Table of
Contents
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark
One)
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the fiscal year ended December 31, 2009
OR
o
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TRANSITION
REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For the transition period from to
Commission File Number:
1-12181-01
PROTECTION ONE, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
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93-1063818
(I.R.S. Employer
Identification No.)
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1035 N. 3
rd
Street, Suite 101
Lawrence, KS
(Address of principal executive offices)
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66044
(Zip Code)
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785-856-5500
(Registrants Telephone Number, Including Area
Code)
Securities registered under Section 12(b) of
the Exchange Act:
Title of each class
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Name of each exchange on which registered
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Common Stock, par value $.01 per share
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The NASDAQ Global Market
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Securities registered under Section 12(g) of
the Exchange Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act. Yes
¨
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13
or Section 15(d) of the Act. Yes
o
No
x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
x
No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes
o
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act.
Large accelerated filer
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Accelerated filer
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Non-accelerated filer
o
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Smaller reporting company
x
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(Do not check if a smaller reporting company)
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Act). Yes
o
No
x
As
of June 30, 2009, the aggregate market value of the registrants common
stock held by non-affiliates of the registrant was $31,226,063 based on the
closing sale price as reported on the NASDAQ Global Market.
The number of shares outstanding of the registrants
common stock, $0.01 par value per share, as of March 5, 2010 was 25,433,371.
DOCUMENTS INCORPORATED BY
REFERENCE:
None.
Table
of Contents
EXPLANATORY
STATEMENT TO FORM 10-K AMENDMENT
This Amendment No. 1
on Form 10-K/A (Amendment No. 1) amends the Protection One, Inc.
Annual Report on Form 10-K for the fiscal year ended December 31,
2009, previously filed with the Securities and Exchange Commission (SEC) on March 24,
2010 (Original Form 10-K). This Amendment No. 1 is being filed for
the purpose of (i) including information in Part III, Items 10 through 14,
because an information statement for the election of directors will not be
filed with the SEC within 120 days after the end of our 2009 fiscal year and
(ii) correcting the number of shares outstanding of the registrants common
stock, $0.01 par value per share, as of March 5, 2010 to 25,433,371 from the
originally reported 25,333,371 shares as reflected on the cover of the Original
Form 10-K.
The reference on the
cover of the Original Form 10-K to the incorporation by reference of
portions of our information statement into Part III of the Original Form 10-K
is hereby deleted. In addition, Part III, Items 10 through 14 of the
Original Form 10-K have been amended and restated in their entirety and Part IV,
Item 15 Exhibits of the Original Form 10-K has been amended and restated
solely to include as exhibits the new certifications required by Rule 12b-15
under the Securities Exchange Act of 1934, as amended.
The
increase in outstanding shares reflects the 100,000 restricted shares issued to
our senior executive officers on February 22, 2010.
There are no other
changes to the Original Form 10-K other than those outlined above. This
Amendment No. 1 does not reflect events occurring after the filing of the
Original Form 10-K, nor does it modify or update disclosures therein in
any way other than as described above. Among other things, forward-looking
statements made in the Original Form 10-K have not been revised to reflect
events that occurred or facts that became known to us after the filing of the
Original Form 10-K, and such forward looking statements should be read in
their historical context.
Table of
Contents
PROTECTION
ONE, INC.
ANNUAL
REPORT ON FORM 10-K/A
For the
Fiscal Year Ended December 31, 2009
Table of Contents
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors
In connection with our
restructuring in 2005, we entered into a stockholders agreement with affiliates
of Quadrangle Group LLC (the Quadrangle Stockholders) and affiliates of
Monarch Alternative Capital LP (the Monarch Stockholders and, together with
the Quadrangle Stockholders, the Principal Stockholders). The stockholders agreement was amended and
restated on April 2, 2007, in connection with the merger of Integrated
Alarm Services Group, Inc., which we refer to as IASG, into one of our
wholly-owned subsidiaries (which we refer to as the IASG merger). Raymond C.
Kubacki and Arlene M. Yocum or their successors were required to be nominated
and appointed to our Board of Directors in accordance with the IASG merger
agreement for a period of not less than two years from April 2, 2007. The amended and restated stockholders
agreement provides that the parties thereto and Protection One, Inc., which we
refer to as the Company or the company, will use their reasonable best efforts
to cause our Board of Directors to consist of nine members, which shall include
the following:
·
three members designated by POI
Acquisition, L.L.C. (POIA), an affiliate of Quadrangle Group LLC, subject to
POIAs maintenance of a certain threshold of ownership in us (and provided that for so long as POIA owns
at least 40% of our Common Stock, it shall have the right to cause our Board of
Directors to be increased by two directors and designate such directors);
·
two members designated by Monarch
Alternative Capital LP (Monarch), subject to Monarchs maintenance of a
certain threshold of ownership in us;
·
our President and Chief Executive
Officer, Richard Ginsburg; and
·
one other independent director selected
by a majority of the other directors.
The following table sets
forth biographical information as of April 26, 2010, regarding our current
directors, as well as information regarding experience, qualifications,
attributes or skills that contribute to such persons ability to serve as a
director. Each directors term expires
at our 2010 annual meeting of stockholders.
Name
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Age
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Background
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Richard Ginsburg
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41
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Mr. Ginsburg has
served as our director and Chief Executive Officer since April 2001 and
President since July 2001. Mr. Ginsburg holds a BS in
communications from the University of Miami. He was a founder of Guardian
International, a security monitoring company, and served as its President and
Chief Executive Officer from August 1996 to April 2001.
Mr. Ginsburg brings to the Board in-depth knowledge of, and experience
in, the security monitoring industry, as well as substantial leadership
ability and management experience.
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Raymond C. Kubacki
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Mr. Kubacki has
served as our director since the IASG merger in April 2007.
Mr. Kubacki served as a director of IASG from June 2004 until the
IASG merger and was a member of IASGs audit, independent, compensation and
governance and nominating committees. Since July 1991, Mr. Kubacki
has served as President and Chief Executive Officer of Psychemedics
Corporation, a public biotechnology company with a proprietary drug test
product. He has also served as Chairman of the Board of Directors of
Psychemedics since November 2003. Prior to joining Psychemedics, he held
senior management positions in marketing and operations with Reliance
Electric Company and ACME Cleveland Corporation and was an investment officer
for Massachusetts Investors Trust, a major mutual fund investment management
company. He is also a trustee for the Center for Excellence in Education
based in Washington, D.C. Mr. Kubacki received his BA and MBA from
Harvard University. Mr. Kubackis years of experience as a director and
member of executive management of public companies, as well as his experience
in marketing and operations, provides useful knowledge and insight to the
Board as a whole.
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Robert J. McGuire
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Mr. McGuire has
served as our director since March 2005. Mr. McGuire holds an LL.M.
from New York University Law School, a JD from Saint Johns University Law
School and a BA from Iona College. Mr. McGuire is an attorney and
consultant with offices in New York City. Mr. McGuire is a former
Assistant United States Attorney and a former New York City Police
Commissioner. He is a former Chairman and Chief Executive of Pinkertons Inc.
and former President of Kroll Associates, Inc. Mr. McGuire serves
on the Boards of Artio Global Funds, Mutual of America Life Insurance
Company, and Six Flags, Inc. Mr. McGuires years of directorial,
executive management and legal experience makes him a valuable member of the
Board.
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Peter R. Ezersky
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Mr. Ezersky was appointed
to our Board as a Quadrangle Group LLC designee in October 2009. He
joined Quadrangle upon its formation in 2000 and is a Managing Principal
focused on the firms private equity business. Mr. Ezersky also
currently serves on the Boards of Directors of Cinemark, Dice Holdings, Get
AS, MGM and Hargray Holdings as well as on the Advisory Board of Bresnan
Broadband. Among other activities, Mr. Ezersky has been actively
involved in implementing the growth and acquisition strategies of both Cinemark
and Dice, enhancing the management teams at several of Quadrangles portfolio
companies and executing a variety of financings to fund acquisitions and
realizations. Prior to joining Quadrangle, Mr. Ezersky ran the Worldwide
Media and Communications group at Lazard Frères & Co., which he
joined after starting his investment banking career at First Boston. He
received a B.A., summa cum laude, in political science from Amherst College,
where he was a member of Phi Beta Kappa, and a J.D. from the Yale Law School,
where he was an editor of the Yale Law Journal. Following law school, he was
a Law Clerk for Judge Ralph K. Winter, Jr. of the United States Court of
Appeals for the Second Judicial Circuit. Mr. Ezerskys experience with
executive management of various Quadrangle-portfolio companies as well as his
strategic business planning expertise adds value to the Board.
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Alex Hocherman
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32
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Mr. Hocherman was appointed to our Board as a Quadrangle Group LLC
designee in April 2009. Mr. Hocherman
joined Quadrangle Group LLC, an affiliate of POIA,
in 2006 and is a Vice President focused on the firms media and
communications private equity business. Prior to joining Quadrangle Group
LLC, Mr. Hocherman was an Associate at Bain Capital where he focused on
private equity investments. He also worked as an Associate Consultant at
Bain & Company. He received an MBA from the Wharton School at the
University of Pennsylvania where he was the Ford Fellow and a Palmer Scholar,
and graduated with a BA, magna cum laude, in economics from Dartmouth
College, where he was a member of Phi Beta Kappa. He has served on the board
of Alpha Media Group, a privately-held media company.Mr. Hochermans
business and educational experience enhances his ability to contribute as a
director of the Board.
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Thomas J. Russo
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Mr. Russo has
served as our director since April 2007 as a Monarch designee.
Mr. Russo has served as a partner and president of StepStone
Hospitality, a hotel and restaurant management company, since 2007.
Mr. Russo has 40 years of management experience in domestic and
international operations of foodservice, lodging and consumer goods
companies. Mr. Russo holds a BS degree from Fordham University and
a degree of Doctor of Business Administration in Foodservice Management from
Johnson and Wales University. Mr. Russo is Vice Chairman of
Leadership Roundtable and past Chairman of the Massachusetts
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Restaurant Association.
He serves on the boards of the National Restaurant Association, Oneida
Ltd and Margarita, Inc. Mr. Russos leadership experience,
including his management and directorial experience, adds value to the Board.
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Edward Sippel
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Mr. Sippel was
appointed to our Board as a Quadrangle Group LLC designee in April 2008.
Mr. Sippel is a Managing Principal of Quadrangle Group LLC, an affiliate
of POIA. Mr. Sippel currently serves on the Board of Tower Vision Mauritius
Limited and Tower Vision India Private Limited on behalf of Quadrangle Group
LLC. In his past roles, Mr. Sippel has served on the Board of
Directors of several companies in Asia, including the public companies
PowerTel Limited and Neighbourhood Cable Limited, both in Australia, together
with many private businesses. Mr. Sippel holds a BA degree from
Georgetown University. Prior to joining Quadrangle Group LLC in 2007,
Mr. Sippel was a Managing Director and Partner at TVG Capital Partners,
a private equity firm based in Hong Kong, from its inception in 1998 to 2007.
Prior to joining TVG Capital Partners, Mr. Sippel was with the Asian
Infrastructure Fund in Hong Kong and Morgan Stanleys Global Communications
Group in New York. Mr. Sippels management and directorial experience
enhances his ability to serve as a director of the Board.
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Michael Weinstock
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49
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Mr. Weinstock has
served as our director since February 2005 as a Monarch designee. He is
Managing Principal of Monarch Alternative Capital LP, an affiliate of the
Monarch Stockholders. Mr. Weinstock graduated from the Wharton School of
the University of Pennsylvania, summa cum laude, with a B.S. in Economics and
from Harvard Business School with an M.B.A. Prior to joining Monarchs predecessor
in 2002, Mr. Weinstock was a Managing Director of Lazard
Frères & Co., where he built a distressed debt research effort.
Prior to that, he was an investment banker with Salomon Brothers and Goldman
Sachs working on corporate finance, securitization, and mergers and
acquisitions transactions. Mr. Weinstocks vast experience in the
financial sector as well as his educational background enhances his ability
to contribute as a director on the Board.
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Arlene M. Yocum
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Ms. Yocum has
served as our director since the IASG merger in April 2007.
Ms. Yocum served as director of IASG from October 2005 until the
IASG merger and was the chairperson of both the governance and nominating
committee and the independent director committee. Ms. Yocum has served
as Executive Vice President, Managing Executive of Client Services and
Distribution for PNCs Asset Management Group since 2003. From 2000 to 2003
Ms. Yocum was an Executive Vice President of the Institutional
Investment Group of PNC Wealth Management. From 1993 to 2000, Ms. Yocum
held various management and executive positions within PNC. Ms. Yocum
also serves as a director of Key Energy Services, Inc., which is
headquartered in Houston, TX. Ms. Yocum is a Trustee and Treasurer of
the Philadelphia Community College foundation and a member of the American
Bankers Association Wealth Management and Trust Conference Board. She holds a
JD from Villanova School of Law and a BA from Dickinson College.
Ms. Yocums extensive business experience, including her directorial
experience with public companies, as well as her legal and financial
expertise enhances her ability to serve as a director of the Board.
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Table of Contents
Executive Officers
The following table sets
forth the name, age and position of each person who serves as an executive
officer as of April 26, 2010. All
of our executive officers are appointed by the Board and hold their respective
offices until their respective successors have been appointed, or their earlier
death, resignation or removal by the Board.
Name
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Age
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Background
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Richard Ginsburg
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41
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Mr. Ginsburg has
served as our director and Chief Executive Officer since April 2001 and
President since July 2001. He was a founder of Guardian
International, Inc., a security monitoring company, and served as its
President and Chief Executive Officer from August 1996 to
April 2001.
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Darius G. Nevin
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52
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Mr. Nevin has
served as our Executive Vice President and Chief Financial Officer since
August 2001. He served as our director from November 2002 to
May 2003. From October 1997 to August 2001, he was the
Chief Financial Officer of Guardian International, Inc. For most
of the ten years prior to October 1997, Mr. Nevin served in senior
executive positions for a provider of commercial electronic security systems
and services.
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Peter J. Pefanis
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63
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Mr. Pefanis has
served as our Executive Vice President and Chief Operating Officer since
March of 2007. He was Executive Vice President of Protection One
Alarm Monitoring, Inc., our wholly-owned subsidiary, from
September 2002 to March 2007, and was Senior Vice President from
June 2001 to September 2002. Prior to his role at Protection
One, during a span of 27 years, Mr. Pefanis held senior positions at
SecurityLink, Honeywell, National Guardian Corp., and Wells Fargo.
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J. Eric Griffin
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51
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Mr. Griffin has
served as our Vice President, General Counsel and Secretary since
December 2001. He served as Executive Director of Legal Services from
May 2000 to December 2001.
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Joseph R. Sanchez
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49
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Mr. Sanchez has
served as our Senior Vice President Customer Operations since June 2004.
He served as Vice President Customer Operations from August 1999 to
June 2004. Mr. Sanchez has been with us since 1990 and has held
various manager and director level positions within the organization.
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E. Andy Devin
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47
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Mr. Devin has
served as our Treasurer since September 2004 and our Vice
President-Finance since August 2007. He has served as Vice President
since 2001 and was our Controller from 1999 to July 2007. Prior to
joining us, Mr. Devin held various positions with Westar Energy, our
former majority owner, and prior to that spent seven years in public
accounting.
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Tony Wilson
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42
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Mr. Wilson has
served as President of Security Monitoring Services, Inc. (d/b/a CMS),
our wholly owned subsidiary, since 1991. Mr. Wilson was one of the
original founders of CMS and has served in various roles with the company
since 1984.
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Sarah Strahm
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35
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Ms. Strahm has
served as Chief Accounting Officer since August of 2007. Prior to
joining us, Ms. Strahm spent nine years in public accounting with
PricewaterhouseCoopers LLP where she most recently served as a senior
manager.
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Code of Ethics
We have adopted a code of
ethics that applies to all employees, including executive officers and senior
financial and accounting employees. It
is our policy to comply strictly with the letter and spirit of all laws affecting
our business and the conduct of our officers, directors and employees in
business matters. We make available the
code of ethics, free of charge, on our website at www.protectionone.com and by
responding to requests addressed to our investor relations department. The investor relations department can be
contacted by mail at Protection One, Inc., Attn: Investor Relations, 1035 N. 3
rd
Street, Suite 101,
Lawrence, KS 66044 or by calling (785) 856-9368.
