Exhibit 10.12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT
AGREEMENT (the “Agreement” is entered into as of the
23rd day of July, 2004 by and between Protection One, Inc., a
Delaware corporation (the “Company”), Protection One
Alarm Monitoring, Inc., a Delaware corporation, and Joseph R.
Sanchez (“Executive”).
W I T N E S S E T H :
WHEREAS, POAMI and
Executive agreed to employment terms pursuant to a Change in
Control Agreement dated December 13, 2000 and amended such
agreement under an Amendment to Change in Control Agreement dated
June 20, 2003 and a retention bonus letter dated June 20, 2003
(such Change in Control Agreement, as amended, together with the
retention bonus letter, hereinafter referred to as the “Prior
Employment Agreement”); and
WHEREAS, the Board
(as defined in Section 1) has determined that it is in the
best interest of the Company, its creditors and its stockholders to
assure that the Company will have the continued dedication of
Executive during and after the period of the Company’s and
POAMI’s (as defined in Section 1) anticipated Restructuring
(as defined in Section 1) of its indebtedness and capital stock
notwithstanding the possibility or occurrence of a Change in
Control (as defined in Section 1), to provide Executive with
assurance of continued employment beyond the expiration of the
Prior Employment Agreement and to provide compensation and benefits
arrangements which are competitive with those of other
comparable and similarly situated corporations;
and
WHEREAS, during
the period of the Company’s anticipated Restructuring,
Executive’s continued high performance and retention is
critical to ensure that the Company maintains its value;
and
WHEREAS, Executive
has agreed to enter into this Agreement because the Company has
satisfied all of its obligations under the Prior Employment
Agreement; and
WHEREAS, POAMI is
a direct and wholly owned subsidiary of the Company and will
receive substantial direct and indirect value from Executive;
and
WHEREAS, each of
the board of directors of the Company and of POAMI has authorized
the Company and POAMI, respectively, to enter into this
Agreement.
NOW, THEREFORE,
for and in consideration of the premises and the mutual covenants
and agreements herein contained, the Company, POAMI and Executive
hereby agree as follows:
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1.
Definitions . As used in this Agreement, the following
terms shall have the respective meanings set forth below:
(a)
“Board” means the Board of Directors of the Company, as
the case may be, whether prior to or after the Restructuring.
(b)
“ Bonus Amount ” means:
(A)
for a Date of Termination occurring in fiscal year 2004, the
average of the annual incentive bonuses payable by the Company to
or for the benefit of or deferred by Executive for the 2002 and
2003 fiscal years of the Company; and
(B)
for a Date of Termination occurring after fiscal year 2004, the
average of the annual incentive bonuses payable by the Company to
or for the benefit of or deferred by Executive for the last three
(3) completed fiscal years of the Company immediately preceding the
Date of Termination or Change in Control.
(c)
“ Cause ” means:
(A)
the willful and continued failure of Executive to perform
substantially his duties with the Company (other than any such
failure resulting from Executive’s incapacity due to physical
or mental illness or any such failure subsequent to Executive being
delivered a Notice of Termination without Cause by the Company or
Executive delivering a Notice of Termination for Good Reason to the
Company) that is not remedied within 30 days after a written
demand for substantial performance is delivered to Executive by the
Chairman of the Board, the Chairman of the Compensation Committee
or the Chief Executive Officer which specifically identifies the
manner in which Executive has not substantially performed
Executive’s duties and that such failure if not remedied
constitutes “Cause” under this Agreement, or
(B)
Executive’s conviction by a court of law, Executive’s
admission in a legal proceeding that he is guilty or
Executive’s plea of nolo contendre , in each case,
with respect to a felony.
For purposes of this
subsection (c), no act or failure to act by Executive shall be
considered “willful” unless done or omitted to be done
by Executive in bad faith and without reasonable belief that
Executive’s action or omission was in, or not opposed to, the
best interests of the Company.
