<PAGE>
SCHEDULE 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Holmes Protection Group, 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):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] 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):
.......................................................................
4) Proposed maximum aggregate value of transaction:
.......................................................................
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.:
.......................................................................
3) Filing Party:
.......................................................................
4) Date Filed:.........................................................
<PAGE>
Logo
HOLMES PROTECTION GROUP, INC.
440 Ninth Avenue
New York, New York 10001-1695
PRELIMINARY NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Holmes Protection Group, Inc.:
The Annual Meeting of Stockholders of Holmes Protection Group, Inc.
(the "Company") will be held at New York, NY, at 10:00 a.m., local time, on
Thursday, December 5, 1996, for the following purposes:
1. To elect three directors to the Board of Directors for
three-year terms.
2. To consider and act upon a proposal to amend and restate
the Company's Restated Certificate of Incorporation in
order to delete a provision relating to certain creditors'
and stockholders' rights to effect compromises or
reorganizations.
3. To consider and act upon a proposal to adopt the Company's
1996 Stock Incentive Plan.
4. To ratify the appointment of Arthur Andersen LLP as the
independent accountants for the Company for the year ending
December 31, 1996.
5. To transact such other business as may properly come before
the meeting.
All stockholders are invited to attend the meeting. Stockholders of
record at the close of business on November 5, 1996, the record date fixed by
the Board of Directors, are entitled to notice of, and to vote at, the meeting.
A complete list of stockholders entitled to notice of, and vote at, the meeting
will be open to examination by the stockholders beginning ten days prior to the
meeting for any purpose germane to the meeting during normal business hours at
the office of the Assistant Secretary of the Company at 440 Ninth Avenue, New
York, New York 10001-1695.
Whether or not you intend to be present at the meeting, please sign and
date the enclosed proxy and return it in the enclosed envelope.
By Order of the Board of Directors
/s/ Irving Kagan
---------------------------------
Assistant Secretary
New York, New York
November 11, 1996
<PAGE>
HOLMES PROTECTION GROUP, INC.
440 Ninth Avenue
New York, New York 10001-1695
(212) 760-0630
---------------------------
PRELIMINARY PROXY STATEMENT
---------------------------
The accompanying proxy is solicited by the Board of Directors (the "Board
of Directors") of Holmes Protection Group, Inc. (the "Company") for use at the
Annual Meeting of Stockholders (the "Annual Meeting") to be held at New York,
NY, at 10:00 a.m., local time, on Thursday, December 5, 1996, and any
adjournment thereof.
VOTING SECURITIES; PROXIES
The Company will bear the cost of solicitation of proxies. In addition to
the solicitation of proxies by mail, certain officers and employees of the
Company, without additional remuneration, may also solicit proxies personally by
telefax and by telephone. In addition to mailing copies of this material to
stockholders, the Company may request persons who hold stock in their names or
custody, or in the names of nominees for others, to forward such material to
those persons for whom they hold stock of the Company and to request their
authority for execution of the proxies. The Company may reimburse such persons
for their expenses in connection with such request.
One-third of the outstanding shares of common stock, par value $.01 per
share (the "Common Stock"), present, in person or represented by proxy, shall
constitute a quorum at the Annual Meeting. The approval of a plurality of the
outstanding shares of Common Stock present in person or represented by proxy at
the Annual Meeting, is required for election of the nominees as directors as set
forth in Proposal 1. The approval of a majority of the outstanding shares of
Common Stock outstanding on November 5, 1996, whether or not present in person
or by proxy at the Annual Meeting, is required for the approval of the amendment
of the Company's Restated Certificate of Incorporation (the "Charter") as set
forth in Proposal 2. In all other matters, the affirmative vote of the majority
of the outstanding shares of Common Stock present, in person or represented by
proxy at the Annual Meeting, is required for adoption of such matters, unless
the vote of a greater number is required by the Company's Charter, the Company's
Amended and Restated By-Laws (the "By-Laws") or the General Corporation Law of
the State of Delaware.
The form of proxy solicited by the Board of Directors affords stockholders
the ability to specify a choice among approval of, disapproval of, or abstention
(except in the case of election of directors) with respect to each matter to be
acted upon at the Annual Meeting. Shares of Common Stock represented by the
proxy will be voted, except as to matters with respect to which authority to
vote is specifically withheld. Where the solicited stockholder indicates a
choice on the form of proxy with respect to any matter to be acted upon, the
shares will be voted as specified. Abstentions and broker non-votes will have no
effect on the outcome of the election of directors or the ratification of the
appointment of the independent auditors. With respect to all other matters to be
voted on by stockholders at the Annual Meeting, abstentions will have the same
effect as "no" votes, and broker non-votes will have no effect on the outcome of
the vote.
All shares of Common Stock represented by properly executed proxies which
are returned and not revoked will be voted in accordance with the instructions,
if any, given therein. If no instructions are provided in a proxy, the shares of
Common Stock represented by such proxy will be voted (i) FOR the election of the
Board of Director's nominees for director as set forth in Proposal 1, (ii) FOR
the approval of the amendment and restatement of the Charter as set forth in
Proposal 2, (iii) FOR the adoption of the 1996 Stock Incentive Plan as set forth
in of Proposal 3, (iv) FOR the ratification of Arthur Andersen LLP as the
independent accountants for the Company for the year ending December 31, 1996 as
set forth in Proposal 4, and (v) in accordance with the proxy-holder's best
judgment as to any other matters raised at the Annual Meeting.
A stockholder who has given a proxy may revoke it at any time prior to its
exercise by giving written notice of such revocation to the office of the
Assistant Secretary of the Company, executing and delivering to the Company a
later-dated proxy reflecting contrary instructions or appearing at the Annual
Meeting and taking appropriate steps to vote in person.
<PAGE>
At the close of business on November , 1996, 5,828,062 shares of Common
Stock were outstanding and eligible for voting at the Annual Meeting. Each
stockholder of record is entitled to one vote for each share of Common Stock
held on all matters that come before the Annual Meeting. Only stockholders of
record at the close of business on November 5, 1996 are entitled to notice of,
and to vote at, the Annual Meeting.
This proxy material is being mailed to stockholders commencing on or about
November 11, 1996.
PROPOSAL 1
ELECTION OF DIRECTORS
In accordance with the Charter and the By-Laws, the Company's Board of
Directors is divided into three classes of directors, designated as Class A,
Class B and Class C, serving staggered three-year terms. The By-Laws provide
that each director serves from the date of his election until the annual meeting
of stockholders held in the third year following the year of his election and
until his successor is elected and qualified. The total number of directors, and
the number of directors in any class, may be increased or decreased by a
resolution adopted by a vote of three-quarters of the entire Board of Directors.
The number of directors is fixed at nine; however, only eight directors are
currently serving on the Board of Directors and one vacant seat exists. The
Company has no immediate plans to fill such vacant seat on the Board of
Directors.
For re-election to the Board of Directors as Class B directors for full
three-year terms expiring in 1999, the Board of Directors has nominated the
following individuals, each a current Class B director:
GEORGE V. FLAGG
LAWRENCE R. GLENN
EDWARD L. PALMER
The persons named in the accompanying proxy intend to vote for the election
as director of the three nominees listed above. Each nominee has consented to
serve if elected. The Board of Directors has no reason to believe that any of
the nominees will not serve if elected, but if any of them should become
unavailable to serve as a director, and if the Board of Directors designates a
substitute nominee or nominees, the persons named as proxies will vote for the
substitute nominee or nominees designated by the Board of Directors.
The following table sets forth certain information with respect to each
person who is currently a director or executive officer of the Company, and is
based on the records of the Company and information furnished to it by such
persons. Reference is made to "Security Ownership of Certain Beneficial Owners
and Management" for information pertaining to stock ownership by each director
and executive officer of the Company.
Directors and Officers of the Company
The current directors and executive officers of the Company, their
positions held with the Company, their ages, and for directors, their class and
the year their term as director expires, are as follows:
<TABLE>
<CAPTION>
Class/Expiration
----------------
Name Age Positions of Term as
---- --- --------- ----------
Director
--------
<S> <C> <C> <C>
George V. Flagg....................... 55 President, Chief Executive Officer and Class B/1996
Director
James L. Boehme....................... 48 Executive Vice President -
Sales and Marketing
Glenn C. Riker........................ 51 Senior Vice President-Human Resources
and Assistant Secretary
Lawrence R. Irving.................... 40 Vice President - Finance
Pierre Besuchet(2).................... 63 Director Class A/1998
Daniel T. Carroll(1)(2)............... 70 Director Class A/1998
Lawrence R. Glenn(1)(3)............... 58 Director Class B/1996
Mark S. Hauser(3)..................... 39 Director, Vice Chairman of the Board Class C/1997
2
<PAGE>
William P. Lyons(1)(2)................ 55 Director, Chairman of the Board Class C/1997
David Jan Mitchell(1)(3).............. 35 Director Class C/1997
Edward L. Palmer(1)(2)................ 79 Director Class B/1996
</TABLE>
- ----------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) Member of Retirement Benefits Committee.
The following is a brief summary of the background of each director and
executive officer of the Company:
George V. Flagg. Mr. Flagg joined the Company on January 8, 1996 as
President and Chief Executive Officer. Prior thereto, from September 1985 to
December 1995, Mr. Flagg served in various executive capacities at The National
Guardian Corporation, a security alarm services company ("National Guardian"),
and most recently as President (from May 1986 to December 1995) and Chief
Executive Officer (from May 1991 to December 1995). Mr. Flagg became a director
of the Company in May 1996.
James L. Boehme. Mr. Boehme was appointed Executive Vice President-Sales and
Marketing of the Company on January 8, 1996. Prior thereto, from March 1988 to
December 1995, Mr. Boehme served in various executive capacities at National
Guardian, and most recently as Senior Vice President, Sales and Marketing (from
June 1994 to December 1995) and Vice President, Sales and Marketing (from
January 1990 to June 1994).
Glenn C. Riker. Mr. Riker has been with the Company since December 1989,
starting as Director of Human Resources and currently serving as Senior Vice
President of Human Resources and Assistant Secretary. Prior to joining the
Company, Mr. Riker was Vice President of Human Resources at Atlas Copco North
America, Inc., a manufacturer of industrial equipment.
Lawrence R. Irving. Mr. Irving joined the Company in May 1996 as Vice
President-Finance. From July 1995 to April 1996, Mr. Irving served as
Controller, and then as Vice President-Finance and Treasurer, respectively, of
Centennial Security Holdings, Inc., a security alarm services company. Prior
thereto, from April 1987 to June 1995, Mr. Irving served as Assistant
Controller, and then as Assistant Vice President/Assistant Controller,
respectively, of National Guardian.
Pierre Besuchet. Mr. Besuchet has been a director since 1991. Mr. Besuchet
has been the President of Gerant des Fortunes, a Swiss investment management
company since 1983. He is also a non-executive director of Faisal Finance
(Switzerland) S.A., a Swiss investment firm.
Daniel T. Carroll. Mr. Carroll has been a director since June 1996. Since
1982, Mr. Carroll has been the Chairman of The Carroll Group, a management
consulting company. He is also a director of A.M. Castle & Co., American
Woodmark Corporation, Aon Incorporated, Comshare, Inc., Diebold Incorporated,
Oshkosh Truck Corporation, Wolverine World Wide, Inc. and Woodhead Industries
Inc.
Lawrence R. Glenn. Mr. Glenn has been a director since February 1996. Since
1995, Mr. Glenn has been Chairman of J.W. Goddard and Company, a privately owned
investment company dealing in real estate, corporate finance and financial
advisory services. Mr. Glenn is the retired former Chairman of the Credit Policy
Committee of Citicorp and Citibank, N.A. He is also a director of First Bank of
Americas and Gerber Childrenswear Holdings, Inc.
Mark S. Hauser. Mr. Hauser has been a director since 1994. He was elected
Vice Chairman of the Board of Directors in May 1995. He is the founder and,
since 1991, has been a Managing Director of Tamarix Capital Corporation, a New
York-based private investment banking firm. Prior thereto, Mr. Hauser was a
Managing Director at Hauser, Richards & Co., and Ocean Capital Corporation,
private international investment banking firms. He is also a director of ICC
Technologies, Inc. and EA Industries, Inc.
