<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
PINKERTON, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF PINKERTON (R)]
WORLD SUPPORT
CENTER
15910 Ventura
Boulevard
Suite 900
Encino, CA
91436-2810
March 23, 1998
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
Pinkerton's, Inc. on Thursday, April 30, 1998, at 2:00 p.m., local time. The
meeting will be held at the Westwood Marquis Hotel and Gardens, 930 Hilgard
Avenue, Los Angeles, California.
At the meeting, stockholders will be asked to vote for the election of three
directors for a term of three years, to approve an amendment to the 1995
Pinkerton Performance and Equity Incentive Plan to increase the number of
shares with respect to which awards may be made under the plan, and to ratify
the appointment of the Company's independent auditors.
We hope you will be able to attend the Annual Meeting personally. Your vote
is important. To ensure that your shares are represented, even if you plan to
attend the meeting in person, we ask that you complete, date, sign and return
the enclosed proxy card in the accompanying envelope today.
Stockholders of record at the close of business on March 4, 1998 will be
entitled to vote at the meeting. A copy of the Company's Annual Report for the
fiscal year ended December 26, 1997 is being delivered herewith to each
stockholder of the Company.
We sincerely appreciate your interest in Pinkerton and look forward to
seeing you on Thursday, April 30, 1998.
Sincerely,
/s/ Thomas W. Wathen /s/ Denis R. Brown
Thomas W. Wathen Denis R. Brown
Chairman of the Board President and Chief
Executive Officer
<PAGE>
PINKERTON'S, INC.
15910 VENTURA BOULEVARD
SUITE 900
ENCINO, CALIFORNIA 91436-2810
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 30, 1998
----------------
To the Stockholders of
PINKERTON'S, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Pinkerton's, Inc. (the "Company") will be held at the Westwood Marquis Hotel
and Gardens, 930 Hilgard Avenue, Los Angeles, California on Thursday, April
30, 1998, at 2:00 p.m., local time, to consider and vote on the following
proposals, as more fully described in the attached Proxy Statement:
1. To elect three directors of the Company for a term of three years;
2. To approve an amendment to the 1995 Pinkerton Performance and Equity
Incentive Plan to increase the number of shares with respect to which
awards may be made under the plan;
3. To ratify the selection of KPMG Peat Marwick LLP as the Company's
independent auditors for the fiscal year ending December 25, 1998; and
4. To consider and transact such other business as may properly come
before the Annual Meeting.
Stockholders of the Company of record at the close of business on March 4,
1998 are entitled to receive notice of and to vote at the Annual Meeting or at
any adjournment thereof.
The Company's 1997 Annual Report to Stockholders and the Company's Proxy
Statement relating to actions to be taken at the Annual Meeting are enclosed
with this notice. The Annual Report is not incorporated in, and is not
considered a part of, the proxy solicitation material.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. YOU ARE URGED
TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT TODAY IN THE
ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. IF YOU ATTEND
THE MEETING AND WISH TO DO SO, YOU MAY VOTE YOUR SHARES IN PERSON IF YOU
FOLLOW THE PROCEDURE IN THE PROXY STATEMENT, EVEN IF YOU HAVE SIGNED AND
RETURNED YOUR PROXY CARD.
By Order of the Board of Directors
/s/ C. Michael Carter
C. Michael Carter
Corporate Secretary
Encino, California
March 23, 1998
<PAGE>
PINKERTON'S, INC.
15910 VENTURA BOULEVARD
SUITE 900
ENCINO, CALIFORNIA 91436-2810
----------------
PROXY STATEMENT
----------------
SOLICITATION
This Proxy Statement is furnished in connection with the solicitation of the
enclosed proxy by the Board of Directors of Pinkerton's, Inc. (the "Company")
for use at the Annual Meeting of Stockholders of the Company to be held on
Thursday, April 30, 1998, at 2:00 p.m., local time, at the Westwood Marquis
Hotel and Gardens, 930 Hilgard Avenue, Los Angeles, California, or at any
adjournment of such meeting. The Proxy Statement and the enclosed form of
proxy are first being sent to stockholders on or about March 23, 1998. The
cost of solicitation of proxies for the Annual Meeting, including reasonable
expenses of brokers and others for forwarding proxy materials to beneficial
owners of shares, will be paid by the Company. Solicitation will be made
primarily by mail, and may also be made by any form of telecommunication by
officers or by other employees of the Company.
The shares represented by the enclosed proxy will be voted at the Annual
Meeting in accordance with the instructions contained therein if properly
executed and delivered. If no choice is specified, shares represented by
properly executed and delivered proxies will be voted in accordance with the
recommendations of the Board of Directors set forth herein and, with respect
to any other item of business that may come before the Annual Meeting, in
accordance with the best judgment of the proxy holders. Any stockholder
executing a proxy has the power to revoke it at any time before it is voted by
filing either a written notice of revocation or a duly executed proxy bearing
a later date with the Corporate Secretary of the Company at 15910 Ventura
Boulevard, Suite 900, Encino, California 91436-2810. Proxies may also be
revoked by any stockholder present at the Annual Meeting who elects to vote
his or her shares in person after giving the Secretary of the Annual Meeting
notice in writing that the proxy is revoked.
VOTING INFORMATION
Only stockholders of record at the close of business on March 4, 1998 are
entitled to receive notice of and to vote at the Annual Meeting. On the record
date, 12,596,587 shares of the Company's Common Stock, par value $.001 per
share (the "Common Stock"), were outstanding and eligible to vote. Effective
August 27, 1997, the Company's outstanding Common Stock was split on a three-
for-two basis. The split was accomplished by means of a stock dividend whereby
each holder of Common Stock received one new share for each two shares held.
All share figures set forth in this proxy statement have, to the extent
appropriate, been adjusted to reflect this split. The holders of Common Stock
on the record date are entitled to one vote for each share of Common Stock
held upon all matters to be considered at the Annual Meeting, or at any
adjournment thereof.
A majority of the outstanding shares of Common Stock must be represented in
person or by proxy at the Annual Meeting to constitute a quorum for the
transaction of business. The stockholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave
less than a quorum. In the absence of a quorum at any meeting or any
adjournment thereof, a majority in voting interest of the stockholders present
in person or by proxy and
<PAGE>
entitled to vote thereat or, in the absence therefrom of all the stockholders,
any officer entitled to preside at or to act as secretary of such meeting may
adjourn such meeting from time to time. At any such adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
The holders of Common Stock do not have the right to cumulative voting. An
affirmative vote of a majority of the shares present in person or by proxy and
entitled to vote thereon is required for approval of each proposal submitted
to stockholders for consideration, other than the election of directors. With
regard to the election of directors, votes may be cast in favor or withheld.
The three nominees for director receiving the highest number of votes cast by
stockholders entitled to vote for the election of directors will be elected.
Proxies will be received and tabulated by the registrar and transfer agent for
the Common Stock. Votes cast in person at the meeting will be tabulated by an
election inspector appointed by the Company. Abstentions and "broker non-
votes" are each included in the determination of the number of shares present
and voting, with each tabulated separately. Abstentions are counted in
tabulations of the votes cast on proposals presented to the stockholders,
whereas broker non-votes are not counted for purposes of determining whether a
proposal has been approved.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table and notes thereto set forth certain information
regarding the beneficial ownership of Common Stock, as of March 4, 1998 unless
otherwise indicated, by all those known by the Company to be beneficial owners
of more than five percent of its Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF COMMON
OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED STOCK OUTSTANDING
------------------- ------------------------- -----------------
<S> <C> <C>
Thomas W. Wathen (1)........ 3,757,010 29.7
15910 Ventura Blvd.
Suite 900
Encino, CA 91436
The Capital Group Companies,
Inc./
Capital Research and
Management Company/
SMALLCAP World Fund, Inc.
(2)....................... 810,000 6.4
333 South Hope Street
Los Angeles, CA 90071
Southeastern Asset
Management, Inc.(3)........ 1,357,600 10.8
6075 Poplar Avenue
Suite 900
Memphis, TN 38119
Tweedy, Browne Company
L.P./TBK Partners, L.P./
Vanderbilt Partners,
L.P.(4)................... 989,898 7.9
52 Vanderbilt Avenue
New York, NY 10017
</TABLE>
- --------
(1) Mr. Wathen is Chairman of the Board of Directors of the Company. The
Thomas W. Wathen Trust (the "Trust"), the Thomas W. Wathen Charitable
Remainder Unitrust (the "Unitrust") and the Thomas W.
2
<PAGE>
Wathen Foundation (the "Foundation") held of record 3,681,415 shares,
21,723 shares and 21,622 shares of Common Stock, respectively. The Trust is
a revocable trust for which Mr. Wathen is the settlor, trustee and
beneficiary; the Unitrust is an irrevocable trust for which Mr. Wathen is
the settlor, trustee and 6% income beneficiary; and the Foundation is an
irrevocable trust for which Mr. Wathen is the settlor and trustee. Mr.
Wathen has sole voting and investment power with respect to all shares
shown as beneficially owned. Also included are 32,250 shares of Common
Stock issuable under options exercisable currently or within sixty days.
(2) As of December 31, 1997, based on public filings. According to public
filings, The Capital Group Companies, Inc. ("Capital Group"), a parent
holding company of a group of investment management companies, Capital
Research and Management Company ("Capital R&M"), an investment adviser
registered under the Investment Advisers Act of 1940 which is wholly owned
by Capital Group, and SMALLCAP World Fund, Inc., an investment company
registered under the Investment Company Act of 1940 which is advised by
Capital R&M, are or may be deemed to be beneficial owners of these shares.
(3) As of December 31, 1997, based on public filings. According to public
filings, Southeastern Asset Management, Inc., an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940, has
sole voting power over 654,600 of such shares, shared voting power over
587,000 of such shares, no voting power over 116,000 of such shares, sole
dispositive power over 770,600 of such shares, and shared voting and
dispositive power over 587,000 of such shares.
(4) Based on latest available public filings. According to public filings,
Tweedy, Browne Company L.P., TBK Partners, L.P. and Vanderbilt Partners
L.P. disclaim membership in a "group" within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended. According to
public filings, Tweedy, Browne Company L.P., a broker-dealer and
investment adviser registered with the Securities and Exchange Commission,
has sole voting power over 876,225 of such shares and shared dispositive
power over 989,898 such shares, TBK Partners, L.P. has sole voting and
dispositive power over 23,250 such shares, and Vanderbilt Partners, L.P.
has sole voting and dispositive power over 18,150 such shares.
