1
EXHIBIT 10.5
PROTECTION ONE, INC.
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
the 24th day of November, 1997, between John W. Hesse (the "Employee") and
Protection One, Inc. a Delaware corporation (including any and all subsidiaries,
the "Company").
WITNESSETH:
WHEREAS, Employee has for many years been an executive officer and key
employee of the Company;
WHEREAS, Employee and the Company have been parties to employment
agreements for many years, the last the Amended and Restated Employement
Agreement dated as of May 24, 1996;
WHEREAS, the Company and Western Resources, Inc. have entered into a
Contribution Agreement dated as of July 30, 1997 (as amended, the "Contribution
Agreement"); and
WHEREAS it is a condition to the closing of the Contribution Agreement
that the Company and Employee enter into this Agreement which will supersede and
replace all prior agreements between the Company and Employee concerning the
subject matter hereof,
AGREEMENT
NOW, THEREFORE, in consideration of the natural covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Employee agree as
follows:
1. The Company hereby employs and continues to engage the Employee as
Executive Vice President, Chief Financial Officer and Secretary, and Employee's
office shall at all times be in Dallas, Texas.
2. The term of this Agreement shall commence on the date hereof and
shall be continually extended such that at all times the remaining term hereof
is three years; provided, however, that this Agreement shall be subject to
termination as provided in Sections 10 and 11 hereof.
3. Subject to the supervision and direction of the Board, the Employee
agrees that he shall, at all times, faithfully, industriously and to the best of
his ability and experience, perform all the duties that may be required of him
pursuant to the terms hereof to the satisfaction of the Company. The Employee
shall devote his full time and attention to the duties assigned to him and shall
serve the Company diligently and honestly in its business and use his best
endeavors to promote the interest of the Company.
4. As long as the Employee remains employed by the Company, in
consideration of the services to be performed by the Employee during the term of
this Agreement, the Company shall pay or cause to be paid the Employee, and the
Employee shall accept in full payment for such services, a base salary (the
"Base Salary") of $315,000 per year, payable monthly, subject to increase in
accordance with the Company's policy with respect to executive salaries as in
effect from time to time.
2
5. During the term of this Agreement, the Employee shall be entitled to
participate in the Company's 1997 Long-Term Incentive Plan, the Company's bonus
plan for senior executives, any and all stock incentive award programs now in
effect or hereinafter adopted by the Board, the Company's 401(k) plan and all
benefit plans, within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended, provided to actively employed senior
executives of the Company in accordance with the terms and conditions of such
plans as each plan is in effect from time to time.
6. The Company shall provide, at no cost to the Employee, insurance and
health care benefits from time to time (and subject to modification) generally
offered by the Company to its key employees.
7. In the event that the Employee is required to travel in connection
with his employment, the Company shall advance funds to the Employee or
reimburse him, for reasonable and documented travel, subsistence and other
out-of-pocket expenses, as well as non-travel business entertainment expenses
incurred by him, in accordance with the then prevailing policies of the Company.
8. The Employee shall receive a monthly automobile usage allowance of
$500 in lieu of any other allowance for automobile expenses other than
reimbursement for gas, tolls and parking away from the office when on Company
business.
9. The Employee shall be entitled to vacation in accordance with
vacation policies adopted from time to time by the Board for the Company's key
employees. The Employee's initial vacation entitlement is three (3) weeks per
year.
10. (a) The Company may terminate this Agreement for "Cause" upon 30
days written notice. For purposes of this Agreement, "Cause" shall mean and be
limited to the following events: (i) an act of fraud, embezzlement or similar
conduct by Employee involving the Company; (ii) a conviction of a felony
involving moral turpitude; (iii) a continuing, repeated willful failure or
refusal by Employee to perform his duties; (iv) willful or serious misconduct on
the part of employee which continues and is demonstrably injurious to the
Company; or (v) Employee engages in and continues to engage in any activity
which is in conflict with or adverse to the business interests of the Company;
provided, however, that this Agreement may not be terminated under subclauses
(iii), (iv) or (v) hereof unless Employee shall have first received written
notice from the Board advising Employee of the specific acts or omissions
alleged to constitute and such failure or refusal to perform and such acts or
omissions continue after Employee shall have had a reasonable opportunity to
correct the acts or omissions cited in such notice. In no event shall alleged
incompetence in performance of Employee's duties be deemed grounds for
termination for "Cause." In the event of termination for "Cause," (x) Employee
shall be entitled to receive that portion of the Base Salary, and all other
benefits and unreimbursed expenses pursuant to Sections 4, 5, 6, 7, 8 and 9
hereof accrued through the date of termination.