William P. Lyons. Mr. Lyons has been a director since 1994. He was elected
Chairman of the Board of Directors in May 1995. He has been President and Chief
Executive Officer of William P. Lyons and Co., Inc., a private investment firm,
since 1975. From 1992 to 1995, Mr. Lyons served as Chairman of JVL Corp., a
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<PAGE>
pharmaceutical manufacturer, and from 1988 to 1991, he served as Chairman and
Chief Executive Officer of Duro-Test Corporation, a manufacturer of specialty
lighting products. Mr. Lyons was an adjunct Professor of Management and Law at
Yale University from 1973 to 1989. Mr. Lyons is also a director of Lydall, Inc.,
Video Lottery Technologies, Inc. and Keystone Consolidated Industries, Inc.
David Jan Mitchell. Mr. Mitchell has been a director since 1994. Since
January 1991, Mr. Mitchell has been President of Mitchell & Company, Ltd., a New
York-based private merchant banking company he founded. Since March 1992, Mr.
Mitchell has been a partner of Pertherton Capital Corporation, a privately held
real estate investment company. From April 1988 to December 1990, Mr. Mitchell
served as a managing principal and a director of Rodman & Renshaw, Inc., a
publicly traded investment banking and brokerage firm. Mr. Mitchell also serves
as a director of Kellstrom Industries, Inc. and Bogen Communications
International.
Edward L. Palmer. Mr. Palmer has been a director since 1992. He is the
retired Chairman of the Executive Committee of Citicorp and Citibank, N.A. Mr.
Palmer's current directorships include Devon Group, Inc., Sun-Resorts Ltd.
N.V., FondElec Group, and Energy Services International Corporation. Mr. Palmer
has also served on the board of directors of several U.S. and international
corporations.
Nomination of Certain Directors
As described in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, the Company is party to the following agreements which
entitle certain stockholders to nominate members of the Board of Directors: (i)
the Exchange Agreement, dated as of December 18, 1991, as amended (the "Exchange
Agreement"), with a group of insurance companies and other institutions (the
"Institutions") including John Hancock Mutual Life Insurance Company and The
Mutual Life Insurance Company of New York, and (ii) the Investment Agreement,
dated as of June 29, 1994 (the "Investment Agreement"), with HP Partners L.P.
Based on their aggregate percentage share ownership, the Institutions currently
have a right to nominate two directors. Messrs. Palmer and Glenn were initially
nominated by the Institutions and appointed to the Board of Directors on
November 30, 1992 and February 8, 1996, respectively, in accordance with the
terms of the Exchange Agreement. HP Partners L.P. currently has a right to
nominate three directors. Messrs. Hauser, Lyons and Mitchell were nominated by
HP Partners L.P. and elected to the Board of Directors on July 29, 1994 in
accordance with the terms of the Investment Agreement. HP Partners L.P.
previously had the right to nominate four directors. However, as a result of the
Company's public offering of Common Stock in September 1996, the number of
directors HP Partners L.P. was entitled to nominate to the Board of Directors
was reduced from four to three. In connection therewith, William Spier (a former
director who was elected to the Board of Directors as a nominee of HP Partners
L.P.) resigned from the Board of Directors on September 30, 1996. Messrs.
Hauser, Mitchell and Spier are stockholders and directors of the general partner
of HP Partners L.P. and Messrs. Mitchell and Spier are also limited partners of
HP Partners L.P. See "Security Ownership of Certain Beneficial Owners and
Management" and "Certain Transactions."
Committees of the Board of Directors; Board of Directors Meetings
The Board of Directors has established an audit, a compensation and a
retirement benefits committee to assist it in the discharge of its
responsibilities. The principal responsibilities of each committee and the
members of each committee are described in the succeeding paragraphs. The
Company's Board of Directors held 12 meetings during the fiscal year ended
December 31, 1995. The Board of Directors does not have a nominating committee.
This function is performed by the Board of Directors. All Directors attended at
least 75% of the meetings held by the Board of Directors and by the committees
on which they served during 1995.
The Audit Committee currently consists of Messrs. Carroll, Glenn, Lyons,
Mitchell and Palmer (Chairman). The Audit Committee held 2 meetings during 1995.
The Audit Committee reviews the scope and results of the audit and other
services performed by the Company's independent accountants.
The Compensation Committee currently consists of Messrs. Besuchet, Carroll,
Lyons (Chairman) and Palmer. The Compensation Committee held 1 meeting during
1995. This Committee establishes objectives for the Company's senior executive
officers and sets the compensation of directors, executive officers and other
4
<PAGE>
employees of the Company. It is also charged with the administration of the
Company's employee benefit plans, including stock options plans.
The Retirement Benefits Committee currently consists of Messrs. Glenn,
Hauser (Chairman) and Mitchell. The Retirement Benefits Committee held 1 meeting
during 1995. The Retirement Benefits Committee provides oversight for the
Company's pension and retirement benefit plans.
Compensation of Directors
Each non-employee director receives an annual director's fee of $15,000
(except for the Chairman who receives an annual fee of $25,000) and a fee of
either $500 per day for attending, in person, meetings of the Board of Directors
or committees of the Board of Directors, or $250 per day for participating in
such meetings by telephone. Non-employee directors are reimbursed for their
reasonable expenses incurred in connection with attendance at or participation
in such meetings. In addition, under the Holmes Protection Group, Inc. 1996
Stock Incentive Plan (the "1996 Plan"), each non-employee director who was a
director of the Company on December 4, 1995 was granted an option to purchase
25,000 shares of Common Stock. Messrs. Glenn and Carroll were each granted an
option to purchase 25,000 shares of Common Stock on February 8, 1996 and June
27, 1996, respectively, at the time of their respective appointments to the
Board of Directors. Such grants and the terms thereof are subject to and
conditioned upon stockholder approval of the 1996 Plan at the Annual Meeting.
See "Proposal 3 - Holmes Protection Group, Inc. 1996 Stock Incentive Plan."
Directors who are employees of the Company receive no additional
compensation for their services as directors. However, such directors are
reimbursed for their reasonable expenses incurred in connection with attendance
at or participation in meetings of the Board of Directors or committees of the
Board of Directors.
The Board of Directors recommends a vote FOR the approval of the nominees
for election as directors.
5
<PAGE>
PROPOSAL 2
AMENDMENT AND RESTATEMENT OF THE CHARTER
The Board of Directors has unanimously declared it advisable and unanimously
recommends to the Company's stockholders that Article SEVENTH ("Article
Seventh") of the Charter, which relates to certain creditors' and stockholders'
rights to effect compromises or reorganizations, be deleted.
On August 30, 1996, the Company entered in a $25 million secured Credit
Agreement with Merita Bank Ltd and Bank of Boston Connecticut (the "Banks"). At
the Banks' request, and as a condition to the closing of such Credit Agreement,
the Company agreed to seek stockholder approval to amend the Charter in order to
delete Article Seventh relating to compromises and arrangements with creditors
and/or stockholders. The Banks requested the removal of Article Seventh to avoid
the risk that other creditors could restrict the Banks' ability to have the
Banks' debt repaid if such debt were ever to represent less than one-fourth of
the Company's outstanding debt.
Article Seventh is an optional provision permitted by the Delaware General
Corporation Law. It provides that the Company's creditors or stockholders, or
any class of them, may petition a court in the State of Delaware to order a
meeting of such creditors or stockholders to consider a proposed compromise or
arrangement with the Company. If a majority in number representing three-fourths
in value of the creditors or class of creditors, and/or of the stockholders or
class of stockholders, as the case may be, agree to a compromise or arrangement
of debts owed to such creditors or the equity interests held by such
stockholders, such compromise or arrangement and any resulting reorganization of
the Company shall, if sanctioned by the Delaware Court of Chancery, be binding
on the Company and the creditors and/or stockholders involved, including those
creditors and/or stockholders who may be opposed to such compromise and
reorganization.
Article Seventh reads in full as follows:
"SEVENTH: Creditors: Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them and/or
between this Corporation and its stockholders or any class of them, any
court of equitable jurisdiction within the State of Delaware may, on the
application in a summary way of this Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for this Corporation under the provisions of Section 291 of the
Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation
under the provisions of Section 279 of Title 8 of the Delaware Code, order a
meeting of the creditors or class of creditors, and/or of the stockholders
or class of stockholders of the Corporation, as the case may be, to be
summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as
the case may be, agree to any compromise or arrangement and to any
reorganization of this Corporation as a consequence of such compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders,
of this Corporation, as the case may be, and also on this Corporation."
If the Charter is amended and restated to delete Article Seventh, creditors
and/or stockholders, or any class of them, representing three-fourths in value
of the claims against or equity interests in the Company will no longer be able
to impose a court-sanctioned settlement upon the remaining members of the
affected class under Delaware law. However, in the absence of Article Seventh,
creditors and stockholders will still be entitled to all rights afforded by the
Federal Bankruptcy Code. These include provisions under Chapter 11 of the
Bankruptcy Code which generally provide for a binding reorganization of the
Company's debt and/or equity interests upon an affirmative vote of a majority in
number and two-thirds in value or amount of those voting in any particular
class, provided that numerous other requirements are met. There are some
important differences between reorganizations under the Bankruptcy Code and
those permitted by Article Seventh. Under the Bankruptcy Code: (i) stockholders
cannot initiate a reorganization and creditors may only do so if the Company
fails to pay its debts as they become due; (ii) the Company has the exclusive
right to propose a reorganization during the first 120 days, unless that period
is increased or reduced by the Bankruptcy Court for
6
<PAGE>
cause; (iii) votes may be solicited only in conjunction with a disclosure
statement which the Bankruptcy Court has approved as containing adequate
information; and (iv) a plan of reorganization may not be confirmed if the plan
does not provide each creditor and stockholder who has not accepted the plan
with as much consideration as would be received if the Company were liquidated
under Chapter 7 of the Bankruptcy Code. The provisions of Article Seventh do not
contain any such procedural requirements. However, any plan or arrangement
proposed under Article Seventh would have to be sanctioned by the Delaware
Chancery Court and would be subject to any requirements imposed by the Delaware
Chancery Court in connection therewith.
Deletion of Article Seventh may make it more difficult for a majority of
creditors and/or stockholders to obtain approval of any compromise, arrangement
or plan of reorganization that would benefit them, particularly if such approval
is sought when the Company is not insolvent. In the absence of Article Seventh,
creditors and stockholders would have to rely on the rights provided by the
Federal Bankruptcy Code and, with respect to general corporate matters, the
stockholders would have to rely on the general provisions of the Delaware
General Corporation Law.
The Board of Directors of the Company has adopted, subject to stockholder
approval, an amended and restated Certificate of Incorporation which will delete
Article Seventh in its entirety and renumber the remaining provisions and make
other conforming changes (the "Amended Charter"). The Board of Directors
believes that approval of the Amended Charter (i) will not have a material
adverse effect on the rights of stockholders who will still be entitled to the
full benefits and rights available under the Delaware General Corporation Law
and the Federal Bankruptcy Code, and (ii) will facilitate the Company's
relationships with the Banks.
The Board of Directors recommends a vote FOR the approval of an amendment
and restatement of the Charter to delete Article Seventh, which is designated as
Proposal 2 on the enclosed proxy card.
7
<PAGE>
PROPOSAL 3
HOLMES PROTECTION GROUP, INC.
1996 STOCK INCENTIVE PLAN
Approval of the Company's 1996 Stock Incentive Plan
The Board of Directors has adopted the 1996 Plan and it is being submitted
to stockholders for approval.
A description of the 1996 Plan, a complete copy of which is attached hereto
as Annex A, appears below.
The purpose of the 1996 Plan is to provide an incentive to and to attract,
secure and retain the Company's key employees, consultants and directors. The
1996 Plan provides for the grant of options to acquire a maximum of 2,000,000
shares of Common Stock. Of such shares, as of November __, 1996, 830,000 shares
were subject to outstanding options (subject to stockholder approval). The 1996
Plan provides that, upon its approval, no further options or other awards will
be granted under either the Company's Amended and Restated Senior Executives'
Option Plan (the "Executives Plan") or the Company's 1992 Directors' Option Plan
(the "Directors Plan"). All options outstanding under the prior plans will
continue to be governed by the terms of those plans. The 1996 Plan permits the
granting of incentive stock options ("ISOs") or nonqualified stock options
("NSOs"), each as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), at the discretion of the Compensation Committee of the
Board of Directors with regard to employee or consultant optionees, and NSOs to
non-employee directors.