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Table of Contents
Section 16(a) Beneficial
Ownership Reporting Compliance
Pursuant to Section 16(a) of
the Securities Exchange Act of 1934 and the rules issued thereunder (the Exchange
Act), our executive officers and directors are required to file certain
reports with the Securities and Exchange Commission. These reports disclose the amount of our
Common Stock that is held by our executive officers and directors, in addition
to changes in their ownership of stock.
Copies of these reports are required to be furnished to us. We believe that all of our current executive
officers, directors and beneficial owners of more than 10% of our Common Stock
filed all reports required for 2009 by Section 16(a) of the Exchange
Act on a timely basis. Our belief that
all required filings were made is based solely on our review of the copies of
reports furnished to us, or on written representations to us that no such
reports were required.
Family Relationships
There are no family
relationships between any of our directors or executive officers.
Audit Committee; Financial Expert
The Audit Committee has
responsibility for the appointment, compensation, termination and oversight of
the work of our independent registered public accountants. The Audit Committee oversees the integrity of
our financial statements, our compliance with legal and regulatory
requirements, the independent registered public accountants qualifications and
independence and the performance of our internal audit function.
Management has the
primary responsibility for the system of internal controls and the financial
reporting process. The independent
registered public accountants have the responsibility to express an opinion on
the financial statements and internal control over financial reporting based on
an audit conducted in accordance with generally accepted auditing
standards. The Audit Committee has the
responsibility to monitor and oversee these processes.
During 2009, members of
the Audit Committee were Mr. McGuire (chairman), Mr. Kubacki, and Ms. Yocum. Since joining the Board in March 2005, Mr. McGuire
has served as the Audit Committee Chairman.
The Board of Directors has determined that Mr. Kubacki meets the
Securities and Exchange Commission criteria for an audit committee financial
expert. Mr. Kubackis
qualifications include experience in evaluating financial information in his
current position as President and Chief Executive Officer of Psychemedics
Corporation, which is a public company whose common stock is listed on the
Nasdaq, and in his former position as an investment officer with Massachusetts
Investors Trust, a mutual fund investment management company.
5
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ITEM
11. EXECUTIVE COMPENSATION
The following
Compensation and Discussion Analysis describes material elements of
compensation for our Chief Executive Officer, our Chief Financial Officer, and
our three other most highly compensated executive officers as of December 31,
2009, as well as for our former Chief Marketing Officer, whom we refer to as our
named executive officers. The named
executive officers were Richard Ginsburg, Darius G. Nevin, Peter Pefanis, J.
Eric Griffin, Tony Wilson, and Kim Lessner and are listed in the Summary
Compensation Table below. The following
Compensation Discussion and Analysis, executive compensation tables and related
narrative describe the compensation awarded to, earned by or paid to the named
executive officers for services provided to us in 2009, their outstanding
equity awards at the end of 2009 and their compensation arrangements with us.
Compensation Discussion and
Analysis
Overview,
Philosophy and Objectives of Executive Compensation
The Compensation
Committee of our Board of Directors has authority to establish the salaries,
bonuses and equity plan participation levels for the named executive officers.
The Compensation Committee also has authority to review and approve employment
agreements, severance arrangements and retirement plans for the named executive
officers, to oversee the design and administration of equity-based and
incentive compensation plans and otherwise to review and approve our
compensation plans. Together with the full Board of Directors, the Compensation
Committee evaluates the performance of our Chief Executive Officer and, with
input from the Chief Executive Officer, evaluates the performance of our other
named executive officers. Our Board of
Directors also has the authority to perform the responsibilities and duties of
the Compensation Committee.
We compensate our named
executive officers primarily through a combination of base salary, annual bonus
and equity compensation. The primary objectives of the Compensation Committee
with respect to the compensation of our named executive officers are to
attract, motivate and retain talented and dedicated executives, to foster a
team orientation toward the achievement of company-wide business objectives and
to link the interests of the named executive officers with those of our
stockholders. The Compensation Committees compensation philosophy with respect
to the named executive officers includes the following general elements:
providing competitive base salaries and annual bonus targets; rewarding
achievement of company financial performance objectives as well as individual
managerial effectiveness; and emphasizing equity incentives for named executive
officers. Participation in our stock option programs has also been extended to
certain employees, in addition to certain executive officers, based on their
perceived potential to contribute to increasing stockholder value.
Compensation
Committee
The Compensation
Committee establishes the salaries and bonuses for our executive officers and
reviews and makes recommendations to the Board regarding our compensation and
benefit plans. Current members of the
Compensation Committee are Mr. McGuire (chairman) and Mr. Hocherman. Mr. Nordhaus was a member of the
Compensation Committee from December 16, 2008 through his resignation from
the Board on September 28, 2009. Mr. Hocherman
replaced Mr. Nordhaus on the Compensation Committee effective September 28,
2009. As described under Director
Independence in Item 13 of this Form 10-K/A, because we are a controlled
company under the marketplace rules of The Nasdaq Stock Market, we are
not required to have a compensation committee comprised entirely of independent
members. The Compensation Committee may
delegate its responsibilities to a subcommittee of the Compensation Committee,
including to a subcommittee consisting entirely of directors who are deemed to
be non-employee directors and outside directors for purposes of potentially
applicable securities regulations and tax regulations, respectively.
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Table of Contents
2009
Executive Compensation Components
Base Salary
The minimum base
compensation for Messrs. Ginsburg, Nevin, Pefanis, Griffin and Wilson was
established in 2004. At that time, our
Board of Directors, which was then performing the functions of the Compensation
Committee, considered
·
our historical operating performance and
trends;
·
the need to maintain the continuity and
focus of our management team through an impending financial restructuring;
·
our goal of delivering competitive
compensation to our management team;
·
the recommendations of a compensation
consultant and the competitive compensation data and analyses developed by the
compensation consultant; and
·
with respect to those executives other
than the Chief Executive Officer, the recommendations of the Chief Executive
Officer.
To assist our Board of
Directors in evaluating base salaries and bonus opportunities in June 2004,
a compensation consultant was selected by our Board and was instructed to
ensure that our compensation programs were appropriate to motivate, retain and
compensate senior management through an impending financial restructuring. The compensation consultant developed
compensation data obtained from surveys of compensation practices for a broad
cross-section of companies representing diverse industries, performance,
capital structure and competitive challenges. Where possible, the compensation
consultant used regression analysis to adjust the data to our revenue size. The compensation data provided by the
compensation consultant was based on data obtained from the following survey
sources: Towers Perrin Executive Compensation Database Single Regression
Report (March 2003), Towers Perrin Executive Compensation Data Base --
Descriptive Statistics Report (March 2003), Towers Perrin Long-Term
Incentive Plan Report (March 2003) and Watson Wyatt Top Management
Compensation Survey (April 2003). The
salaries of Messrs. Ginsburg, Nevin, Griffin and Pefanis as of June 2004
were found to range from the 46th survey percentile to the 61st percentile for
competitive base salary for their position, and these base salary levels were
left unchanged in the employment agreements that the Company subsequently
entered into with each of the named executive officers. Mr. Wilson was our lowest paid executive
officer in 2004 and the compensation consultant did not find sufficient
comparable data to provide an equivalent range for his salary.
Each of Messrs. Ginsburg,
Nevin, Pefanis, Griffin and Wilson entered into an employment agreement in 2004
which provides that the executive officer will receive a base salary of not
less than the amount specified in the employment agreement, and that the base
salary is subject to review annually by the Compensation Committee or our Board
of Directors. The base salaries of Messrs. Ginsburg, Nevin, Pefanis,
Griffin and Wilson remained at the minimum amount required in their respective
2004 employment agreements until the Compensation Committee approved
cost-of-living influenced increases to the base salaries of the named executive
officers in 2007. Additional
cost-of-living increases were approved in 2008 for each named executive officer
other than Mr. Wilson. Mr. Ginsburg
and Mr. Nevin chose to defer the commencement of their respective
cost-of-living increases in 2008, though such increases are to be included in
the definition of base salary for annual bonus and change in control
compensation purposes. In approving
these increases, the Compensation Committee considered consumer price index
increases since the month in which each named executive officers base salary
had last been increased and, in the case of Mr. Pefanis, Mr. Nevin, Mr. Griffin,
Mr. Wilson and Ms. Lessner, the recommendation of the Chief Executive
Officer.
After completion of the
IASG merger on April 2, 2007, the Compensation Committee agreed to
increase Mr. Wilsons base salary from $154,200 to $235,000 to reflect the
increase in his responsibilities as President of the Wholesale Segment of the
Company which nearly quadrupled in terms of monthly recurring revenue with the
IASG merger. The Compensation Committee
also considered the compensation of other executive officers in establishing
his base pay.
Ms. Lessner was
hired as our executive vice president and chief marketing officer in March 2007. We engaged a nationally recognized executive
search firm to assist us in identifying candidates and in negotiating
employment terms consistent with market requirements for a chief marketing
officer for a company with our characteristics following the IASG merger. Ms. Lessners employment agreement
provided an annual base salary of not less than $265,000. As of April 15, 2009, Ms. Lessner
resigned as executive vice president and chief marketing officer of the
Company.
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The base salary of our
named executive officers is intended to provide a competitive base level of pay
for the services they provide. We believe that the fixed base annual salary
levels for the named executive officers helps us to retain qualified executives
and provides a measure of income stability that may lessen potential pressures
for the named executive officers to take possibly excessive risks to achieve
performance measures under incentive compensation arrangements. The Summary
Compensation Table provided below reflects the base salary of each of our named
executive officers for 2009.
Annual Bonus
On June 3, 2009, we
adopted the 2009 Senior Management Short-Term Incentive Plan (the 2009 STIP). Through the 2009 STIP, certain of our senior
managers and officers who have the opportunity to directly and substantially
contribute to our achievement of short-term objectives are eligible to receive
short-term incentive compensation. The
annual incentive target awards for our senior managers and officers range from
15% to 60% of base salary.
Under the 2009 STIP, Mr. Ginsburg,
Mr. Nevin, and Mr. Pefanis had an incentive target of 60% of their
base salaries. The respective employment
agreements of Mr. Ginsburg, Mr. Nevin, and Mr. Pefanis require
that they participate in a short-term incentive plan each year with a target
bonus of not less than 60% of base salary and a potential to earn at least 100%
of base salary.
All of our named
executive officers are eligible for an annual bonus under our STIP. Through the STIP, certain employees who are
viewed as having an opportunity to directly and substantially contribute to
achievement of our short-term objectives are selected to participate in the
STIP. Approximately forty employees,
including the named executive officers, participated in the STIP during 2009.
Our annual STIP rewards
the named executive officers for achieving annual company financial performance
objectives and for demonstrating individual leadership. We believe that by
providing a positive incentive and annual cash rewards, the STIP plays an
integral role in motivating and retaining qualified executives. We also believe
the allocation of base salary and annual incentive compensation opportunity for
named executive officers generally represents a reasonable combination of fixed
salary compared to variable incentive pay opportunity and reflects our goal of
retaining and motivating our named executive officers.
The 2009 STIP target
bonus levels for Messrs. Ginsburg, Nevin, and Pefanis were equal to the
minimum target bonus levels required by their respective employment
agreements. These employment agreements
were entered into in 2004, following a compensation review by our Board of
Directors with the assistance of a compensation consultant with a view toward
maintaining competitive target annual cash compensation levels (base salary
plus target annual bonuses) that included an adequate combination of fixed and
variable pay. These employment
agreements require minimum target bonus levels that are equal to the respective
executives target bonus level in 2004.
In 2004, the target annual cash bonus as a percentage of base salary for
Mr. Ginsburg was determined to be between the 25th percentile and the 50th
percentile for competitive target bonus and the target annual cash bonus as a
percentage of base salary for Mr. Griffin and Mr. Pefanis was equal
to the 50
th
percentile and the 75th percentile,
respectively, for competitive target bonus.
Mr. Nevins target bonus as a percentage of salary was 60% compared
to a 75th percentile target bonus as a percentage of salary of 50% for chief
financial officers. We believe that the
responsibilities of chief financial officers vary. Mr. Nevin had an
important role in our successful financial restructuring in 2005, our
subsequent financings, and also contributes significantly to strategy
development and implementation. As a
result of these and other considerations, we believe that the target bonus as a
percentage of salary for our Chief Financial Officer is appropriate. Mr. Wilsons target bonus as a
percentage of salary was 28% compared to a 25
th
percentile target bonus as a percentage of
salary of 30% prior to the IASG merger. Mr. Wilsons
target bonus was increased in 2007, after completion of the IASG merger, to 40%
which, according to the 2004 report, is equal to the 75th percentile for
competitive target bonuses. We believe
this is appropriate since our Wholesale Segment is thought to be the largest in
the industry based on monthly recurring revenue.
The compensation
consultants 2004 report indicated that total cash compensation, consisting of
base salary plus target bonus, of our named executive officers who were employed
with us at that time, other than Mr. Wilson whose position had no match in
the study, ranged from the 46th percentile to the 73rd percentile of
competitive target total
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cash compensation. Our STIP bonus targets for the applicable
named executive officers were viewed as being generally competitive in
2004. The STIP bonus targets as a
percentage of base salaries for Mr. Ginsburg, Mr. Nevin, Mr. Pefanis,
and Mr. Griffin have not been changed from the target percentages in our
2004 STIP. Mr. Wilsons STIP bonus
target increased from 28% to 40% after the IASG merger as discussed above.
Actual earned payments
under the 2009 STIP as a percentage of salary can be greater or less than the
target percentage depending on our actual performance measured against the
budgeted performance criteria approved by the Compensation Committee and set
forth in the 2009 STIP. Accordingly, if
our performance exceeds budgeted criteria, actual incentive compensation paid
under the 2009 STIP may exceed the targeted percentage of base
compensation. Actual payments pursuant
to the portion of the 2009 STIP based on the budgeted performance criteria were
capped at twice the targeted amount, regardless of actual performance.
All of the named
executive officers performance criteria other than Mr. Wilsons are
evaluated based on the consolidated Company results. Mr. Wilsons performance criteria are
based on a blend of 80% of the Wholesale Segment results and 20% of the
consolidated Company results.
Under the 2009 STIP:
·
45% of each annual incentive target award
for the named executive officers was based upon Adjusted EBITDA, as defined in
the 2009 STIP, which we refer to as the Adjusted EBITDA criterion;
·
25% of each target award was based on
recurring monthly revenue (RMR), as defined in the 2009 STIP, which we refer
to as the RMR criterion; and
·
30% of each target award was based on
discretionary qualitative criteria, including managerial effectiveness, each as
described in the 2009 STIP.
There would have been no payment
under the Adjusted EBITDA criterion portion of the 2009 STIP unless we
generated Adjusted EBITDA equal to at least 90% of the budgeted figure approved
by our Board of Directors. The maximum payment under the Adjusted EBITDA
criterion portion of the 2009 STIP was two times the amount targeted under the
Adjusted EBITDA criterion portion of the 2009 STIP. This maximum amount payable under the
Adjusted EBITDA criterion would have been earned if we generated Adjusted
EBITDA equal to at least 110% of the budgeted figure. If Adjusted EBITDA was between 90% and 110%
of the budgeted figure, then the payment based on the Adjusted EBITDA criterion
would have been prorated between zero and twice the target amount of bonus
based on Adjusted EBITDA.
Earning a payment under
the RMR criterion of the 2009 STIP commenced when actual ending RMR equaled at
least 97% of the budgeted figure approved by the Board of Directors. The maximum payment under the RMR criterion
portion of the 2009 STIP was two times the amount targeted under the RMR
criterion portion of the 2009 STIP. This
maximum amount payable under the RMR criterion would have been earned if we had
ended 2009 with recurring monthly revenue equal to at least 103% of the
budgeted figure. If recurring monthly revenue
was between 99% and 101% of the budgeted figure, then the payment based on the
RMR criterion would have been equal to the target amount under the RMR
criterion portion of the 2009 STIP. If
the recurring monthly revenue was between 97% and 99% of the budgeted figure,
then the payment based on the RMR criterion would have been decreased by 5% of
the targeted amount for each 0.10% below 99% of the budgeted figure (down to
97% of the budgeted figure). If the
recurring monthly revenue was between 101% and 103% of the budgeted figure,
then the payment based on the RMR criterion would have been increased by 5% of
the targeted amount for each 0.10% above 101% of the budgeted figure (up to
103% of the budgeted figure).