3
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table and notes thereto set forth certain information
regarding the beneficial ownership of the Company's Common Stock as of March
4, 1998 by each of the current directors and nominees of the Company, the
current executive officers named in the Summary Compensation Table, and by all
directors and current executive officers of the Company as a group. Unless
otherwise indicated, the persons named in the table below have sole voting and
investment power with respect to all securities shown as beneficially owned by
them, subject to community property laws where applicable. A single asterisk
denotes beneficial ownership of less than one percent.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NAME OR NUMBER OF NATURE OF SHARES COMMON STOCK
PERSONS IN GROUP BENEFICIALLY OWNED OUTSTANDING
----------------- ------------------ ------------
<S> <C> <C>
Thomas W. Wathen......................... 3,757,010(1) 29.7
Denis R. Brown........................... 382,500(2) 2.9
C. Michael Carter........................ 66,375(3) *
James P. McCloskey....................... 69,874(4) *
Don W. Walker............................ 103,866(5) *
Michael A. Stugrin....................... 3,375(3) *
Peter H. Dailey.......................... 23,250(6) *
John A. Gavin............................ 16,500(3) *
James R. Mellor.......................... 480 *
Gerald D. Murphy......................... 25,054(7) *
J. Kevin Murphy.......................... 20,400(8) *
Robert H. Smith.......................... 20,000(9) *
William H. Webster....................... 16,500(3) *
All directors and executive officers
as a group (16 persons)................. 4,512,368(10) 33.8
</TABLE>
- --------
(1) See footnote (1) under "Security Ownership of Certain Beneficial Owners."
(2) Includes 371,250 shares subject to options exercisable currently or
within sixty days.
(3) Consists of shares subject to options exercisable currently or within
sixty days.
(4) Includes 66,374 shares subject to options exercisable currently or within
sixty days.
(5) Includes 84,375 shares subject to options exercisable currently or within
sixty days.
(6) Includes 21,750 shares subject to options exercisable currently or within
sixty days.
(7) Includes 24,000 shares subject to options exercisable currently or within
sixty days.
(8) Includes 20,250 shares subject to options exercisable currently or within
sixty days.
(9) Mr. Smith has shared voting and investment power with respect to 4,500 of
such shares. Includes 16,500 shares subject to options exercisable
currently or within sixty days.
(10) Includes 745,683 shares subject to options exercisable currently or
within sixty days.
1999 STOCKHOLDER PROPOSALS
Any proposal that a stockholder intends to present at the Company's 1999
annual meeting of stockholders must be received by the Company at its
principal executive office not later than November 23, 1998, to be considered
for inclusion in the Company's proxy materials for that meeting. To ensure
prompt receipt of the stockholder proposals by the Company, the proposals
should be sent by certified mail, return receipt requested,
4
<PAGE>
to Pinkerton's, Inc., 15910 Ventura Boulevard, Suite 900, Encino, California
91436-2810, Attention: Corporate Secretary. Submission by a stockholder of a
proposal does not guarantee its inclusion in the proxy material. Proposals
must comply with the Company's By-Laws and federal proxy rules and any
applicable state rules relating to stockholder proposals to be included in the
Company's 1999 proxy solicitation material.
PROPOSAL 1--ELECTION OF DIRECTORS
NOMINEES FOR ELECTION
The Restated Certificate of Incorporation of the Company divides the Board
of Directors into three classes as nearly equal in number as possible, and the
members of each class are elected for a term of three years. One class of
directors is elected annually. The Board of Directors currently has nine
members, three of whom are Class I Directors with terms expiring at this
year's Annual Meeting, namely, Gerald D. Murphy, J. Kevin Murphy and William
H. Webster. The Company's By-Laws authorize the appointment of nine directors
for the Board. Accordingly, at this year's Annual Meeting, three directors are
to be elected as Class I Directors to serve for three-year terms expiring at
the Company's Annual Meeting of Stockholders in 2001 and until their
successors are elected and qualified, subject, however, to prior death,
resignation, retirement, disqualification or removal from office.
Each of the three nominees, Gerald D. Murphy, J. Kevin Murphy and William H.
Webster, is an incumbent director and has consented to continue to serve as a
director if elected. If at the time of the Annual Meeting any of such nominees
should be unable or should decline to serve, the discretionary authority
provided in the proxies received will be exercised to vote for a substitute
nominee or nominees as designated by the Board of Directors, unless otherwise
instructed. The Board of Directors has no reason to believe that any nominee
will be unable or unwilling to serve.
The three nominees to the Board of Directors receiving the highest number of
votes cast by stockholders entitled to vote at the Annual Meeting will be
elected.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ELECTION
OF GERALD D. MURPHY, J. KEVIN MURPHY AND WILLIAM H. WEBSTER AS CLASS I
DIRECTORS, AND PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED "FOR"
THIS PROPOSAL UNLESS A VOTE AGAINST THE PROPOSAL OR AN ABSTENTION IS
SPECIFICALLY INDICATED.
Gerald D. Murphy (70) has been a director of the Company or of its
predecessor corporation since 1975. Since 1964, Mr. Murphy has served as
Chairman of the Board and Chief Executive Officer of ERLY Industries, Inc.
(formerly Early California Industries), a publicly held international
agribusiness that owns 81% voting control of American Rice, Inc. and 100% of
Chemonics Industries, Inc. Mr. Murphy also served as Chairman of the Board of
Directors of American Rice, Inc. since 1991, and serves as a director for
Sizzler, Inc., Wynn's International, Inc. and Leisure Technology, Inc. Mr.
Murphy was a member of the Compensation Committee of the Company's Board of
Directors throughout 1996 and through February 1997, after which he became a
member of the Audit Committee instead.
J. Kevin Murphy (71) has been a director of the Company since October 1990.
Mr. Murphy is currently a business consultant to various companies. He has
been a member of the Board of Trustees of St. Mary College in Leavenworth,
Kansas since October 1996. He served as a director of Health Systems
International, Inc., from February 1994 until April 1997, and served as Vice
Chairman and a director of Qual-Med Inc., from 1990 to
5
<PAGE>
February 1994. Mr. Murphy was President of 655 Associates, Inc., a crisis
management and management consulting firm from 1985 to 1991, and is a past
president of Purolator Courier Corporation and Trailways, Inc. Mr. Murphy is
Chairman of the Strategic Planning and Marketing Committee and a member of the
Compensation Committee of the Company's Board of Directors.
William H. Webster (74) has been a director of the Company since August 1992
and a partner of the law firm of Milbank, Tweed, Hadley & McCloy since
September 1991. Judge Webster is a director of Anheuser-Busch Companies, Inc.,
Maritz, Inc., TLC Beatrice International Holdings, Inc. and Next WAVE Telecom,
Inc. From May 1987 to September 1991, he served as the Director of Central
Intelligence and directed the Central Intelligence Agency. From February 1978
to May 1987, Judge Webster served as the Director of the Federal Bureau of
Investigation. In 1970, Judge Webster was appointed a Judge of the United
States District Court for the Eastern District of Missouri, and in 1973 was
elevated to the United States Court of Appeals for the Eighth Circuit. Judge
Webster is a member of the Audit and Nominating Committees of the Company's
Board of Directors.
BIOGRAPHICAL INFORMATION OF CONTINUING DIRECTORS
Denis R. Brown (58) was elected the President and Chief Executive Officer
and a director (currently, Class II) of the Company in April 1994. Prior to
joining the Company, Mr. Brown served at Concurrent Computer Corporation as
Chairman of the Board and Chief Executive Officer from April 1992 until August
1993, as Chairman of the Board, President and Chief Executive Officer from
July 1991 until April 1992, and as Vice Chairman of the Board, President and
Chief Executive Officer from September 1990 until July 1991. Mr. Brown served
as President and Chief Executive Officer of Penn Central Industries Group from
May 1985 until January 1990. Prior to joining Penn Central, Mr. Brown spent 15
years with ITT Corporation, serving as Corporate Vice President and Group
Executive of the Defense Space Group and as President of the Defense
Communications Division. Mr. Brown is also serving as a director of Farr
Company, a producer and distributor of filters and filtration systems, and
CalMat Co., a construction materials supplier and property development and
management company. Mr. Brown is a member of the Strategic Planning and
Marketing Committee of the Company's Board of Directors.
Peter H. Dailey (67) has been a director (currently, Class II) of the
Company since February 1990. Mr. Dailey is the Chairman of Enniskerry
Financial Ltd., a private investment company. Mr. Dailey was Vice Chairman,
director and principal stockholder of the Interpublic Group of Companies, a
holding company for advertising agencies from 1984 to 1985 and the Chairman
and Chief Executive Officer of Memorex Telex N.V., and served as the Chief
Executive Officer of Memorex Telex Corporation from 1995 to 1997 to assist
with that Company's reorganization under Chapter 11 of the United States
Bankruptcy Code filed in October 1996. Mr. Dailey is currently a director of
Chicago Title and Trust Company, Jacobs Engineering Group, Inc., Sizzler
International, and The Wirthlin Group. Mr. Dailey has served as Ambassador to
Ireland and as Special Presidential Envoy to NATO countries for intermediate
nuclear weapons negotiations. Mr. Dailey also served as a member of the
eleven-member Presidential Advisory Committee on Arms Control and Disarmament.
He was appointed by President Reagan and reaffirmed by President Bush in the
same capacity. From 1985 to 1988, he served in the Central Intelligence Agency
as Counselor to William Casey, Director of Central Intelligence. He also
served as the principal media strategist in the election campaigns of
President Nixon in 1972, President Reagan in 1980, and the primary campaign of
President Ford in 1976. In 1984, he served as Senior Advisor to the re-
election campaign of President Reagan. Prior to government service, he was a
director of Walt Disney Productions and Cement Roadstone Corporation PLC of
Ireland. Mr. Dailey is a member of the Audit and Nominating Committees of the
Company's Board of Directors.
6
<PAGE>
John A. Gavin (66) has been a director (currently, Class III) of the Company
since April 1993. Mr. Gavin is the founder and has been the Chairman of Gamma
Services, Inc., an international venture capital and consulting firm since
1989. Mr. Gavin has served as a Managing Director of Hicks, Muse, Tate & Furst
(Latin America) since 1995, and serves as a director of Atlantic Richfield
Corporation, Dresser Industries, Wirekraft Holdings Corp., Krause's Furniture
Co., the Hotchkis & Wiley Funds, Apex Mortgage Company, and FEDCO. From 1987
to 1990, Mr. Gavin served as President of Univisa Satellite Communications, a
Spanish-speaking broadcast communications network, and from 1986 to 1987 he
was a Vice President of Atlantic Richfield Corporation. In 1981, Mr. Gavin was
appointed Ambassador to Mexico by President Reagan and served in this capacity
until 1986. Mr. Gavin was also U.S. Advisor to the Secretary General of the
Organization of American States from 1961 through 1974. He remains a
consultant to the U.S. State Department. Mr. Gavin is Chairman of the
Compensation Committee and a member of the Nominating and Strategic Planning
and Marketing Committees of the Company's Board of Directors.
James R. Mellor (67) has been a director (currently, Class II) of the
Company since December 1996. Mr. Mellor retired as the Chairman and Chief
Executive Officer of General Dynamics Corporation on May 31, 1997. He became
President and Chief Operating Officer in 1991 and President and Chief
Executive Officer in 1993, and was elected Chairman in 1994. Mr. Mellor has
served at General Dynamics Corporation as a director since 1981. He also
served as Executive Vice President--Commercial Systems and Corporate Planning
from 1981 to 1982, then as Executive Vice President--Corporate Planning and
International until 1983, then as Executive Vice President for Marine,
Business Systems and Corporate Planning until 1986, and then as Executive Vice
President--Marine, Land Systems and International until 1991. Before joining
General Dynamics Corporation, Mr. Mellor was President and Chief Operating
Officer of AM International, Inc. and a director there since 1977. Prior to
that he spent 18 years with Litton Industries in a variety of management and
engineering positions. Mr. Mellor also serves as a director of U.S. Surgical
Corporation, Bergen Brunswig Corporation, and Computer Sciences Corporation.