(d)
“ Change in Control ” means
(i) the occurrence of any one of
the following events after the earlier of the date the
Restructuring is consummated or December 31, 2005:
(A)
individuals who, as of the date the Restructuring is consummated,
constitute the Board (or, in the case no Restructuring is
consummated by December 31, 2005, the individuals who constitute
the Board as of such date) (the “Incumbent Directors”)
cease for any reason to constitute at least a majority of the
Board, provided
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that any person becoming a director subsequent
to the date the Restructuring is consummated (or, in the case no
Restructuring is consummated by December 31, 2005, December 31,
2005), whose election or nomination for election was approved by a
vote of at least two-thirds of the Incumbent Directors then on the
Board (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a nominee
for director, without written objection to such nomination) or,
prior to the date that a Restructuring is consummated, as elected
at any time by Quadrangle Group shall be an Incumbent
Director.
(B)
any “person” (as such term is defined in
Section 3(a)(9) of the Securities Exchange Act of 1934 (the
“Exchange Act”) and as used in Sections 13(d)(3)
and 14(d)(2) of the Exchange Act) is or becomes a “beneficial
owner” (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing more than thirty-three and one-third percent (33
1 /
3 %) of the
combined voting power of the Company’s then outstanding
securities eligible to vote for the election of the Board (the
“Company Voting Securities”); provided, however
, that the event described in this paragraph (B) shall not be
deemed to be a Change in Control if such beneficial owner is any of
the following or becomes a beneficial owner as a result of any of
the following:
(I)
one or more Current Debt Holder or a syndicate or group in which
one or more Current Debt Holders, collectively, beneficially own a
majority of the Company Voting Securities beneficially owned by
such syndicate or group;
(II)
any employee benefit plan (or related trust) sponsored or
maintained by the Company or any of its Subsidiaries or one or more
Current Debt Holder;
(III)
any underwriter temporarily holding securities pursuant to an
offering of such securities;
(IV)
a person involved in a Non-Qualifying Transaction (as defined in
paragraph (C));
(V)
an entity (x) controlled by Executive or a group of persons
consisting, at the time of such acquisitions, of Executive and
other employees of the Company or any of its Subsidiaries or
(y) of which the majority of common equity securities, at the
time of such acquisitions, is owned by Executive or a group of
persons consisting of Executive and other employees of the Company
or any of its Subsidiaries; or
(VI)
any event in which a Current Debt Holder continues to be directly
or indirectly the beneficial owner of a greater number of shares of
the Company than that held by any other person as a result of the
event described in this paragraph (B) or has the right to
direct the vote of a greater number of voting
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securities for directors (or the equivalent) of
the Company than any other person as a result of the event
described in this paragraph (B);
(C)
the consummation of a merger, consolidation, statutory share
exchange, sale of all or substantially all of the assets of the
Company or similar form of corporate transaction (whether in one
transaction or a series of transactions) involving the Company (a
“Business Combination”), unless immediately following
such Business Combination:
(I)
more than 50% of the total voting power of (x) the corporation
that owns, leases or controls all or substantially all of the
assets of the Company resulting from such Business Combination (the
“Surviving Corporation”), or (y) if applicable,
the ultimate parent corporation that directly or indirectly has
beneficial ownership of 100% of the voting securities eligible to
elect directors (or the equivalent) of the Surviving Corporation
(the “Parent Corporation”), is represented by Company
Voting Securities that were outstanding immediately prior to such
Business Combination (or, if applicable, is represented by shares
into which such Company Voting Securities were converted pursuant
to such Business Combination);
(II)
no person (other than (a) one or more Current Debt Holder, (b) any
employee benefit plan (or related trust) sponsored or maintained by
one or more Current Debt Holder, the Surviving Corporation or the
Parent Corporation or (c) a syndicate or group in which one or more