The 1996 Plan is administered by the Compensation Committee. Subject to the
terms of the 1996 Plan, the Compensation Committee determines the terms and
conditions of options granted under the 1996 Plan to employees and consultants
of the Company and its affiliates. The Compensation Committee, however, has no
discretion with respect to the selection of non-employee directors to receive
options, the number of shares of Common Stock subject to any such options, the
purchase price thereunder or the timing of grants of options to non-employee
directors. Options granted under the 1996 Plan are not transferable, except by
the laws of descent and distribution, and are evidenced by written agreements
which contain such terms, conditions, limitations and restrictions as the
Compensation Committee deems advisable and which are not inconsistent with the
terms of the 1996 Plan.
The option exercise price must be paid in full at the time the notice of
exercise of the option is delivered to the Company and must be tendered in cash
or by transferring shares of Common Stock upon terms and conditions determined
by the Compensation Committee. The Board of Directors has certain rights to
suspend, amend or terminate the 1996 Plan, provided stockholder approval is
obtained.
In the event of a change in control (as defined in the 1996 Plan),
outstanding options vest immediately and become exercisable in full, whether or
not otherwise vested or exercisable. In addition, the optionee has the right to
surrender his or her options for cancellation within sixty days after a change
in control and receive a cash payment therefor.
Non-Employee Director Awards. The 1996 Plan provides for awards of options
to directors ("Eligible Directors") of the Company who are not employees of the
Company or its affiliates and who have not, within one year immediately
preceding the determination of such director's eligibility, received any award
under any other plan of the Company or its affiliates that entitles the
participants therein to acquire stock, stock options or stock appreciation
rights of the Company or its affiliates (other than options granted under any
other plan under which participants' entitlements are governed by provisions
meeting the requirements of Rule 16b-3(c)(2)(ii) promulgated under the
Securities Exchange Act of 1934, as amended). The exercise price of the options
is equal to 100% of the fair market value (as such term is defined in the 1996
Plan) of the Common Stock on the date of grant. The options are exercisable in
whole or in part at all times during the period beginning on the date of grant
until five years from the date of grant.
Pursuant to the 1996 Plan, subject to stockholder approval, each
non-employee director in office on and after December 4, 1995 was awarded an
Initial Grant (as defined below). In addition, upon first election or
8
<PAGE>
appointment to the Board of Directors, each newly elected or appointed Eligible
Director will be granted an option to purchase 25,000 shares of Common Stock
(the "Initial Grant"). Immediately following each annual meeting of stockholders
commencing with the meeting following the close of fiscal year ending December
31, 1996, each Eligible Director will be granted an additional option to
purchase 1,000 shares of Common Stock.
In addition, on December 5, 1995, each of Messrs. Hauser, Lyons, Mitchell
and Spier were granted options under the 1996 Plan to purchase 15,000, 60,000,
30,000 and 15,000 shares of Common Stock, respectively, at an exercise price of
$5.56 per share. Such grants were made in recognition of the extraordinary
services that each of these individuals provided to the Company in connection
with the management transition and reorganization that occurred during 1995.
Options granted to Mr. Spier pursuant to the New Plan will not be affected
by the termination of his service as a director.
If an optionee's service as a director terminates for any reason other than
disability, cause (each as defined in the 1996 Plan) or death, the optionee may
exercise his options in the three-month period following such termination. If
the optionee's service as a director terminates by reason of resignation or
removal from the Board of Directors due to disability, the optionee may exercise
his options in the one-year period following such termination. If an optionee
dies while a director or within three months after termination of service as a
director, any options held by such director may be exercised in the one-year
period following the optionee's death by the person to whom such rights under
the options pass by will or pursuant to the laws of descent and distribution. If
an optionee's service as a director terminates for cause, any options granted to
such optionee will terminate immediately.
Other Awards. The 1996 Plan provides that the Compensation Committee must
establish an exercise price for employee stock options that is not less than the
fair market value (as defined in the 1996 Plan) of the Common Stock on the date
of grant. Each ISO must expire within ten years of the date of grant. However,
if ISOs are granted to persons owning more than 10% of the voting stock of the
Company, the 1996 Plan provides that the exercise price may not be less than
110% of the fair market value per share at the date of grant and that the term
of such ISOs may not exceed five years. Each employee option vests at a rate and
expires on a date designated by the Compensation Committee.
If an optionee's employment is terminated by reason of death, disability or
retirement (as defined in the 1996 Plan), the Compensation Committee may
determine that any options held by such person become immediately exercisable
and may be exercised at any time prior to the expiration date of the options or
within twelve months (three months with regard to ISOs) after the date of
termination. If an optionee's employment is terminated for any reason other than
death, disability or retirement or if the Compensation Committee does not
provide the treatment discussed in the prior sentence, all unvested options held
by such person will terminate and all vested options will be exercisable for a
period of three months after the date of termination.
New Plan Benefits
The following table sets forth the stock options that the individuals and
groups referred to below will receive in 1996 if the 1996 Plan is approved by
the Company's stockholders at this Annual Meeting.
9
<PAGE>
NEW PLAN BENEFITS
Holmes Protection Group, Inc.
1996 Stock Incentive Plan
<TABLE>
<CAPTION>
Number of Shares
of Common Stock
Name and Position Dollar Value ($) Underlying Options
----------------- ---------------- ------------------
<S> <C> <C>
George V. Flagg
President and Chief Executive Officer............. (2) 260,000
James L. Boehme
Executive Vice President-Sales and
Marketing......................................... (2) 195,000
Glenn C. Riker
Senior Vice President of Human Resources......... -- --
Lawrence R. Irving
Vice President-Finance............................ (2) 25,000
Richard Hickson (1)
Former President and Chief Executive
Officer........................................... -- --
Brian H. Jaffe (1)
Former Vice President, General Counsel and
Secretary......................................... -- --
Eugene G. Lestardo (1)
Former Acting Chief Operating Officer............ (2) 15,000
William C. Sholl (1)
Former Vice President Management
Information Systems.............................. -- --
Current Executive Officers as a Group............... (2) 480,000
Current Non-Executive Directors as a
Group............................................ (2) 280,000
Non-Executive Employees as a Group.................. (2) 10,000
</TABLE>
- ---------------------------------
(1) Messrs. Hickson, Jaffe and Sholl resigned from the Company effective May 30,
1995, April 27, 1996 and March 31, 1996, respectively, and are not eligible to
participate in the 1996 Plan as of the date hereof. Mr. Lestardo's employment
with the Company terminated effective October 7, 1996. The stock options granted
to Mr. Lestardo under the 1996 Plan will not be affected by the termination of
his employment with the Company. However, Mr. Lestardo is not eligible for
further grants of options under the 1996 Plan. See "Executive
Compensation-Summary Compensation Table."
(2) Dollar value is dependent upon the future share price of the Common Stock.
Certain Federal Income Tax Consequences of the 1996 Plan under Current Law
An optionee will recognize no taxable income at the time an option is
granted.
10
<PAGE>
An optionee will recognize no taxable income at the time of exercise of an
incentive stock option. If the optionee makes no disposition of the acquired
shares within two years after the date of grant of the incentive stock option,
or within one year after the transfer of such shares, the employee will
recognize no taxable income and any gain or loss that is realized on a
subsequent disposition of such shares will be treated as long-term capital gain
or loss. As to incentive stock options exercised, the excess, if any, of the
fair market value of the shares on the date of exercise over the option price
will be an item of tax preference for purposes of computing the alternative
minimum tax.
If the foregoing holding period requirements are not satisfied, the
optionee will realize (i) ordinary income for federal income tax purposes in the
year of disposition in an amount equal to the lesser of (a) the excess, if any,
of the fair market value of the shares on the date of exercise over the option
price thereof, or (b) the excess, if any, of the selling price over the
optionee's adjusted basis of such shares (provided that the disposition is a
sale or exchange with respect to which a loss (if sustained) would be recognized
by such individual) and (ii) capital gain equal to the excess, if any, of the
amount realized upon the disposition of shares over the fair market value of
such shares on the date of exercise.
Employees, officers, consultants, agents, and independent contractors of
the Company will be required to include in their gross income in the year of
exercise of a non-qualified stock option the difference between the fair market
value on the exercise date of the shares transferred and the option price.
The Company will be entitled to a deduction for federal income tax purposes
at the same time and in the same amount as the optionee is considered to be in
receipt of compensation income in connection with the exercise of non-qualified
stock options or, in the case of an incentive stock option, a disqualifying
disposition of shares received upon exercise thereof. If the holding period
requirements outlined above are met, no deduction will be available to the
Company in connection with an incentive stock option. Under the Revenue
Reconciliation Act of 1993, for fiscal years beginning after January 1, 1994,
the Company may not be able to deduct compensation to certain employees to the
extent compensation exceeds $1 million per tax year. Covered employees include
the chief executive officer and the four other highest compensated officers of
the Company for that tax year. Certain performance-based compensation including
stock options are exempt provided that, among other things, the stock options
are granted by a compensation committee of the Board of Directors which is
comprised solely of two or more outside directors (as defined in the Internal
Revenue Code and Treasury Regulations promulgated thereunder), the plan sets a
maximum number of options that may be granted to any person in any year, and the
plan under which the options are granted is approved by stockholders.
The foregoing discussion summarizes the federal income tax consequences of
the 1996 Plan based on current provisions of the Code which are subject to
change. This summary does not cover any state or local tax consequences of
participation in the 1996 Plan.
The 1996 Plan is not subject to any provision of the Employee Retirement
Income Security Act of 1974, as amended, and is not qualified under Section
401(a) of the Code.
The Board of Directors recommends a vote FOR the approval of the 1996 Plan,
which is designated as Proposal 3 on the enclosed proxy card.
11
<PAGE>
PROPOSAL 4
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has appointed Arthur Andersen LLP as
independent accountants for the fiscal year ending December 31, 1996, and to
render other professional services as required.
The appointment of Arthur Andersen LLP is being submitted to stockholders
for ratification.
Representatives of Arthur Andersen LLP will be present at the Annual
Meeting, where they will have the opportunity to make a statement if they desire
to do so, and are expected to be available to respond to appropriate questions.
The Board of Directors recommends a vote FOR the ratification of Arthur
Andersen LLP as independent auditors of the Company, which is designated as
Proposal 4 on the enclosed proxy card.
12
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership, as of November , 1996, of the Common Stock by (i) any person known by
the Company to beneficially own more than 5% of the outstanding Common Stock;
(ii) each director of the Company; (iii) the Company's former Chief Executive
Officer and each of the four most highly compensated current or former executive
officers (collectively, the "Named Officers") for services rendered to the
Company during each of the last three fiscal years; and (iv) all directors and
executive officers of the Company as a group, including the Named Officers. All
share and warrant amounts and related exercise prices have been adjusted to give
effect to the one-for-fourteen reverse stock split of the Common Stock completed
on March 27, 1995. On November __, 1996, there were 5,828,062 shares of Common
Stock issued and outstanding.
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Beneficially
Name of Beneficial Owner Owned(1) Percentage Ownership(1)
- ------------------------ -------- -----------------------
<S> <C> <C>
HP Partners L.P.(2)........................................... 2,201,600 33.8%
c/o HP Management, Inc.
444 Madison Avenue, 38th Floor
New York, New York 10022
John Hancock Mutual Life...................................... 636,095 10.8%
Insurance Company(2)
John Hancock Place
P.O. Box 111
Boston, Massachusetts 02117
The Mutual Life Insurance Company.............................. 397,716 6.8%
of New York(2)
1740 Broadway
New York, New York 10019
TJS Partners, L.P.(2).......................................... 399,000 6.8%
52 Vanderbilt Avenue
5th Floor
New York, New York 10017
Stephen Feinberg(2)............................................ 324,600 5.6%
950 Third Avenue, 20th Floor
New York, New York 10022
Pierre Besuchet(3)(6).......................................... 19,048 *
Daniel T. Carroll(6)........................................... 2,000 *
George V. Flagg(6)............................................. 6,000 *
Lawrence R. Glenn(6)........................................... -- --
Mark S. Hauser(4)(6)(7)........................................ 2,201,600 33.8%
Richard Hickson................................................ 142 *
Brian H. Jaffe(5).............................................. 306 *
Eugene G. Lestardo(5)(6)....................................... 1,000 *
William P. Lyons(4)(6)(7)...................................... 2,210,600 33.9%
David Jan Mitchell(4)(6)(7).................................... 2,204,600 33.9%
Edward L. Palmer(6)............................................ 2,592 *
Glenn C. Riker(5).............................................. -- --
William C. Sholl............................................... 2,207 *
All directors and executive officers as a group (15
persons)(3)(4)(5)(6)........................................ 2,246,895 34.5%
</TABLE>
- -------------------
* Represents less than 1% of outstanding Common Stock.