(b) If Employee shall die during the term of this Agreement, this
Agreement and all of the Company's obligations hereunder shall terminate, except
that Employee's estate or designated beneficiaries shall be entitled to receive
(A) all earned and unpaid compensation (including Base Salary, prior termination
or otherwise), and (B) an annual termination amount (the Termination Amount")
for three years equal, each year, to the Base Salary at time of death plus the
last annual bonus paid or payable to Employee, paid in
2
3
equal monthly installments on the first day of each calendar month during such
three year period.
(c) If Employee becomes ill or is injured or disabled during the
term such that Employee falls to perform all or substantially all of the duties
to be rendered hereunder and such failure continues for a period in excess of
180 consecutive days (a "Disability"), the Company may, at its option, terminate
employee and, upon such termination, shall pay to Employee the Termination
Amount each year provided that any long-term disability payments received by
Employee under any disability insurance plan made available to Employee by the
Company if the premiums were paid by the Company shall be deducted from the
Termination Amount otherwise required to be paid to Employee hereunder.
(d) If the Company elects to terminate Employee for any reason
other than as expressly set forth in Sections (a), (b) and (c) above or for no
reason whatsoever (a "Severance Termination"), Employee shall receive the
"Separation Package." As used herein, the "Separation Package" shall mean the
Termination Amount each year for three years payable monthly on the first day of
each calendar month and in addition, all stock options and other awards
previously granted shall become exercisable and shall remain exercisable for
three years. In the event of a Severance Termination, Employee will also be
provided with reasonable office space and secretarial support for up to three
months, and the Company shall pay the costs of outplacement services with a
provider of its choice at a level appropriate to Employee's title and position
as requested by Employee. Notwithstanding the provisions of this Section 10(d),
in the event that the Employee breaches any of the covenants set forth in
Section 14 hereof, then the "Termination Amount" shall consist solely of the
Base Salary at the time of the Employee's termination of employment and shall
not include any bonus.
11. The Employee may terminate his employment at any time. However,
Employee shall be deemed to have terminated his employment for "Good Reason"
only if he terminated his employment by giving Notice of Termination as set
forth below within ninety (90) days after the occurrence of any of the following
events (provided the Company does not cure such event within sixty (60) days
following its receipt of the Employee's Notice of Termination):
(i) Without the Employee's prior written consent, the
Company assigns the Employee to duties materially inconsistent in
any respect with his position, authority, duties or responsibilities
as set forth in Section 1, or takes any other action that results in
a material diminution in Employee's current position, authority,
duties, or responsibilities; provided, however that any change in
the Employee's position, authority, duties or responsibility which
is due solely to the Company becoming a company that is no longer
publicly traded, or due to an Internal reorganization which results
in the Company becoming a division of any parent of the Company,
shall not be deemed to constitute good reason hereunder.
(ii) The Employee's base salary, or his targeted bonus under
the Company's bonus plan for any fiscal year, is reduced for any
reason other than in connection with the termination of his
employment.
(iii) For any reason other than in connection with the
termination of the Employee's employment or in connection with any
change to the Company's benefit programs applicable to all Company
employees generally made in the normal
3
4
course of business, the Company materially reduces benefits provided
to the Employee under Section 4, unless the Company agrees, as
evidenced by written agreement between the Company and the Employee,
to fully compensate the Employee for any such material reduction.
(iv) The assignment of the Employee, without his prior
written consent, to a Company office located outside of Dallas,
Texas.
(v) The Company's failure to obtain an agreement from any
successor or assign of the Company to assume and to agree to perform
this Agreement.
(vi) The Company otherwise materially breaches its
obligations to make payments to the Employee under this Agreement.
Any termination of the Employee's employment by the Employee other
than termination upon the Employee's death, shall be communicated by
written Notice of Termination to the Company. The notice shall
indicate the termination provision in this Agreement relied upon,
and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Employee's
employment under the provision so indicated. If the Employee
terminates his employment for Good Reason pursuant to this Section,
his Employment shall terminate on the date that is sixty (60) days
after Notice of Termination is given (provided that the Company does
not cure such event during that sixty (60) day period). If the
Employee terminates his employment for Good Reason, the Employee
shall receive the Separation Package commencing on the date his
employment shall terminate. Notwithstanding the provisions of this
Section 11, in the event that the Employee breaches any of the
covenants set forth in Section 14 hereof, then the "Termination
Amount" shall consist solely of the Base Salary at the time of the
Employee's termination of employment and shall not include any
bonus. If the Employee terminates his employment other than for Good
Reason, his employment shall terminate on the date that is sixty
(60) days after Notice of Termination is given and (x) Employee
shall be entitled to receive that portion of the Base Salary, and
all other benefits and unreimbursed expenses pursuant to Sections 4,
5, 6, 7, 8 and 9 hereof accrued through the date of termination.