The Adjusted EBITDA
performance target under the 2009 STIP was $116,508,000 and $15,165,000 for the
consolidated Company and Wholesale Segment, respectively. The RMR performance target under the 2009
STIP was $25,207,000 and $2,762,000 for the consolidated Company and Wholesale
Segment, respectively. Payments under
the consolidated Company Adjusted EBITDA criterion of the 2009 STIP were equal
to 154.28% of the target amount and payments made under the consolidated
Company RMR criterion of the 2009 STIP were equal to 80% of the target amount. Payments to Mr. Wilson under the blended
Company Adjusted EBITDA criterion of the 2009 STIP were equal to 200% of the
target amount and payments made under the blended Company RMR criterion of the
2009 STIP were equal to 175% of the target amount. We believe actual consolidated Company
Adjusted EBITDA was better than plan due to improvements in our monitoring and
related services margins as well as from
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reduced selling
expenses. We ended the year with
consolidated RMR at less than plan as actual RMR additions were less than plan
primarily due to the difficult economic conditions which persisted throughout
2009. Actual Wholesale segment Adjusted EBITDA was better than plan
primarily due to that segments ability to retain some of its largest customers
for an extended period beyond expectations as well as cost reductions in excess
of plan from a more efficient operating structure from consolidating monitoring
centers onto a common monitoring and billing platform.
Payments under the
discretionary portion of the 2009 STIP to the named executive officers ranged
from 60% to 95% of the target amount. In
determining the discretionary portion of payments, the Compensation Committee
focused on the fact that our named executive officers were able to generate
significant cash flow in a difficult economic environment by operating the
business more efficiently, successfully negotiating a settlement agreement with
our former parent company and strengthening the balance sheet including a
successful refinancing of a portion of our debt. The Summary Compensation Table below reflects
payments under the objective financial portion of the 2009 STIP in the Non-Equity
Incentive Plan Compensation column and reflects payments under the
discretionary portion of the 2009 STIP in the Bonus column.
Under the 2009 STIP,
Adjusted EBITDA for purposes of the Adjusted EBITDA criterion was determined in
the same manner as the reported Adjusted EBITDA in our 2009 Annual Report filed
on Form 10-K with the following adjustments:
·
Unbudgeted expenses, to the extent such
expenses reduce Adjusted EBITDA related to (i) legal costs and
settlements, with respect to the Company, arising from matters that preceded
the tenure of current management (i.e., prior to April 2001, including the
Phoenix lease dispute); (ii) legal costs and settlements, with respect to
Integrated Alarm Services Group (IASG), arising from matters that preceded
Protection Ones merger with IASG (i.e., prior to April 2007); and (iii) raising
debt or equity.
Under the 2009 STIP, RMR
for purposes of the RMR criterion was determined as follows:
·
RMR is a measure of all the monthly
revenue we are entitled to receive under contracts with customers in effect at
the end of the period. RMR includes
amounts billable to customers with past due balances that we believe are
collectible.
·
Pursuant to the terms of the 2009 STIP,
unbudgeted increases or reductions in RMR that resulted from the following
items were excluded from the calculations under the 2009 STIP:
·
RMR related to wholesale relationships
with certain large dealers;
·
Unbudgeted increases or reductions in RMR
that result from (i) a billing system conversion; (ii) a change in
estimate; and (iii) dispositions of RMR (whether by selling assets or
subsidiaries); and
·
Unbudgeted increases in RMR that result
from acquisitions of RMR (whether by purchasing assets or companies, herein Unbudgeted
Acquired RMR), provided, however, that Unbudgeted Acquired RMR shall be
excluded only to the extent such Unbudgeted Acquired RMR causes Actual RMR to
exceed Budgeted RMR, unless otherwise approved by the Board.
Equity Compensation
Equity compensation has
historically been offered to our employees who are in positions to affect our
long-term success through the formation and execution of our business
strategies.
In 2005 in connection
with our financial restructuring, we adopted the Protection One 2004 Stock
Option Plan and a stock appreciation rights plan, which we refer to as the 2005
SAR Plan, and granted to certain named executive officers (i) options with
six-year terms that are fully vested and exercisable and expire in either 2011
or 2012 and (ii) stock appreciation rights that will vest no later than
2011.
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In preparation for the
approaching expiration of the equity awards granted in 2005, our Compensation
Committee retained a compensation consultant, Frederic W. Cook & Co., Inc.,
in 2009 to conduct a competitive review of our equity compensation programs
with a focus on long-term incentive programs for our three most senior
executive officers, Messrs. Ginsburg, Nevin and Pefanis, whom we refer to
as the senior executive officers. The
compensation consultant created a peer group comprised of the following 13
companies that were selected based on relatively similar size and business
model to us, referred to as the proxy data: Brinks Home Security, Consol.
Communications, GeoEye, Intersections, Iowa Telecom Services, Knology, McGrath
RentCorp, Mobile Mini, NTELOS Holdings, Standard Parking, TAL International
Grp, TiVo, and Waste Services. Because
Brinks Home Security had not yet disclosed its executive compensation
information as an independent entity, the values attributed to Brinks were
used for informational purposes only and were excluded from comparative
percentiles. Based primarily on the
revenues and incomes of the peer group companies, the market rate of cash
compensation was viewed as between the 25
th
percentile and the median of the proxy data. Compensation was considered to be within the
competitive range if it was within 15% of the market rate.
In order to triangulate
the results of the competitive analysis, the compensation consultant also
utilized pre-IPO survey data of companies that were similar in size from
revenue and market capitalization perspectives, referred to as survey data. The component companies included in the
compensation consultants pre-IPO survey data were not listed by the
compensation consultant. The survey data
was considered in the Companys analysis because private equity firms, our
Principal Stockholders, own approximately 70% of our outstanding common stock
and the pre-IPO survey provides an indication of practices of companies owned
by private equity firms.
The compensation
consultant advised the Compensation Committee that a carried interest analysis,
which is a measure of the executives actual and potential stock ownership
levels, is a useful measure of the competitive positioning of long-term
incentive awards and the resulting retention power for companies with large
private equity ownership. The
compensation consultant found that the senior executive officers then-current
carried interest, on a value basis, was below the peer 25
th
percentile at
stock prices of $4 and $8, at the median at a stock price of $12 when stock
appreciation rights were excluded and at the 75
th
percentile when stock appreciation rights were
included. On September 9, 2009,
the date of the report, the price per share of company common stock was $3.61.
With respect to carried
interest on a percentage of shares outstanding basis, the senior executive
officers carried interest approximated the survey data median and was above
the 75th percentile of the proxy data, when the outstanding stock appreciation
rights (SARs) were excluded. We
believe that this difference reflects that private companies, including
companies owned by private equity firms, often have greater concentration of
ownership among their senior executives than public companies. When the outstanding SARs were included, the
senior executive officers carried interest was above the 75th percentile of
the proxy and survey data on a percentage of shares outstanding basis. Due to the limited potential value associated
with each SAR, the Company believes that including the SARs in a carried
interest as a percentage of shares outstanding calculation produces a
significantly overstated indication of potential stock ownership levels.
The compensation
consultant was engaged to advise the Compensation Committee and the Board with
respect to long-term equity incentives for the senior executive officers. In
order to provide context for that analysis, the compensation consultant
reviewed the Companys compensation programs and compared the base salary,
target total cash compensation (base salary plus annual incentive bonus) and
target total direct compensation (target total cash compensation plus the
present value of long-term incentives) for each of Messrs. Ginsburg,
Nevin, Pefanis, Wilson, and Griffin, whom we refer to as the surveyed
executives. In the aggregate, the
surveyed executives 2009 salaries were 101% of the proxy data median and 113%
of the survey data median. In the
aggregate, the surveyed executives 2009 target cash compensation was 101% of
both the proxy and survey data median.
In the aggregate, the surveyed executives target total direct
compensation was substantially below the 25th percentile of the proxy data,
because at the time of the compensation consultants report, the Company had
not granted equity awards to the surveyed executives since 2005, except for the
2006 reallocation of outstanding SARs forfeited by a former executive officer
to the other 2005 SAR Plan participants, Mr. Ginsburg, Mr. Nevin and Mr. Pefanis
and the 2006 grant of 5,000 options to Mr. Griffin.
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The compensation
consultant advised the Compensation Committee that the recent economic
conditions and associated decline in the Companys stock price had reduced the
aggregate value of the senior executive officers outstanding stock option and
stock appreciation rights awards. As a
result of this reduction in value, the retentive value of the Companys senior
executive officer compensation program had diminished. This circumstance, together with the absence
of new equity grants to the senior executive officers for several years, made
consideration of new equity compensation arrangements appropriate. The Compensation Committee took the
compensation consultants information under advisement and utilized this
information and other information to recommend the appropriate levels of grants
in early 2010 in order to further align the interests of the senior executive
officers with those of the shareholders.
See the section below entitled 2010 Employment Agreement Amendments and
Equity Incentive Awards for additional information regarding equity grants in February of
2010.
Stock
Options
We believe that long-term
performance is enhanced through an ownership culture that rewards our named
executive officers for stock price appreciation through the use of stock
options. We believe that stock options encourage
executive retention and provide incentive for our named executive officers to
increase value for our stockholders.
Options were granted to
our named executive officers who were employed with us and to other employees
in February 2005 under the 2004 Stock Option Plan upon the completion of
our financial restructuring. In view of
the incentives already provided to the named executive officers by the options
granted in February 2005, the Compensation Committee did not grant stock
options to the named executive officers in 2006, 2007, 2008, or 2009, except
for 5,000 options issued to Mr. Griffin in 2006 and 100,000 options issued in
connection with the hiring of Ms. Lessner as chief marketing officer in
2007. Stock options were granted in
early 2010 as further described below under 2010 Employment Agreement
Amendments and Equity Incentive Awards.
Stock
Appreciation Rights
SARs were granted to Mr. Ginsburg,
Mr. Nevin and Mr. Pefanis in February 2005 as a result of our
financial restructuring. Under the 2005
SAR Plan, these SARs vest and become payable upon the earlier of (1) a
qualified sale as defined in the SAR Plan, which generally means our Principal
Stockholders sale of at least 60% of their equity interest in Protection One,
provided that if the qualified sale is not a permissible distribution event (as
defined in the 2005 SAR Plan) the payment will be made, with interest, in
connection with a subsequent permissible distribution event, and (2) February
8, 2011. The exercise price of the SARs
was $4.50 on the grant date and increase by 9% per annum. If our Principal Stockholders sell less than
60% of their equity interest in Protection One, the exercise price applicable
to an equivalent percentage of managements SARs would be based on the fixed
return through the date of such sale. Each SAR that vests and becomes payable in
connection with a qualified sale would entitle the holder to receive the
difference between (x) the exercise price and (y) the lesser of (i) the
value of the consideration paid for one share of common stock in such qualified
sale, or (ii) $7.50. In May 2006,
a portion of the outstanding SARs were modified to fix the exercise price at
$5.02. In November 2006, our Board
of Directors approved the reallocation of SARs forfeited by a former executive
officer to the other 2005 SAR Plan participants, Mr. Ginsburg, Mr. Nevin
and Mr. Pefanis. The forfeited SARs
were reallocated to the applicable named executive officers in proportion to
the number of SARs that they held immediately before the reallocation. Except
for a reallocation upon any forfeiture by a former executive officer, the 2005 SAR
Plan does not allow for any grant of additional SARs.
No SARs were granted in
2007, 2008 or 2009. In early 2010, the
Company granted SARs under a new SAR plan as further described below under 2010
Employment Agreement Amendments and Equity Incentive Awards.
All Other Compensation
As described in footnote
2 to the Summary Compensation Table, other compensation to our named executive
officers included: commuter travel expenses and related taxes; car allowances;
company contributions under our 401(k) plan, which are available to
employees generally; and payment of life insurance premiums. These payments and
other benefits, the amounts of which are not material to us, provide additional
compensation and benefits to the applicable named executive officers and, in
the case of travel expenses and car allowances, in part defray certain personal
expenses related to the applicable named executive officers employment. We believe that these payments and other
benefits are reasonable and appropriate components of a compensation program
that is designed to attract and retain talented executives.
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2010
Employment Agreement Amendments and Equity Incentive Awards
Amended and Restated Employment
Agreements
On February 22,
2010, we, along with our wholly-owned subsidiary, Protection One Alarm
Monitoring, Inc., entered into amended and restated employment agreements
(the Amended Agreements) with Messrs. Ginsburg, Nevin, and Pefanis.
Among other things, the
amendments contained in the Amended Agreements (i) broaden the
non-competition provisions to prohibit employment with any competitor for 18
months, if 50% or more of the executives
equity awards granted on February 22, 2010 (discussed below) vest, (ii) modify
the change of control tax gross-up provisions to provide that either (x) payouts
under the new 2010 equity awards would be reduced to avoid any excise tax or (y) the
executive would keep the equity award payouts and pay the related excise tax,
and (iii) modify the definition of good reason so that the Companys
common stock ceasing to be publicly traded on an established national stock
exchange in connection with or following a change of control would allow the
executive to terminate his employment with good reason.
Grant of Equity Awards
On February 22,
2010, we granted to Messrs. Ginsburg, Nevin and Pefanis (i) stock
appreciation rights under the Companys 2010 Stock Appreciation Rights Plan
(the 2010 SAR Plan), which was adopted by the Company on February 22,
2010; (ii) stock options under the companys 2008 Long-Term Incentive Plan
(the 2008 LTIP); and (iii) restricted share awards under the 2008
LTIP. We refer to these grants
collectively as the 2010 equity awards. The grant of restricted stock
was as follows: 50,000 restricted shares to Mr. Ginsburg, 25,000
restricted shares to Mr. Nevin, and 25,000 restricted shares to Mr. Pefanis.
The grant of stock options was as follows: 195,182 stock options to Mr. Ginsburg,
130,284 stock options to Mr. Nevin, and 113,694 stock options to Mr. Pefanis.
The grant of stock appreciation rights (SARs) was as follows: 195,182 SARs to
Mr. Ginsburg, 130,284 SARs to Mr. Nevin, and 113,694 SARs to Mr. Pefanis.
The exercise price for
each stock option is $9.50, the closing price of the Companys common stock on
the date of grant. The payout for each SAR is equal to the difference
between (x) $7.50, and (y) the lesser of: (i) $9.50, the closing
price of the companys common stock on the date of grant, and (ii) the
value of a share of company common stock on the date of exercise.
The 2010 equity awards
vest in one-half increments on each of the second and third anniversary of the
grant date so long as the executive is employed with the company. Vesting
of the 2010 equity awards will accelerate upon a change of control of the
company if (x) the executive is employed with the company at the time of
the change of control or (y) the change of control occurs within two years
of the date of grant and within 90 days of the executives termination that is
a qualifying termination (as defined in the Amended Agreements). Both the
stock options and the restricted shares are subject to all the terms and
conditions of the 2008 LTIP as well as the individual award agreements.
The SARs are subject to all of the terms and conditions of the 2010 SAR Plan as
well as the individual grant agreements.
Tax
Treatment Under Section 162(m), 280G and 409A of the Code
Section 162(m) of the
Code
In structuring our
compensation plans, we take into consideration Section 162(m) of the
Internal Revenue Code of 1986, as amended, which is referred to as the Code,
and other factors the Compensation Committee deems appropriate. Section 162(m) of the Code
disallows the deduction of compensation for each of the named executive
officers in excess of $1,000,000 per person, except for certain payments based
upon performance goals. Nevertheless, in order to accomplish the objectives
described above with respect to our compensation programs, some of the
compensation under our compensation programs is not deductible by reason of Section 162(m). The stock options granted to our named
executive officers were designed so that any expense we recognize under the
Code resulting from them would be deductible under Section 162(m). Base salary, bonuses paid under the STIP, and
perquisites and personal benefits paid in 2009, to the extent in the aggregate
they were in excess of $1,000,000 per named executive officer, were not
deductible by reason of Section 162(m).
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We do not believe that
payments that may be made in the future to any named executive officers
pursuant to SARs or restricted stock agreements would meet the
performance-based compensation exception, and therefore those payments would be
subject to the Section 162(m) limitation. In addition, any payments made to the named
executive officers pursuant to their respective employment agreements following
a change in control may also not be deductible due to the Section 162(m) limitation.