13
<PAGE>
(1) Each director and executive officer has sole voting and investment power
with respect to the shares beneficially owned, except as otherwise noted in
the footnotes to this table. For purposes of this table, a person or group
of persons is deemed to have "beneficial ownership" of any shares of Common
Stock which such person has the right to acquire on or within 60 days of
November __, 1996. For purposes of computing the percentage of outstanding
Common Stock held by each person or group of persons named above, any
shares which such person has or has the right to acquire on or within 60
days after November __, 1996 are deemed to be outstanding, but are not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Includes shares issuable upon the exercise of warrants having a current
exercise price of $10.68 per share, as follows: John Hancock Mutual Life
Insurance Company and affiliates - 68,394; and The Mutual Life Insurance
Company of New York and affiliates - 42,764. With respect to HP Partners
L.P., includes 685,714 shares of Common Stock issuable upon the exercise of
warrants having a current exercise price of $4.58 per share. The
information in the foregoing table and in this note is based on the
Company's records and on either a Schedule 13D or a Schedule 13G filed with
the Securities and Exchange Commission by each of the following
stockholders and dated as indicated: HP Partners L.P., dated January 20,
1995; John Hancock Mutual Life Insurance Company, dated January 16, 1996;
The Mutual Life Insurance Company of New York, dated March 2, 1995; TJS
Partners, L.P., dated June 17, 1996; and Stephen Feinberg, dated October 1,
1996. The Schedule 13D filed by TJS Partners, L.P. states that TJS
Management, L.P., TJS Corporation, and Thomas J. Salvatore may be deemed to
own beneficially the shares owned beneficially by TJS Partners, L.P.
(3) Excludes vested options to purchase 17,884 shares of Common Stock granted
to Mr. Besuchet under the Company's 1992 Directors' Option Plan (the
"Directors Plan"). Grants of stock options are no longer permitted under
the Directors Plan. Such options have a current exercise price of $13.97
per share, however, they become exercisable only if the price per share of
the Common Stock on the Nasdaq National Market is not less than $24.45 for
30 consecutive trading days. Such condition had not been met as of November
__, 1996.
(4) Includes 1,515,886 shares of Common Stock and warrants to purchase 685,714
shares of Common Stock owned by HP Partners L.P. Messrs. Hauser, Mitchell
and Spier (a former director of the Company) are stockholders and directors
of the general partner of HP Partners L.P. and Messrs. Mitchell and Spier
are also limited partners of HP Partners L.P. Messrs. Hauser, Mitchell and
Spier are also the sole stockholders of the special limited partner of HP
Partners L.P. which is entitled to various rights relating to 285,714 of
the partnership's warrants. Pursuant to HP Partners L.P.'s partnership
agreement, Mr. Lyons has an arrangement to participate in any economic
benefit which Mr. Spier obtains as a result of Mr. Spier's shareholding
interest in such general partner.
(5) Excludes vested options granted under the Company's Amended and Restated
Senior Executives' Option Plan (the "Executive Plan") to each of Messrs.
Jaffe, Lestardo, Riker and one other former executive officer to purchase
2,656, 6,640, 4,427 and 2,656 shares of Common Stock, respectively, at an
exercise price of $7.28 per share. These options become exercisable only if
the price per share of the Common Stock on the Nasdaq National Market is
not less than $13.30 for 30 consecutive trading days. Such condition had
not been met as of November __, 1996.
(6) Excludes options granted under the 1996 Plan to each of Messrs. Besuchet,
Carroll, Glenn, Hauser, Lestardo, Lyons, Mitchell and Palmer to purchase
25,000, 25,000, 25,000, 40,000, 15,000, 85,000, 55,000 and 25,000 shares of
Common Stock, respectively, at exercise prices ranging from $5.50 to $5.56
per share. Also excludes options granted under the 1996 Plan to each of
Messrs. Flagg, Boehme and Irving to purchase 260,000, 195,000 and 25,000
shares of Common Stock, respectively, in accordance with their respective
employment agreements. The grant of all options under the 1996 Plan and
terms thereof are subject to and
14
<PAGE>
conditioned upon approval of such plan by stockholders at this Annual
Meeting. See "Proposal 3-Holmes Protection Group, Inc. 1996 Stock Incentive
Plan."
(7) The address of such stockholder is: c/o Holmes Protection Group, Inc., 440
Ninth Avenue, New York, New York 10001-1695.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth a summary of annual and long-term
compensation earned by or paid to the Named Officers for services rendered to
the Company during each of the last three fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------------- -------------
Other Securities
Annual Underlying All Other
Compen- Options/ Compen-
Salary Bonus sation SARs sation
Name and Principal Position Year ($) ($) ($) (#) ($)(1)
--------------------------- ---- ----- ----- ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Richard Hickson (2)................. 1993 $183,300 $ 7,600 $ -- -- $ --
Former President and Chief Executive 1994 208,333 5,346 -- 35,418(3) --
Officer 1995 108,605 -- -- -- --
Brian H. Jaffe (4).................. 1993 115,000 6,000 10,400 -- 3,630
Former Vice President, General Counsel 1994 117,884 13,151 10,400 8,854(3) 3,931
and Secretary 1995 122,000 25,010 10,400 -- 4,325
Eugene G. Lestardo (5).............. 1993 125,000 17,455 11,700 -- 4,500
Former Acting Chief Operating Officer 1994 128,128 42,667 11,700 13,281(3) 4,624
1995 141,300 16,250 12,425 15,000(6) 4,628
Glenn C. Riker...................... 1993 86,000 15,300 13,000 -- 3,039
Senior Vice President-Human 1994 88,150 12,782 13,000 8,854(3) 3,209
Resources 1995 91,260 20,716 13,000 -- 3,476
William C. Sholl (7)................ 1993 54,692 3,783 6,320 -- 208
Former Vice President-Management 1994 90,000 10,378 10,400 -- 3,011
Information Systems 1995 93,150 20,027 10,400 8,854 3,339
</TABLE>
- -----------------------------
(1) Represents matching contributions by the Company under the Company's 401(k)
Plan. 20% of accrued matching contributions become vested on each of the
second through sixth anniversaries of employment and are fully vested
thereafter.
(2) Mr. Hickson resigned as President and Chief Executive Officer and a
director of the Company, effective May 30, 1995. His outstanding stock
options were canceled on such date pursuant to the terms of the
15
<PAGE>
Executives Plan. From May 31 through September 30, 1995, Mr. Hickson served
as a consultant to the Company for which services he received additional
compensation of $6,531.
(3) 1994 option grants replaced a like number of options previously granted
under the Executives Plan to Messrs. Hickson, Lestardo and Riker in 1992
and Mr. Jaffe in 1994.
(4) Mr. Jaffe resigned as Vice President, General Counsel and Secretary of the
Company, effective as of April 27, 1996. His unvested options to purchase
6,198 shares of Common Stock were canceled. Mr. Jaffe's vested options to
purchase 2,656 shares of Common Stock remain outstanding through June 30,
1997. Mr. Jaffe is serving as a consultant to the Company in exchange for
compensation on a per diem basis.
(5) Mr. Lestardo served in the capacity of Acting Chief Operating Officer of
the Company from June 14 to December 31, 1995. Mr. Lestardo served as
President of Holmes Protection of New York, Inc., a wholly-owned subsidiary
of the Company, from October 1991 to October 1996. On October 7, 1996, Mr.
Lestardo's position at the Company was eliminated as part of a corporate
restructuring and, as a result, Mr. Lestardo's employment with the Company
was terminated. Mr. Lestardo's unvested options to purchase 6,641 shares of
Common Stock under the Executives Plan were cancelled, and his vested
options to purchase 6,640 shares of Common Stock remain outstanding through
April 6, 1998.
(6) Represents a grant of stock options made in December 1995 under the 1996
Plan. All options granted thereunder are subject to and conditioned upon
approval of the 1996 Plan by stockholders of the Company at this Annual
Meeting.
(7) Mr. Sholl joined the Company on May 26, 1993, which accounts for the lower
compensation level for such year. Mr. Sholl resigned from his position with
the Company, effective March 31, 1996. Under the terms of the Executives
Plan, his options to purchase 8,854 shares of Common Stock have been
canceled.
All information under "Executive Compensation" herein relating to stock
options (except for those granted under the 1996 Plan) and related exercise and
hurdle prices have been adjusted to give effect to the one-for-fourteen reverse
stock split of the Common Stock effected on March 27, 1995.
The following table contains information concerning the grant of stock
options made to the Named Officers during the fiscal year ended December 31,
1995 under the Executives Plan or the 1996 Plan:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value
Individual Grants at Assumed
------------------------------------------------------------ Annual
Percent of Rates of
Total Stock Price
Number of Option/SARs Market Appreciation For
Securities Granted to Exercise Price on Option Term(2)
Underlying Employees or Base Grant
ptions/SARs in Fiscal Price Date Expiration ------------------
Name Granted (#) Year ($/sh)(1) ($/sh) Date 5%($) 10% ($)
- ---- ----------- ---- --------- ------ ---- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Eugene G. Lestardo (3)...... 15,000 60% $5.50 $5.50 12/4/2005 $51,884 $131,484
William C. Sholl (4)........ 8,854 100% 7.28 6.12(5) 1/12/2005 23,807 76,089
</TABLE>
- -----------------------
(1) Once vested, all options which have been granted under the Executives Plan
become exercisable only if the price per share of the Common Stock on the
Nasdaq National Market is not less than $13.30 for 30 consecutive trading
days. Such condition had not been met as of November __, 1996. The 1996
Plan and all options granted thereunder are subject to and conditioned upon
stockholder approval at this Annual Meeting.
(2) Amounts indicated under the "Potential Realizable Value" columns above have
been calculated by multiplying the market price on the date of grant by the
annual appreciation rate shown (compounded
16
<PAGE>
for the term of the options), subtracting the exercise price per share and
multiplying the gain per share by the number of shares covered by the
options.
(3) Represents a grant of stock options made under the 1996 Plan. Such grant
and the terms thereof are subject to and conditioned upon the approval of
the 1996 Plan by stockholders at this Annual Meeting. Effective October 7,
1996, Mr. Lestardo's position as President of Holmes Protection of New
York, Inc. was eliminated and as a result, his employment with the Company
was terminated. The options granted to Mr. Lestardo under the 1996 Plan
will not be affected by the termination of his employment with the Company.
(4) Represents a grant of stock options made under the Executives Plan. Mr.
Sholl resigned from his position with the Company, effective March 31,
1996. Under the terms of the Executives Plan, his stock options have been
canceled. See Note 7 to Summary Compensation Table.
(5) On the date of grant, January 12, 1995, the Common Stock traded on the
London Stock Exchange. Accordingly, the dollar-denominated market price on
the grant date has been converted at an assumed exchange rate of $1.56 per
British pound.
Except as disclosed above, no other grants of stock options were made in
the fiscal year ended December 31, 1995 to any of the Named Officers. No stock
options were exercised by any of the Named Officers during the fiscal year ended
December 31, 1995.
AGGREGATED OPTION EXERCISES DURING THE
FISCAL YEAR ENDED DECEMBER 31, 1995
AND FISCAL YEAR END OPTION VALUES
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Value of
Number of Securities Unexercised
Underlying Unexercised In-the-Money
Options/SARs Options/SARs
at Fiscal Year-End (#) at Fiscal Year-End ($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------------------- -------------------------
<S> <C> <C>
Richard Hickson................................. 0/0 0/0
Brian H. Jaffe.................................. 2,656/0(1) 0/0
Eugene G. Lestardo.............................. 3,984/24,297(1)(2) 0/0
Glenn C. Riker.................................. 2,656/6,198(1) 0/0
William C. Sholl................................ 0/8,854(1) 0/0
</TABLE>
- -------------------
(1) Options were granted pursuant to the Executives Plan on July 29, 1994,
except in the case of Mr. Sholl whose options were granted on January 12,
1995.