Mr. Mellor is a member of the Compensation Committee of the Board of
Directors.
Robert H. Smith (62) has been a director (currently, Class III) of the
Company since April 1993. Mr. Smith has served as Managing Director of Smith &
Crowley, Inc., an investment banking firm specializing in banks since 1993. He
serves as a director of Edison International, J. G. Boswell Co., Oasis
Residential, Inc., and Marine National Bank. From 1961 to 1992, Mr. Smith
served in numerous managerial positions with Security Pacific National Bank
and Security Pacific Corporation. From July 1991 until April 1992, he served
as Chairman of the Board and Chief Executive Officer of Security Pacific
Corporation and Chairman of the Board of Security Pacific National Bank. Mr.
Smith also served during 1992 as a member of the Board and President and Chief
Operating Officer of BankAmerica Corporation and Bank of America NT & SA. Mr.
Smith is Chairman of the Audit Committee and a member of the Compensation
Committee of the Company's Board of Directors.
Thomas W. Wathen (68) has been a director (currently, Class III) of the
Company since 1988. Mr. Wathen joined California Plant Protection, Inc.
("CPP") in 1963 and served on a full-time basis as President, Chief Executive
Officer and Chairman of the Board of CPP from 1964 to January 1988. Since the
acquisition of "old" Pinkerton's, Inc. by CPP in January 1988, Mr. Wathen has
served as President (until October 1990 and from July 1992 until April 1994),
Chief Executive Officer (until April 1994) and Chairman of the Board of the
Company. For the five years prior to joining CPP, Mr. Wathen served as a
security representative for North American Aviation and as a security director
for RCA and Mattel Toys. From 1951 to 1958, Mr. Wathen served as an industrial
security officer for the United States Air Force and special agent for the
Department of Defense. Mr. Wathen is Chairman of the Nominating Committee and
a member of the Strategic Planning and Marketing Committee of the Company's
Board of Directors.
7
<PAGE>
CORPORATE GOVERNANCE
The Board of Directors, which held a total of eight meetings (six regular
and two special) in 1997, is currently composed of nine members. If all the
nominees are elected by the stockholders at the Annual Meeting, the
composition of the Board will be seven directors whose principal occupation or
employment is and has been outside the Company, one director who is currently
an executive officer of the Company and one director who is a past President
and Chief Executive Officer of the Company.
In addition to membership on the Board, every director served on one or more
of four Committees of the Board in 1997. The directors spend a considerable
amount of time preparing for Board and Committee meetings and, in addition,
are called upon for their counsel between meeting dates. In 1997, each
director attended at least 75% of the total of the meetings of the Board and
the Committees of which he was a member, except Mr. Dailey, who attended 71%
of such meetings.
As permitted under Delaware Law and the Restated Certificate of
Incorporation and By-Laws of the Company, the Board of Directors has
established and delegated certain authority and responsibility to four
standing committees: the Audit Committee; the Compensation Committee; the
Nominating Committee; and the Strategic Planning and Marketing Committee. The
Board annually reviews the authority and responsibility delegated to each
Committee at the organizational meeting of the full Board immediately
following the annual meeting of the Company's stockholders. The table below
shows current Committee membership. An asterisk denotes Chairman of the
Committee.
<TABLE>
<CAPTION>
STRATEGIC
PLANNING AND
AUDIT COMPENSATION NOMINATING MARKETING
COMMITTEE COMMITTEE COMMITTEE COMMITTEE
------------------ --------------- ------------------ ----------------
<S> <C> <C> <C>
Peter H. Dailey John A. Gavin* Peter H. Dailey Denis R. Brown
Gerald D. Murphy James R. Mellor John A. Gavin John A. Gavin
Robert H. Smith* J. Kevin Murphy Thomas W. Wathen* J. Kevin Murphy*
William H. Webster Robert H. Smith William H. Webster Thomas W. Wathen
</TABLE>
The principal responsibilities of the Audit Committee include the review of
all financial statements and notes thereto contained in public filings and
releases, matters pertaining to the selection, compensation and independence
of the Company's independent accountants, internal accounting controls and
procedures, including the performance of the Company's Internal Audit
Department, and the capital uses and needs of the Company. The Audit Committee
held four meetings during 1997.
The annual and long-term compensation of the Company's Named Officers (as
defined hereinafter) and Corporate Vice Presidents is determined by the
Compensation Committee. The Committee also has oversight of the incentive
compensation plans and benefit programs for the Company's officers,
administers the Company's stock incentive plans, and with a member of
management administers the Company's Supplemental Retirement Income Plan (the
"SRIP"). The Committee is comprised entirely of outside, independent
directors. The Committee also has responsibility for management development
and succession programs. The Compensation Committee met seven times during
1997.
The Nominating Committee identifies, examines and recommends to the full
Board those candidates it believes possess the professional expertise and
demonstrated excellence and integrity to be nominated as directors to fill
vacancies on the Board, newly created directorships and expired terms of
directors. The Nominating Committee would also review any nomination for the
Board made by a stockholder. Under the Company's By-Laws, a stockholder may
nominate a person for election to the Board by sending the Corporate Secretary
written notice 50 to 75 days in advance of the annual meeting, or within ten
days following the public
8
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disclosure or notice to stockholders of the annual meeting if such disclosure
or notice is less than 60 days in advance of the meeting. The stockholder's
notice must include certain information prescribed by the By-Laws to be valid.
The Committee also makes recommendations to the Board regarding its committees
and their membership (other than the Committee's own membership) and
chairmanship (except the Compensation Committee elects it own chairman). The
Nominating Committee met twice during 1997.
The Strategic Planning and Marketing Committee oversees the development and
implementation of the Company's ongoing five-year strategic plans and reviews
and discusses with management significant developments within the sales and
marketing area. The Committee reviews Company achievement of strategic
objectives and compares actual performance to plan and examines potential
strategic alliances for the Company through joint ventures, business
combinations and similar means. The Strategic Planning and Marketing Committee
held four meetings in 1997.
DIRECTORS' COMPENSATION
Non-employee directors (other than Mr. Wathen) receive a quarterly fee of
$5,500, plus a quarterly fee of $750 for each Committee chairmanship they hold
and also receive $1,000 per Board or Committee meeting attended (in person or
by telephone). In addition, the Company reimburses directors for all
reasonable travel and lodging expenses incurred in connection with attending
meetings. The Company also provides a supplemental health care program and
business travel accident insurance for the benefit of its senior executives
and its outside directors.
The 1995 Pinkerton Performance and Equity Incentive Plan (the "Performance
Plan") provides that, commencing with the 1995 annual meeting of stockholders
of the Company, on the day of each annual meeting of stockholders during the
term of the plan, each Director who is not an employee of the Company (a "Non-
Employee Director") shall be granted a non-qualified stock option to purchase
4,500 shares of Common Stock, provided that the Non-Employee Director
continues in office after said annual meeting. Each such stock option will
have a term of ten years and will not be exercisable until such Non-Employee
Director has completed one full year of service as a Non-Employee Director
with the Company after the date on which the option was granted. The price per
share of Common Stock to be paid by the Non-Employee Director will equal the
fair market value of one share of Common Stock on the date the stock option is
granted and the purchase price of the shares of Common Stock as to which such
an option is exercised must be paid only in cash. Each director other than Mr.
Brown was granted such a stock option on April 24, 1997.
The Performance Plan also provides that each Non-Employee Director may elect
to receive any or all of his annual retainer as a director in the form of
Common Stock. The election must be in writing and must be delivered to the
Corporate Secretary of the Company at least six months and one business day
before the services are rendered giving rise to such compensation. The total
number of shares of Common Stock granted to a Non-Employee Director who elects
to forego fees will be determined by dividing the amount of the deferral by
the fair market value on the last business day of the quarter in which such
fees would have been paid in the absence of an election. (Mr. Mellor is the
only director who has made such an election.)
In connection with Mr. Wathen's retirement as the Company's President and
Chief Executive Officer in April 1994, the Company and Mr. Wathen entered into
a personal services agreement that initially continues through the annual
meeting of stockholders to be held in the year 2000, and shall be extended at
that time automatically through April 20, 2004 unless the Board of Directors
unanimously resolves not to extend the agreement. The agreement also provides
for termination upon Mr. Wathen's resignation, death or disability or by the
Company with or without cause. The agreement provides for the payment to Mr.
Wathen of $100,000 per
9
<PAGE>
year for service in his capacity as Chairman of the Board (reduced by any
director's fees otherwise payable to him by the Company) and at least $200,000
per year for services as a consultant to the Company. Mr. Wathen is also
eligible to receive annual cash bonuses in the discretion of the Board of
Directors and to participate, to the same extent as other non-employee members
of the Board, in any stock option awards to directors. The personal services
agreement also entitles Mr. Wathen to use a Company owned or financed
automobile, to use Company office space and support staff, to receive certain
specified term life and medical insurance coverage, to obtain reimbursement
for reasonable business expenses incurred while on Company business and, in
the discretion of the Board of Directors, to participate in other Company
benefit programs maintained from time to time. The personal services agreement
calls for the payment to Mr. Wathen of an annual retirement benefit payable in
monthly installments of $25,000 for life (provided that, if Mr. Wathen should
die before a total of 180 monthly payments shall have been made, the balance
of such 180 payments shall continue to be paid to Mr. Wathen's designated
beneficiary) and, to the extent practicable, must be made under and in
accordance with the terms of the SRIP. Unless the personal services agreement
is terminated by the Company for certain specified causes, Mr. Wathen will
continue to receive such retirement benefits. Under the personal services
agreement, Mr. Wathen has a demand registration right and "piggy-back"
registration rights with respect to his holdings of Common Stock.
10
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation for
services in all capacities to the Company for the three fiscal years ended
December 26, 1997, December 27, 1996 and December 29, 1995 of the Chief
Executive Officer, and each of the other four most highly compensated
executive officers (the "Named Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) (#)(2) ($)(3)
- --------------------------- ---- ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Denis R. Brown................... 1997 662,865 453,532 733 267,500 40,786
President and Chief Executive 1996 613,750 625,000 717 67,500 36,511
Officer 1995 566,826 283,250 603 -- 30,022
C. Michael Carter................ 1997 305,056 146,600 140 100,000 2,760
Executive Vice President, 1996 266,964 189,700 189 30,000 4,322
General Counsel and Corporate 1995 250,000 91,875 53,491 -- 29,653
Secretary
James P. McCloskey............... 1997 285,276 146,623 203 80,000 5,450
Executive Vice President and 1996 266,158 189,000 183 30,000 11,826
Chief Financial Officer 1995 250,000 92,969 44,950 -- 32,459
Don W. Walker.................... 1997 331,526 157,038 140 100,000 138
Executive Vice President, 1996 307,303 214,988 133 30,000 1,590
The Americas 1995 274,997 93,844 26,590 -- 4,116
Michael A. Stugrin............... 1997 157,004 52,455 20 4,500 --
Corporate Vice President, 1996 143,077 66,156 19 4,500 708
Strategic Planning and Marketing 1995 80,481 34,706 5,169 -- 464
</TABLE>
- --------
(1) The amounts shown represent reimbursement of personal income taxes payable
by such executive officer as a result of certain expenses paid and certain
benefits provided by the Company to such executive officer.