Section 280G of the Code
As discussed below under Potential
Payments Upon Termination or Change in Control, under the employment
agreements with Messrs. Ginsburg, Nevin, Pefanis, Griffin and Wilson, in
the event that any amounts or benefits paid to a named executive officer
pursuant to his current employment agreement are subject to the excise tax
imposed under Section 4999 of the Code, we will pay the named executive
officer an additional amount to compensate him for that tax liability, subject
to certain potential reductions in payments and exceptions in certain
circumstances with respect to the 2010 equity awards. In general, if the total amount of payments
to an individual that are contingent upon a change in control (as defined in Section 280G
of the Code) of the Company, excluding payments for reasonable compensation for
services rendered after the change of control, including a covenant not to
compete, equals or exceeds three times the individuals base amount
(generally, the individuals average annual compensation for the five calendar
years preceding the change in control), the payments may be treated as parachute
payments under the Code. The portion of
such payments that exceeds the individuals base amount is non-deductible to
us under Section 280G of the Code, and the individual is subject to a 20%
excise tax on such amount under Section 4999 of the Code. Under the employment agreements of each of Messrs. Ginsburg,
Nevin, Pefanis, Griffin and Wilson, we are obligated to make additional cash
payments to the named executive officers to compensate them for the 20% excise
tax so that they receive the same benefit from their awards as if such excise
tax did not apply (subject to certain potential reductions in payments and
exceptions in certain circumstances with respect to the 2010 equity
awards). These additional payments are
non-deductible by us and constitute income to the executives, which requires
further payment under the employment agreements to compensate the executives
for the income tax incurred with respect to such payments. Non-deductible parachute payments generally
reduce the $1 million deduction limitation under Section 162(m) of
the Code, discussed above.
The employment agreements
of each of Messrs. Ginsburg, Nevin, Pefanis, Griffin and Wilson provide
that they agree to reduce the aggregate amount of any payments or benefits that
constitute parachute payments under Section 280G of the Code to the
extent necessary so that such payments and benefits do not equal or exceed
three times the named executive officers base amount (and therefore are not
subject to the excise tax imposed by Section 4999); provided, however,
that they are not required to make any such reduction if the reduction
necessary to cause such payments and benefits not to equal or exceed three
times his base amount is more than $100,000 and further provided that the
2010 equity awards to the senior executive officers are treated as
follows. In the event of a change in
control, the Companys tax counsel, or such other tax counsel or public
accounting firm as may be agreed upon by a senior executive officer and the
Company, will determine whether the excise tax imposed by Section 4999
would be owed in connection with a full payout under the senior executive
officers employment agreement and equity grants. While the Company generally has an obligation
to pay the executives a gross up related to any such excise tax, each senior
executive officers employment agreement generally provides that either payouts
under the 2010 equity awards would be reduced to avoid any excise tax, or the
senior executive officer would keep the 2010 equity award payouts and pay the
related excise tax.
As discussed under Potential
Payments Upon Termination or Change in Control, each of the employment
agreements of the named executive officers provides benefits in connection with
a change in control. The change in
control benefit has a double trigger for severance payments in the event of a
change in control. This means that there
must be both a change in control and a qualifying termination before the
executive is entitled to such payment.
Section 409A of the Code
Section 409A of the
Code sets forth specific requirements relating to the payment of deferred
compensation to employees and other service providers. Deferred compensation payments that do not
meet these requirements are generally taxed to the employee or service provider
when they vest, and may also be subject to a 20% penalty tax, payable by the
employee or service provider. We have
structured payments under our executive compensation programs in a manner that
is intended to meet the requirements of Code Section 409A.
14
Table of
Contents
Change
in Control and Severance Arrangements
Our change in control and
severance arrangements with our named executive officers are described below
under Potential Payments Upon Termination or Change in Control.
We believe that we should
provide severance benefits to the named executive officers. Our severance benefits for the named
executive officers reflect, among other things, the fact that it may be difficult
for a named executive officer to find comparable employment within a short
period of time. We believe that our
severance arrangements are an important element in the retention of the named
executive officers.
We provide Mr. Ginsburg,
Mr. Nevin, Mr. Pefanis, Mr. Griffin and Mr. Wilson with
additional benefits in the event of a qualifying termination in connection with
a change in control. The employment
agreement provisions regarding payment upon termination in connection with a
change in control were established prior to our 2005 financial restructuring
and were intended to, among other things, encourage the named executive
officers to enter into the new employment agreements and focus on our
performance rather than other employment alternatives. We believe that the interest of stockholders
is served by aligning the interests of the named executive officers with them
and that providing change in control benefits reduces the potential for named
executive officers to be reluctant toward pursuing a change in control
transaction that may be in the best interest of stockholders. We believe that our change in control and
severance arrangements with the named executive officers are an important
element in the retention and incentive of the named executive officers.
Summary Compensation Table
The following table sets
forth information regarding compensation earned by our Chief Executive Officer,
our Chief Financial Officer, and our three other most highly compensated
executive officers as of December 31, 2009, as well as for our former
Chief Marketing Officer, during the years 2009, 2008, and 2007:
Name and Principal
|
|
|
|
Salary
|
|
Bonus
|
|
Option
Awards (1)
|
|
Non-Equity
Incentive Plan
Compensation
|
|
All Other
Compensation
|
|
|
|
Position
|
|
Year
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)(2)
|
|
Total ($)
|
|
Richard
Ginsburg,
|
|
2009
|
|
500,000
|
|
88,493
|
|
|
|
277,665
|
|
30,137
|
|
896,295
|
|
Chief
Executive Officer
|
|
2008
|
|
500,000
|
|
83,835
|
|
|
|
70,639
|
|
31,780
|
|
686,254
|
|
|
|
2007
|
|
500,000
|
|
81,000
|
|
|
|
257,600
|
|
24,668
|
|
863,268
|
|
Darius
G. Nevin,
|
|
2009
|
|
330,000
|
|
58,405
|
|
|
|
183,259
|
|
57,349
|
|
629,013
|
|
Chief
Financial Officer
|
|
2008
|
|
330,000
|
|
55,331
|
|
|
|
46,622
|
|
68,161
|
|
500,114
|
|
|
|
2007
|
|
330,000
|
|
53,460
|
|
|
|
170,016
|
|
31,750
|
|
585,226
|
|
Peter
Pefanis,
|
|
2009
|
|
310,500
|
|
44,712
|
|
|
|
166,599
|
|
26,472
|
|
548,283
|
|
Executive
VP Operations
|
|
2008
|
|
307,875
|
|
50,301
|
|
|
|
42,383
|
|
21,140
|
|
421,699
|
|
|
|
2007
|
|
294,121
|
|
54,000
|
|
|
|
154,560
|
|
21,166
|
|
523,847
|
|
Tony
Wilson,
|
|
2009
|
|
235,000
|
|
16,920
|
|
|
|
117,392
|
|
20,866
|
|
390,178
|
|
President
CMS
|
|
2008
|
|
235,000
|
|
22,560
|
|
|
|
59,257
|
|
20,240
|
|
337,057
|
|
J.
Eric Griffin,
|
|
2009
|
|
225,630
|
|
24,368
|
|
|
|
80,708
|
|
21,411
|
|
352,117
|
|
VP
and General Counsel
|
|
2008
|
|
223,722
|
|
21,660
|
|
|
|
20,532
|
|
20,877
|
|
286,791
|
|
|
|
2007
|
|
215,000
|
|
20,928
|
|
|
|
74,876
|
|
20,914
|
|
331,718
|
|
15
Table of Contents
Kim
Lessner, former
|
|
2009
|
|
111,754
|
|
|
|
|
|
115,282
|
|
281,729
|
|
508,765
|
|
Chief
Marketing Officer
|
|
2008
|
|
271,956
|
|
44,433
|
|
|
|
37,439
|
|
20,877
|
|
374,705
|
|
|
|
2007
|
|
215,814
|
|
38,944
|
|
988,000
|
|
111,467
|
|
15,233
|
|
1,369,458
|
|
(1)
|
|
The amount in Option
Awards represents the aggregate grant date fair value computed in accordance
with ASC Topic 718. Options were granted in 2007 to our former Chief
Marketing Officer. Assumptions used in the valuation of option awards are
discussed in Note 7, Share-Based Employee Compensation in our Annual Report
on Form 10-K for the year ended December 31, 2009.
|
|
|
|
(2)
|
|
All Other
Compensation for the periods presented includes the following items:
|
|
|
Mr.
Ginsburg
|
|
Mr. Nevin
|
|
Mr. Pefanis
|
|
Mr.
Griffin
|
|
Mr.
Wilson
|
|
Ms.
Lessner
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commuting travel and related taxes,
including
income tax reimbursements
of $2,126 for
Mr. Ginsburg and $12,583 for Mr. Nevin
|
|
$
|
5,811
|
|
$
|
33,686
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Car allowance
|
|
14,488
|
|
13,536
|
|
13,536
|
|
13,536
|
|
13,536
|
|
3,948
|
|
Company contributions to 401(k) plan
|
|
7,350
|
|
7,350
|
|
7,350
|
|
5,829
|
|
5,875
|
|
2,794
|
|
Life and disability insurance premiums
paid by the
Company
|
|
2,488
|
|
2,777
|
|
5,586
|
|
2,046
|
|
1,455
|
|
712
|
|
Severance
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
274,275
|
|
Total
|
|
$
|
30,137
|
|
$
|
57,349
|
|
$
|
26,472
|
|
$
|
21,411
|
|
$
|
20,866
|
|
$
|
281,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commuting travel and related taxes,
including
income tax reimbursements
of $3,366 for
Mr. Ginsburg and $17,537 for Mr. Nevin
|
|
$
|
9,106
|
|
$
|
46,949
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Car allowance
|
|
14,488
|
|
13,536
|
|
13,536
|
|
13,536
|
|
13,536
|
|
13,536
|
|
Company contributions to 401(k) plan
|
|
5,086
|
|
5,086
|
|
5,086
|
|
5,086
|
|
4,406
|
|
5,086
|
|
Life and disability insurance premiums
paid by the
Company
|
|
3,100
|
|
2,590
|
|
2,518
|
|
2,255
|
|
2,298
|
|
2,255
|
|
Total
|
|
$
|
31,780
|
|
$
|
68,161
|
|
$
|
21,140
|
|
$
|
20,877
|
|
$
|
20,240
|
|
$
|
20,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commuting travel and related taxes,
including
income tax reimbursements
of $717 for
Mr. Ginsburg and $3,855
for
Mr. Nevin
|
|
$
|
1,965
|
|
$
|
10,557
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Car allowance
|
|
14,488
|
|
13,536
|
|
13,536
|
|
13,536
|
|
|
|
11,024
|
|
Company contributions to 401(k) plan
|
|
5,201
|
|
5,201
|
|
5,201
|
|
5,201
|
|
|
|
2,650
|
|
Life and disability insurance premiums
paid by the
Company
|
|
3,014
|
|
2,456
|
|
2,429
|
|
2,177
|
|
|
|
1,559
|
|
Total
|
|
$
|
24,668
|
|
$
|
31,750
|
|
$
|
21,166
|
|
$
|
20,914
|
|
$
|
|
|
$
|
15,233
|
|
16
Table of
Contents
Grants Of Plan Based Awards Table
The following tables sets
forth the information as to the awards granted for 2009 for each of the named
executive officers.
|
|
|
|
Estimated Possible Payouts Under Non-
Equity Incentive Plan Awards
|
|
All Other Option Awards:
|
|
|
|
|
|
Name
|
|
Grant Date
|
|
SARs
Units (#)
|
|
Threshold
($)
|
|
Target
($)
|
|
Maximum
($)
|
|
Number of
Securities
Underlying
Options
(#)
|
|
Exercise or
Base Price of
Option
Awards
($/Sh)
|
|
Grant Date
Fair Value of
Stock and
Option
Awards ($)
|
|
Richard Ginsburg
|
|
6/3/09(1)
|
|
|
|
0
|
|
217,350
|
|
434,700
|
|
|
|
|
|
|
|
Darius G. Nevin
|
|
6/3/09(1)
|
|
|
|
0
|
|
143,451
|
|
286,902
|
|
|
|
|
|
|
|
Peter Pefanis
|
|
6/3/09(1)
|
|
|
|
0
|
|
130,410
|
|
260,820
|
|
|
|
|
|
|
|
Tony Wilson
|
|
6/3/09(1)
|
|
|
|
0
|
|
65,800
|
|
131,600
|
|
|
|
|
|
|
|
Eric Griffin
|
|
6/3/09(1)
|
|
|
|
0
|
|
63,176
|
|
126,353
|
|
|
|
|
|
|
|
(1) These
amounts relate to payments under the 2009 Short-Term Incentive Plan. See the discussion under Compensation
Discussion and Analysis for additional information relating to the 2009
Short-Term Incentive Plan.
Each named executive
officer is party to an employment agreement. The terms of Mr. Ginsburg, Mr. Nevin,
Mr. Pefanis, Mr. Griffin and Mr. Wilsons employment agreements
are automatically extended on July 23 of each year for an additional
one-year period, subject to either partys right to terminate by giving written
notice at least 30 days prior to the end of the term. The current employment agreements provide for
minimum annual base salaries for each of Mr. Ginsburg, Mr. Nevin, Mr. Pefanis,
Mr. Griffin and Mr. Wilson.
Pursuant to their employment agreements, the named executive officers
are eligible to receive bonus awards, payable in cash or otherwise, and to
participate in all of our employee benefit plans and programs in effect for the
benefit of our senior executives, including stock option, 401(k) and
insurance plans. We will reimburse the
named executive officers for all reasonable expenses incurred in connection
with the conduct of our business, provided the executive officers properly
account for any such expenses in accordance with our policies. Pursuant to their employment agreements, Mr. Ginsburgs
and Mr. Nevins reimbursable business expenses include the travel related
costs from and to their homes. Further,
pursuant to their employment agreements, should any portion of our
reimbursement of travel expenses incurred by Mr. Ginsburg or Mr. Nevin
constitute taxable wages for federal income or employment tax purposes, we will
pay Mr. Ginsburg and Mr. Nevin an additional amount to cover such tax
liability.
Pursuant to the terms of
their respective employment agreements, upon the occurrence of termination of
employment each named executive officer is entitled to certain payments and
benefits, which are described below under Potential Payments Upon Termination
or Change in Control. The employment
agreements contain provisions relating to non-competition, non-solicitation,
non-disparagement and the protection of confidential information, which are
also discussed below under Potential Payments Upon Termination or Change in
Control. The post year end arrangements discussed above in 2010 Employment
Agreement Amendments and Equity Incentive Awards
are
not reflected in the tables below because the tables below are based on
arrangements in place as of the end of the last fiscal year.