12. The Company shall be entitled to all of the benefits and profits
arising from or incident to all work, service, and advice of the Employee
provided to the Company by the Employee.
13. (a) The Employee during the term of employment under this
Agreement will have access to and become acquainted with various trade secrets,
consisting of technical data, plans and specifications, research and test
results, feasibility studies, business plans, financial records, customer lists,
and other business documents, which are owned by the Company, or its
shareholders, and which are regularly used in the operation of the business of
the Company. The Employee shall not disclose any of the aforesaid trade secrets,
directly or indirectly, or use them in any way, either during the term of this
Agreement or at any time thereafter, except as required in the course of his
employment with the Company. All files, records, documents, plans, and similar
items relating to the business of the Employee or otherwise coming into his
possession, shall remain the exclusive property of the Company and shall not be
removed under any circumstances from the premises where the work of the Company
is being carried on without the prior written consent of the Company.
4
5
(b) The Employee in the course of his duties will or may be
handling technical, statistical, and planning data on the future plans and
requirements for customers and/or potential customers of the Company, and
similar material pertaining to the Company's shareholders. All such data is
confidential and shall not be disclosed, directly or indirectly, or used by the
Employee in any way, either during the term of this Agreement or at any time
thereafter, except as required in the course of Employee's employment with the
Company.
(c) All concepts, designs, ideas, inventions, know-how, and
industrial property rights (hereinafter called "Inventions") created, devised or
Improved by the Employee during the term of employment relating to the business
of the Company shall be the sole and exclusive property of the Company and shall
be treated in a confidential manner pursuant to the Section 13(a) above. The
Employee shall fully disclose all such Inventions to the Company. The handling
of any Inventions made by the Employee during employment term shall be governed
by the provisions set forth below:
(i) The Employee agrees that any Inventions made by the
Employee, solely or Jointly with others, during the term of this
Agreement, that are made with the Company's equipment, supplies,
facilities, trade secrets, or time; or that relate, at the time of
conception or of reduction to practice, to the business of the
Company or to the Company or the Company's actual or demonstrably
anticipated research or development; or that result from any work
performed by the Employee for the Company, shall belong to the
Company, and promises to assign all such Inventions to the Company.
(ii) The Employee also agrees that the Company shall have the
right to keep any such Inventions as trade secrets, if the Company
so chooses.
(iii) The Employee agrees to assign to the Company all rights
any other inventions.
(iv) In order to permit the Company to claim rights to which
it may be entitled, the Employee agrees to disclose to the Company
in confidence all Inventions that Employee makes during the course
of his employment and all patent applications filed by the Employee
within a year after termination of his employment.
(v) The Employee shall assist the Company in obtaining
patents on all Inventions, designs, improvements, and discoveries
deemed patentable by the Company in the United States and in all
foreign countries, and shall execute all documents and do all things
necessary to obtain letters patent, to vest the Company with full
and exclusive title thereto, and to protect the same against
infringement by others.
(vi) For the purposes of this Agreement, an Invention is
deemed to have been made during the period of the Employee's
employment if the Invention was conceived or first actually reduced
to practice during that period, and the Employee agrees that any
patent application filed within one year after termination of his
employment hereunder shall be presumed to relate to an invention
made during the term of the Employee's employment unless the
Employee can provide conclusive written evidence to the contrary.
5
6
14. During the term of this Agreement, the Employee agrees that he will
not, directly or indirectly, be interested in any manner as partner, officer,
director, stockholder (other than a passive investor, which shall be defined as
ownership of less than 1% of the equity of a publicly traded corporation or
association), consultant, advisor, employee or in any other capacity in or with
respect to any other firm, corporation, partnership, trust, association or
organization which is engaged in any line of business in any geographical area
in which the Company is engaged or has under development.
After the date of the termination of Employee's employment, whether
pursuant to Section 10 or 11 hereof or otherwise, Employee agrees that he will
not, during the period commencing on the date of termination and continuing for
the longer of (i) 365 days after termination or (Ii) so long as the Company is
timely paying the Termination Amount each year and all other amounts due
hereunder, directly or indirectly, be interested in any manner as partner,
officer, director, stockholder (other than a passive investor, which shall be
defined as ownership of less than 1% of the equity of a publicly traded
corporation or association), consultant, advisor, employee or in any other
capacity in or with respect to any other firm, corporation, partnership, trust,
association or organization which is engaged in any lines of business in which
the Company is engaged or has under development in any county of any state in
which the Company is doing business.