(2) Of the securities underlying options granted in 1997, the following
amounts are subject to approval by the stockholders of the proposed
amendment to the Performance Plan: (a) Mr. Brown (200,000 shares);
(b) Mr. Carter (70,000 shares); (c) Mr. McCloskey (50,000 shares); and (d)
Mr. Walker (70,000 shares).
(3) The amounts shown represent payments made under the Company's executive
medical expense reimbursement plan and, for Mr. Brown, $23,891 of premiums
for disability insurance and $9,110 of premiums for supplemental life
insurance. The 1995 amounts for Messrs. Carter and McCloskey also include
a $25,000 relocation allowance not contemplated by the Company's
relocation policy.
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<PAGE>
STOCK OPTIONS
The following tables contain information relating to grants of stock options
under the Performance Plan during fiscal 1997 to the Named Officers and the
value at year end of options held by the Named Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE AT
--------------------------------------------------- ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK
SHARES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION -------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- ---- ---------- ------------ -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Denis R. Brown.......... 5,478(1) 0.6 18.25 02/26/07 62,887 159,355
62,022(1) 7.3 18.25 02/26/07 712,013 1,804,220
200,000(2) 23.7 22.625 11/24/07 2,845,000 7,210,000
C. Michael Carter....... 5,478(1) 0.6 18.25 02/26/07 62,887 159,355
24,522(1) 2.9 18.25 02/26/07 281,513 713,345
70,000(2) 8.3 22.625 11/24/07 995,750 2,523,500
James P. McCloskey...... 5,478(1) 0.6 18.25 02/26/07 62,887 159,355
24,522(1) 2.9 18.25 02/26/07 281,513 713,345
50,000(2) 5.9 22.625 11/24/07 711,250 1,802,500
Don W. Walker........... 5,478(1) 0.6 18.25 02/26/07 62,887 159,355
24,522(1) 2.9 18.25 02/26/07 281,513 713,345
70,000(2) 8.3 22.625 11/24/07 995,750 2,523,500
Michael A. Stugrin...... 4,500(1) 0.5 18.25 02/26/07 51,660 130,905
</TABLE>
- --------
(1) Options vest over four years in equal installments.
(2) Subject to special vesting provisions which will result in accelerated
vesting of the options upon attainment of specified stock prices as
described in the Report On Executive Compensation by the Compensation
Committee hereinafter set forth.
(3) Calculated as a projected stock price, less the exercise price. The
projected stock price is calculated assuming that the stock price at the
date of grant appreciates at the indicated rate, compounded annually, over
the term of the option. At the indicated rates of appreciation, the
options covered by note (2) will vest after six years.
OPTION VALUES AT DECEMBER 26, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES
UNDERLYING VALUE
UNEXERCISED OF UNEXERCISED
OPTIONS AT IN-THE-MONEY
DEC. 26, OPTIONS AT
1997(#) DEC. 26, 1997($)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE(1)
---- --------------- -------------------
<S> <C> <C>
Denis R. Brown......................... 324,375/438,125 3,730,069/2,252,733
C. Michael Carter...................... 45,750/151,750 542,282/739,283
James P. McCloskey..................... 45,748/131,752 510,762/713,302
Don W. Walker.......................... 51,750/160,750 529,532/800,151
Michael A. Stugrin..................... 1,125/7,875 11,859/56,391
</TABLE>
- --------
(1) Computed based upon the difference between aggregate fair market value and
aggregate exercise price. The closing market price of the Common Stock on
December 26, 1997 was $22.875.
12
<PAGE>
RETIREMENT PLAN
The Company maintains a Supplemental Retirement Income Plan (the "SRIP").
The SRIP establishes two retirement benefit levels: (i) a benefit at age 62 of
3.5% of final five-year average compensation for each full year of
participation, up to a maximum of 52.5% (the "Level 1 Benefit"); and (ii) a
benefit at age 62 of 2% of final five-year average compensation for each full
year of participation, up to a maximum of 40% (the "Level 2 Benefit"). The
Level 1 Benefit applies to certain participants, generally executive officers,
including the Named Officers, and the Level 2 Benefit applies to all other
participants. An employee must be recommended by the SRIP's administrative
committee and approved by the Board of Directors in order to participate in
the SRIP. The plan is not a qualified retirement plan under Section 401 of the
Internal Revenue Code.
Vesting of benefits under the SRIP normally occurs when a participant has
five years of SRIP participation. A participant's vested benefit under the
previous version of the SRIP as of April 30, 1994 (his or her "grandfathered
benefit") will not be reduced because of changes to the SRIP. A SRIP
participant with a grandfathered benefit will get the greater of the SRIP
benefit or his or her grandfathered benefit. A participant will receive his or
her full retirement benefit upon termination of employment after attaining age
62 or a reduced benefit upon termination of employment prior to age 62, but in
no event less than the grandfathered benefit. Subject to certain benefit
suspension provisions, a participant (or a participant's beneficiary) will
receive his or her retirement benefit for life or 180 months, whichever is
longer. Upon death prior to retirement, a participant's beneficiary will
receive a monthly payment for 180 months.
The following table shows the estimated annual Level 1 Benefit and Level 2
Benefit payable under the SRIP upon retirement at age 62 with representative
compensation and years of service credited to the participant.
ESTIMATED ANNUAL RETIREMENT BENEFITS
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------------------
LEVEL 1 BENEFITS LEVEL 2 BENEFITS
FINAL FIVE YEAR -------------------------- ----------------------------------
AVERAGE COMPENSATION 5 10 15* 5 10 15 20*
- -------------------- -------- -------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 17,500 $ 35,000 $ 52,500 $10,000 $ 20,000 $ 30,000 $ 40,000
200,000 35,000 70,000 105,000 20,000 40,000 60,000 80,000
300,000 52,500 105,000 157,500 30,000 60,000 90,000 120,000
400,000 70,000 140,000 210,000 40,000 80,000 120,000 160,000
500,000 87,500 175,000 262,500 50,000 100,000 150,000 200,000
600,000 105,000 210,000 315,000 60,000 120,000 180,000 240,000
700,000 122,500 245,000 367,500 70,000 140,000 210,000 280,000
800,000 140,000 280,000 420,000 80,000 160,000 240,000 320,000
900,000 157,500 315,000 472,500 90,000 180,000 270,000 360,000
1,000,000 175,000 350,000 525,000 100,000 200,000 300,000 400,000
1,100,000 192,500 385,000 577,500 110,000 220,000 330,000 440,000
1,200,000 210,000 420,000 630,000 120,000 240,000 360,000 480,000
1,300,000 227,500 455,000 682,500 130,000 260,000 390,000 520,000
</TABLE>
- --------
* Amounts represent maximum benefit possible for applicable level of benefit
and compensation.
The annual compensation used in the benefits calculation includes the
amounts earned as salary and bonus as shown above in the Summary Compensation
Table. Messrs. Brown, Carter, McCloskey, Walker and Stugrin are participants
in the SRIP and have three, three, three, six and two credited years of
service for purposes of the SRIP, respectively. However, the benefits of
Messrs. Brown, Carter, McCloskey and Walker are governed by
13
<PAGE>
amendments to the SRIP described below. Retirement benefits are computed
without regard to the withholding of Social Security and related taxes.
During fiscal 1993, the SRIP was amended to provide that Mr. Wathen's
retirement benefit shall be $25,000 per month for life, as described above
under "Directors' Compensation."
During fiscal 1994, the SRIP was amended to provide that: (i) Mr. Brown's
retirement benefit under the SRIP will be 52.5% of his "final average monthly
compensation" as defined in his employment agreement described below under
"Employment Agreements with Certain Officers," and that his benefit will vest,
so long as he remains an employee of the Company: 20%, 46.667%, 73.334% and
100% on April 19, 1999, August 7, 1999, August 7, 2000 and August 7, 2001,
respectively, and (ii) with respect to Mr. Carter and Mr. McCloskey, following
September 27, 1999 and October 4, 1999, respectively, their annual benefit
accrual rate under the SRIP will be 6.3% and 10.35%, respectively. The
amendment results in Messrs. Brown, Carter and McCloskey attaining the 52.5%
maximum Level 1 Benefit at age 62. In addition, the employment agreements with
Messrs. Carter and McCloskey described below were amended in December 1997 to
provide that in the event of a termination of their participation in the SRIP,
an equivalent program will be provided to them during their continued
employment with the Company.
During fiscal 1996, the SRIP was amended to provide that Mr. Walker's annual
benefit accrual rate under the SRIP will be 5.25% in 1997 and 4.375%
thereafter. This amendment results in Mr. Walker attaining the 52.5% maximum
Level 1 Benefit at age 62. The Company has also agreed that in the event of a
termination of Mr. Walker's participation in the SRIP, an equivalent program
will be provided to him during his continued employment by the Company.
The SRIP has no plan assets. The Company has purchased life insurance
policies on the lives of certain individual executives as an investment that
it may use to provide pre-retirement death benefits and retirement benefits.
EMPLOYMENT AGREEMENTS WITH CERTAIN OFFICERS
The Company has an employment agreement with Mr. Brown that continues until
August 7, 2001 and is automatically renewed annually thereafter until
terminated by Mr. Brown or the Company or until the annual meeting of
stockholders to be held in the year 2005. Under the employment agreement, the
Company is obligated to pay Mr. Brown a base salary of $550,000 per annum,
subject to increase from time to time in the discretion of the Board of
Directors. The agreement also provides that Mr. Brown will have a target
annual incentive bonus of 50% of base salary tied to the achievement of one or
more corporate goals relating to financial or operational performance
established annually by the Board at the outset of each fiscal year; and that
Mr. Brown's actual annual incentive bonus will decrease or increase, up to a
maximum percentage of base salary, depending on the Company's actual
performance compared to such objectives, in accordance with formulas provided
in the agreement. The Company and Mr. Brown amended the agreement to raise the
maximum percentage of base salary achievable from 75% to 100%, effective for
1996 and thereafter. A performance based annual compensation plan, which
provides for a maximum bonus of 100% of salary for Mr. Brown, was approved by
the stockholders at the 1997 Annual Meeting of stockholders.
The Company also has employment agreements with Messrs. Carter and
McCloskey. Under their employment agreements with the Company, it is obligated
to pay a base salary of at least $250,000 per annum and a target annual
incentive bonus equal to 35% of base salary, all of which are subject to
annual review by the Board of Directors. During 1997, the Compensation
Committee approved an increase to 45% of base salary for the target annual
incentive bonus effective the beginning of fiscal 1998 for Messrs. Carter,
McCloskey and Walker.