(2) Includes options which were granted pursuant to the 1996 Plan on December
4, 1995.
17
<PAGE>
EMPLOYMENT AGREEMENTS
Mr. Flagg is employed by the Company pursuant to an employment agreement
dated January 8, 1996, which expires on December 31, 1997, but continues
year-to-year thereafter unless terminated in accordance with its terms. Mr.
Flagg's employment agreement provides for an annual base salary of no less than
$200,000. Mr. Boehme is employed by the Company pursuant to an employment
agreement dated January 8, 1996, which expires on December 31, 1997, but
continues year-to-year thereafter unless terminated in accordance with its
terms. Mr. Boehme's employment agreement provides for an annual base salary of
no less than $150,000. Mr. Irving is employed by the Company pursuant to an
employment agreement dated May 13, 1996, which expires on May 31, 1998, but
continues year-to-year thereafter unless terminated in accordance with its
terms. Mr. Irving's employment agreement provides for an annual base salary of
no less than $105,000. The salaries provided under all of these employment
agreements may be increased at the discretion of the Board of Directors or the
Compensation Committee thereof. Under the terms of Messrs. Flagg's, Boehme's and
Irving's respective employment agreements, options to purchase shares of Common
Stock under the 1996 Plan (260,000 shares in the case of Mr. Flagg, 195,000
shares in the case of Mr. Boehme and 25,000 shares in the case of Mr. Irving)
have been granted subject to and conditioned upon stockholder approval of the
1996 Plan at this Annual Meeting. Messrs. Flagg, Boehme and Irving are also
provided with certain other benefits and perquisites pursuant to their
respective employment agreements. Upon termination of employment with the
Company, Messrs. Flagg, Boehme and Irving are each subject to a non-compete
period of six months.
In accordance with Messrs. Flagg's, Boehme's and Irving's respective
employment agreements, upon a termination of employment by the Company for
reasons other than (i) "Cause," (ii) "Disability" (each as defined in such
employment agreements), or (iii) death, incompetency or bankruptcy, the Company
will be obligated to pay to each of Messrs. Flagg, Boehme and Irving 12 months
base salary, and to maintain certain benefits. Upon termination of employment by
the Company within 12 months of a "Change-of-Control Event" (as defined below),
Messrs. Flagg, Boehme and Irving shall each be entitled to receive their
respective base salaries and certain other benefits for an additional period of
12 months. As defined in Messrs. Flagg's, Boehme's and Irving's respective
employment agreements, a "Change-of-Control Event" means the consummation of (i)
a proxy contest for control of the Board of Directors resulting in the person or
entity or group of affiliated persons or entities (collectively, a "Control
Group") initiating such proxy contest electing a majority of the members of the
Board of Directors; (ii) the purchase by a Control Group of the Common Stock or
other securities of the Company which, when aggregated with any other securities
of the Company then held by such Control Group, gives such Control Group
"beneficial ownership" (as defined in Rule 13d-3 promulgated under the Exchange
Act) of securities representing more than 50% of the combined voting power of
the Company; or (iii) any such transaction that the Board of Directors shall
have favorably recommended to stockholders of the Company at any time prior to
its consummation, and such recommendation shall not have been withdrawn.
Mr. Riker is employed by the Company pursuant to an employment agreement
dated October 12, 1994, which expires on December 31, 1996, and which provides
for an annual base salary of $91,260. The salary provided under the employment
agreement may be increased at the discretion of the Board of Directors or the
Compensation Committee thereof. Under the terms of the employment agreement, Mr.
Riker is entitled to receive cash bonus awards, provided certain targets with
regard to Company performance are met or exceeded. Mr. Riker is also provided
with certain other benefits and perquisites pursuant to his employment
agreement. Upon termination of employment with the Company, Mr. Riker is subject
to a non-compete period of four months.
In accordance with Mr. Riker's employment agreement, upon a termination of
employment by the Company for reasons other than (i) "Cause," (ii) "Disability"
(as defined in the employment agreement), (iii) death, incompetency or
bankruptcy, or (iv) the expiration of the term of the employment agreement, the
Company will be obligated to pay four months base salary to Mr. Riker, and to
maintain certain benefits. Upon termination of employment by the Company within
12 months of a "Contested Takeover Event" (as defined below), Mr. Riker shall be
entitled to receive his base salary and certain other benefits for a period of
12 months. As defined in Mr. Riker's employment agreement, a "Contested Takeover
Event" means the consummation of (i)
18
<PAGE>
a proxy contest for control of the Board of Directors resulting in the person or
entity or group of affiliated persons or entities (collectively, a "Control
Group") initiating such proxy contest electing a majority of the members of the
Board of Directors, or (ii) the purchase by a Control Group of the Common Stock
or other securities of the Company which, when aggregated with any other
securities of the Company then held by such Control Group, gives such Control
Group "beneficial ownership" (as defined in Rule 13d-3 promulgated under the
Exchange Act) of securities representing more than 50% of the combined voting
power of the Company; provided that no "Contested Takeover Event" shall be
deemed to occur if the Board of Directors shall have favorably recommended the
transaction to stockholders of the Company at any time prior to its
consummation, and such recommendation shall not have been withdrawn.
Upon the occurrence of a "Change-of-Control Event" and/or a "Contested
Takeover Event," as the case may be, the Company's maximum aggregate salary
payment obligation would be $1,001,200. Such amount is calculated by combining
the 1996 base salaries of each of Messrs. Flagg, Boehme and Irving for a period
of 24 months, together with the 1996 annual base salary of Mr. Riker for a
period of 12 months.
Messrs. Hickson, Jaffe, Lestardo and Sholl were employed by the Company
pursuant to employment agreements which contained substantially similar terms to
those in the employment agreement of Mr. Riker. Following the termination of
their respective employment agreements, Messrs. Hickson, Jaffe and Sholl were
each subject to non-compete periods of six months, three months and three
months, respectively. Mr. Lestardo is currently subject to a non-compete period
of six months.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the Company's fiscal year ended December 31, 1995, the Compensation
Committee of the Board of Directors consisted of Messrs. Besuchet, Lyons
(Chairman), Palmer and Spier. None of these individuals has ever served as an
officer or an employee of the Company (other than by reason of the officer
status conferred upon the Chairman of the Board of Directors pursuant to the
Company's By-Laws). In addition, no executive officer of the Company has ever
served as (i) a member of the compensation committee or equivalent of another
entity, one of whose executive officers served on the Compensation Committee,
(ii) a director of another entity, one of whose executive officers served on the
Compensation Committee, or (iii) a member of the compensation committee or
equivalent of another entity, one of whose executive officers served as a
director of the Company.
COMPENSATION COMMITTEE REPORT TO STOCKHOLDERS
The Compensation Committee establishes objectives for the Company's senior
executive officers, sets the compensation of Directors, executive officers and
other employees of the Company and is charged with the administration of the
Company's employee benefit plans, including stock option plans.
General Policies Regarding Compensation of Executive Officers
The Company's executive compensation policies are intended (1) to attract
and retain high quality managerial and executive talent and to motivate these
individuals to maximize shareholder returns, (2) to afford appropriate
incentives for executives to produce sustained superior performance, and (3) to
reward executives for superior individual contributions to the achievement of
the Company's business objectives. The Company's compensation structure consists
of base salary, incentive cash bonuses and stock options. Together these
components link each executive's compensation directly to individual and Company
performance. The initial base salary and terms of bonuses for certain executive
officers are contained in the employment agreements described under the caption
"Employment Agreements."
Salary. Base salary levels reflect individual positions, responsibilities,
experience, leadership, and potential contribution to the success of the
Company. Salaries are reviewed annually and vary based on the Company's Chief
Executive Officer and the Compensation Committee's subjective assessment of the
individual executive's
19
<PAGE>
performance and the Company's performance. The base salaries specified in each
executive's employment agreement, if applicable, are adjusted as necessary,
subject to any minimum salaries specified therein.
Bonuses. The Company is currently contemplating the restructuring of the
existing cash bonus provisions under the Company's Senior Management Incentive
Plan (the "Incentive Plan"). However, as of the fiscal year ended December 31,
1995 and according to the provisions of the Incentive Plan as it currently
exists, executive officers are eligible to receive incentive cash bonuses based
on the Compensation Committee's assessment of the respective executive's
individual performance and the performance of the Company. Each officer has
three assigned incentive award goals which, if met, entitle such officer to an
annual award of 10% of base salary for each goal attained. The officer receives
an additional bonus of one third of 1% of base salary for each 1% increment by
which a numerical goal is exceeded. These goals are generally based on the
Company's pre-tax income, recurring revenues and the officer's departmental
costs. The annual incentive award an executive officer is eligible to receive
can amount to up to 100% of the executive's annual base salary. Bonus payments
are paid quarterly and are subject to year-end adjustment. In 1995, incentive
award percentages earned by the Named Officers ranged from 0% to 22.7% of base
salary.
In addition to bonus payments under the Incentive Plan based on the
achievement of specific numerical goals, the Chief Executive Officer, in
consultation with the Compensation Committee, may from time to time approve
additional discretionary bonus payments to certain executive officers based on
individual performance.
Stock Options. The Compensation Committee believes that continued use of stock
options is an effective mechanism for long-term incentive compensation of
executive officers and other employees. Accordingly, the Company has adopted,
subject to shareholder approval, the 1996 Plan described herein. If the 1996
Plan is approved by stockholders, no further grants will be made under the
Executives Plan.
In 1993, the Internal Revenue Code was amended to limit the deductibility of
compensation paid to certain executives in excess of $1 million. Compensation
not subject to the limitation includes certain compensation payable solely
because an executive attains performance goals. The Company's compensation
deduction for a particular executive's total compensation, including
compensation realized from the exercise of stock options, will be limited to $1
million. The Compensation Committee believes that the compensation paid by the
Company in the fiscal year ended December 31, 1995 will not result in any
material loss of tax deductions for the Company.
Compensation of the Former Chief Executive Officer
Mr. Hickson's annual base salary of $225,000 for the fiscal year ended
December 31, 1995 was determined by the terms of his employment agreement, as
amended, for the 2 1/2 year period which commenced in June 1993 and terminated
upon his resignation effective May 30, 1995. The Compensation Committee believes
that, despite the Company's disappointing financial results, the compensation
earned by Mr. Hickson pursuant to his employment agreement for the first five
months of 1995 was appropriate in light of Mr. Hickson's substantial
contribution to improving the efficiency of the Company's operations and his
efforts toward positioning the Company's business for further growth.
Members of the Compensation Committee:
William P. Lyons (Chairman)
Pierre Besuchet
Daniel T. Carroll
Edward L. Palmer
20
<PAGE>
PERFORMANCE GRAPH(1)
The Company's Common Stock traded on the London Stock Exchange from 1984
through March 24, 1995. From March 27, 1995 through September 20, 1996, the
Common Stock traded on the Nasdaq SmallCap Market. Since September 23, 1996, the
Common Stock has traded on the Nasdaq National Market.
The graph below compares the cumulative total shareholder return on the
Common Stock since March 27, 1995 (the date the Common Stock began trading on
Nasdaq SmallCap Market) through September 30, 1996 with the cumulative
stockholder return of (a) the total return on the CRSP Total Return Index for
The Nasdaq Stock Market (U.S. Companies) and (b) a "Peer Group Index." Total
return values were calculated based on the assumption of $100 invested and on
cumulative total return values assuming reinvestment of dividends. The Peer
Group is based on a selection of companies operating in the security alarm
monitoring industry and is comprised of Protection One, Inc., ADT Limited,
Automated Security (Holdings) PLC, Borg-Warner Security, and Response USA, Inc.
The Peer Group Index weighs the constituent companies' stock performance on the
basis of market capitalization measured on March 27, 1995. The stock price
performance shown on the graph below is not necessarily indicative of future
price performance.
- --------
(1) The materials contained in this report and under the caption "Performance
Graph are not "soliciting material," are not deemed filed with the
Securities and Exchange Commission and are not to be incorporated by
reference in any filing of the Company under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, whether made
before or after the date of this Proxy Statement and irrespective of any
general incorporation provision contained therein.