17
Table of
Contents
Outstanding Equity Awards at
Fiscal Year-End
The following table sets
forth the outstanding equity awards for each named executive officer as of December 31,
2009.
|
|
Option Awards
|
|
Name
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
Option Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
Richard
Ginsburg
|
|
621,035
|
|
|
|
|
|
6.52
|
(1)
|
02/08/2011
|
|
|
|
|
|
195,182
|
|
|
|
5.02
|
(2)
|
02/08/2011
|
|
|
|
|
|
692,010
|
|
|
|
6.86
|
(3)
|
02/08/2011
|
|
|
|
17,500
|
|
|
|
|
|
65.83
|
|
04/16/2011
|
|
Darius
G. Nevin
|
|
388,147
|
|
|
|
|
|
6.52
|
(1)
|
02/08/2011
|
|
|
|
|
|
130,284
|
|
|
|
5.02
|
(2)
|
02/08/2011
|
|
|
|
|
|
461,917
|
|
|
|
6.86
|
(3)
|
02/08/2011
|
|
|
|
1,000
|
|
|
|
|
|
103.50
|
|
02/08/2012
|
|
|
|
4,400
|
|
|
|
|
|
60.30
|
|
08/01/2011
|
|
Peter
Pefanis
|
|
388,147
|
|
|
|
|
|
6.52
|
(1)
|
02/08/2011
|
|
|
|
|
|
113,693
|
|
|
|
5.02
|
(2)
|
02/08/2011
|
|
|
|
|
|
403,097
|
|
|
|
6.86
|
(3)
|
02/08/2011
|
|
|
|
1,000
|
|
|
|
|
|
67.00
|
|
06/04/2011
|
|
|
|
900
|
|
|
|
|
|
103.50
|
|
02/08/2012
|
|
|
|
2,000
|
|
|
|
|
|
137.50
|
|
06/28/2012
|
|
|
|
500
|
|
|
|
|
|
135.00
|
|
09/12/2012
|
|
Eric
Griffin
|
|
10,000
|
|
|
|
|
|
6.52
|
(1)
|
02/08/2011
|
|
|
|
4,271
|
|
729
|
|
|
|
14.02
|
(4)
|
7/25/2012
|
|
|
|
500
|
|
|
|
|
|
103.50
|
|
02/08/2012
|
|
Tony
Wilson
|
|
15,000
|
|
|
|
|
|
6.52
|
(1)
|
02/08/2011
|
|
|
|
200
|
|
|
|
|
|
71.88
|
|
1/27/2010
|
|
|
|
450
|
|
|
|
|
|
67.50
|
|
3/14/2011
|
|
|
|
200
|
|
|
|
|
|
103.50
|
|
2/08/2012
|
|
(1)
|
|
These options, which
were granted on February 8, 2005, vest and become exercisable ratably
over a 48-month period
beginning with the first full month
following the grant date, or March 1, 2005, provided that the
options granted to Mr. Ginsburg, Mr. Nevin and Mr. Pefanis
generally vest and become exercisable immediately upon a qualifying
termination, as defined in their respective employment agreements (excluding
a qualifying termination resulting from a voluntary termination for any
reason during the thirty-day period beginning six months after certain
potential change in control transactions), that occurs after any sale by our
Principal Stockholders of at least 60% of their equity interest in Protection
One.
|
(2)
|
|
Represents the base
price of the modified SARs. Due to the May 12, 2006 modification, the
base price on the modified SARs is fixed at $5.02 per SAR. See Compensation
Discussion and Analysis
Stock Appreciation
Rights
above, for additional information.
|
(3)
|
|
Represents the base
price as of December 31, 2009 of the unmodified SARs. Under the SAR
Plan, the base price increases at a rate of 9% compounded annually. See
Compensation Discussion and Analysis
Stock Appreciation
Rights
above, for additional information.
|
(4)
|
|
These options, which
were granted on July 25, 2006, vest and become exercisable ratably over
a 48-month period
beginning with the first full month
following the grant date, or August 1, 2006.
|
18
Table of Contents
Potential
Payments Upon Termination or Change In Control
Employment
Agreements and Other Certain Plans
We have entered into
employment agreements with the named executive officers and maintain certain
plans that in certain circumstances provide for payments or other benefits upon
termination or following a change in control. Illustrative estimated payments
and benefits that, based on various assumptions, could be provided to each
named executive officer in each covered circumstance are shown in the tables
below, assuming that the triggering event occurred on December 31, 2009,
and at a price per share of our Common Stock equal to the closing market price
as of that date which was $6.48 per share.
Accordingly, the tables below do not reflect the 2010 equity awards and
do not reflect payments that would be received if the price per share of our
Common Stock in connection with the triggering event was greater (or less) than
$6.48. Accordingly, these tables do not
reflect actual payments or other benefits that may be received in connection
with, among other things, an actual change in control of Protection One. Other assumptions used in preparing these
estimates, the specific circumstances that would trigger these payment(s) or
the provision of other benefits, the types of payment(s) or benefits that
may be triggered, how payment and benefit levels are determined, material
conditions or obligations applicable to the receipt of payments or benefits,
and material factors regarding the named executive officers employment
agreements are described in the footnotes to and the narrative following these
tables.
Richard
Ginsburg,
Chief Executive Officer
|
|
Non-
Qualifying
Termination
(1)
|
|
Qualifying
Termination
(2)
|
|
Qualifying
Termination
with Change in
Control
(2)(3)
|
|
Death or
Disability
(4)
|
|
Change in
Control
(Without a
Qualifying
Termination)
(5)
|
|
Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary
|
|
$
|
|
|
$
|
1,035,000
|
|
$
|
1,547,325
|
|
$
|
|
|
$
|
|
|
Short-Term Incentive:
|
|
|
|
|
|
|
|
|
|
|
|
Current Year Pro Rata Amount
|
|
|
|
778,874
|
|
1,035,902
|
|
|
|
|
|
Other Severance Payment Amount
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Incentive:
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options-Unvested and
Accelerated
(6)
|
|
|
|
|
|
|
|
|
|
|
|
Stock Appreciation Rights-
Unvested and
Accelerated (7)
|
|
|
|
|
|
284,966
|
|
|
|
284,966
|
|
Benefits and perquisites:
|
|
|
|
|
|
|
|
|
|
|
|
Post-Employment Benefits (8)
|
|
|
|
59,817
|
|
59,817
|
|
|
|
|
|
Life Insurance Proceeds
|
|
|
|
|
|
|
|
1,035,000
|
|
|
|
Disability Benefits
|
|
|
|
|
|
|
|
|
(4)
|
|
|
Accrued Vacation Pay
|
|
74,639
|
|
74,639
|
|
74,639
|
|
74,639
|
|
|
|
280G Tax Gross-up
|
|
|
|
|
|
|
(9)
|
|
|
|
|
TOTAL:
|
|
$
|
74,639
|
|
$
|
1,948,330
|
|
$
|
3,002,649
|
|
$
|
1,109,639
|
|
$
|
284,966
|
|
Darius
G. Nevin,
Chief Financial Officer
|
|
Non-
Qualifying
Termination
(1)
|
|
Qualifying
Termination
(2)
|
|
Qualifying
Termination
with Change
in Control
(2)(3)
|
|
Death or
Disability
(4)
|
|
Change in
Control
(Without a
Qualifying
Termination)
(5)
|
|
Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary
|
|
$
|
|
|
$
|
683,100
|
|
$
|
1,021,235
|
|
$
|
|
|
$
|
|
|
Short-Term Incentive:
|
|
|
|
|
|
|
|
|
|
|
|
Current Year Pro Rata Amount
|
|
|
|
515,962
|
|
686,230
|
|
|
|
|
|
Other Severance Payment Amount
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Incentives:
|
|
|
|
|
|
|
|
|
|
|
|
Stock OptionsUnvested and
Accelerated
(6)
|
|
|
|
|
|
|
|
|
|
|
|
Stock Appreciation Rights
Unvested and
Accelerated (7)
|
|
|
|
|
|
190,215
|
|
|
|
190,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Table of Contents
Benefits and perquisites:
|
|
|
|
|
|
|
|
|
|
|
|
Post-Employment Benefits (8)
|
|
|
|
46,428
|
|
46,428
|
|
|
|
|
|
Life Insurance Proceeds
|
|
|
|
|
|
|
|
683,100
|
|
|
|
Disability Benefits
|
|
|
|
|
|
|
|
|
(4)
|
|
|
Accrued Vacation Pay
|
|
49,262
|
|
49,262
|
|
49,262
|
|
49,262
|
|
|
|
280G Tax Gross-up
|
|
|
|
|
|
|
(9)
|
|
|
|
|
TOTAL:
|
|
$
|
49,262
|
|
$
|
1,294,752
|
|
$
|
1,993,370
|
|
$
|
732,362
|
|
$
|
190,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter
Pefanis,
Executive Vice President and Chief
Operating Officer
|
|
Non-
Qualifying
Termination
(1)
|
|
Qualifying
Termination
(2)
|
|
Qualifying
Termination
with Change in
Control
(2)(3)
|
|
Death or
Disability
(4)
|
|
Change in
Control
(Without a
Qualifying
Termination)
(5)
|
|
Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary
|
|
$
|
|
|
$
|
621,000
|
|
$
|
928,395
|
|
$
|
|
|
$
|
|
|
Short-Term Incentive:
|
|
|
|
|
|
|
|
|
|
|
|
Current Year Pro Rata Amount
|
|
|
|
470,819
|
|
626,190
|
|
|
|
|
|
Other Severance Payment Amount
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Incentives:
|
|
|
|
|
|
|
|
|
|
|
|
Stock OptionsUnvested and
Accelerated
(6)
|
|
|
|
|
|
|
|
|
|
|
|
Stock Appreciation Rights
Unvested and
Accelerated (7)
|
|
|
|
|
|
165,993
|
|
|
|
165,992
|
|
Benefits and perquisites:
|
|
|
|
|
|
|
|
|
|
|
|
Post-Employment Benefits (8)
|
|
|
|
44,972
|
|
44,972
|
|
|
|
|
|
Life Insurance Proceeds
|
|
|
|
|
|
|
|
621,000
|
|
|
|
Disability Benefits
|
|
|
|
|
|
|
|
|
(4)
|
|
|
Accrued Vacation Pay
|
|
44,784
|
|
44,784
|
|
44,784
|
|
44,784
|
|
|
|
280G Tax Gross-up
|
|
|
|
|
|
|
(9)
|
|
|
|
|
TOTAL:
|
|
$
|
44,784
|
|
$
|
1,181,575
|
|
$
|
1,810,334
|
|
$
|
665,784
|
|
$
|
165,992
|
|
J.
Eric Griffin,
Vice President and Chief Counsel
|
|
Non-
Qualifying
Termination
(1)
|
|
Qualifying
Termination
(2)
|
|
Qualifying
Termination
with Change in
Control
(2)(3)
|
|
Death or
Disability
(4)
|
|
Change in
Control
(Without a
Qualifying
Termination)
(5)
|
|
Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary
|
|
|
|
$
|
225,630
|
|
$
|
449,004
|
|
|
|
|
|
Short-Term Incentive:
|
|
|
|
|
|
|
|
|
|
|
|
Current Year Pro Rata Amount
|
|
|
|
148,452
|
|
221,936
|
|
|
|
|
|
Other Severance Payment Amount
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Incentives:
|
|
|
|
|
|
|
|
|
|
|
|
Stock OptionsUnvested and
Accelerated
(6)
|
|
|
|
|
|
|
|
|
|
|
|
Stock Appreciation Rights
Unvested and
Accelerated (7)
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and perquisites:
|
|
|
|
|
|
|
|
|
|
|
|
Post-Employment Benefits (8)
|
|
|
|
15,055
|
|
30,110
|
|
|
|
|
|
Life Insurance Proceeds
|
|
|
|
|
|
|
|
451,260
|
|
|
|
Disability Benefits
|
|
|
|
|
|
|
|
|
(4)
|
|
|
Accrued Vacation Pay
|
|
28,848
|
|
28,848
|
|
28,848
|
|
28,848
|
|
|
|
280G Tax Gross-up
|
|
|
|
|
|
|
(9)
|
|
|
|
|
TOTAL:
|
|
$
|
28,848
|
|
$
|
417,985
|
|
$
|
729,898
|
|
$
|
480,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Table of
Contents
Tony
Wilson,
President CMS
|
|
Non-
Qualifying
Termination
(1)
|
|
Qualifying
Termination
(2)
|
|
Qualifying
Termination
with Change in
Control
(2)(3)
|
|
Death or
Disability
(4)
|
|
Change in
Control
(Without a
Qualifying
Termination)
(5)
|
|
Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary
|
|
$
|
|
|
$
|
235,000
|
|
$
|
467,650
|
|
$
|
|
|
$
|
|
|
Short-Term Incentive Plan:
|
|
|
|
|
|
|
|
|
|
|
|
Current Year Pro Rata Amount
|
|
|
|
128,060
|
|
191,450
|
|
|
|
|
|
Other Severance Payment Amount
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Incentives:
|
|
|
|
|
|
|
|
|
|
|
|
Stock OptionsUnvested and
Accelerated
(6)
|
|
|
|
|
|
|
|
|
|
|
|
Stock Appreciation RightsUnvested and Accelerated
(7)
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and perquisites:
|
|
|
|
|
|
|
|
|
|
|
|
Post-Employment Benefits (8)
|
|
|
|
18,869
|
|
37,738
|
|
|
|
|
|
Life Insurance Proceeds
|
|
|
|
|
|
|
|
470,000
|
|
|
|
Disability Benefits
|
|
|
|
|
|
|
|
|
(4)
|
|
|
Accrued Vacation Pay
|
|
33,894
|
|
33,894
|
|
33,894
|
|
33,894
|
|
|
|
280G Tax Gross-up
|
|
|
|
|
|
|
(9)
|
|
|
|
|
TOTAL:
|
|
$
|
33,894
|
|
$
|
415,823
|
|
$
|
730,732
|
|
$
|
503,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
A non-qualifying termination is any termination not
qualifying as a qualifying termination, and includes a voluntary termination by
the named executive without good reason, retirement, a termination by us for
cause, or any termination on account of death or disability. The meanings of the terms cause and good
reason for purposes of determining potential payments to named executive
officers upon termination or a change in control are described below.
(2)
A qualifying termination is a termination of the named
executives employment by us other than for cause or by the named executive for
good reason. These calculations assume
that the named executives date of termination was December 31, 2009, and
assume that the price per share of our Common Stock on the date of termination
was $6.48 per share, which was the closing price per share of our Common Stock
as of December 31, 2009, reported on the Nasdaq Global Market (the closing
stock price).
(3)
This column applies to a qualifying termination within
four months prior or one year after a change in control. The meaning of the
term change in control, for purposes of determining potential payments to
named executive officers under their respective employment agreements upon a
qualifying termination with a change in control, is described below. These
calculations assume that the change in control occurred on December 31,
2009.
(4)
A termination due to death or disability is not a
qualifying termination. Our long-term
disability coverage provides each named executive up to 66.67% of base salary
up to a maximum monthly benefit of $11,112.
The amount of any actual disability payments would depend on the length
of the disability and other factors, and accordingly, cannot be reasonably estimated. We provide life insurance coverage equal to
two times the named executives base salary.
(5)
Assumes that the change in control is also a qualified
sale and that it occurred as of December 31, 2009. If a change in control did not constitute a
qualified sale, such an event would not trigger a payout on the SARs. We have
assumed for illustrative purposes that we would exercise our discretion under
the 2004 Stock Option Plan to accelerate vesting or terminate options in
exchange for consideration in the event of a change in control. If we were not
to exercise our discretion under the 2004 Stock Option Plan to accelerate
vesting or terminate options in exchange for consideration in the event of the
change in control, then the change in control without a qualifying termination
would not trigger any acceleration of vesting or termination of options in
exchange for consideration.
(6)
Only Mr. Griffin held options that had not fully
vested as of December 31, 2009. His
unvested options had no intrinsic value as of that date because the exercise
price per share was higher than the closing stock price.
(7)
Represents the intrinsic value of the modified SARs as
of December 31, 2009, which had a base price of $5.02 per SAR. The unmodified SARs had no intrinsic value at
the closing stock price.
21
Table of Contents
(8)
Mr. Ginsburg, Mr. Nevin and Mr. Pefanis
are entitled to continuing medical, dental and life insurance coverage for
three years following a qualifying termination.
Mr. Griffin and Mr. Wilson are entitled to one year of
continuing coverage following a qualifying termination. In addition, Mr. Griffin and Mr. Wilson
are entitled to two years of continuing coverage following a qualifying
termination coupled with a change in control.
We have agreed to reimburse each executive for any income taxes that are
payable by the executive as a result of providing these post-employment
benefits.
(9)
We have agreed to reimburse each of Messrs. Ginsburg,
Nevin, Pefanis, Griffin, and Wilson for all excise taxes that are imposed on
the executive under Section 280G and any income and excise taxes that are
payable by the executive as a result of any reimbursements for Section 280G
excise taxes. See the discussion below
under Post-Termination Benefits Under Employment Agreements.
In addition to the
amounts shown in the tables above, as a result of the 2010 equity awards, and
assuming a value per share of the closing stock price, if a change of control
were to occur, Mr. Ginsburg, Mr. Nevin, and Mr. Pefanis would
receive an additional $324,000, $162,000, and $162,000, respectively, based on
the immediate cash-out of the unvested restricted shares of 50,000, 25,000, and
25,000, respectively. Neither the stock
options nor the SARs would have had value because the closing stock price on
December 31, 2009, was below the exercise price for both the stock options and
the SARs.
As of April 15,
2009, Ms. Lessner resigned as executive vice president and chief marketing
officer of the Company. Pursuant to the
terms of her employment agreement, she received a severance payment of
$274,275.
Below is a description of
additional assumptions that were used in creating the tables above and certain
contract provisions relating to the potential payments shown in the tables
above. The assumptions have been modified to take into account the 2010
Employment Agreement Amendments. Unless
otherwise noted the descriptions of the payments below are applicable to all of
the above tables relating to potential payments upon termination or change in
control.