Current Debt Holders, collectively, beneficially own a majority of
the total voting power of the subject voting securities
beneficially owned by such syndicate or group) is or becomes the
beneficial owner, directly or indirectly, of more than thirty-three
and one-third percent (33 1 /
3 %) of the
total voting power of the outstanding voting securities eligible to
elect directors (or the equivalent) of the Parent Corporation (or,
if there is no Parent Corporation, the Surviving Corporation);
and
(III)
at least a majority of the members of the board of directors of the
Parent Corporation (or, if there is no Parent Corporation, the
Surviving Corporation) following the consummation of the Business
Combination were Incumbent Directors at the time of the
Board’s approval of the execution of the initial agreement
providing for such Business Combination (any Business Combination
which satisfies all of the criteria specified in (I), (II) and
(III) above shall be deemed to be a “Non-Qualifying
Transaction”); or
(D)
the Company substantially completes a plan of complete liquidation
or dissolution whether in one transaction or a series of
transactions;
(ii) in connection with the
Restructuring, the occurrence of any one of the following
events:
(A)
on the date the Restructuring is consummated, any
“person” (as such term is defined in
Section 3(a)(9) of the Exchange Act and as used in
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Sections 13(d)(3) and 14(d)(2) of the
Exchange Act) other than a Current Debt Holder (or a syndicate or
group in which one or more Current Debt Holders, collectively,
beneficially own a majority of the total voting power of the
Company Voting Securities beneficially owned by such syndicate or
group) is or becomes a “beneficial owner” (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing more than thirty-three
and one-third percent (33 1 /
3 %) of the
Company Voting Securities and is the largest holder of Company
Voting Securities issued in connection with the Restructuring;
(B)
the consummation of a Business Combination, unless immediately
following such Business Combination:
(I)
more than 50% of the total voting power of (x) the corporation
that owns, leases or controls all or substantially all of the
assets of the Surviving Corporation, or (y) if applicable, the
Parent Corporation, is represented by Company Voting Securities
that were outstanding immediately prior to such Business
Combination (or, if applicable, is represented by shares into which
such Company Voting Securities were converted pursuant to such
Business Combination);
(II)
no person (other than (a) one or more Current Debt Holder, (b) any
employee benefit plan (or related trust) sponsored or maintained by
one or more Current Debt Holder, the Surviving Corporation or the
Parent Corporation or (c) a syndicate or group in which one or more
Current Debt Holders, collectively, beneficially own a majority of
the total voting power of the subject voting securities
beneficially owned by such syndicate or group) is or becomes the
beneficial owner, directly or indirectly, of more than thirty-three
and one-third percent (33 1 /
3 %) of the
total voting power of the outstanding voting securities eligible to
elect directors (or the equivalent) of the Parent Corporation (or,
if there is no Parent Corporation, the Surviving Corporation);
and
(III)
at least a majority of the members of the board of directors of the
Parent Corporation (or, if there is no Parent Corporation, the
Surviving Corporation) following the consummation of the Business
Combination were Incumbent Directors at the time of the
Board’s approval of the execution of the initial agreement
providing for such Business Combination; or
(C)
the Company substantially completes a plan of complete liquidation
or dissolution whether in one transaction or a series of
transactions.
(iii) the occurrence of any one of
the following events prior to the earlier of the date the
Restructuring is consummated or December 31, 2005:
(A)
individuals who, as of the date hereof or as otherwise elected by
Quadrangle Group, constitute the Board (the “Incumbent
Directors”) cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director
subsequent to the date hereof, whose election or nomination for
election was
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approved by a vote of at least two-thirds of
the Incumbent Directors then on the Board (either by a specific
vote or by approval of the proxy statement of the Company in which
such person is named as a nominee for director, without written
objection to such nomination) shall be an Incumbent
Director.