21
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG HOLMES PROTECTION GROUP, INC., CRSP TOTAL RETURN INDEX FOR THE
THE NASDAQ STOCK MARKET (U.S. COMPANIES) AND A PEER GROUP INDEX
(in dollars)
[Graph appears here according to plot coordinates listed below]
12/31/91 12/31/92 12//31/93 12/30/94 12/29/95
-------- -------- --------- -------- --------
Holmes Protection Group, Inc. 72.3
Nasdaq Stock Market (US Companies) 69.8 81.2 93.2 91.1 128.8
Self-Determined Peer Group 82.4 93.2 99.9 95.3 128.1
22
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1994, Mr. William Spier, a former director of the Company who resigned
on September 30, 1996, entered into an agreement with PremiTech Corporation
("PremiTech"), which is a limited partner of HP Partners L.P., to acquire
PremiTech's limited partnership interest for approximately $2,000,000, at the
option of PremiTech, in the event that PremiTech did not enter into an agreement
for the provision of information technology services to the Company. Such
information technology agreement was subsequently executed on April 4, 1995,
thereby terminating PremiTech's option to sell its interest in HP Partners L.P.
to Mr. Spier.
Pursuant to HP Partners L.P.'s partnership agreement, Mr. Lyons has an
arrangement to participate in any economic benefit which Mr. Spier obtains as a
result of Mr. Spier's shareholding interest in such general partner.
On December 4, 1995, each of Messrs. Hauser, Lyons, Mitchell and Spier were
granted options under the 1996 Plan to purchase 15,000, 60,000, 30,000 and
15,000 shares of Common Stock, respectively, at an exercise price of $5.56 per
share. Such grants were made in recognition of the extraordinary services that
each of these individuals provided to the Company in connection with the
management transition and reorganization that occurred during 1995. The grant of
all options under the 1996 Plan and the terms thereof are subject to and
conditioned upon stockholder approval at this Annual Meeting.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who beneficially own more than ten percent of a registered class of the
Company's equity securities, to file with the Securities and Exchange Commission
and the National Association of Securities Dealers, Inc. initial reports of
ownership and reports of changes in ownership of Common Stock and the other
equity securities of the Company. Officers, directors, and persons who
beneficially own more than ten percent of a registered class of the Company's
equity securities are required by the regulations of the Securities and Exchange
Commission to furnish the Company with copies of all Section 16(a) forms they
file. To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1995, all
Section 16(a) filing requirements applicable to its officers, directors, and
greater than ten percent beneficial owners were complied with.
ANNUAL REPORT
The Annual Report of the Company for the fiscal year ended December 31,
1995 is being mailed to stockholders with this proxy statement.
23
<PAGE>
DEADLINE FOR STOCKHOLDER PROPOSALS FOR 1997
Stockholder proposals intended to be considered for inclusion in the proxy
statement for presentation at the Company's 1997 Annual Meeting of Stockholders
must be received at the Company's offices at 440 Ninth Avenue, New York, New
York 10001-1695 no later than 120 days prior to the Company's next Annual
Meeting, for inclusion in the Company's proxy statement and form of proxy
relating to such meeting. All proposals must comply with applicable Securities
and Exchange Commission rules and regulations.
OTHER MATTERS
The Board of Directors is not aware of any other matter other than those
set forth in this proxy statement that will be presented for action at the
meeting. If other matters properly come before the meeting, the persons named as
proxies intend to vote the shares they represent in accordance with their best
judgment in the interest of the Company.
THE COMPANY UNDERTAKES TO PROVIDE ITS STOCKHOLDERS WITHOUT CHARGE A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND
SCHEDULES FILED THEREWITH. WRITTEN REQUESTS FOR SUCH REPORT SHOULD BE ADDRESSED
TO THE OFFICE OF THE ASSISTANT SECRETARY, HOLMES PROTECTION GROUP, INC., 440
NINTH AVENUE, NEW YORK, NEW YORK 10001-1695.
24
<PAGE>
Holmes Protection Group, Inc.
Annual Meeting of Stockholders - December 5, 1996
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder of Holmes Protection Group, Inc. (the "Company")
hereby constitutes and appoints Irving Kagan and Lawrence Irving, and each of
them, his true and lawful attorneys and proxies, with full power of substitution
in and for each of them, to vote all shares of the Company which the undersigned
is entitled to vote at the Annual Meeting of Stockholders to be held at _______
New York, NY on Thursday, December 5, 1996, 10:00 a.m., Eastern Standard Time,
or at any postponement or adjournment thereof, on any and all of the proposals
contained in the Notice of the Annual Meeting of Stockholders, with all the
powers the undersigned would possess if present personally at said meeting, or
at any postponement or adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE NOMINEES LISTED ON THE REVERSE SIDE AND FOR THE APPROVAL OF PROPOSALS 2,
3 AND 4.
(Continued and to be signed and dated on the other side)
<PAGE>
The Directors recommend a vote FOR the Nominees listed in Proposal 1 and FOR
Proposals 2, 3 and 4.
Please mark
[X] your votes
as this
example
-----------------
COMMON
1. Election of Directors FOR All nominees WITHHOLD
listed (except as AUTHORITY
marked to the to vote for all
George V. Flagg, contrary, see nominees listed
Lawrence R. Glenn and instruction below) at left
Edward L. Palmer [ ] [ ]
FOR AGAINST ABSTAIN
2. Proposal to approve an amendment and
restatement of the Company's Restated [ ] [ ] [ ]
Certificate of Incorporation.
3. Proposal to approve the Company's 1996
Stock Incentive Plan. [ ] [ ] [ ]
4. Proposal to ratify the appointment of
Arthur Andersen LLP as independent [ ] [ ] [ ]
auditors.
INSTRUCTION: To withhold authority to vote for any individual
nominee, line through the name of the nominee above.
The above named proxies are granted the authority, in their discretion, to act
upon such other matters as may properly come before the meeting or any
postponement or adjournment thereof.
- ------------------ Dated ____________________________________, 1996
|
| Signature(s)____________________________________
|
| Signatures______________________________________
|
Please sign exactly as your name appears and return this proxy immediately in
the enclosed self-addressed envelope.
<PAGE>
ANNEX A
HOLMES PROTECTION GROUP, INC.
1996 STOCK INCENTIVE PLAN
1. Purpose:
The purpose of this Plan is to strengthen Holmes Protection Group, Inc.
(the "Company") by providing (i) an incentive to its key employees,
consultants and directors, and thereby encouraging them to devote their
abilities and industry to the success of the Company's business enterprise;
and (ii) an inducement essential to attracting, securing and retaining the
services of persons best qualified to serve as key employees, consultants
and directors of the Company. It is intended that this purpose be achieved
by extending to all such persons an added long-term incentive for high
levels of performance and unusual efforts through the grant of Incentive
Stock Options, Nonqualified Stock Options and Restricted Stock (as each
term is hereinafter defined).
2. Effect on Other Plans:
Upon approval of this Plan by the stockholders of the Company pursuant to
Section 19 hereof, no further stock options or other awards shall be
granted under the Company's 1994 Amended and Restated Senior Executives'
Option Plan (formerly the "1992 Senior Executives' Option Plan"), (the
"1994 Plan") or the Company's 1992 Directors' Stock Option (the "1992
Director Plan"). All stock options outstanding under the 1994 Plan and the
1992 Director Plan shall continue to be governed by the terms of the 1994
Plan and the 1992 Director Plan, and the relevant stock option agreement
pertaining to each such stock option.
3. Definitions:
For purposes of the Plan, unless otherwise specified, capitalized terms
shall have the following meanings:
3.1 "Adjusted Fair Market Value" means, in the event of a Change in
Control, the greater of (i) the highest price per Share paid to
holders of the Shares in any transaction (or series of transactions)
constituting or resulting in a Change in Control or (ii) the highest
Fair Market Value of a Share during the ninety (90) day period ending
on the date of a Change in Control.
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3.2 "Agreement" means the written agreement between the Company and an
Optionee or Awardee evidencing the grant of an Option or Award and
setting forth the terms and conditions thereof.
3.3 "Award" means a grant of Restricted Stock.
3.4 "Awardee" means a person to whom any Restricted Stock has been granted
under the Plan.
3.5 "Board" means the Board of Directors of the Company.
3.6 "Cause" means (a) for purposes of Section 6.4 hereof, the commission
of an act of fraud or intentional misrepresentation or an act of
embezzlement, misappropriation or conversion of assets of the Company
or any Subsidiary, and (b) for all other purposes, the commission of
an act of fraud, dishonesty, unlawful or illegal conduct, gross
negligence, insubordination, failure to substantially perform one's
duties with the Company or any Subsidiary, or intentional
misrepresentation, or a violation of the Company's Code of Business
Ethics and Policies or similar set of standards of conduct and
business practices adopted by the Board, or an act of embezzlement,
misappropriation or conversion of assets or opportunities of the
Company or any Subsidiary, or a determination by the Board that there
is a reasonable basis for concern that any governmental agency or
regulatory authority, or similar authority in any jurisdiction in
which the Company or any Subsidiary conducts or intends to conduct
business, seek licensing or submit a proposal to conduct business may
find the person unsuitable or unfit, or the failure of the person to
provide appropriate information to, or cooperate with any regulatory
or other governmental authority.
3.7 "Change in Capitalization" means any increase or reduction in the
number of Shares, or any change (including, but not limited to, a
change in value) in the Shares or exchange of Shares for a different
number or kind of shares or other securities of the Company, by reason
of a reclassification, recapitalization, merger, consolidation,
reorganization, spin-off, split-up, issuance of warrants or rights or
debentures, stock dividend, stock split or reverse stock split, cash
dividend, property dividend, combination or exchange of shares,
repurchase of shares, change in corporate structure or otherwise.
3.8 A "Change in Control" shall mean the occurrence during the term of the
Plan of:
(i) The "acquisition" by any "Person" (as the term "person" is used
for purposes of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934 as amended (the "Exchange Act")) of "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of any
A-2
<PAGE>
securities of the Company which generally entitles the holder
thereof to vote for the election of directors of the Company (the
"Voting Securities") which, when added to the Voting Securities
then "Beneficially Owned" by such person, would result in such
Person "Beneficially Owning" forty percent (40%) or more of the
combined voting power of the Company's then outstanding Voting
Securities; provided, however, that for purposes of this
paragraph (i), a Person shall not be deemed to have made an
acquisition of Voting Securities if such Person: (a) acquires
Voting Securities as a result of a stock split, stock dividend or
other corporate restructuring in which all stockholders of the
class of such Voting Securities are treated on a pro rata basis;
(b) acquires the Voting Securities directly from the Company; (c)
becomes the Beneficial Owner of more than the permitted
percentage of Voting Securities solely as a result of the
acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding, increases
the proportional number of shares Beneficially Owned by such
Person; (d) is the Company or any corporation or other Person of
which a majority of its voting power or its equity securities or
equity interest is owned directly or indirectly by the Company (a
"Controlled Entity") or (e) acquires Voting Securities in
connection with a "Non-Control Transaction" (as defined in
paragraph (iii) below); or
(ii) The individuals who, as of April 1, 1996; are members of the
Board (the "Incumbent Board"), cease for any reason to constitute
at least two-thirds of the Board; provided, however, that if
either the election of any new director or the nomination for
election of any new director by the Company's stockholders was
approved by a vote of at least two-thirds of the Incumbent Board,
such new director shall be considered as a member of the
Incumbent Board; provided further, however, that no individual
shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of either an
actual or threatened "Election Contest" (as described in Rule
14a-11 promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board of Directors (a "Proxy Contest")
including by reason of any agreement intended to avoid or settle
any Election Contest or Proxy Contest; or
(iii) Consummation or effectiveness of:
(a) A merger, consolidation or reorganization involving the
Company(a) "Business Combination"), unless
A-3
<PAGE>
(1) the stockholders of the Company, immediately before the
Business Combination, own, directly or indirectly
immediately following the Business Combination, at least
fifty-one percent (51%) of the combined voting power of the
outstanding voting securities of the corporation resulting
from the Business Combination (the "Surviving Corporation")
in substantially the same proportion as their ownership of
the Voting Securities immediately before the Business
Combination, and
(2) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement
providing for the Business Combination constitute at least a
majority of the members of the Board of Directors of the
Surviving Corporation, and
(3) no Person (other than the Company or any Controlled Entity,
a trustee or other fiduciary holding securities under one or
more employee benefit plans or arrangements (or any trust
forming a part thereof) maintained by the Company, the
Surviving Corporation or any Controlled Entity, or any
Person who, immediately prior to the Business Combination,
had Beneficial Ownership of forty percent (40%) or more of
the then outstanding Voting Securities) has Beneficial
Ownership of forty percent (40%) or more of the combined
voting power of the Surviving Corporation's then outstanding
voting securities (a transaction described in this
subparagraph (a) shall be referred to as a "Non-Control
Transaction");
(b) A complete liquidation or dissolution of the Company; or
(c) The sale or other disposition of all or substantially all of the
assets of the Company to any Person (other than a transfer to a
Controlled Entity).