Post-Termination Benefits Under
Employment Agreements
Each named executive
officer is party to an employment agreement. The terms of Mr. Ginsburg, Mr. Nevin,
Mr. Pefanis, Mr. Griffin and Mr. Wilsons employment agreements
are automatically extended on July 23 of each year for an additional
one-year period, subject to either partys right to terminate by giving written
notice at least 30 days prior to the end of the term. The term of Ms. Lessners employment
agreement commenced on March 8, 2007 and continued until her
resignation. Certain terms of these
employment agreements relating to compensation during the applicable named
executive officers term of employment are described above in the narrative
following the Grants of Plan Based Awards Table.
Pursuant to the terms of
their respective employment agreements, a termination of employment by us other
than for cause, including if we
provide a notice of nonrenewal of the employment agreement, or by
the executive for good reason, constitutes a qualifying termination, and
upon a qualifying termination Mr. Ginsburg, Mr. Nevin and Mr. Pefanis
would be entitled to receive:
·
a lump-sum cash payment equal to:
·
annual base salary and bonus amounts
earned but not previously paid through the date of the termination;
·
a bonus equal to the average bonus over
the preceding three years (the average annual bonus) pro-rated for the fiscal
year in which the termination occurs, less any amount paid to the executive
from our annual incentive plan for the fiscal year in which the termination
occurs; and
·
the cash equivalent of any accrued paid
time off,
·
a lump-sum cash payment equal to the sum
of:
·
2.0 (or 2.99 for terminations within four
months prior to or one year after a change in control) times the executive
officers annual base salary, plus
·
2.0 (or 2.99 for terminations within four
months prior to or one year after a change in control) times the executive
officers average annual bonus, and
·
continued participation for three years
in our medical, dental and life insurance plans.
22
Table of Contents
Mr. Griffins and Mr. Wilsons
employment agreements also provide that a qualifying termination is defined as
a termination of employment by us other than for cause or by Mr. Griffin
or Mr. Wilson for good reason.
Upon a qualifying termination, Mr. Griffin and Mr. Wilson
would be entitled to receive:
·
a lump-sum cash payment equal to:
·
annual base salary and bonus amounts
earned but not previously paid through the date of the termination;
·
a bonus equal to the average bonus over
the preceding three years (the average annual bonus) pro-rated for the fiscal
year in which the termination occurs, less any amount paid to the executive
from our annual incentive plan for the fiscal year in which the termination
occurs; and
·
the cash equivalent of any accrued paid
time off,
·
a lump-sum cash payment equal to the sum
of:
·
1.0 (or 1.99 for terminations within four
months prior to or one year after a change in control) times his annual base
salary, plus
·
1.0 (or 1.99 for terminations within four
months prior to or one year after a change in control) times his average
annual bonus, and
·
continued participation for one year (or
two years for terminations within four months prior to or one year after a change
in control) in our medical, dental and life insurance plans.
Mr. Ginsburg, Mr. Nevin,
Mr. Pefanis, Mr. Griffin and Mr. Wilsons employment agreements
provide that the executives rights with respect to any equity awards granted
under any of the Companys plans will be governed exclusively by the terms of
such plans and the applicable grant agreements, including such rights in the
event of a termination of employment or change in control.
The definitions of cause
and good reason in the named executive officers employment agreements are
described below under Involuntary Not for Cause Termination and Termination
for Good Reason.
Non-Compete, Non-Solicitation,
Non-Disparagement and Confidentiality Provisions of Employment Agreements
Each named executive
officers employment agreement with us includes non-competition,
non-solicitation, non-disparagement and confidentiality provisions. The
non-competition provisions in Mr. Ginsburg, Mr. Nevin and Mr. Pefanis
employment agreements that apply if less than 50% of the 2010 equity awards
vest contain meaningful exceptions (we refer to such non-competition provisions
as the original non-competition provisions) and apply during the senior
executives employment and until the second anniversary of the named executive
officers termination of employment (referred to as the non-competition
period). However, if 50% or more of the
2010 equity awards vest, then, instead of the original non-competition
provisions applying for the non-competition period, the exceptions to the
original non-competition provisions are generally eliminated, and more
stringent non-competition provisions are applied until 18 months after the
senior executive officers termination of employment (referred to as the vested
non-competition period). After
consulting with an outside appraisal firm, the Company believes that
application of the more stringent non-competition provisions for 18 months
would provide substantially more value to the Company than would application of
the original non-competition provisions for two years, because the more
stringent non-competition provisions would preclude the senior executive
officers from working with a competitor with revenue of less than $160 million
or with a non-competitor that begins to compete with the Company through no
assistance or plan of the senior executive.
The non-competition
provisions for Mr. Griffin and Mr. Wilsons employment agreements
apply during their employment and until the first anniversary of their
termination of employment (which is also referred to as the non-competition
period) or the second anniversary in the event they are entitled to payments
under certain change in control provisions of their employment agreements. Ms. Lessner was subject to
non-competition provisions in her employment agreement until April 14,
2010.
23
Table of
Contents
With respect to the
non-competition period, each named executive officer is generally prohibited
from owning, managing, operating or otherwise being connected to any entity
engaged, at the time that the named executive officer becomes associated with
the entity, in the business of providing security monitoring services with
revenue in excess of $160,000,000. If
the vested non-competition period applies, then Mr. Ginsburg, Mr. Nevin
and Mr. Pefanis are generally prohibited from owning, managing, operating
or otherwise being connected to any entity engaged in the business of providing
security monitoring services. During
either the non-competition period or the vested non-competition period, the
named executive officers are not prohibited from investing in an aggregate of
up to 3% of the publicly traded securities of any corporation listed on the New
York Stock Exchange, the American Stock Exchange or The Nasdaq National
Market. If a named executive officer
challenges the enforceability of the non-competition provisions of his or her
employment agreement, then he or she forfeits any right to any payments with
respect to base salary, short term incentive plan, benefits and perquisites
under his or her employment agreement that are triggered by a termination of
employment, and, to the extent applicable, his or her 2010 equity awards, to
the extent that such payments or benefits have not already been received.
The non-solicitation,
non-disparagement and confidentiality provisions in each named executive
officers employment agreement are not expressly linked to the receipt of
payments or benefits upon a termination of employment or a change in
control. The non-solicitation and
confidentiality provisions apply during the non-competition period or the
vested non-competition period, as applicable. The non-disparagement provisions
are not expressly limited in duration.
Equity Acceleration
The vesting of the 2010
equity awards granted to Mr. Ginsburg, Mr. Nevin and Mr. Pefanis
in February 2010 will accelerate upon a change of control of the company
if (x) the executive is employed with the company at the time of the
change of control or (y) the change of control occurs within two years of
the date of grant and within 90 days of the executives termination that is a
qualifying termination (as defined in the employment agreements). Upon a change of control, the stock options
will be cancelled and the executive will receive a payment of cash equal to the
excess of the change of control price over $9.50 times the number of
unexercised options; the SARs will be paid out at an amount equal to the
difference between (i) $7.50, and (ii) the lesser of: (a) $9.50
and (b) the change of control price; and the unvested restricted shares
will be cashed out in an amount equal to the change of control price times the
number of unvested restricted shares.
As described in
Compensation Discussion and Analysis, under the SAR Plan, the SARs, which are
held by Mr. Ginsburg, Mr. Nevin and Mr. Pefanis, vest and become
payable upon the earlier of (1) a qualified sale as defined in the SAR
Plan, which generally means the first transaction that results in our Principal
Stockholders and their affiliates having sold, assigned or transferred to
unaffiliated parties at least 60% of the equity interest in the Company held as
of February 8, 2005, by our Principal Stockholders, provided that, if the
qualified sale does not qualify as a permissible distribution event, then the
payment will be made, with interest, in connection with a subsequent
permissible distribution event, and (2) February 8, 2011.
Health Care Benefits
The value of the health
benefits, which consists of medical, dental and life insurance benefits, is
estimated based upon the current costs to us of providing such benefits.
Included in the above
table is an estimate of the associated tax gross-up payments (based on a 35%
federal income tax rate, a 1.45% Medicare tax rate and the applicable state income
tax rate) of $21,854, $17,196 and $19,015 for the three years of
post-employment benefits provided to Mr. Ginsburg, Mr. Nevin and Mr. Pefanis,
respectively. The associated tax
gross-up estimated payments for Mr. Griffin are $5,488 for one year of
benefits and $10,975 for two years of benefits. The associated tax gross-up
estimated payments for Mr. Wilson are $6,878 for one year of benefits and
$13,756 for two years of benefits.
24
Table of
Contents
Involuntary Not for Cause
Termination for Good Reason
Each of our named
executive officers will be entitled to certain benefits as described in the
tables above in the event of a qualifying termination, which means that the
executives employment is terminated by us for reasons other than cause or by
the executive for good reason, as defined in the named executive officers
employment agreement.
A termination of a named
executive officer by us is for cause if it is for any of the following
reasons:
·
the willful and continued failure of the
named executive officer to perform substantially his duties with the company
(other than any such failure resulting from such named executive officers
incapacity due to physical or mental illness or any such failure subsequent to
the named executive officer being delivered a notice of termination without
cause by us or the named executive officer delivering a notice of termination
for good reason to us) that is not remedied within 30 days after a written
demand for substantial performance is delivered to the named executive officer
by the Chairman of our Board of Directors or the Chairman of the Compensation
Committee or, in the case of named executive officers other than the Chief
Executive Officer, the Chief Executive Officer, which specifically identifies
the manner in which the named executive officer has not substantially performed
his duties; or
·
the named executive officers conviction
by a court of law, admission in a legal proceeding that he is guilty or plea of
nolo contendere, in each case, with respect to a felony.
For purposes of the
definition of the term cause, no act or failure to act by a named executive
officer will be considered willful unless it was done or omitted to be done
by the named executive officer in bad faith and without reasonable belief that
his or her action or omission was in, or not opposed to, our best interests.
A termination by a named
executive officer is for good reason if it is based on any of the following
events:
·
any change in the duties or
responsibilities (including reporting responsibilities) of the named executive
officer that is inconsistent in any material and adverse respect (which may be
cumulative) with named executive officers position(s), duties, responsibilities
or status with the company (including any adverse diminution of such duties or
responsibilities); provided, however, that, with respect to Messrs. Wilson
and Griffin, good reason shall not be deemed to occur upon a change in duties
or responsibilities (other than reporting responsibilities) that is solely and
directly due to us no longer being a publicly traded entity;
·
the failure to reappoint or reelect the
named executive officer to any position held by him without his consent;
·
a material breach of the employment
agreement by the company including but not limited to reduction in the named
executive officers base salary or other reduction in medical, dental, life or
disability benefits (except to the extent such reductions apply consistently to
all other senior executives); or
·
the relocation by the company of the
named executive officers principal workplace location more than 50 miles (35
miles for Mr. Pefanis and 25 miles for Mr. Ginsburg and Mr. Nevin)
from the workplace location principally used by the named executive officer as
of the date of the employment agreement.
A termination by Mr. Ginsburg
is also for good reason if it is based on any of the following events:
·
the appointment by our Board of Directors
of our chief operating officer, chief financial officer or president over Mr. Ginsburgs
written objection;
·
causing or permitting, without Mr. Ginsburgs
consent, any person other than Mr. Ginsburg to present and recommend the
business plan to the Board of Directors;
·
subject to restrictions under our bylaws
as of the date of Mr. Ginsburgs employment agreement, February 22,
2010, reducing the hiring or firing authority of Mr. Ginsburg as in effect
as of such date (it being understood, however, that Mr. Ginsburg will
consult and collaborate with our Board of Directors prior to the hiring or
firing of any senior manager of the company); or
·
the appointment of a Chairman of our
Board of Directors (other than a Chairman who is not an executive or an officer
of the company) without Mr. Ginsburgs consent.
In addition, a
termination by any of Mr. Ginsburg, Mr. Nevin or Mr. Pefanis is
also for good reason if it is based on:
·
our failure to indemnify the named executive
officer pursuant to the terms of his employment agreement with respect to any
payments previously made to the named executive officer; or
·
the Companys common stock ceasing to be
traded on an established national stock exchange (such as the Nasdaq Global
Market, the New York Stock Exchange or the Nasdaq Global Select Market) in
connection with or following a change of control that occurs in connection with
or following a qualified sale.
25
Table of Contents
Payments Upon a Termination in Connection
with a Change in Control
Each of Messrs. Ginsburg,
Nevin, Pefanis, Griffin and Wilson will be entitled to certain benefits
described if the executives employment is terminated pursuant to a qualifying
termination during the four-month period before or the 12-month period after a
change in control, as defined in the named executive officers employment
agreement. A change in control means any of the following:
·
individuals who constituted our Board of
Directors as of February 22, 2010, which persons are referred to as
incumbent directors, and persons whose election or nomination for election was
approved by a vote of at least two-thirds of the incumbent directors then on
the Board, which persons are also deemed to be incumbent directors, cease for
any reason to constitute at least a majority of our Board of Directors;
·
any person, entity or any group (other
than affiliates of the Principal Stockholders), and certain other entities
including our employee benefit plans, underwriters temporarily holding
securities pursuant to offering of such securities, and any entity controlled
by our named executive officers and our other employees, becomes a beneficial
owner, directly or indirectly, of 33 1/3% of the combined voting power of our
then outstanding securities eligible to vote for the election of our Board of
Directors, unless the Principal Stockholders continues to beneficially own a
greater number of our shares or has the right to direct the vote of a greater
number of voting securities for our directors, than that held by such other
person, entity or group;
·
a dissolution or liquidation of the
company; or
·
a merger, consolidation, statutory share
exchange, sale of all or substantially all of our assets or other similar
business combination, unless:
·
more than 50% of the total voting power
of the surviving parent corporation immediately following the business
combination is represented by our voting securities that were outstanding
immediately prior to the business combination;
·
no person (other than the Principal
Stockholders, an employee benefit plan of the Principal Stockholders or the
surviving parent corporation, or a group in which one or more of the Principal
Stockholders holds a majority of the voting power of the subject securities
held by such group) is or becomes the beneficial owner of more than 33 1/3% of
the total voting power of the outstanding voting securities eligible to elect
directors of the surviving parent corporation; and
·
at least a majority of the members of the
board of directors of the surviving parent corporation following the completion
of the business combination were our incumbent directors at the time that our
Board of Directors approved the initial agreement providing for the business
combination.
280G Tax Gross-Up
Upon a change in control
of the Company, one or more of our named executive officers may be subject to
certain excise taxes pursuant to Section 280G of the Code. We have agreed to reimburse each of Messrs. Ginsburg,
Nevin, Pefanis, Griffin and Wilson for all excise taxes that are imposed on the
executive under Section 280G and any income and excise taxes that are
payable by the executive as a result of any reimbursements for Section 280G
excise taxes, subject to certain potential reductions in payments and
exceptions in certain circumstances with respect to the 2010 equity
awards. There is no Section 280G
tax gross-up amount in the above tables, based on the assumptions used in the
preparation of such tables. However,
depending on the facts and circumstances in existence at the time of any actual
termination or change in control, we may be obligated to pay Section 280G
tax gross-up amounts.
The payment of any Section 280G
tax gross-up amount will be payable to each of Messrs. Ginsburg, Nevin,
Pefanis, Griffin and Wilson for any excise tax incurred regardless of whether
the executives employment is terminated, subject to certain potential
reductions in payments and exceptions in certain circumstances with respect to
the 2010 equity awards. However, the
amount of any Section 280G tax gross-up will change based upon when the
executives employment with us is terminated because the amount of compensation
subject to Section 280G will change.
In the event that no compensation is subject to Section 280G, no Section 280G
tax gross-up will be paid.
26
Table of Contents
See Tax Treatment under Section 162(m),
280G and 409A of the Code Section 280G of the Code under Compensation
Discussion and Analysis above for further discussion of the Companys potential
280G tax gross-up obligations.
Director Compensation
2009
Director Compensation
During 2009, our
non-employee directors received compensation for their services as set forth in
the table below. Directors who are our
employees do not receive additional compensation for their services as directors. As such, Mr. Ginsburg received no
compensation for his services as a director.