(B)
any “person” (as such term is defined in
Section 3(a)(9) of the Exchange Act and as used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than
a Current Debt Holder (or a syndicate or group in which one or more
Current Debt Holders beneficially own a majority of the debt of the
Company and POAMI beneficially owned by such syndicate or group) is
or becomes a “beneficial owner” (as defined in
Rule 13d-3 under the Exchange Act as if such rule applied to
ownership of debt), directly or indirectly, of more than
thirty-three and one-third (33 1 /
3 %) of the
total debt of the Company and POAMI;
(C)
any “person” (as such term is defined in
Section 3(a)(9) of the Exchange Act and as used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than
a Current Debt Holder (or a syndicate or group in which one or more
Current Debt Holders, collectively, beneficially own a majority of
the total voting power of the Company Voting Securities
beneficially owned by such syndicate or group) is or becomes a
“beneficial owner” (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the
Company representing more than fifty percent (50%) of the Company
Voting Securities; or
(D)
the consummation of a Business Combination, unless immediately
following such Business Combination:
(I)
more than 50% of the total voting power of (x) the corporation
that owns, leases or controls all or substantially all of the
assets of the Surviving Corporation, or (y) if applicable, the
Parent Corporation, is represented by Company Voting Securities
that were outstanding immediately prior to such Business
Combination (or, if applicable, is represented by shares into which
such Company Voting Securities were converted pursuant to such
Business Combination);
(II)
no person (other than one or more Current Debt Holder or any
employee benefit plan (or related trust) sponsored or maintained by
one or more Current Debt Holder (or a syndicate or group in which
one or more of such persons, collectively, beneficially own a
majority of the total voting power of the subject voting securities
beneficially owned by such syndicate or group), the Surviving
Corporation or the Parent Corporation) is or becomes the beneficial
owner, directly or indirectly, of more than thirty-three and
one-third percent (33 1 /
3 %) of the
total voting power of the outstanding voting securities eligible to
elect directors (or the equivalent) of the Parent Corporation (or,
if there is no Parent Corporation, the Surviving Corporation);
and
(III)
at least a majority of the members of the board of directors of the
Parent Corporation (or, if there is no Parent Corporation, the
Surviving
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Corporation) following the consummation of the
Business Combination were Incumbent Directors at the time of the
Board’s approval of the execution of the initial agreement
providing for such Business Combination.
It is the intent of the
parties that if an event that would constitute a “Change in
Control” under this Agreement occurs at POAMI, a
“Change in Control” shall have occurred for the purpose
of this Agreement. Upon the occurrence of an event described
in the preceding sentence, unless the context otherwise requires,
for purposes of this Agreement, POAMI shall be substituted for the
defined term “the Company” in the definition of
“Change in Control” together with appropriate changes
to other references in the definition of “Change in
Control” to give effect to the parties’
intent;
(e)
“ Citicorp Group ” means Citibank International
plc, any fund that is controlled by the foregoing and, as
applicable, their respective partners, members, subsidiaries and
affiliates (including without limitation, any other entities
controlled by or under common control with such entities), where
the assets of each such partner, member, subsidiary or affiliate
primarily consist of Company Voting Securities and/or debt of the
Company or POAMI.
(f)
“ Current Debt Holders ” means Quadrangle Group,
Citicorp Group and MacKay Shields Group.
(g)
“ Date of Termination ” means:
(A)
if Executive’s employment is to be terminated for Disability,
30 days after Notice of Termination is given (provided that
Executive shall not have returned to the performance of
Executive’s duties on a full-time basis during such
30 day period);
(B)
if Executive’s employment is to be terminated by the Company
for Cause or by Executive for Good Reason, the date specified in
the Notice of Termination;
(C)
if Executive’s employment is to be terminated by the Company
for any reason other than Cause, the date specified in the Notice
of Termination, which shall be 90 days after the Notice of
Termination is given, unless an earlier date has been expressly
agreed to by Executive in writing;
(D)
if Executive’s employment terminates by reason of death, the
date of death of Executive; or
(E)
if Executive’s employment is terminated by Executive in a
Non-Qualifying Termination, the date specified in Executive’s
Notice of Termination, but not more than 30 days after the
Notice of Termination is given, unless expressly agreed to by the
Company in writing.
(h)
“ Disability ” means termination of
Executive’s employment by the Company due to
Executive’s absence from Executive’s duties with the
Company on a full-time basis for at least one-hundred-eighty (180)
consecutive days as a result of Executive’s incapacity due to
physical or mental illness, unless within 30 days after Notice
of Termination is given to
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Executive following such absence Executive
shall have returned to the full-time performance of
Executive’s duties.