After the date of the termination of Employee's employment, whether
pursuant to Section 10 or 11 hereof or otherwise, Employee agrees that he will
not, during the period commencing on the date of termination and continuing for
the longer of (i) 365 days after termination or (ii) so long as the Company is
timely paying the Termination Amount each year and all other amounts due
hereunder, (A) entice, induce, solicit, or encourage any employee to leave the
employ of the Company to engage in any line of business in which the Company is
engaged or has under development as of the date of termination of Employee's
employment with the Company or (B) hire any other employee of the Company to
engage in any lie of business if such employee's base salary and any fixed or
guaranteed bonus per year will be more than $50,000.
15. In the event that any court or tribunal of proper jurisdiction and
venue shall find that the restrictions contained in Section 14 above are
unreasonable, the parties agree that such court shall determine a reasonable
time and/or geographical area for such restrictions. To the extent that any
other obligations set forth in this Agreement shall be declared invalid or
unenforceable, said clause of obligation shall be deemed to be severable, and
the remaining obligations imposed by the provisions of this Agreement shall be
fully enforceable as if such invalid or unenforceable provisions had not been
included herein.
16. The Employee agrees that the remedy at law for any breach or
threatened breach of the restrictions contained in Section 14 above will be
inadequate, and that any breach or threatened breach would cause immediate and
permanent damages as would be impossible to ascertain. Therefore, the Employee
agrees that in the event of any breach or threatened breach of any provisions of
Section 14 above by him, addition to any and all legal, equitable and arbitral
remedies available to the Company for such breach or threatened breach,
including a recovery of damages, the Company shall be entitled to obtain in any
court or tribunal having jurisdiction preliminary or permanent injunctive relief
without the necessity of proving actual damage by reason of such breach, and to
the extent permissible under the application statutes and rules of procedure, a
temporary restraining order may be granted immediately upon commencement of such
action.
6
7
17. The Employee represents and warrants that (a) he is not a party to
or bound by any agreement or subject to any restriction or limitation, whether
written, oral or arising out of any prior or current relationship, which would
be violated or impaired by his entering into, and performing for the Company his
obligations under this Agreement and (b) he does not possess confidential
information arising out of any such relationship which would be utilized in
connection with his employment by the Company.
18. This Agreement supersedes all prior agreements and understandings
between the parties with respect to the employment and understandings between
the parties with respect to the employment contemplated herein and sets forth a
complete agreement and understanding of the parties. No change, termination or
attempted waiver of any of the provisions of this Agreement shall be of any
force or effect unless the same is set forth in writing, duly adopted by written
resolution of the Board, and duly executed by the party against which it is
sought to be enforced.
19. The failure of either party to insist in one or more instances upon
the terms and conditions of this Agreement, or to exercise any right hereunder,
shall not be construed as a waiver of the future performance of any such term or
the future exercise of such right, and the obligation of each party with respect
to such future performance shall continue in full force and effect.
20. It is the intention of the Company and the Employee that this
Agreement and the performance hereunder and all suits and special proceedings
that might be brought pursuant hereto be construed in accordance with the laws
of the State of California, and that in any action, special proceeding, or other
proceeding that may be brought arising out of, or in connection with, or by
reason of this Agreement, the laws of the State of California shall be
applicable and shall govern to the exclusion of the law of any other forum,
without regard to the jurisdiction in which any action or special proceeding may
be instituted.
21. Any controversy or claim arising out of or relating to this
Agreement or its interpretation or the breach thereof shall be determined by
arbitration before the American Arbitration Association, which arbitration shall
be held in Los Angeles, California in accordance with the Commercial Arbitration
Rules of said American Arbitration Association. The award of the arbitrator
shall be final and binding on the parties and may be entered as a judgment or
decree in any court having jurisdiction of such proceedings. The costs and legal
fees of all parties to any arbitration proceeding shall be borne by the party
against whom the award is made.
22. This Agreement is not assignable by the Employee, but is assignable
by the Company to any subsidiary, parent, affiliated or associated company or
any company which purchases the assets of the Company. As used herein, the term
"the Company" shall include any company to which this Agreement shall have been
assigned.
23. Any and all notices, requests, demands or other communications
hereunder shall be in writing and shall be deemed given when delivered
personally or sent by certified mail or registered mail, postage prepaid to each
of the parties at the following addresses:
Employee: John W. Hesse
4500 Windsor Drive
Irving, TX 75038
7
8
The Company: Protection One, Inc.
6011 Bristol Parkway
Culver City, CA 90230
Attn: Chairman of the Board
Any party may change his address for the purposes of this Section by
giving written notice of such change to the other party in the manner herein
provided for giving notice.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the day and year first written above.
EMPLOYER EMPLOYEE
PROTECTION ONE, INC.
By: /s/ JAMES M. MACKENZIE, JR. /s/ JOHN W. HESSE
- ------------------------------------- ------------------------------------
James M. Mackenzie, Jr. John W. Hesse
President
and Chief Executive Officer
8