Name
|
|
Fees Earned
or Paid in
Cash ($)
|
|
Stock
Awards
($) (1)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
All Other
Compensation
($)
|
|
Total
($)
|
|
Raymond C. Kubacki
|
|
50,000
|
|
65,000
|
|
|
|
|
|
|
|
|
|
115,000
|
|
Robert J. McGuire
|
|
80,000
|
|
65,000
|
|
|
|
|
|
|
|
|
|
145,000
|
|
Jeff Nordhaus
|
|
35,625
|
(2)
|
|
|
|
|
|
|
|
|
|
|
35,625
|
|
Steven Rattner
|
|
6,667
|
(2)
|
|
|
|
|
|
|
|
|
|
|
6,667
|
|
Thomas J. Russo
|
|
40,000
|
|
65,000
|
|
|
|
|
|
|
|
|
|
105,000
|
|
Ed Sippel
|
|
40,000
|
(2)
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
Alex Hocherman
|
|
28,542
|
(2)
|
|
|
|
|
|
|
|
|
|
|
28,542
|
|
Michael Weinstock
|
|
40,000
|
(3)
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
Peter Ezersky
|
|
10,000
|
(2)
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
Arlene Yocum
|
|
50,000
|
|
65,000
|
|
|
|
|
|
|
|
|
|
115,000
|
|
(1)
Stock Awards represents the aggregate grant date
fair value computed in accordance with Accounting Standards Codification (ASC)
Topic 718. In 2009, each independent
director received an annual grant of $65,000 of RSUs, one quarter of which
vests on the grant date in each of the 4 years following the grant. The 2009 annual grants were made as of June 24,
2009 when the stock price was $4.00 per share.
Mr. McGuire, Mr. Kubacki, Mr. Russo, and Ms. Yocum
were each granted 16,250 RSUs in 2009, of which none had vested as of December 31,
2009. As of December 31, 2009, Mr. Kubacki,
Mr. Russo and Ms. Yocum each held 26,288 unvested RSUs and each has
received 4,023 shares for previously vested RSUs. Mr. McGuire held 26,538 unvested RSUs as
of December 31, 2009, and has received 6,773 shares for previously vested
RSUs.
(2)
Director compensation was paid to an affiliate of
Quadrangle Group LLC. Mr. Nordhaus,
Mr. Rattner, Mr. Sippel, Mr. Hocherman and Mr. Ezersky
received no direct compensation from us for their services as our
directors. Mr. Nordhaus resigned
from the Board on September 28, 2009.
Mr. Rattner resigned from the Board on February 23, 2009.
(3)
Director compensation was paid to Monarch Alternative
Capital LP. Mr. Weinstock received
no direct compensation from us for his services as our director.
Director
Compensation Plan
All
of our directors, except those who are our employees, receive compensation in
accordance with a compensation plan that was approved by the Board. The following is the compensation plan for
service as a non-employee director for 2009:
Annual
retainer
|
|
$
|
40,000
|
|
Annual
retainer for Audit Chair
|
|
$
|
25,000
|
|
Annual
retainer for Compensation Chair
|
|
$
|
15,000
|
|
Annual
retainer for Audit Committee Member
|
|
$
|
10,000
|
|
Annual
retainer for Compensation Committee Member
|
|
$
|
7,500
|
|
27
Table of Contents
Initial
equity award: value of initial grant of Restricted Share Units to a new
member (1)
|
|
$
|
40,000
|
|
Annual
equity award: value of Restricted Share Units (1)
|
|
$
|
65,000
|
|
(1) Restricted Share Units are granted only to
the independent members of our Board.
A total of 65,000 restricted
share units were issued to directors on June 24, 2009, under the 2009
Long-Term Incentive Plan (2009 LTIP).
The 2009 LTIP, approved by the Companys stockholders on June 24,
2009, is an equity compensation plan that satisfies certain requirements of the
Marketplace Rules of The Nasdaq Stock Market and certain requirements of
the Internal Revenue Code of 1986, as amended, and regulations thereunder,
referred to collectively as the Code, relating to deductibility of certain
performance-based executive compensation. The 2009 LTIP provides for the
granting of incentive and nonqualified stock options, stock appreciation
rights, restricted shares and restricted share units, performance awards and
other equity-based awards to directors, officers and key employees. Under the 2009 LTIP, 1.5 million shares are
reserved for issuance, subject to such adjustment as may be necessary to
reflect changes in the number or kinds of shares of common stock or other
securities of the Company. No other equity-based
awards have been granted to directors under the plan as of December 31,
2009. In lieu of the 2010 award of
$65,000 of restricted share units, the independent members of our Board may
receive a cash payment of $65,000.
Compensation Committee Interlocks
and Insider Participation in Compensation Decisions
Members of the
Compensation Committee during 2009 are set forth below. During 2009, no Compensation Committee member
was an officer or employee of the Company or its subsidiaries, or formerly an
officer, nor had any relationship otherwise requiring disclosure under the rules of
the Securities and Exchange Commission, except as described under Item 13.
Certain Relationships and Related Transactions, and Director Independence as a
result of the affiliation of Messrs. Nordhaus, Hocherman, Sippel, Ezersky,
and Rattner with Quadrangle Group LLC, and Mr. Weinstocks affiliation
with Monarch Alternative Capital, LP.
None of our executive officers served as a member of the Compensation
Committee or as a director of any company where an executive officer of that
company is a member of our Compensation Committee. The members of the Compensation Committee
thus do not have any compensation committee interlocks or insider participation. Certain relationships and related transactions
that may indirectly involve our Board members are reported below.
Compensation Committee Report
The Compensation
Committee has reviewed the Compensation Discussion and Analysis and discussed
that Analysis with management. Based on
its review and discussions with management, the Compensation Committee
recommended to our Board of Directors that the Compensation Discussion and
Analysis be included in this Form 10-K/A. This report is provided by the
following directors, who comprise the Compensation Committee:
COMPENSATION COMMITTEE
MEMBERS:
Robert J. McGuire
Alex Hocherman
28
Table of Contents
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Equity Compensation Plan
Information
The following chart
provides information regarding compensation plans (including individual
compensation arrangements) under which our equity securities were authorized
for issuance as of December 31, 2009.
Plan category
|
|
Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
|
|
Equity compensation plans approved by security
holders:
|
|
|
|
|
|
|
|
2008 Long-Term Incentive Plan (a)
|
|
96,902
|
|
|
|
1,403,098
|
|
2004 Stock Option Plan
|
|
1,567,829
|
|
$
|
6.61
|
|
387,473
|
|
Prior Stock Plans (b)
|
|
84,819
|
|
$
|
54.58
|
|
0
|
|
Any equity compensation plans not approved by
security holders
|
|
|
|
|
|
|
|
Total (c)
|
|
1,749,550
|
|
$
|
8.50
|
|
1,790,571
|
|
(a)
Represents the unvested portion of restricted share
units as of 12/31/09 awarded to directors in 2008 and 2009.
(b)
Includes 20,535 unvested restricted share units as of
12/31/09 awarded to directors in 2006 and 2007.
The weighted-average price relates only to the outstanding options and warrants
and excludes the restricted share units.
(c)
The weighted-average price relates only to the
outstanding options and warrants and excludes the restricted share units.
No
equity securities of the Company are issuable upon exercise of SARs under either
the 2005 SAR Plan or the 2010 SAR Plan.
Each such plan provides for only a cash payment upon exercise, and we
did not seek shareholder approval of these plans. The material features of the 2005 SAR Plan
and the 2010 SAR Plan are described in Compensation Discussion and Analysis, in
Item 11. Executive Compensation. As of December 31,
2009, under the 2005 SAR Plan, there were 1,996,183 SARs outstanding with
weighted-average exercise price of $6.45, and there were no SARs remaining
available for future issuance except for potential reallocations upon any
forfeiture of such outstanding SARs following a termination of employment by a
former executive. The 2010 SAR plan had
not been adopted as of December 31, 2009.
Security Ownership of Certain
Beneficial Owners and Management
The following table sets
forth certain information, as of April 26, 2010, with respect to all
persons known by us to be the beneficial owners of more than 5% of our
outstanding Common Stock, each of our directors, each of our named executive
officers and all of our directors and executive officers as a group. Unless otherwise noted, the address of each
beneficial owner listed in the table is c/o Protection One, Inc., 1035 N.
3
rd
Street, Suite 101, Lawrence, KS
66044. Information in the table with
respect to beneficial owners of more than 5% of our outstanding Common Stock is
based on such owners Schedule 13D as filed with the Securities and Exchange
Commission.
Name and Address of Beneficial Owner
|
|
Amount and Nature of
Beneficial Ownership as of
April 26, 2010 (1)
|
|
Percent
of Class
|
|
POI Acquisition, L.L.C.
375 Park Avenue, 14
th
Floor
New York, NY 10152
|
|
11,803,887
|
|
46.41
|
%
|
|
|
|
|
|
|
Monarch Alternative
Capital LP
535 Madison Avenue
New York, NY 10022
|
|
5,917,732
|
|
23.27
|
%
|
|
|
|
|
|
|
Richard
Ginsburg
|
|
819,246
|
(2)(7)(9)
|
3.14
|
%
|
Darius
G. Nevin
|
|
567,658
|
(2)(7)(9)
|
2.20
|
%
|
Peter
J. Pefanis
|
|
450,944
|
(2)(7)(9)
|
1.74
|
%
|
Eric
Griffin
|
|
23,996
|
(2)
|
*
|
|
29
Table of Contents
Tony
Wilson
|
|
23,041
|
(2)
|
*
|
|
Raymond
C. Kubacki
|
|
14,139
|
(5)
|
*
|
|
Robert
J. McGuire
|
|
25,109
|
(5)
|
*
|
|
Peter
Ezersky
|
|
0
|
(6)
|
*
|
|
Alex
Hocherman
|
|
0
|
(3)
|
*
|
|
Thomas
J. Russo
|
|
12,109
|
(5)
|
*
|
|
Edward
F. Sippel
|
|
0
|
(8)
|
*
|
|
Michael
Weinstock
|
|
0
|
(4)
|
*
|
|
Arlene
M. Yocum
|
|
13,559
|
(5)
|
*
|
|
All
directors and named executive officers as a group
|
|
1,949,801
|
|
7.22
|
%
|
*
Each individual owns less than one percent of the
outstanding shares of our Common Stock.
(1)
This column reflects our directors and named
executive officers beneficial ownership of shares of our Common Stock.
(2)
Includes shares subject to options that are currently
exercisable or that become exercisable within 60 days after April 26, 2010
as follows: Mr. Ginsburg, 638,535; Mr. Nevin, 393,547; Mr. Pefanis,
392,547; Mr. Griffin, 15,292 and Mr. Wilson, 15,650. For Mr. Ginsburg, Mr. Nevin, and Mr. Pefanis
this amount also includes restricted shares with voting rights that were
granted on February 22, 2010 and vest in one-half increments on second and
third anniversary on date of grant as follows:
Mr. Ginsburg, 50,000; Mr. Nevin, 25,000 and Mr. Pefanis,
25,000.
(3)
Mr. Hocherman is a Vice President of Quadrangle
Group LLC, an affiliate of Quadrangle GP Investors LLC. Quadrangle GP Investors LLC is the general
partner of Quadrangle GP Investors LP, the general partner of each of
Quadrangle Capital Partners LP, Quadrangle Select Partners LP and Quadrangle
Capital Partners-A LP (collectively, the Quadrangle Funds), which together
own all of the equity of POI Acquisition, L.L.C. (sometimes referred to asPOIA). Mr. Hocherman disclaims beneficial
ownership of the shares of our Common Stock that may be owned or deemed
beneficially owned by POIA, Quadrangle GP Investors LLC, Quadrangle GP
Investors LP, the Quadrangle Funds or any affiliates or former affiliates
thereof.
(4)
Mr. Weinstock is a Managing Principal of Monarch
Alternative Capital LP. Mr. Weinstock
disclaims beneficial ownership of the shares of our Common Stock that may be
owned or deemed beneficially owned by Monarch Alternative Capital LP or any
affiliates thereof (Monarch).
(5)
Includes 6,057 RSUs that will vest within 60 days
after April 26, 2010.
(6)
Mr. Ezersky is a Managing Member of Quadrangle GP
Investors LLC and a Manager of POIA.
Quadrangle GP Investors LLC is the general partner of Quadrangle GP
Investors LP, the general partner of Quadrangle Funds, which together own all
of the equity of POIA. Mr. Ezersky
disclaims beneficial ownership of the shares of our Common Stock that may be
owned or deemed beneficially owned by POIA, Quadrangle GP Investors LLC,
Quadrangle GP Investors LP, the Quadrangle Funds or any affiliates or former
affiliates thereof.
(7)
Amounts owned exclude SARs for Mr. Ginsburg, Mr. Nevin
and Mr. Pefanis, granted on February 8, 2005 and February 22,
2010 pursuant to the management incentive plan. See Executive Compensation and
Related InformationCompensation Discussion and Analysis for more information
on the SAR grants.
(8)
Mr. Sippel is a Managing Member of Quadrangle GP
Investors LLC. Quadrangle GP Investors
LLC is the general partner of Quadrangle GP Investors LP, the general partner
of Quadrangle Funds, which together own all of the equity of POIA. Mr. Sippel disclaims beneficial
ownership of the shares of our Common Stock that may be owned or deemed
beneficially owned by POIA, the Quadrangle Funds or any affiliates or former
affiliates thereof.
(9)
Includes restricted shares granted on February 22,
2010 as follows: Mr. Ginsburg,
50,000; Mr. Nevin, 25,000, Mr. Pefanis, 25,000.
30
Table of Contents
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Party Policy and
Procedures
It
is our current written policy to prohibit all related party transactions with
us unless the Audit Committee (referred to below as the Committee) of the
Board of Directors has determined in advance of the Company entering into any
such transaction that there is a compelling business reason to enter into such
a transaction.
There
is a general presumption that a related party transaction with us will not be
approved by the Committee. However, the
Committee may approve a related party transaction if:
(1)
The Committee
finds that there is a compelling business reason to approve the transaction,
taking into account such factors as the absence of other unrelated parties to
perform similar work for a similar price within a similar timeframe; and
(2)
The Committee
finds that it has been fully apprised of all significant conflicts that may
exist or otherwise arise on account of the transaction, and it believes,
nonetheless, that we are warranted in entering into the related party
transaction and have developed an appropriate plan to manage the potential
conflicts of interest.
We
have adopted the provisions of ASC Topic 850, Related Party Disclosures for
purposes of disclosing related party transactions. Executive officers, directors and selected
members of management are routinely asked to disclose known related party
transactions. In addition, our Code of
Ethical Business Conduct includes provisions prohibiting any action that would
constitute a conflict of interest. Any
employee, officer or director who becomes aware of a conflict or potential conflict
must bring it to the attention of the appropriate personnel as provided in our
Code of Ethical Business Conduct.
During
2009, we were not a party to any transaction or series of similar transactions
of a material amount in which any current director, executive officer, holder
of more than 5% of our capital stock, or any member of the immediate family of
any of the foregoing, had a direct or indirect material interest, other than in
connection with the transactions described below:
Board of Directors
and Amended Bylaws
If and for so long as POI
Acquisition, L.L.C. owns at least 40% of the outstanding shares of our Common
Stock, it shall have the right to elect to increase the size of the Board by
two directors, which it shall be entitled to designate.
Our stockholders
agreement also includes voting agreements, certain restrictions on the transfer
of our Common Stock, drag-along rights in favor of POI Acquisition, L.L.C. and
tag-along rights in favor of Monarch, all upon customary terms and subject to
certain customary exceptions (including exceptions for certain transfers among
affiliates). In addition, the amended and restated stockholders agreement
provides the Principal Stockholders with the right to participate on a
proportional basis in any future equity issuance by us, except for issuances
pursuant to registered public offerings, business combination transactions or
officer, employee, director or consultant arrangements.
Registration
Rights Agreement
As a condition to the
consummation of the debt-for-equity exchange, we entered into a registration
rights agreement with POI Acquisition, L.L.C. and Monarch. The registration rights agreement provides,
among other things, that we will register, upon notice, shares of our Common
Stock owned by such parties. Under the
registration rights agreement, POI Acquisition, L.L.C. is permitted up to four
demand registrations and Monarch is permitted up to two demand registrations,
subject to certain conditions described in the agreement. POI Acquisition, L.L.C. and Monarch also
received piggyback registration rights whereby they shall have the opportunity
to register their securities pursuant to any registration statement we may file
in the future, subject to certain conditions.
We are also obligated to pay certain of their expenses pursuant to the
registration of their securities under the registration rights agreement.