(i)
“ Good Reason ” shall mean termination of
Executive’s employment by Executive based on any of the
following events:
(A)
any change in the duties or responsibilities (including reporting
responsibilities) of Executive that is inconsistent in any material
and adverse respect (which may be cumulative) with
Executive’s position(s), duties, responsibilities or status
with the Company (including any adverse diminution of such duties
or responsibilities), provided, however , that 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 the Company no longer being a publicly
traded entity;
(B)
the failure to reappoint or reelect Executive to any position held
by Executive without Executive’s consent;
(C)
a material breach of this Agreement by the Company or POAMI
including but not limited to reduction in Executive’s Annual
Base Salary (as defined in Section 4(a)) or other reduction in
medical, dental, life or disability benefits (except to the extent
such reductions apply consistently to all other senior executives);
or
(D)
the relocation by the Company of Executive’s principal
workplace location more than 50 miles from the workplace location
principally used by Executive as of the date hereof.
Executive must provide
Notice of Termination of employment within one-hundred-eighty (180)
days following Executive’s knowledge of an event or facts
constituting Good Reason (or the last of such events or facts if
cumulative) or such event or facts shall not constitute Good Reason
under this Agreement.
(j)
“ MacKay Group ” means MacKay Shields, LLC and
any fund that is controlled by the foregoing and, as applicable,
their respective partners, members, subsidiaries and affiliates
(including without limitation, any other entities controlled by or
under common control with such entities), where the assets of each
such partner, member, subsidiary or affiliate primarily consist of
Company Voting Securities and/or debt of the Company or POAMI.
(k)
“ Non-Qualifying Termination ” means a
termination of Executive’s employment under any circumstances
not qualifying as a Qualifying Termination, including without
limitation any termination by the Company for Cause, any
termination by Executive without Good Reason or for no reason at
all or any termination on account of death, Disability or
Retirement.
(l)
“ Notice of Termination ” means a written notice
of termination of employment given by one party to the other party
pursuant to Section 16(b).
(m)
“ POAMI ” means Protection One Alarm Monitoring,
Inc., a Delaware corporation, and its successors and
assignees.
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(n)
“ Quadrangle Group ” means Quadrangle Group LLC,
POI Acquisition I, Inc., POI Acquisition, LLC, Quadrangle Master
Funding Ltd., any fund that is controlled by the foregoing and, as
applicable, their respective partners, members, subsidiaries and
affiliates (including without limitation, any other entities
controlled by or under common control with such entities), where
the assets of each such partner, member, subsidiary or affiliate
primarily consist of Company Voting Securities and/or debt of the
Company or POAMI.
(o)
“ Qualifying Termination ” means a termination
of Executive’s employment (i) by the Company other than
for Cause, including by the Company providing notice of nonrenewal
of this Agreement or (ii) by Executive for Good Reason.
Termination of Executive’s employment on account of death,
Disability, Retirement shall not be treated as a Qualifying
Termination.