14
<PAGE>
The employment agreements, as amended, of Messrs. Brown, Carter and
McCloskey provide that if such executive officer is terminated other than for
death, disability, retirement, or cause, the executive officer will receive a
lump-sum cash payment equal to the executive's then current annual salary or,
in the case of Mr. Brown, his then current annual salary multiplied by the
greater of two or the number of years left from the term of his employment
agreement. If the employment of such executive officer is terminated within
one year following a change in control, he will receive, subject to limitation
by tax regulations in certain circumstances, a lump-sum cash payment equal to
two times (or in the case of Mr. Brown, 2.99 times) the sum of the executive's
base salary on the date of termination plus the amount of the bonus to which
the executive was entitled and/or which he received for the fiscal year
immediately preceding the termination (or in the case of Mr. Brown, the most
recently completed fiscal year for which a bonus was earned). In 1995, the
Board approved a Severance Plan for Executive Vice Presidents that applies to
Executive Vice Presidents that do not have other severance arrangements with
the Company and that are designated by the Compensation Committee as entitled
to the benefits of the plan. The benefits provided by the plan are
substantially the same as those described above for Messrs. Carter and
McCloskey. Mr. Walker is the only executive officer designated as entitled to
the benefits of that plan.
In October 1995, the Board also approved a Severance Plan for Corporate Vice
Presidents that applies to Corporate Vice Presidents that do not have other
severance arrangements with the Company and that are designated by the
Compensation Committee as entitled to the benefits of the plan. The plan
provides that if such executive officer is terminated involuntarily other than
for "cause", as such term is defined in the plan, the executive officer will
receive severance compensation, payable in installments, equivalent to the
continuation of the officer's monthly base salary in effect on the termination
date for six months thereafter; and the Company will continue the officer's
health plan benefits until the earlier of six months after termination or the
officer becomes employed. Mr. Stugrin, as a Corporate Vice President, is
entitled to the benefits of the plan.
REPORT ON EXECUTIVE COMPENSATION
BY THE COMPENSATION COMMITTEE
The Company's Compensation Committee was established in 1988 and is
comprised entirely of independent, non-employee members of the Company's Board
of Directors. The Committee meets on a regular basis during the fiscal year.
This report describes the various components of the Company's executive
compensation program and explains the basis on which 1997 compensation
determinations were made by the Committee with respect to the Company's
executive officers.
The role of the Compensation Committee is to review and approve each element
of the executive compensation program and assess the overall effectiveness and
competitiveness of the program. In addition, the Committee administers the key
provisions of the executive compensation program according to the objectives
of the base salary program, annual incentive plan and long-term incentive
plan, and administers the Company's stock incentive plans.
The Company has retained the services of two independent compensation
consulting firms to assist the Company and the Committee in connection with
the compensation review process: Towers Perrin relating to the review of the
base salary and annual bonus components of compensation and SCA Consulting
relating to the review of the long-term incentive component of compensation.
15
<PAGE>
COMPENSATION PHILOSOPHY
The Committee strives to provide executive compensation policies and
programs that:
. Base executives' variable compensation opportunities on both Company and
individual performance;
. Attract, motivate and retain the executive talent needed to support,
implement and reinforce the Company's strategic and business plans;
. Provide total compensation opportunities to executives that are
competitive to those of similarly sized companies in service industries;
and
. Align management's interests with those of stockholders through equity-
based compensation and ownership guidelines.
COMPONENTS OF EXECUTIVE COMPENSATION FOR 1997
The total executive compensation package is primarily comprised of base
salary, annual bonus and long-term incentives and also includes benefits such
as participation under the SRIP. The Committee's philosophy and administration
of each primary element is described below.
Base Salaries. Base salaries are targeted at the 50th percentile for
comparable positions at similarly sized companies. To make this determination,
the Committee refers to general and specific service industry compensation
surveys. In determining salaries and future increases, the Committee also
considers factors such as individual performance, departmental performance,
current responsibilities and any changes, individual salary history and
inflation. The Company believes that its current base salary structure is
generally consistent with its base salary objectives.
Annual Incentive Plan. The objective of the annual incentive plan is to
deliver competitive levels of compensation for the attainment of financial and
other objectives that the Company believes are important. Target award levels
are set such that the target level of annual cash compensation (i.e., base
salary plus annual incentive award) is at the 50th percentile of the
competitive market. Achievement above target levels can result in awards up to
200% of the target bonus. Target awards are expressed as a percentage of the
executive's base salary. In 1997, the target bonuses of the Executive Vice
Presidents and the Corporate Vice Presidents were 35% and 25% of annual base
salary, respectively. In light of the Committee's objective to ensure that
total annual cash compensation remains competitive and to permit annual
incentive awards that could exceed the 50th percentile, the Committee has,
effective the beginning of the 1998 fiscal year, increased the target bonuses
for Executive Vice Presidents to 45% of annual base salary.
The annual incentive plan rewards Executive Vice Presidents and Corporate
Vice Presidents for both Company performance and individual performance.
Company performance is measured by pre-established net income goals of the
Company. Other financial results may be considered in the future. Individual
performance is measured by pre-established specific, measurable objectives. Of
the target award, 75% is based on Company performance and 25% is based on
individual performance.
Depending on actual performance of the Company and the individual, the
actual bonus may range from 0% to 200% of the individual's target bonus.
However, no bonus is paid if the Company has net losses after fully accruing
bonuses. For the Company performance portion of the bonus to be paid, the
Company must earn a certain minimum net income goal. Above such minimum goal,
a range of 50% to 200% of the Company performance portion may be earned and a
range of 0% to 200% of the individual performance portion may be earned, each
depending on actual performance against the pre-established goals.
16
<PAGE>
All Named Officers received above target awards for exceeding target Company
and individual objectives for 1997. The Company attained 107% of its target
net income goal and all Named Officers exceeded their individual performance
objectives. The annual incentive awards for the Company's Chief Executive
Officer and other Named Officers are set forth in the summary compensation
table under "Executive Compensation."
Long-term Incentive Plan. In 1995, the stockholders approved the 1995
Pinkerton Performance and Equity Incentive Plan (the "Performance Plan")
pursuant to which executive and employee stock option grants are made. In
1994, the Committee approved a range of annual option grants for each employee
grade eligible for options. Ranges were developed to deliver long-term
compensation that, when added to annual cash compensation, would deliver a
total compensation package at the 50th percentile of market. Actual grants are
determined on the basis of individual performance and the dilutive effect of
such grants. In 1997, the Committee approved stock option grants within the
range described above to the Company's executives.
On November 24, 1997, the Committee approved an additional front-loaded
performance stock option grant ("Performance Options") under the Performance
Plan to the CEO and Executive Vice Presidents. The purpose of the grant is to
focus the CEO and Executive Vice Presidents on achieving pre-determined stock
price goals within the next four years. Grants were made at the midpoint of
the established ranges and are designed to deliver long-term incentive
opportunity at the 50th percentile or higher of the market for the next four
years. Performance Options have an exercise price equal to the fair market
value of the underlying shares on the date of grant ($22.625) and will expire
not later than January 1, 2005. Performance Options will vest no later than
January 1, 2004 and may vest earlier if the stock price goals described below
are achieved.
In the event that the Company's stock price trades for twenty consecutive
trading days (the "Trading Period") at an average price of $26.02 or greater
in 1998, 25% of the options will vest on the final day of the Trading Period.
In the event that the Company's stock price trades at an average of $29.87 or
greater during a Trading Period ending on or before December 31, 1999, 50% of
the options (reduced by any previously vested options) will vest on the final
day of such Trading Period. In the event that the Company's stock price trades
at an average of $34.39 or greater during a Trading Period ending on or before
December 31, 2000, 75% of the options (reduced by any previously vested
options) will vest on the final day of such Trading Period. In the event that
the Company's stock price trades at an average of $39.59 or greater during a
Trading Period ending on or before December 31, 2001, 100% of the options
(reduced by any previously vested options) will vest on the final day of such
Trading Period.
The Committee will consider granting future options to the CEO and Executive
Vice Presidents at the earlier date of: (1) achievement of the $39.59 stock
price goal, or (2) four years from the date of the Performance Option grant.
STOCK OWNERSHIP GUIDELINES
To further align the interests of executives with stockholders, the
Committee has established stock ownership guidelines that are designed to
encourage the accumulation and retention of a significant portion of its
equity by its executive officers. The guidelines require that each executive
officer hold a minimum multiple of his or her base salary in Company equity by
the end of the year 2002. The following guidelines are designed to be
reasonably achievable within the stated time frame and under the current long-
term incentive program:
<TABLE>
<CAPTION>
MULTIPLE OF
POSITION BASE SALARY
-------- -----------
<S> <C>
Chief Executive Officer...................................... 4x
Executive Vice Presidents.................................... 3x
Corporate Vice Presidents.................................... 1x
</TABLE>
17
<PAGE>
Ownership guidelines can be satisfied with either stock held as a
stockholder and/or effective shares held as a result of vested options under
the long-term incentive plan (i.e., the embedded value of vested options). As
of the end of fiscal year 1997, the executive officers held shares of Common
Stock (including effective shares) valued at the following multiples of the
base salary figures reported in the summary compensation table: Mr. Brown
(6x), Mr. Carter (1.8x), Mr. McCloskey (2.1x), Mr. Walker (2.9x) and Mr.
Stugrin (less than 1x).
CEO COMPENSATION
Under Mr. Brown's leadership, the Company achieved its net income goal and
implemented long-range tactics in its strategic plan. As a result, during 1997
the Committee increased Mr. Brown's annual base salary from $625,000 to
$671,875.
In 1997, the stockholders approved "The CEO Annual Incentive Plan" which is
intended to promote and advance the interests of the Company and its
stockholders by rewarding the CEO for attaining important Company goals. Under
such plan, Mr. Brown's target award is 50% of his base salary and the actual
bonus paid can range from 0% to 100% of his base salary depending on the
Company's performance against pre-established goals subject to a maximum of
$1,250,000. For 1997, the Company goal was the net income goal established for
the Company's annual incentive plan as described above in "Annual Incentive
Plan." Since the Company achieved 107% of its net income goal, Mr. Brown
received $453,532 under the CEO Annual Incentive Plan.
In addition to the cash bonus described above, Mr. Brown was granted options
to purchase 267,500 shares of common stock (of which 200,000 are Performance
Options as described above in "Long-term Incentive Plan" which are subject to
stockholder approval of the proposed amendment to the Performance Plan).
DEDUCTIBILITY OF COMPENSATION
Internal Revenue Code Section 162(m) ("Section 162(m)") does not allow the
Company to take a tax deduction pertaining to certain types of compensation in
excess of $1,000,000 paid to a covered employee as defined in Section 162(m).
"Performance-based" compensation (as defined by Section 162(m)) is not subject
to Section 162(m) limitations. The Company's current compensation levels and
programs (excluding base salary) are "performance-based" and no compensation
which is not performance based exceeds the $1,000,000 limit.
The Company will consider the impact of Section 162(m) in making
compensation decisions for executive officers, but the Company makes no
assurances that it will not pay compensation for which it cannot take a tax
deduction. The Performance Plan and the annual incentive compensation plan for
the President and Chief Executive Officer have been designed to constitute
"performance-based" compensation. However, due to ambiguities in Section
162(m) and uncertainties regarding its interpretation, no assurances can be
given that compensation intended to be "performance-based" compensation will
in fact be deductible if it should, together with any other compensation paid
to any Covered Employee, exceed $1,000,000.