Notwithstanding the foregoing, (x) a Change in Control shall not
be deemed to occur solely because forty percent (40%) or more of
the then outstanding Voting Securities is Beneficially Owned by
(A) a trustee or other fiduciary holding securities under one or
more employee benefit plans or arrangements (or any trust forming
a part thereof) maintained by the Company or any Controlled
Entity or (B) any corporation which, immediately prior to its
A-4
<PAGE>
acquisition of such interest, is owned directly or indirectly by
the stockholders of the Company in the same proportion as their
ownership of stock in the Company immediately prior to such
acquisition; and (y) if an Eligible Employee's employment is
terminated and the Eligible Employee reasonably demonstrates that
such termination (A) was at the request of a third party who has
indicated an intention or taken steps reasonably calculated to
effect a Change in Control and who effectuates a Change in
Control or (B) otherwise occurred in connection with, or in
anticipation of, a Change in Control which actually occurs, then
for all purposes hereof, the date of a Change in Control with
respect to the Eligible Employee shall mean the date immediately
prior to the date of such termination of employment.
3.9 "Code" means the Internal Revenue Code of 1986, as amended.
3.10 "Committee" means a committee consisting of at least two (2) directors
who are Disinterested Directors and Outside Directors appointed by the
Board to administer the Plan and to perform the functions set forth
herein.
3.11 "Company" means Holmes Protection Group, Inc.
3.12 "Director Option" means an Option granted pursuant to Section 6
hereof.
3.13 "Disability" means a physical or mental infirmity which impairs the
Optionee's or Awardee's ability to perform substantially his or her
duties for a period of one hundred eighty (180) consecutive days.
3.14 "Disinterested Director" means a director of the Company who is
"disinterested" within the meaning of Rule 16b-3 under the Exchange
Act.
3.15 "Division" means any of the operating units or divisions of the
Company designated as a Division by the Committee.
3.16 "Eligible Employee" means any officer or other employee or consultant
of the Company or a Subsidiary designated by the Committee as eligible
to receive Options or Awards subject to the conditions set forth
herein.
3.17 "Employee Option" means an Option granted pursuant to Section 7
hereof.
3.18 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
A-5
<PAGE>
3.19 "Fair Market Value" on any date means the average of the high and low
sales prices the Shares on such date on the principal national
securities exchange on which such Shares are listed or admitted to
trading, or if such Shares are not so listed or admitted to trading,
the arithmetic mean of the per Share closing bid price and per Share
closing asked price on such date as quoted on the National Association
of Securities Dealers Automated Quotation System or such other market
in which such prices are regularly quoted, or, if there have been no
published bid or asked quotations with respect to Shares on such date,
the Fair Market Value shall be the value established by the Board in
good faith and in accordance with Section 422 of the Code.
3.20 "Incentive Stock Option" means an Option satisfying the requirements
of Section 422 of the Code and designated by the Committee as an
Incentive Stock Option.
3.21 Nonemployee Director" means a director of the Company who is not an
employee of the Company or any Subsidiary and who is first elected or
appointed to serve as a director of the Company after April 1, 1996.
3.22 "Nonqualified Stock Option" means an Option which is not an Incentive
Stock Option.
3.23 "Option" means a Employee Option, a Director Option, or either or both
of them.
3.24 "Optionee" means a person to whom an Option has been granted under the
Plan.
3.25 "Outside Director" means a director of the Company who is an "outside
directors" within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.
3.26 "Parent" means any corporation which is a parent corporation (within
the meaning of Section 424(e) of the Code) with respect to the
Company.
3.27 "Restricted Stock" means Shares issued or transferred to an Eligible
Employee pursuant to Section 10 which are subject to restrictions
which lapse over time without regard to the performance of the
Company, a Subsidiary or a Division.
3.28 "Plan" means the Holmes Protection Group, Inc. 1996 Stock Incentive
Plan.
3.29 "Pooling Period" means, with respect to a Pooling Transaction, the
period ending on the day after the first date on which the combined
entity resulting from the Pooling Transaction publishes thirty days of
combined operating results or, if the Board makes a determination,
such other period following the Pooling Transaction which the Board
reasonably determines is appropriate in connection
A-6
<PAGE>
with the Pooling Transaction as a means of qualifying for and
preserving "pooling of interests" accounting treatment.
3.30 "Pooling Transaction" means an acquisition of or by the Company in a
transaction which is intended to be treated as a "pooling of
interests" under generally accepted accounting principles.
3.31 "Restricted Stock" means Shares issued or transferred to an Eligible
Employee pursuant to Section 9 hereof, which are subject to
restrictions which lapse over time without regard to the performance
of the Company, a Subsidiary or a Division.
3.32 "Retirement" shall mean the termination of employment with the Company
by reason of the attainment of the age which the Company, by policy or
otherwise, has established as the age at which salaried employees may
or shall be required to terminate their employment and receive
retirement benefits.
3.33 "Shares" means the common stock, par value $.01 per share, of the
Company.
3.34 "Subsidiary" means any corporation which is a subsidiary corporation
(within the meaning of Section 424(f) of the Code) with respect to the
Company.
3.35 "Successor Corporation" means a corporation, or a parent or subsidiary
thereof within the meaning of Section 424(a) of the Code, which issues
or assumes a stock option in a transaction to which Section 424(a) of
the Code applies.
3.36 "Ten-Percent Stockholder" means an Eligible Employee, who, at the time
an Incentive Stock Option is to be granted to him or her, owns (within
the meaning of Section 422(b)(6) of the Code) stock possessing more
than ten percent (10%) of the total combined voting power of all
classes of stock of the Company, or of a Parent or a Subsidiary.
4. Administration:
4.1 The Plan shall be administered by the Committee which shall hold
meetings at such times as may be necessary for the proper
administration of the Plan. The Committee shall keep minutes of its
meetings. A quorum shall consist of not less than two members of the
Committee and a majority of a quorum may authorize any action. Any
decision or determination reduced to writing and signed by a majority
of all of the members of the Committee shall be as fully effective as
if made by a majority vote at a meeting duly called and held. Each
member of the Committee shall be a Disinterested Director and an
Outside Director. No member of the Committee shall be liable for any
action, failure to act, determination or
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interpretation made in good faith with respect to this Plan or any
transaction hereunder, except for liability arising from his or her
own willful misfeasance, gross negligence or reckless disregard of his
or her duties. The Company hereby agrees to indemnify each member of
the Committee for all costs and expenses and, to the extent permitted
by applicable law, any liability incurred in connection with defending
against, responding to, negotiating for the settlement of or otherwise
dealing with any claim, cause of action or dispute of any kind arising
in connection with any actions in administering this Plan or in
authorizing or denying authorization to any transaction hereunder.
4.2 Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time to:
(a) determine those individuals to whom Employee Options shall be
granted under the Plan and the number of Incentive Stock Options
and/or Non qualified Stock Options to be granted to each Eligible
Employee and to prescribe the terms and conditions (which need
not be identical) of each Employee Option, including the purchase
price per Share subject to each Employee Option, and make any
amendment or modification to any Agreement consistent with the
terms of the Plan; and
(b) select those Eligible Employees to whom Awards shall be granted
under the Plan and to determine the number of Shares of
Restricted Stock to be granted pursuant to each Award and the
terms and conditions of each Award, and make any amendment or
modification to any Agreement consistent with the terms of the
Plan.
4.3 Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time:
(a) to construe and interpret the Plan and the Options and Awards
granted thereunder and to establish, amend and revoke rules and
regulations for the administration of the Plan, including, but
not limited to, correcting any defect or supplying any omission,
or reconciling any inconsistency in the Plan or in any Agreement,
in the manner and to the extent it shall deem necessary or
advisable to make the Plan fully effective, and all decisions and
determinations by the Committee in the exercise of this power
shall be final, binding and conclusive upon the Company, its
Subsidiaries, the Optionees and Awardees and all other persons
having any interest therein;
(b) to determine the duration and purposes for leaves of absence
which may be granted to an Optionee or Awardee on an individual
basis without
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constituting a termination of employment or service for purposes
of the Plan;
(c) to exercise its discretion with respect to the powers and rights
granted to it as set forth in the Plan; and
(d) generally, to exercise such powers and to perform such acts as
are deemed necessary or advisable to promote the best interests
of the Company with respect to the Plan.
5. Stock Subject to the Plan:
5.1 The maximum number of Shares that may be made the subject of Options
and Awards granted under the Plan is 2,000,000. Upon a Change in
Capitalization, the maximum number of Shares shall be adjusted in
number and kind pursuant to Section 11 hereof; provided, however, that
the maximum number of Shares that any Eligible Employee may receive
pursuant to the Plan in respect of Options and Awards may not exceed
500,000 Shares. The Company shall reserve for the purposes of the
Plan, out of its authorized but unissued Shares or out of Shares held
in the Company's treasury, or partly out of each, such number of
Shares as shall be determined by the Board.
5.2 Whenever any outstanding Option or Award or portion thereof expires,
is canceled or is otherwise terminated for any reason, the Shares
allocable to the canceled or otherwise terminated portion of the
Option or Award may again be the subject of Options or Awards granted
hereunder
6. Option Grants for Nonemployee Directors:
6.1 Eligibility: The class of individuals eligible to receive grants of
options under this Section 6 of the Plan shall be directors of the
Company who are not employees of the Company or its affiliates and who
have not, within one (1) year immediately preceding the determination
of such director's eligibility, received any award under any other
plan of the Company or its affiliates that entitles the participants
therein to acquire stock, stock options or stock appreciation rights
of the Company or its affiliates (other than options granted under any
other plan under which participants' entitlements are governed by
provisions meeting the requirements of Rule 16b-3(c)(2)(ii)
promulgated under the Exchange Act) ("Eligible Directors").
6.2 Grant
(a) Effective December 4, 1995, subject to approval of the Plan by
the stockholders of the Company and availability of an adequate
number of Shares
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designated under the Plan, each Eligible Director then in office
will be granted an option to purchase 25,000 Shares.
(b) Upon first election or appointment to the Board, each newly
elected or appointed Eligible Director will be granted an option
to purchase 25,000 Shares.
(c) Immediately following each Annual Stockholders Meeting,
commencing with the meeting following the close of fiscal year
1996, each Eligible Director, other than an Eligible Director
first elected to the Board within the twelve (12) months
immediately preceding and including such meeting, will be granted
an option to purchase 1,000 Shares (such option together with the
options referenced in paragraphs (a) and (b) above, each a
"Director Option").
6.3 Purchase Price: The purchase price for Shares under each Director
Option shall be equal to 100% of the Fair Market Value of such Shares
on the date of the grant.
6.4 Vesting: Subject to Sections 6.5 and 8.4 hereof, each Director Option
shall vest and become exercisable in whole or in part at any time from
the date of the grant.
6.5 Duration: Each Director Option shall terminate on the date which is
the fifth anniversary of the grant date, unless terminated earlier as
follows:
(a) If an Optionee's service as a Director terminates for any reason
other than Disability, death or Cause, the Optionee may, for a
period of three (3) months after such termination, exercise his
or her Option, after which time the Option shall automatically
terminate in full.
(b) If an Optionee's service as a Director terminates by reason of
the Optionee's resignation or removal from the Board, in either
case, due to Disability, the Optionee may, for a period of one
(1) year after such termination, exercise his or her Option,
after which time the Option shall automatically terminate in
full.
(c) If an Optionee's service as a Director terminates for Cause, the
Option granted to the Optionee hereunder shall immediately
terminate in full and no rights thereunder may be exercised.
(d) If an Optionee dies while a Director or within three (3) months
after termination of service as a Director as described in clause
(a) or (b) of this Section 6.4, the Option granted to the
Optionee may be exercised at anytime within twelve (12) months
after the Optionee's death by the person or person to whom such
rights under the Option shall pass by will or by the laws of
descent or distribution, after which time the Option shall
terminate
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in full; provided, however, that an Option may be exercised to
the extent, and only to the extent, that the Option or portion
thereof was exercisable on the date of death or earlier
termination of the Optionee's services as a Director.