(p)
“ Restructuring ” means shall mean any
transaction or series of transactions that effectuates any
reorganization, recapitalization, consolidation, business
combination, merger, or other similar transaction or any
transaction that effectuates any material amendment to, or other
material change in, the Company’s or POAMI’s
obligations or indebtedness for borrowed money as of the date
hereof (including accrued or accreted interest thereon) excluding
changes in beneficial ownership of such indebtedness, but
including, without limitation, (i) any amendment or modification to
the Company’s revolving credit facility, 7.375% Senior
Unsecured Notes due 2005 or 8.125% Senior Subordinated Notes due
2009 or that modifies any material payment term or any material
financial or operating covenant or that provides for a forbearance
of any material payment obligation or material covenant, in each
case, such that an amount that otherwise would be due and payable
(according to its terms, by put, upon default and acceleration or
otherwise) is delayed or otherwise extended for at least twelve
months or that converts a material amount of the Company’s or
POAMI’s obligations or indebtedness for borrowed money as of
the date hereof (including accrued or accreted interest thereon) to
equity and/or to a security junior to the claim’s existing
priority or is otherwise compromised, or any cash tender offer or
any combination thereof; or (ii) (A) any merger, consolidation,
reorganization, recapitalization, business combination or other
transaction pursuant to which the Company is acquired by, or
combined with, any person, group of persons, partnership,
corporation or other entity other than a Current Debt Holder (an
“Acquiror”) or (B) the acquisition, directly or
indirectly by an Acquiror (or by one or more persons acting
together with an Acquiror pursuant to a written agreement or
otherwise), in a single transaction or a series of transactions, of
(x) all or a preponderance of the assets or operations of the
Company, or all or any material portion of any operating division
of the Company or (y) all, substantially all, or a majority of the
outstanding or newly issued shares of the Company’s (or any
of its Subsidiary’s) capital stock (or any securities
convertible into, or options, warrants or other rights to acquire
such capital stock); in each case, whether accomplished
out-of-court or through the confirmation of any plan of
reorganization pursuant to Section 1129 of the United States
Bankruptcy Code, whether the requisite consents were obtained
in-court or out-of-court.
(q)
“ Retirement ” means Executive’s
termination of his employment on or after his attainment of age
65.
(r)
“ Subsidiary ” means any corporation or other
entity in which the Company has a direct or indirect ownership
interest of 50% or more of the total combined voting power of
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the
then outstanding securities or interests of such corporation or
other entity entitled to vote generally in the election of
directors or in which the Company has the right to receive 50% or
more of the distribution of profits or 50% or more of the assets
upon liquidation or dissolution.
2.
Employment and Duties .
(a)
Term of Employment . The Company agrees to employ
Executive, and Executive agrees to enter into employment with the
Company, in accordance with the terms and provisions of this
Agreement, for the Term of this Agreement. The execution of
this Agreement shall constitute acceptance by Executive and the
Company that Executive’s employment shall not terminate as a
result of any Change in Control prior to the date hereof.
Upon termination of Executive’s employment (regardless of
whether such termination constitutes a Qualifying Termination or
Non-Qualifying Termination), Executive shall be relieved of any
obligation to continue to perform the duties described in
Section 2(b) effective as of the Date of Termination.
The termination of the employment relationship by either party for
any reason or for no reason at all shall not constitute a breach of
this Agreement, but certain obligations and benefits shall survive
such termination of employment as set forth in
Section 19.
(b)
Duties . During the period of Executive’s
employment under this Agreement, Executive shall serve as Sr. Vice
President Customer Operations of the Company. Executive shall
devote Executive’s full business time and attention to the
affairs of the Company and his duties as its Sr. Vice President
Customer Operations. Executive shall have such duties as are
appropriate to Executive’s position as Sr. Vice President
Customer Operations, will be responsible for planning, organizing,
monitoring and directing customer operations, ensuring that service
levels, quality, productivity and financial goals are achieved in a
24-hour environment, developing management staff to oversee day to
day operations and shall have such authority as required to enable
Executive to perform these duties. Consistent with the
foregoing, Executive shall comply with all reasonable instructions
of the Chief Executive Officer and Board of Directors of the
Company. Executive shall report to the Chief Executive
Officer. In addition, during the period of Executive’s
employment under this Agreement, Executive may serve as an officer
and/or director of a Subsidiary or Subsidiaries if requested to do
so by the Board. Executive may resign from the board of
directors of any Subsidiaries at any time in his sole and absolute
discretion.
3.
Term of Agreement . The Term of this Agreement shall
commence on the date of this Agreement and shall continue until the
earlier of (i) the first anniversary of the date of this Agreement
or (ii) the Date of Termination that results from a Qualifying
Termination or Non-Qualifying Termination. If this Agreement
remains in effect through the first anniversary of the date of this
Agreement, it shall thereafter be automatically extended for an
indefinite number of one (1) year periods un
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