Compensation Committee
John A. Gavin, Chairman
James R. Mellor
J. Kevin Murphy
Robert H. Smith
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<PAGE>
PERFORMANCE GRAPH
The following graph illustrates the performance of the cumulative total
return to the holders of the Common Stock in comparison to the cumulative
total return (assuming dividend reinvestment) of companies on the Standard and
Poor's 500 Stock Index and the Standard and Poor's Services
(Commercial/Consumer) Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG PINKERTON'S, INC., THE S & P 500 INDEX
AND THE S & P SERVICES (COMMERCIAL/CONSUMER) INDEX
[PERFORMANCE GRAPH APPEARS HERE]
Legend
<TABLE>
<C> <S> <C> <C> <C> <C> <C> <C>
Symbol Index Description 12/92 12/93 12/94 12/95 12/96 12/97
------ ----------------- ----- ------ ------- ------ ------ ------
______ PINKERTON'S, INC. 100 93.98 93.981 93.98 121.08 169.88
- - - S&P 500 Stocks 100 110.08 111.53 153.45 188.68 251.64
S&P Services
...... (Commercial/Consumer) 100 96.90 88.71 119.82 123.74 169.79
</TABLE>
* ASSUMING $100 INVESTED IN STOCK
OR INDEX ON DECEMBER 31, 1992,
REINVESTMENT OF DIVIDENDS, AND
FISCAL YEAR ENDING DECEMBER 31.
NOTE: Last trading day of the month is used.
19
<PAGE>
PROPOSAL 2--APPROVAL OF AMENDMENT TO THE 1995 PINKERTON PERFORMANCE
AND EQUITY INCENTIVE PLAN.
The 1995 Performance and Equity Incentive Plan (the "Performance Plan") was
approved by the stockholders at the 1995 Annual Meeting of Stockholders, with
the maximum number of shares of Common Stock with respect to which awards may
be granted under the Performance Plan being equal to the number of shares then
remaining available for awards under the Company's 1990 Stock Option Plan
(606,675 shares). Upon stockholder approval of the Performance Plan, the 1990
Stock Option Plan was frozen such that no further awards are permitted under
that plan.
At the 1996 Annual Meeting of Stockholders, the stockholders approved an
amendment to the Performance Plan which increased the maximum number of shares
with respect to which awards may be made under the plan from 606,675 shares to
1,131,675 shares.
As of March 4, 1998, there remained no shares of Common Stock with respect
to which awards may be granted under the Performance Plan. In November 1997,
the Compensation Committee made grants of Performance Options aggregating
390,000 shares to the President and Chief Executive Officer and the Executive
Vice Presidents of the Company and in February 1998 made additional grants to
other employees of the Company under the Company's customary grant program
(and other programs). These grants were made subject to the approval of the
stockholders of the proposed amendment to the Performance Plan. Unless the
number of shares with respect to which awards may be granted under the
Performance Plan is increased, there will be insufficient shares for the
grants made in November 1997, grants made in February 1998 and possible grants
to employees hired during the current year, notwithstanding the cancellations
and expirations of outstanding options that are likely to occur in the
ordinary course of the plan.
The Board of Directors has unanimously adopted an amendment to the
Performance Plan which, upon stockholder approval of the amendment, increases
the number of shares with respect to which awards may be made under the plan
from 1,131,675 to 2,296,087 shares. The result of this amendment would be to
increase the remaining shares of Common Stock with respect to which awards may
be granted under the Performance Plan by 1,164,412 shares. This increase in
the number of shares available under the plan is expected to be adequate for
option awards over the next several years, subject only to possible
accelerated vesting of Performance Options. The Board of Directors recommends
that the stockholders approve this amendment to the Performance Plan, attached
hereto as Appendix A.
The Performance Plan is intended to promote and advance the interests of the
Company and its stockholders by enabling the Company to attract, retain and
reward managerial and other key employees and directors who are not employees
of the Company (the "Non-Employee Directors") and to strengthen the mutuality
of interests between such employees and Non-Employee Directors and the
Company's stockholders. The Performance Plan is designed to achieve these
objectives by offering performance-based stock and cash incentives and other
equity-based incentive awards, thereby providing a proprietary interest in
pursuing the long-term growth, profitability and financial success of the
Company. Stock options, stock appreciation rights, restricted stock awards and
performance awards may be granted under the Performance Plan to employees of
the Company. Stock options and certain Common Stock awards in lieu of a
director's annual retainer fees constitute the only awards that may be granted
to Non-Employee Directors.
ADMINISTRATION
The Performance Plan is administered by a committee (the "Committee"),
appointed by the Company's Board of Directors, which will consist of two or
more directors, each of whom must be a "non-employee director" as defined in
Rule 16b-3 of the rules and regulations under the Securities Exchange Act of
1934, as
20
<PAGE>
amended (the "Exchange Act"). Unless the Board determines otherwise, the
Committee will be comprised solely of persons who qualify as "outside"
directors for purposes of Internal Revenue Code ("Code") Section 162(m). The
Committee is authorized to construe and interpret the Performance Plan, to
promulgate, amend and rescind rules and regulations relating to the
implementation of the Performance Plan and to make all other determinations
necessary or advisable for the administration of the Performance Plan. Subject
to the provisions of the Performance Plan, the Committee has full authority to
determine the employees to whom awards under the Performance Plan are granted,
the number of shares of Common Stock or units to be covered by each of the
awards and the terms of any such award. The Company's Compensation Committee
has been designated as the Committee under the Performance Plan until
otherwise determined by the Board.
ELIGIBILITY
Awards may be granted to such salaried employees (including employees who
are members of the Board) as the Committee determines. Awards of stock options
will be granted automatically to non-employee directors, as described below in
"Awards to Non-Employee Directors," and Non-Employee Directors may elect to
receive all or a portion of their annual retainer as directors in the form of
Common Stock. The Company estimates that approximately 300 employees and eight
Non-Employee Directors are currently eligible to receive awards under the
Performance Plan.
STOCK OPTIONS
Stock options granted under the Performance Plan may be intended to qualify
as incentive stock options under Code Section 422 (so called "incentive stock
options"), or as options not intended to qualify for such treatment (so called
"non-qualified stock options"), or a combination of both types. Only non-
qualified stock options may be granted as Performance Options. Stock options
may be granted alone, in addition to or in tandem with other awards under the
Performance Plan. The option exercise price per share of Common Stock
purchasable under a stock option may not be less than 100% of the "fair market
value" (as defined in the Performance Plan) of a share of Common Stock on the
date of the grant of such stock option. In addition, if an incentive stock
option is granted to an employee who, at the time such incentive stock option
is granted, owns more than ten percent of the total combined voting power of
all classes of stock of the Company, or if applicable, a subsidiary or a
parent of the Company (a "Ten-Percent Stockholder"), then the option price per
share of such incentive stock option may not be less than 110% of the fair
market value of the shares covered by the option on the option grant date.
The term of each stock option will be fixed by the Committee, except that
the term of stock options may not exceed ten years after the date the stock
option is granted and, in the case of a grant of an incentive stock option to
an employee who is a Ten-Percent Stockholder at the time of such grant, the
term may not exceed five years. To the extent that the aggregate fair market
value of the stock with respect to which incentive stock options first become
exercisable by the employee during any calendar year (under all such plans
maintained by the Company, its parent, if any, and its subsidiaries, if any),
such fair market value being determined as of the date of grant of the options
or option in question, exceeds $100,000, the options or option will not be an
incentive stock option. No grants of incentive stock options will be made ten
years or more from the Performance Plan's adoption by the Board.
STOCK APPRECIATION RIGHTS
A stock appreciation right is an award entitling a participant to receive an
amount equal to, or less than, the excess of the fair market value of a share
of Common Stock on the date of exercise over the fair market value of
21
<PAGE>
a share of Common Stock on the date of grant of the stock appreciation right,
multiplied by the number of shares of Common Stock with respect to which the
stock appreciation right was exercised. A stock appreciation right may be
granted in tandem with, in addition to or completely independent of a stock
option or any other award under the Performance Plan. Payment upon exercise of
a stock appreciation right may be made in cash, in shares of Common Stock or
any combination thereof; provided, however, that any stock appreciation right
exercised upon or subsequent to the occurrence of a "change in control" of the
Company (as defined in the Performance Plan) must be paid in cash. Stock
appreciation rights granted in tandem with incentive stock options are subject
to additional limitations under the Performance Plan. No stock appreciation
rights have been awarded under the Performance Plan.
RESTRICTED AWARDS
Restricted awards granted under the Performance Plan may be in the form of
restricted stock grants or restricted unit grants or a combination of both. A
restricted stock grant is an award of shares of Common Stock transferred to a
Performance Plan participant, whereas a restricted unit grant is an award of
units (with each unit having a value equivalent to one share of Common Stock),
each subject to such terms and conditions as the Committee deems appropriate,
including, without limitation, restrictions on the sale, assignment, transfer
or other disposition of such shares and the requirement that the participant
forfeit such shares back to the Company upon termination of employment for
specified reasons within a specified period of time.
Restricted awards may be subject to restrictions that lapse over time with
or without regard to performance objectives for a specific performance period.
Restricted Awards may be granted alone, in addition to or in tandem with other
awards under the Performance Plan. In establishing performance objectives, the
Committee will also establish a schedule or schedules setting forth the
portion of the restricted award that will be earned or forfeited based on the
degree of achievement of the performance objectives actually achieved or
exceeded, as determined by the Committee.
Each participant receiving a restricted stock grant will be issued a stock
certificate representing such shares of Common Stock, and the certificate will
be held in custody by the Company until the restrictions thereon have lapsed
or been removed. Subject to the restrictions set forth in the applicable award
agreement, a participant will possess, with respect to the shares of Common
Stock received under a restricted stock grant, all of the rights of a
stockholder of the Company, including the right to vote the shares and the
right to receive any cash dividends. Until such time as the restrictions have
lapsed, a participant may not sell, assign, transfer, pledge, encumber or
otherwise dispose of shares of Common Stock received under a restricted stock
grant. Payment of restricted unit grants may be made in cash, in shares of
Common Stock or any combination thereof. No restricted awards have been made
under the Performance Plan.
PERFORMANCE AWARDS
Performance awards granted under the Performance Plan may be in the form of
performance equity grants or performance unit grants, or a combination of
both. A performance equity grant is an award of units (with each unit
equivalent in value to one share of Common Stock), whereas a performance unit
grant is an award of units (with each unit representing such monetary amount
as is designated by the Committee), each granted to a participant subject to
such terms and conditions as the Committee deems appropriate, including,
without limitation, the requirement that the participant forfeit such units or
a portion of such units in the event certain performance objectives are not
met within a designated performance period.
22
<PAGE>
Performance awards may be granted alone, in addition to or in tandem with
other awards under the Performance Plan. The Committee will establish
performance periods and performance objectives applicable to performance
awards. In establishing the performance objective, the Committee will also
establish a schedule or schedules setting forth the portion of the performance
award that will be earned or forfeited based on the degree of achievement of
the performance objectives actually achieved or exceeded as determined by the
Committee.
