individuals employed by NMF who hold the titles of Senior Vice President, Vice President-Finance, Director-IT or Director-Customer Service.

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

(o)Participant:  Each Executive Officer, Officer and member of Senior Management, as those terms are defined herein, and those employees who are designated for participation in the Plan by the Board or the CEO pursuant to Section 3.

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

(q)POAMI: Protection One Alarm Monitoring, Inc., a Delaware corporation, and its successors and assigns.

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

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

(t)Target Award Percentage:  That percentage of a Participant’s Base Compensation which the Board (or the CEO pursuant to Section 3) shall from time to time determine to be available to a Participant under the Plan, or which is specified in  any employment agreement with Participant, which employment agreement is approved by the Board. As an example, a Senior Manager may be targeted to earn up to 25% of his/her Base Compensation as an Award if all applicable criteria are achieved.  The Target Award may apply to a class of employees or to individual employees, at the discretion of the Board (or the CEO pursuant to Section 3).

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2.Administration.  The Board shall be responsible for establishing the overall Plan, administering the Plan, determining whether actual individual compensation awards will be paid, and approving the amount of the actual individual compensation awards.  The Board may delegate any or all of such responsibilities with respect to the Plan to a committee of the Board or with respect to decisions or determinations affecting Plan Participants other than the CEO or CFO, to the CEO or CFO of the Company.

The members of the Board and all agents, officer, fiduciaries, and employees of the Company shall not be liable for any act, omission, interpretation, construction, or determination made in good faith in connection with their responsibilities with respect to the Plan; and the Company hereby agrees to indemnify the members of the Board and all agents, officers, fiduciaries, and employees of the Company in respect to any claim, loss, damage, or expense (including counsel fees) arising from any such act, omission, interpretation, construction, or determination to the full extent permitted by law.

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

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

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

(c)NMF Senior Management:  The Board is responsible for the day-to-day supervision of the Plan including the designation of goals, determination of the achievement of such goals, determination of the award size relating to the goals, and the determination of the amount of the discretionary award.

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

3.Eligibility to Participate.  Only employees who are Executive Officers, Officers or members of Senior Management (as defined herein), that are not otherwise participants in a separate non-equity incentive plan (other than retention programs) are Participants in the Plan.  The CEO shall determine, from time-to-time, whether the Plan should be extended to other individuals or groups of employees of the Company or its Designated Subsidiaries; provided, however, that the CEO shall not have authority to extend the Plan to additional executive officers.

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4.Award Criteria.  Awards under the Plan shall be calculated utilizing the following two criteria for each Participant: (i) the Financial Criterion, from which 70% of the Award is derived, and (ii) the Discretionary Criterion, from which 30% of the Award is derived. These criteria are further described below.

(a)Financial Criterion:  The purpose of this measure is to foster a team orientation and to directly tie a Participant’s incentive to the steady state net operating cash flow (“SSNOCF”) of the Company, which the Company believes is a key operating metric and directly affects shareholder value.

SSNOCF shall be calculated in a manner consistent with the method used in the Company’s annual financial plan and approved by the Board.  SSNOCF will be calculated for the Company and the Designated Subsidiaries on a consolidated basis.  Expenses related to the sale of the Company, debt restructuring, the impact of any tax sharing agreements and unbudgeted legal settlements arising from claims that preceded the tenure of current management (i.e., prior to April 2001) are excluded from these calculations.

The calculation of Participants’ financial component will include a multiplier of 0% to 200% (the “Financial Multiplier”) that will depend on performance against plan.

The formula for calculating the Financial Multiplier is as follows:

(Actual SSNOCF – (90%) (Budgeted SSNOCF)) divided by ((10%) (Budgeted SSNOCF))  =  Multiplier

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

Financial Multiplier X Target Award Percentage X Financial Criterion Percentage (70%).

For example, for an Executive Officer with the maximum Multiplier, the calculation would be 200% (Multiplier) x 60% (Target Award Percentage) x 70% (Financial Criterion Percentage) = 84% of Base Compensation.

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

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

(i)providing strategic direction

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(ii)providing leadership

(iii)proactively managing change

(iv)organizing developing, and utilizing the management team

(v)creating an appropriate organizational environment

(vi)providing effective external representation

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

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

(c)Adjustment to Certain Participant Awards:  To the extent that Richard Ginsburg, Darius G. Nevin, Steve Williams or Peter Pefanis receive an Award with respect to 2004, such Award shall be the product of (i) the Award determined pursuant to this Section 4 multiplied by (ii) the ratio 318 / 366.

5.Payment of Awards.

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

(b)Termination of Employment:  Except as may be provided in a written employment agreement between a Participant and the Company or a Designated Subsidiary, a Participant who ceases to be continually employed by the Company or a Designated Subsidiary during the Incentive Period shall not be eligible for and shall forfeit all rights to an Award for such Incentive Period.

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

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

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

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

10.Amendment and Termination.  Other than with respect to the 2004 Plan year, the Board may from time to time and at any time alter, amend, suspend, discontinue, or terminate the Plan. Amendments to the Plan will not operate retroactively unless the amendment expressly so provides and is expressly agreed to by the CEO.

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

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

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

14.Effective Date.  This Plan is made effective as of January 1, 2004 and supersedes all other existing short-term incentive plans of the Company and its Designated Subsidiaries.

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