31
Table of Contents
2008
Credit Agreement
On March 14, 2008,
POAMI, as borrower, Protection One, Inc., the lenders party thereto,
Lehman Brothers Inc., as syndication agent, and Bear Stearns Corporate Lending
Inc., as administrative agent, entered into a Credit Agreement (the Credit
Agreement) for an unsecured term loan in the amount of $110,340,000 (the Term
Loan) due March 14, 2013. The Term Loan lenders include, among others,
entities affiliated with Quadrangle Group LLC, Monarch Alternative Capital LP
and Arlon Group. Three of our directors,
Mr. Ezersky, Mr. Hocherman and Mr. Sippel, and three of our
former directors, Mr. Nordhaus, Mr. Ormond and Mr. Rattner, are
or were affiliated with Quadrangle Group LLC, one of our directors, Mr. Weinstock,
is affiliated with Monarch Alternative Capital LP, and one of our former
directors, Mr. Tanner, is affiliated with Arlon Group.
The Credit Agreement
provides that interest will accrue on the outstanding principal amount of the
Term Loan at the prime rate (as defined in the Credit Agreement) plus 11.5% per
annum, with interest payments due semi-annually on each March 14th and September 14th. Principal amounts outstanding under the Term
Loan may be prepaid in part or in full.
Any principal prepayments made prior to March 14, 2009, would have
been subject to a make-whole premium as described in the Credit Agreement;
however, none were made.
The Credit Agreement
contains covenants, including, among other things, covenants that restrict the
ability of POAMI, Protection One and its subsidiaries to incur certain
additional indebtedness, create or permit liens on assets, issue certain equity
securities that mature or have redemption features or engage in certain
mergers, consolidations or dispositions.
If an event of default under the Credit Agreement shall occur and be
continuing, the principal amount outstanding thereunder, together with all
accrued unpaid interest and other amounts owed thereunder, may be declared
immediately due and payable.
Director Independence
Because the Principal
Stockholders own approximately 70% of our Common Stock, we qualify as a controlled
company based upon the criteria set forth in the Marketplace Rules of The
Nasdaq Stock Market (the Nasdaq Marketplace Rules). As a result, we are not required to have,
among other things, a majority of our Board of Directors comprised of
independent directors, nor are we required to have a compensation committee or
nominating committee consisting solely of independent directors. Currently, Mr. Kubacki, Mr. McGuire,
Mr. Russo and Ms. Yocum qualify as independent under the Nasdaq
Marketplace Rules. Furthermore, Mr. McGuire,
Mr. Kubacki and Ms. Yocum, members of the Audit Committee, also
qualify as independent based upon the criteria set forth in Section 10A(m)(3) under
the Exchange Act. Mr. Ezersky, Mr. Hocherman
and Mr. Sippel are not independent under the Nasdaq Marketplace Rules due
to their respective affiliations with the Quadrangle Stockholders. Mr. Weinstock is not independent under
the Nasdaq Marketplace Rules due to his affiliation with the Monarch
Stockholders. Mr. Ginsburg is not
independent under the Nasdaq Marketplace Rules because he is our Chief
Executive Officer.
32
Table of Contents
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
The aggregate fees billed
by Deloitte & Touche LLP, the member firms of Deloitte Touche
Tohmatsu, and their respective affiliates for fiscal years ended December 31,
2009 and 2008 are as follows:
|
|
For the year
ending
December 31,
2009
|
|
Percentage
of service
approved
by the
Audit
Committee
|
|
For the year
ending
December 31,
2008
|
|
Percentage
of service
approved
by the
Audit
Committee
|
|
Audit
fees (a)
|
|
$
|
1,034,000
|
|
100
|
%
|
$
|
1,116,357
|
|
100
|
%
|
Audit-related
fees (b)
|
|
22,450
|
|
100
|
%
|
39,585
|
|
100
|
%
|
Tax
fees (c)
|
|
28,035
|
|
100
|
%
|
|
|
|
|
All
other fees (d)
|
|
|
|
|
|
2,500
|
|
100
|
%
|
Total
fees
|
|
$
|
1,084,485
|
|
|
|
$
|
1,158,442
|
|
|
|
(a)
Includes fees for the respective year-end audit and
related quarterly reviews. 2008 also
includes fees related to the SEC comment letter.
(b)
Includes fees for the audits of our employee benefit
plans. 2008 also includes fees for our Form S-3
filing.
(c)
Includes fees related to review of the 2008 Federal
Income tax return.
(d)
ACL software training.
The Audit Committee of
our Board reviewed the services provided by Deloitte & Touche LLP,
along with the fees related to such services.
The Audit Committee reviews audit fees to be paid to and other services
to be provided by the independent registered public accountants. The Audit
Committee has considered, and will consider, whether the provision of non-audit
services is compatible with maintaining the independence of our independent
registered public accounting firm.
The Audit Committee
charter, which was adopted on March 11, 2005, provides that the Audit
Committee will review and pre-approve all audit and non-audit services
(excluding prohibited non-audit services as defined in the Sarbanes-Oxley Act
of 2002) to be provided to us by our independent auditor (other than with
respect to
de minimis
exceptions permitted by the
Sarbanes-Oxley Act of 2002). The Audit
Committee may consult with management in making its decision, but it may not
delegate this authority to management.
The Audit Committee may delegate its authority to pre-approve services
to one or more committee members, provided that the designees present the
pre-approvals to the full Audit Committee at the next regularly scheduled
meeting of the Audit Committee. This
authority has been delegated by the Audit Committee to Mr. McGuire. The Audit Committee has established policies
and procedures for the engagement of the outside auditor to provide permissible
non-audit services, which shall include pre-approval of such services.
The Audit Committee will
periodically assess the suitability of our independent registered public
accountants, taking into account all relevant fees and circumstances, including
the qualifications of other accounting firms.
33
Table of Contents
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The financial statements
and required financial statement schedules are included in the Original Filing.
The following documents are being filed as part of this Form 10-K/A.
Exhibit No.
|
|
Exhibit Description
|
2.1
|
|
Agreement and Plan of Merger, dated as of December 20,
2006, by and among the Company, IASG and Tara Acquisition Corp. (incorporated
by reference to Exhibit 2.1 of the Current Report on Form 8-K dated
December 21, 2006).
|
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of
the Company, effective as of February 8, 2005 (incorporated by reference
to Exhibit 3.1 to the Annual Report on Form 10-K filed by the
Company and POAMI for the year ended December 31, 2004, as amended (the Fiscal
2004 Form 10-K, as amended)).
|
|
|
|
3.2
|
|
By-laws of the Company, as amended and restated
March 17, 2005 (incorporated by reference to Exhibit 3.1 of the
Current Report on Form 8-K dated March 17, 2005).
|
|
|
|
10.1
|
|
1997 Long-Term Incentive Plan of the Company, as
amended (incorporated by reference to Exhibit 10.3 to the Fiscal 2004
Form 10-K, as amended).*
|
|
|
|
10.2
|
|
Integrated Alarm Services Group, Inc. 2003
Stock Option Plan.*++
|
|
|
|
10.3
|
|
Integrated Alarm Services Group, Inc. 2004
Stock Incentive Plan.*++
|
|
|
|
10.4
|
|
2004 Stock Option Plan (incorporated by reference to
Exhibit 10.3 of the Current Report on Form 8-K filed by the Company
and POAMI dated February 8, 2005).*
|
|
|
|
10.5
|
|
Form of Option Agreement for Named Executive
Officers under 2004 Stock Option Plan (incorporated by reference to
Exhibit 10.4 of the Current Report on Form 8-K dated
February 8, 2005).*
|
|
|
|
10.6
|
|
Form of Option Agreement for Non-Named
Executive Officers under 2004 Stock Option
Plan (incorporated by reference to
Exhibit 10.5 of the Current Report on Form 8-K dated
February 8, 2005).*
|
|
|
|
10.7
|
|
Stock Appreciation Rights Plan (incorporated by
reference to Exhibit 10.6 of the Current Report on Form 8-K dated
February 8, 2005).*
|
34
Table of Contents
Exhibit No.
|
|
Exhibit Description
|
10.8
|
|
Form of Grant Agreement under Stock
Appreciation Rights Plan (incorporated by reference to Exhibit 10.7 of
the Current Report on Form 8-K dated February 8, 2005).*
|
|
|
|
10.9
|
|
Protection One, Inc. 2008 Long-Term Incentive
Plan (incorporated by reference to Appendix A to the Companys Schedule 14C
Definitive Information Statement, filed with the Securities and Exchange
Commission on April 29, 2008).*
|
|
|
|
10.10
|
|
Form of Restricted Share Unit Agreement
(incorporated by reference to Exhibit I to Appendix A to the Companys
Schedule 14C Definitive Information Statement, filed with the Securities and
Exchange Commission on April 29, 2008).*
|
|
|
|
10.11
|
|
2009 Short-Term Incentive Plan of the Company
(incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K
dated June 3, 2009).*
|
|
|
|
10.12
|
|
Protection One, Inc. 2010 Stock Appreciation
Rights Plan (incorporated by reference to Exhibit 10.6 of the Current
Report on Form 8-K dated February 22, 2010).*
|
|
|
|
10.13
|
|
Form of Stock Option Agreement (incorporated by
reference to Exhibit 10.4 of the Current Report on Form 8-K dated February 22,
2010).*
|
|
|
|
10.14
|
|
Form of Restricted Shares Award Agreement
(incorporated by reference to Exhibit 10.5 of the Current Report on Form 8-K
dated February 22, 2010).*
|
|
|
|
10.15
|
|
Amended and Restated Employment Agreement by and
between Protection One, Inc. and Protection One Alarm Monitoring, Inc.
and Richard Ginsburg dated as of February 22, 2010 (incorporated by
reference to Exhibit 10.1 of the Current Report on Form 8-K dated
February 22, 2010).*
|
|
|
|
10.16
|
|
Amended and Restated Employment Agreement by and
between Protection One, Inc. and Protection One Alarm Monitoring, Inc.
and Darius G. Nevin dated as of February 22, 2010 (incorporated by
reference to Exhibit 10.2 of the Current Report on Form 8-K dated
February 22, 2010).*
|
|
|
|
10.17
|
|
Amended and Restated Employment Agreement by and
between Protection One, Inc. and Protection One Alarm Monitoring, Inc.
and Peter J. Pefanis dated as of February 22, 2010 (incorporated by
reference to Exhibit 10.3 of the Current Report on Form 8-K dated
February 22, 2010).*
|
|
|
|
10.18
|
|
Employment Agreement dated July 23, 2004
between Protection One, Inc., Protection One Alarm Monitoring, Inc and
J. Eric Griffin (incorporated by reference to Exhibit 10.58 to the
Fiscal 2004 Form 10-K, as amended).*
|
|
|
|
10.19
|
|
First Amendment to Employment Agreement dated
February 8, 2005 between Protection One, Inc., Protection One Alarm
Monitoring, Inc and J. Eric Griffin (incorporated by reference to
Exhibit 10.59 to the Fiscal 2004 Form 10-K, as amended).*
|
|
|
|
10.20
|
|
Second Amendment to Employment Agreement, dated
December 3, 2008, between and among Protection One, Inc.,
Protection One Alarm Monitoring, Inc. and J. Eric Griffin.*++
|
|
|
|
10.21
|
|
Employment Agreement, dated July 23, 2004,
between Protection One, Inc., Protection One Alarm
Monitoring, Inc., Security Monitoring Services, Inc. (d/b/a CMS),
and Anthony Wilson (incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q filed by the Company and POAMI for the
quarter ended March 31, 2009).*
|
35
Table of Contents
Exhibit No.
|
|
Exhibit Description
|
10.22
|
|
First Amendment to Employment Agreement, dated
February 8, 2005, between Protection
One, Inc., Protection One Alarm
Monitoring, Inc., Security Monitoring Services, Inc. (d/b/a
CMS), and Anthony Wilson (incorporated
by reference to Exhibit 10.2 to the Quarterly
Report on Form 10-Q filed by the
Company and POAMI for the quarter ended March 31,
2009).*
|
|
|
|
1
0.23
|
|
Second Amendment to Employment Agreement, dated
December 3, 2008, between
Protection One, Inc., Protection
One Alarm Monitoring, Inc., Security Monitoring
Services, Inc. (d/b/a CMS), and
Anthony Wilson (incorporated by reference to Exhibit 10.3
to the Quarterly Report on Form 10-Q
filed by the Company and POAMI for the quarter
ended March 31, 2009).*
|
|
|
|
1
0.24
|
|
Employment Agreement dated July 23, 2004
between Protection One, Inc., Protection One
Alarm Monitoring, Inc and Joseph
Sanchez (incorporated by reference to Exhibit 10.12 to
the Fiscal 2006 Form 10-K).*
|
|
|
|
1
0.25
|
|
First Amendment to Employment Agreement dated
February 8, 2005 between Protection
One, Inc., Protection One Alarm
Monitoring, Inc and Joseph Sanchez (incorporated by
reference to Exhibit 10.13 to the
Fiscal 2006 Form 10-K).*
|
|
|
|
1
0.26
|
|
Second Amendment to Employment Agreement, dated
December 3, 2008, between and
among Protection One, Inc.,
Protection One Alarm Monitoring, Inc. and Joseph
Sanchez.*++
|
|
|
|
1
0.27
|
|
Registration Rights Agreement, dated as of
February 8, 2005, by and between the Company
and Quadrangle (incorporated by
reference to Exhibit 10.2 of the Current Report on
Form 8-K dated February 8,
2005).
|
|
|
|
1
0.28
|
|
Management Stockholders Agreement, dated as of
February 8, 2005 (incorporated by
reference to Exhibit 10.8 of the
Current Report on Form 8-K dated February 8, 2005).*
|
|
|
|
1
0.29
|
|
Reorganization Agreement, dated as of December 18,
2006, by and among Protection
One, Inc., POI Acquisition
I, Inc. and the other affiliates of Quadrangle Group LLC
named therein (incorporated by
reference to Exhibit 10.4 of the Current Report on
Form 8-K dated December 21,
2006).
|
|
|
|
1
0.30
|
|
Amended and Restated Stockholders Agreement dated
April 2, 2007, among Quadrangle
Master Funding Ltd., POI Acquisition,
LLC and the Company (incorporated by reference
to Exhibit 10.1 of the Current Report
on Form 8-K dated April 2, 2007).
|
|
|
|
1
0.31
|
|
Credit Agreement dated March 14, 2008, among the
Company and other parties named
therein (incorporated by reference to
Exhibit 10.1 of the Current Report on Form 8-K
dated March 14, 2008).
|
|
|
|
1
0.32
|
|
Second Amended and Restated Credit Agreement dated
November 17, 2009, by and among
Protection One Alarm
Monitoring, Inc., Protection One, Inc., the lenders party thereto
and
J.P.
Morgan Securities Inc., as sole lead arranger and sole book manager, Bank of
America
N.A., as
documentation agent and JPMorgan Chase Bank, N.A., as administrative agent
(incorporated by reference to Exhibit
10.1 of the Current Report on Form 8-K dated
November 17, 2009).
|
|
|
|
21.1
|
|
Subsidiaries of the Company.++
|
|
|
|
23.1
|
|
Consent of Deloitte & Touche LLP,
Independent Registered Public Accounting Firm ++
|
36
Table of Contents
Exhibit No.
|
|
Exhibit Description
|
31.1
|
|
Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 for Protection One, Inc. +
|
|
|
|
31.2
|
|
Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 for Protection One, Inc. +
|
|
|
|
32.1
|
|
Certification of Principal Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 for Protection One, Inc. +
|
|
|
|
32.2
|
|
Certification of Principal Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 for Protection One, Inc. +
|
*
|
Each Exhibit marked with an asterisk
constitutes a management contract or compensatory plan or arrangement
required to be filed or incorporated by reference as an Exhibit to this
report pursuant to Item 15(c) of Form 10-K.
|
|
|
+
|
Filed or furnished herewith.
|
|
|
++
|
Filed or furnished as an Exhibit to our Original
Form 10-K filed on March 24, 2010.
|
|
|
|
(b) The exhibits required by Item 601 of
Regulation S-K are filed or furnished herewith.
|
37
Table of Contents
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrants have duly caused this report to be signed on their
behalf by the undersigned, thereunto duly authorized.
|
PROTECTION
ONE, INC
|
|
|
|
Date:
April 30, 2010
|
By:
|
/s/DARIUS
G. NEVIN
|
|
|
Darius
G. Nevin,
|
|
|
Executive
Vice President & Chief Financial Officer
|
38
Table of Contents
EXHIBIT INDEX
31.1
|
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 for Protection One, Inc.
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 for Protection One, Inc.
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for
Protection One, Inc.
|
|
|
|
32.2
|
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for
Protection One, Inc.
|
39
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