In the case of a performance equity grant, the participant will be entitled
to receive payment for each unit earned in an amount equal to the aggregate
fair market value of the shares of Common Stock covered by such award. In the
case of a performance unit grant, the participant will be entitled to receive
payment for each unit earned in an amount equal to the dollar value of each
unit multiplied by the number of units earned. There have not been any
performance awards granted under the Performance Plan.
PERFORMANCE OBJECTIVES
Under the Performance Plan, performance objectives are the specific target
objectives established by the Committee under one or more of the following
nine criteria: earnings per share of the Common Stock; return on average
stockholders' equity; return on capital; total stockholder returns of the
Company; operating cash flow; net income; sales growth; return on sales; and
return on net assets. These objectives may be established by the Committee as
absolute targets or may be compared to a peer group of comparable companies
established by the Committee. To the extent awards are intended to qualify as
performance-based compensation under Code Section 162(m), then the specific
performance objectives will be established in writing no later than 90 days
after the commencement of the performance period to which the performance
objectives relate, but in no event after 25% of the performance period has
elapsed. The performance periods established by the Committee for which
performance objectives are established are to be not less than one and no more
than ten consecutive fiscal years. The Committee may adjust performance
objectives, adjust the way performance objectives are measured or shorten any
performance period if it determines that conditions or the occurrence of
events warrants such actions; provided, that the Committee's right to make
such adjustments shall not apply to any performance award that is intended to
qualify as performance-based compensation under Code Section 162(m) if and to
the extent that it would prevent the award from so qualifying. Stock options
and stock appreciation rights are deemed to be performance-based compensation
and therefore do not require the establishment of performance goals, if (i)
the grant of such options and stock appreciation rights is made by a committee
meeting Code Section 162(m)'s outside directors requirement, (ii) the plan
states the maximum number of shares with respect to which option and stock
appreciation rights may be granted during a specified period to any employee
and (iii) the exercise price for such option or stock appreciation right is
not less than the fair market value of the common stock on the date of grant,
which conditions are met by the Performance Plan.
The awards for any participant determined on the basis of performance
objectives established under the Performance Plan may be reduced or eliminated
upon the attainment of the performance objective, but the Committee will not
have the discretion to increase a payment upon the attainment of a performance
objective. Under Code Section 162(m), the achievement of applicable
performance goals and the actual amounts payable to each participant under the
Performance Plan must be certified by the Committee.
AWARDS TO NON-EMPLOYEE DIRECTORS
Non-qualified stock options and certain Common Stock awards, as described
below, constitute the only awards that may be granted to Non-Employee
Directors under the Performance Plan. The Performance Plan provides that on
the day of each annual meeting of stockholders during the term of the plan,
each Non-Employee Director shall be granted a non-qualified stock option to
purchase 4,500 shares of Common Stock, provided that
23
<PAGE>
the Non-Employee Director continues in office after said annual meeting. Each
such stock option will have a term of ten years and will not be exercisable
until such Non-Employee Director has completed one full year of service as a
Non-Employee Director with the Company after the date on which the option was
granted. The price per share of Common Stock to be paid by the Non-Employee
Director will equal the fair market value of one share of Common Stock on the
date the stock option is granted and the purchase price of the shares of
Common Stock as to which such an option is exercised must be paid only in
cash.
Each Non-Employee Director may elect to receive any or all of his or her
annual retainer as a director in the form of Common Stock. The election must
be in writing and must be delivered to the Corporate Secretary of the Company
at least six months and one business day before the services are rendered
giving rise to such compensation. The total number of shares of Common Stock
granted to a Non-Employee Director who elects to forego fees will be
determined by dividing the amount of the deferral by the fair market value on
the last business day of the quarter in which such fees would have been paid
in the absence of an election.
AWARDS SUBJECT TO THE PERFORMANCE PLAN
Upon the approval by the stockholders of the proposed amendment to the
Performance Plan, the maximum number of shares of Common Stock with respect to
which awards may be granted under the Performance Plan would be 2,296,087. The
maximum number of shares of Common Stock with respect to which stock options
and stock appreciation rights payable in shares of Common Stock may be granted
during any fiscal year to any employee may not exceed 375,000. The maximum
dollar value with respect to awards (other than stock options and stock
appreciation rights payable in shares of Common Stock) that are intended to
qualify as performance-based compensation under Code Section 162(m) that may
be paid for any particular performance period to any employee is $1,000,000.
Other than the annual option awards to Non-Employee Directors described
above, the specific benefits to be paid to participants under the Performance
Plan are not determinable in advance because the Committee has discretion to
determine the awards and the participants under the Performance Plan.
With respect to awards granted to employees, in the event of changes in all
of the outstanding shares of Common Stock by reason of stock dividends, stock
splits, recapitalization, mergers, consolidations, combinations, or exchanges
of shares, separations, reorganizations, liquidations or similar events or in
the event extraordinary cash or non-cash dividends are declared with respect
to outstanding shares of Common Stock or other similar transactions, the
number and class of shares of Common Stock available under the Performance
Plan in the aggregate, the number and class of shares of Common Stock subject
to awards theretofore granted, the number of stock appreciation rights
theretofore granted, applicable purchase prices, applicable performance
objectives for the performance periods not yet completed and performance
levels and portion of payments related thereto, and all other applicable
provisions, will be equitably adjusted by the Committee. With respect to stock
options granted to Non-Employee Directors, the number of shares of Common
Stock covered by each outstanding stock option grant held by a Non-Employee
Director and the exercise price of such stock option are automatically
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a subdivision or consolidation of shares
of Common Stock or the payment of a stock dividend (but only of Common Stock)
or any other increase or decrease in the number of issued shares of Common
Stock effected without receipt of consideration by the Company.
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<PAGE>
TERMINATION OF EMPLOYMENT OR SERVICE
Except as may be otherwise provided in the applicable award agreement
evidencing the award, upon termination of a participant's employment or
director's service with the Company or any of its subsidiaries, such
participant or director (or in the case of death, the person(s) to whom the
award is transferred by will or the laws of descent and distribution) may
exercise such award for one year following termination in the case of death or
disability (but in no event after the normal expiration date of such award) to
the extent that such participant or director was entitled to exercise such
award at the date of such termination. Such exercise period is restricted to
90 days after the date of termination in all other cases, except for
terminations for "cause" (as defined in the Performance Plan) in which case
the award shall immediately terminate. In the event the employment of a
participant terminates other than for cause following a "change in control"
(as defined in the Performance Plan), then such participant shall be able to
exercise any award outstanding on the date of the termination for the
remainder of the term of the award.
CHANGE IN CONTROL
In the event of a "change in control" of the Company (as defined in the
Performance Plan and below) (i) all stock options or stock appreciation rights
then outstanding shall become fully exercisable as of the date of the change
in control, whether or not then exercisable, (ii) all restrictions and
conditions of all restricted stock grants and restricted unit grants then
outstanding shall be deemed satisfied as of the date of the change in control,
and (iii) all performance equity grants and performance unit grants shall be
deemed to have been fully earned as of the date of the change in control.
Moreover, the Committee, in its sole discretion, may at any time, and subject
to the terms and conditions as it may impose: (a) grant awards that become
exercisable only in the event of a change in control, (b) provide for awards
to be exercised automatically and only for cash in the event of a change in
control, and (c) provide in advance or at the time of a change in control for
cash to be paid in settlement of any award in the event of a change in
control.
A "change in control" of the Company means the occurrence of any of the
following events, with certain exceptions for certain of the Named Officers:
(i) acquisitions by any individual, entity or group of ownership of 20% or
more of the Company's outstanding Common Stock or voting securities, (ii)
incumbent Board members ceasing to constitute at least 66 2/3% of the Board,
or (iii) approval by the stockholders of the Company and completion of a
reorganization, merger or consolidation of the Company, a plan of complete
liquidation or dissolution of the Company, or the sale of substantially all of
the assets of the Company.
The aggregate present value of all parachute payments payable to or for the
benefit of a participant, whether payable pursuant to the Performance Plan (or
otherwise) (excluding those payments made pursuant to an agreement with the
Company that specifically provides otherwise), shall be limited to three times
the participant's base amount less one dollar. For these purposes, the terms
"parachute payment," "base amount" and "present value" shall have the meanings
assigned thereto under Code Section 280G. The intention of this provision is
to avoid excise taxes on the participant under Code Section 4999 or the
disallowance of a deduction to the Company pursuant to Code Section 280G.
AMENDMENT AND TERMINATION
The Board may terminate the Performance Plan at any time, or may amend the
plan at any time, but no amendment without the approval of the stockholders of
the Company shall be made if stockholder approval under Code Section 422 or
Rule 16b-3 would be required. Notwithstanding the previous sentence, (i) the
provisions of the Performance Plan relating to Non-Employee Directors (i.e.,
that affect the formula award terms required to
25
<PAGE>
be specified in the Performance Plan by Rule 16b-3 of the Exchange Act) shall
not be amended more than once every six months, except that the Performance
Plan may be amended to comport with changes in the Code, the Employee
Retirement Income Security Act, or the rules thereunder and (ii) no amendment
to the Performance Plan shall be made without the approval of the stockholders
of the Company which would change the material terms of performance goals that
were previously approved by the Company's stockholders within the meaning of
Code Section 162(m), unless the Board determines that (i) such approval is not
necessary to avoid loss of a deduction under Code Section 162(m), (ii) such
approval will not avoid such a loss of deduction or (iii) such approval is not
advisable.
FEDERAL INCOME TAX CONSEQUENCES
The tax consequences of awards granted under the Performance Plan are
complex. The following is a summary only of the general tax principles
applicable to awards under the Performance Plan under federal law as in effect
on the date of this Proxy Statement.
Options. There are no tax consequences to the optionee upon the grant of an
option pursuant to the Performance Plan. There are no tax consequences to the
optionee upon exercise of an incentive stock option, except that the amount by
which the fair market value of the shares at the time of exercise exceeds the
option exercise price is a tax preference item possibly giving rise to
alternative minimum tax. If the shares of Common Stock acquired are not
disposed of within two years from the date the incentive stock option was
granted and within one year after the shares are transferred to the optionee,
any gain realized upon the subsequent disposition of the shares will be
characterized as long-term capital gain and any loss will be characterized as
long-term capital loss. If all requirements other than the above described
holding period requirements are met, a "disqualifying disposition" occurs and
gain in an amount equal to the lesser of (i) the fair market value of the
shares on the date of exercise minus the optionee exercise price or (ii) the
amount realized on disposition minus the option exercise price (except for
certain "wash" sales, gifts or sales to related persons), is taxed as ordinary
income and the Company will be entitled to a corresponding deduction in an
amount equal to the optionee's ordinary income at that time. The gain in
excess of this amount, if any, will be characterized as long-term capital gain
if the optionee held the shares for more than one year.
Other than incentive stock options, all options granted under the Company
will be taxed as non-qualified options. Upon the exercise of a non-qualified
option, the optionee will recognize taxable income in the amount by which the
then fair market value of the shares of Common Stock acquired exceeds the
option exercise price, with the Company being entitled to a deduction in an
equal amount. The amount of such taxable income will be characterized as
compensation income to the optionee. Upon the subsequent disposition of the
Common Stock, the optionee will recognize gain or loss, which will be
characterized as capital gain or loss in an amount equal to the difference
between the proceeds received upon disposition and his or her basis for the
shares (the basis being equal to the sum of the price paid for the stock and
the amount of income realized upon exercise of the option) provided the shares
are held as a capital asset. Any capital gain or loss to the optionee will be
characterized as long-term or short-term, depending upon whether his or her
holding period for tax purposes exceeds one year.
The taxable income recognized upon the exercise of a non-qualified option is
subject to withholding for federal income tax purposes. Accordingly, the
Company generally must, as a condition to the exercise of a non-qualified
option, deduct from payments or shares otherwise due to the optionee the
amount of taxes required to be withheld by virtue of such exercise or require
that the optionee pay such withholding to the Company or make other
arrangements satisfactory to the Company regarding the payment of such taxes.
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<PAGE>
Stock Appreciation Rights. The amount of any cash (or the fair market value
of any Common Stock) received by the holder of stock appreciation rights upon
the exercise of stock appreciation rights under the Performance Plan will be
subject to ordinary income tax in the year of receipt and the Company will be
entitled to a deduction for such amount.
Restricted Stock Awards. An employee who has been awarded restricted stock
will not recognize taxable income at the time of the award unless he elects
otherwise. If the recipient elects to be taxed at the time of the award, the
Company will be entitled to a corresponding deduction. At the time
restrictions applicable to the restricted stock award lapse, the employee will
recognize ordinary income and the Company will be entitled to a corresponding
deduction. The recipient's income and the Company's deduction will be equal to
the excess of the fair market value of such stock at such time over the amount
paid therefor. Dividends paid on the restricted stock during the period the
shares are held in escrow will generally be ordinary compensation income to
the recipient of the restricted stock and deductible as such by the Company.
Performance Awards. An employee who has been granted a performance award
will not recognize taxable income, and the Company will not be entitled to a
deduction at the time of the award. At the time the employee is entitled to
the performance award, the employee will recognize ordinary income equal to
the sum of the cash and fair market value of the shares of the Common Stock at
such time, and the Company will be entitled to a corresponding deduction. To
the extent performance awards are paid in shares of restricted Common Stock,
the federal income tax consequences described above applicable to restricted
stock awards will apply.
Officers and Directors Subject to Section 16(b) Liability. Special rules may
apply to officers and directors subject to liability under Section 16(b) of
the Exchange Act that may prevent the recognition of income by such
individuals and the corresponding deduction by the Company before the date six
months following the grant of an option or stock appreciation right or the
receipt of restricted stock or shares pursuant to a performance award (unless
the individual receives the shares before that date and elects to be taxed
upon such receipt).
Limitations. The employees receiving awards as a result of a change in
control of the Company may be subject to certain limitations on the amount of
benefits to be payable under the Performance Plan.
General Tax Law Considerations. The preceding paragraphs are intended to be
merely a summary of the most important Federal income tax consequence
concerning the grant of awards under the Performance Plan and the disposition
of shares of Common Stock issued thereunder in existence as of the date of
this Proxy Statement. Therefore, participants in the Performance Plan should
review the current tax treatment with their individual tax advisors at the
time of the grant, exercise or any other transaction relating to any award or
underlying stock issued under the Performance Plan.
Because the Company retains the discretion to change the specific
performance target that it establishes under the Performance Plan, stockholder
ratification of the performance goals will be required at five-year intervals
in the future under Code Section 162(m) to assure the status of payments under
such plans as performance-based compensation. In light of the ambiguities in
Code Section 162(m) and uncertainties regarding its ultimate interpretation,
no assurances can be given that compensation paid under the Performance Plan
will in fact be deductible if it should, together with any other compensation
to any Named Officer, exceed $1,000,000.
AVAILABILITY OF PLAN
Copies of the Performance Plan are available upon request directed to
Pinkerton's, Inc. 15910 Ventura Boulevard, Suite 900, Encino, California
91436-2810, Attention: Corporate Secretary.
27
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VOTE REQUIRED
Approval of the Amendment to the Performance Plan requires the affirmative
vote of a majority of the shares of Common Stock present or represented by
proxy and entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THIS PROPOSAL
AND PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED FOR THIS
PROPOSAL UNLESS A VOTE AGAINST THE PROPOSAL OR AN ABSTENTION IS SPECIFICALLY
INDICATED.
PROPOSAL 3--RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected, on the advice of its Audit Committee,
the independent accounting firm of KPMG Peat Marwick LLP to serve as its
auditors for the fiscal year ending December 25, 1998. KPMG Peat Marwick LLP
has served as the Company's independent auditors since 1983.
One or more representatives of KPMG Peat Marwick LLP are expected to be
present at the Annual Meeting. They will have an opportunity to make a
statement if they so desire, and will be available to respond to appropriate
questions during the Annual Meeting.
Ratification of the selection of KPMG Peat Marwick LLP requires the
affirmative vote of a majority of the shares of Common Stock present or
represented by proxy and entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THIS PROPOSAL
AND PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED FOR THIS
PROPOSAL UNLESS A VOTE AGAINST THE PROPOSAL OR AN ABSTENTION IS SPECIFICALLY
INDICATED.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Each director, officer and other designated employee of the Company who is
subject to Section 16 of the Exchange Act, and each other person who owns
beneficially more than 10% of the Common Stock, is required by Section 16(a)
of that Act to report to the Securities and Exchange Commission by a specified
date his or her ownership of and transactions in the Common Stock. Copies of
such reports on Forms 3, 4 and 5 must also be provided to the Company. Based
on the Company's review of the copies of such forms and amendments thereto it
has received and written representations from certain reporting persons, the
Company believes that all such forms were filed on a timely basis during
fiscal 1997.
OTHER BUSINESS
As of the date of this Proxy Statement, the Board of Directors is not aware
of any matters that are to be presented for action at the Annual Meeting other
than those set forth herein. Should any other matter requiring a vote of the
stockholders come before the Annual Meeting, or any adjournment thereof, the
proxy holders named in the enclosed form of proxy will vote the shares
represented thereby in accordance with their best judgment and discretion.
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<PAGE>
ANNUAL REPORT
Any stockholder, upon request, may obtain without charge, a copy of the
Company's Annual Report on Form 10-K, without exhibits, as filed with the
Securities and Exchange Commission. The Company will also furnish to any
stockholder, upon request, a copy of any exhibit to the Company's Annual
Report on Form 10-K, upon the payment of a fee representing the Company's
actual cost of reproduction and handling. Requests should be in writing and
directed to Pinkerton's, Inc., 15910 Ventura Boulevard, Suite 900, Encino,
California 91436-2810, Attention: Corporate Secretary.
By Order of the Board of Directors
/s/ C. Michael Carter
C. Michael Carter
Corporate Secretary
Encino, California
March 23, 1998
29
<PAGE>
APPENDIX A
AMENDMENT TO THE
1995 PINKERTON PERFORMANCE AND EQUITY INCENTIVE PLAN
Subject to and upon the approval of this Amendment by the stockholders at
the 1998 Annual Meeting of Stockholders of Pinkerton's, Inc., the 1995
Pinkerton Performance and Equity Incentive Plan is hereby amended to replace
in its entirety the first sentence of Section 4(a)--Maximum Number of Shares
of Common Stock, with the following sentence:
The maximum number of shares of Common Stock in respect of which Awards
may be granted under the Plan, subject to adjustment as provided in
Section 15 of the Plan shall be Two Million Two Hundred Ninety-Six
Thousand, Eighty-Seven (2,296,087).
In witness whereof, the undersigned authorized officer of Pinkerton's, Inc.
certifies that the foregoing Amendment has been duly approved and adopted by
the Board of Directors on December 18, 1997 and by the stockholders on April
30, 1998.
PINKERTON'S, INC.
By: _________________________________
C. Michael Carter
Executive Vice President, General
Counsel and Corporate Secretary
A-1
<PAGE>
PINKERTON'S, INC.
This Proxy is Solicited on Behalf of the Board of Directors
for the 1988 Annual Meeting of Stockholders
Thursday, April 30, 1998
The undersigned stockholder of Pinkerton's, Inc., a Delaware corporation,
hereby appoints Denis R. Brown, C. Michael Carter and James P. McCloskey, or any
of them, as proxies and attorneys-in-fact, with full power of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
1998 Annual Meeting of Stockholders of Pinkerton's, Inc., to be held on April
30, 1998, at 2:00 p.m., local time, at the Westwood Marquis Hotel and Gardens,
930 Hilgard Avenue, Los Angeles, California, and at any adjournment thereof, and
to vote all shares of Common Stock that the undersigned would be entitled to
vote if then and there personally present, on the matters set forth on the
reverse side hereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO CONTRARY DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.
Proposals 1, 2 and 3 are made by Pinkerton's, Inc.
The undersigned hereby acknowledges receipt of
the Notice of Annual Meeting of Stockholders and Proxy
Statement, dated March 23, 1998.
(Continued, and to be dated and signed on the reverse side.)
PINKERTON'S, INC.
P. O. BOX 11212
NEW YORK, N.Y. 10203-0212
<PAGE>
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<S> <C> <C> <C>
1. ELECTION OF THE FOR all nominees [_] WITHHOLD AUTHORITY to vote [_] *EXCEPTIONS [_]
FOLLOWING NOMINEES: listed below for all nominees listed below
</TABLE>
The nominees For Class I Directors: Gerald D. Murphy, J. Kevin Murphy and
William H. Webster
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box write that nominee's name in the space provided below.)
*Exceptions ____________________________________________________________________
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE 1995 PERFORMANCE AND EQUITY INCENTIVE
PLAN TO INCREASE THE NUMBER OF SHARES WITH RESPECT TO WHICH AWARDS MAY BE
MADE UNDER THE PLAN.
FOR [_] AGAINST [_] ABSTAIN [_]
3. PROPOSAL TO RATIFY THE SELECTION OF KPMG PEAT MARWICK LLP AS INDEPENDENT
AUDITORS FOR FISCAL YEAR 1998.
FOR [_] AGAINST [_] ABSTAIN [_]
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE SUCH SHARES WITH
RESPECT TO THE TRANSACTION OF SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
THE ANNUAL MEETING.
FOR [_] AGAINST [_] ABSTAIN [_]
Check here if you plan Address Change
to attend the meeting. [_] and/or Comments [_]
Note: Signatures must correspond exactly with the name(s) shown on
the attached label. Each joint owners should sign. Executors,
administrators, trustees, guardians and other persons signing in a
representative capacity should give full titles. If a corporation,
please sign in full corporate name by an authorized officer. If a
partnership, please sign in partnership name by an authorized
person. PLEASE COMPLETE, DATE, SIGN AND RETURN THIS PROXY PROMPTLY
IN THE ENCLOSED REPLY ENVELOPE WHETHER YOU PLAN TO ATTEND THE
MEETING OR NOT. IF YOU DO ATTEND, YOU MAY VOTE IN PERSON IF YOU SO
DESIRE.
Dated: ____________________________________________________, 1998
_________________________________________________________________
Signature of Stockholder
_________________________________________________________________
Signature of Stockholder
Votes MUST be indicated(x) in Black or Blue Ink. [X]
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
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