6.6 Formula Award Plan: For purposes of this Section 6, the Plan is
intended to be an ongoing formula award plan (as described in Rule
16b-3 (c) (2) (ii) under the Exchange Act), such that the awards
granted hereunder shall not affect the recipient's disinterested
status for purposes of administering any stock related plans of the
Company established pursuant to Rule 6b-3 under the Exchange Act.
7. Option Grants for Eligible Employees:
7.1 Authority of Committee: Subject to the provisions of the Plan and to
Section 5.1 hereof, the Committee shall have full and final authority
to select those Eligible Employees who will receive Options (each, an
"Employee Option"), the terms and conditions of which shall be set
forth in an Agreement; provided, however, that no person shall receive
any Incentive Stock Options unless he or she is an employee of the
Company, a Parent or a Subsidiary at the time the Incentive Stock
Option is granted.
7.2 Purchase Price: The purchase price or the manner in which the purchase
price is to be determined for Shares under each Employee Option shall
be determined by the Committee and set forth in the Agreement,
provided that the purchase price per Share under each Employee Option
shall not be less than 100% of the Fair Market Value of a Share on the
date the Employee Option is granted (110% in the case of an Incentive
Stock Option granted to a Ten-Percent Stockholder).
7.3 Maximum Duration: Employee Options granted hereunder shall be for such
term as the Committee shall determine, provided that an Incentive
Stock Option shall not be exercisable after the expiration of ten (10)
years from the date it is granted (five (5) years in the case of an
Incentive Stock Option granted to a Ten-Percent Stockholder) and a
Nonqualified Stock Option shall not be exercisable after the
expiration of ten (10) years from the date it is granted. The
Committee may, subsequent to the granting of any Employee Option,
extend the term thereof but in no event shall the term as so extended
exceed the maximum term provided for in the preceding sentence.
7.4 Vesting: Subject to Section 8.4 hereof, each Employee Option shall
vest and become exercisable in such installments (which need not be
equal) and at such times as may be designated by the Committee and set
forth in the Agreement. To the extent not exercised, installments
shall accumulate and be exercisable, in whole or in part, at any time
after becoming exercisable, but not later than the date
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the Employee Option expires. The Committee may accelerate the
exercisability of any Employee Option or portion thereof at any time.
7.5 Termination of Employment Due to Death, Disability or Retirement: In
the event the employment of the Optionee is terminated by reason of
death, Disability or Retirement, the Committee may provide in the
Agreement that any outstanding Options granted to the Optionee shall
become immediately exercisable and shall thereafter be fully
exercisable at any time prior to the expiration date of the Options or
within twelve (12) months after such date of termination of
employment, whichever period is the shorter. However, in the case of
Incentive Stock Options, the favorable tax treatment prescribed under
Section 422 of the Code shall not be available if such Options
granted to the Optionee are not exercised within three (3) months
after such date of termination due to Retirement.
7.6 Termination of Employment Other Than for Death, Disability or
Retirement: If the employment of the Optionee shall terminate for any
reason other than death, Disability of Retirement or, if the Committee
does not provide in the Option Agreement the treatment described in
Section 7.5 hereof upon the termination of the employment of the
Optionee by reason of death, Disability or Retirement, the rights
under any then outstanding Option granted to the Optionee pursuant to
the Plan shall, to the extent not then exercisable, terminate
immediately and, to the extent then exercisable, terminate upon the
expiration date of the Option or three (3) months after such date of
termination of employment, whichever first occurs, subject to such
exceptions (which shall be set forth in the Agreement) as the
Committee may, in its sole discretion, approve. Notwithstanding the
foregoing, if the employment of the Optionee is involuntarily
terminated by the Company (other than by reason of death, Disability
or Retirement), any then outstanding Option granted pursuant to the
Plan to the Optionee shall terminate immediately upon the termination
of employment; provided, that the Committee may, in its sole
discretion, waive, in whole or in part, the automatic forfeiture of
such Employee Options or may condition such forfeiture upon whether
the termination of employment was for Cause and may set forth such
waiver or condition in the Agreement or at any other time, including
following the termination of employment.
7.7 Modification or Substitution. The Committee may, in its discretion,
modify outstanding Employee Options or accept the surrender of
outstanding Employee Options (to the extent not exercised) and grant
new Options in substitution for them. Notwithstanding the foregoing,
no modification of an Employee Option shall adversely alter or impair
any rights or obligations under the Employee Option without the
Optionee's consent.
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8. Terms and Conditions Applicable to All Options:
8.1 Non-transferability: No Option granted hereunder shall be transferable
by the Optionee to whom granted otherwise than by will or the laws of
descent and distribution, and an Option may be exercised during the
lifetime of such Optionee only by the Optionee or his or her guardian
or legal representative. The terms of such Option shall be final,
binding and conclusive upon the beneficiaries, executors,
administrators, heirs and successors of the Optionee.
8.2 Method of Exercise: The exercise of an Option shall be made only by a
written notice delivered in person or by mail to the Secretary of the
Company at the Company's principal executive office, specifying the
number of Shares to be purchased and accompanied by payment therefor
and otherwise in accordance with the Agreement pursuant to which the
Option was granted. The purchase price for any Shares purchased
pursuant to the exercise of an Option shall be paid in full upon such
exercise by any one or a combination of the following: (i) cash or
(ii) transferring Shares to the Company upon such terms and conditions
as determined by the Committee. Until such person has been issued the
Shares subject to such exercise, he or she shall possess no rights as
a stockholder with respect to such Shares. Notwithstanding the
foregoing, the Committee shall have discretion to determine at the
time of grant of each Employee Option or at any later date (up to and
including the date of exercise) the form of payment acceptable in
respect of the exercise of such Employee Option and may establish
cashless exercise procedures which provide for the exercise of the
Option and sale of the underlying Share by a designated broker or
dealer. In that connection, the written notice pursuant to this
Section 8.2 may also provide instructions from the Optionee to the
Company that upon receipt of appropriate instructions from the
Optionee's broker or dealer, designated as such on the written notice,
the Company shall issue such Shares directly to the designated broker
or dealer. Any Shares transferred to the Company as payment of the
purchase price under an Option shall be valued at their Fair Market
Value on the day preceding the date of exercise of such Option. If
requested by the Committee, the Optionee shall deliver the Agreement
evidencing the Option to the Secretary of the Company who shall
endorse thereon a notation of such exercise and return such Agreement
to the Optionee. No fractional Shares (or cash in lieu thereof) shall
be issued upon exercise of an Option and the number of Shares that may
be purchased upon exercise shall be rounded to the nearest number of
whole Shares.
8.3 Rights of Optionees: No Optionee shall be deemed for any purpose to be
the owner of any Shares subject to any Option unless and until (i) the
Option shall have been exercised pursuant to the terms thereof, (ii)
the Company shall have issued and delivered the Shares to the Optionee
and (iii) the Optionee's name shall have been entered as a stockholder
of record on the books of the Company.
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Thereupon, the Optionee shall have full voting, dividend and other
ownership rights with respect to such Shares.
8.4 Effect of Change in Control: Notwithstanding anything contained in the
Plan or an Agreement to the contrary (other than the last sentence of
this Section 8.4), in the event of a Change in Control, (i) all
Options outstanding on the date of such Change in Control shall become
immediately and fully exercisable, (ii) the termination of an
Optionee's employment following the Change in Control shall not affect
his rights under this Section 8.4, and (iii) an Optionee will be
permitted to surrender for cancellation within sixty (60) days after
such Change in Control, any Option or portion of an Option to the
extent not yet exercised and the Optionee will be entitled to receive
a cash payment in an amount equal to the excess, if any, of (x) (A) in
the case of a Nonqualified Stock Option, the greater of (1) the Fair
Market Value, on the date preceding the date of surrender, of the
Shares subject to the Option or portion thereof surrendered or (2) the
Adjusted Fair Market Value of the Shares subject to the Option or
portion thereof surrendered or (B) in the case of an Incentive Stock
Option, the Fair Market Value, on the date preceding the date of
surrender, of the Shares subject to the Option or portion thereof
surrendered, over (y) the aggregate purchase price for such Shares
under the Option or portion thereof surrendered; provided, however,
that in the case of an Option granted within six (6) months prior to
the Change in Control to any Optionee who may be subject to liability
under Section 16(b) of the Exchange Act, such Optionee shall be
entitled to surrender for cancellation his or her Option during the
sixty (60) day period commencing upon the expiration of six (6) months
from the date of grant of any such Option. In the case of a Change in
Control which also constitutes a Pooling Transaction and
notwithstanding anything contained in the Plan or an Agreement to the
contrary, the Committee may, and with respect to Director Options
shall, take such actions which are specifically recommended by an
independent accounting firm retained by the Company, to the extent
reasonably necessary in order to assure that the Pooling Transaction
will qualify as such, including, but not limited to, providing that
(i) all Options or, in the alternative, such Options held by Optionees
specifically identified by the Committee, shall not become immediately
and fully exercisable on the date of the Change in Control but rather
shall become immediately and fully exercisable on the date following
the last day on which the Pooling Period expires (whether or not the
Optionee is then an employee or director of the Company) and the
holders of such Options shall only have the right to surrender for
cancellation Options or portion thereof for the cash payment specified
in clause (ii) of the first sentence of this Section 8.4 after the day
following the expiration of the Pooling Period and for a period of
sixty (60) days thereafter (in which case, whether or not the Optionee
holding any such Options remains an employee or director of the
Company, any such Option shall not terminate and shall remain
exercisable for the greater of sixty (60) days after the expiration of
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the Pooling Period and the date such Option would otherwise terminate
in accordance with the Plan and the relevant Agreement), and/or (ii)
the payment specified in this Section 8.4 shall be paid in the form of
cash, Shares or securities of a successor or acquirer of the Company,
or a combination of the foregoing, as designated by the Committee.
9. Restricted Stock:
9.1 Grant: The Committee may grant to Eligible Employees Awards of
Restricted Stock, which shall be evidenced by an Agreement between the
Company and the Awardee. Each Agreement shall contain such
restrictions, terms and conditions as the Committee may, in its
discretion, determine and (without limiting the generality of the
foregoing) such Agreements may require that an appropriate legend be
placed on Share certificates. Awards of Restricted Stock shall be
subject to the terms and provisions set forth below in this Section 9.
9.2 Rights of Awardee: Shares of Restricted Stock granted pursuant to an
Award hereunder shall be issued in the name of the Awardee as soon as
reasonably practicable after the Award is granted, provided that the
Awardee has executed an Agreement evidencing the Award, the
appropriate blank stock powers and, in the discretion of the
Committee, an escrow agreement and any other documents which the
Committee may require as a condition to the issuance of such Shares.
If an Awardee shall fail to execute the Agreement evidencing a
Restricted Stock Award, the appropriate blank stock powers and, in the
discretion of the Committee, an escrow agreement and any other
documents which the Committee may require within the time period
prescribed by the Committee at the time the Award is granted, the
Award shall be null and void. At the discretion of the Committee,
Shares issued in connection with a Restricted Stock Award shall be
deposited together with the stock powers with an escrow agent (which
may be the Company) designated by the Committee. Unless the Committee
determines otherwise and as set forth in the Agreement, upon delivery
of the Shares to the escrow agent, the Awardee shall have all of the
rights of a stockholder with respect to such Shares, including the
right to vote the Shares and to receive all dividends or other
distributions paid or made with respect to the Shares.
9.3 Non-transferability: Until any restrictions upon the Shares of
Restricted Stock awarded to an Awardee shall have lapsed in the manner
set forth in Section 9.4 hereof, such Shares shall not be sold,
transferred or otherwise disposed of and shall not be pledged or
otherwise hypothecated, nor shall they be delivered to the Awardee.
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9.4 Lapse of Restrictions:
(a) Generally: Subject to Section 14 hereof, restrictions upon Shares
of Restricted Stock awarded hereunder shall lapse at such time or
times and on such terms and conditions as the Committee may
determine, which restrictions shall be set forth in the Agreement
evidencing the Award.
(b) Effect of Change in Control: Notwithstanding anything contained
in the Plan, unless the Agreement evidencing the Award provides
to the contrary, in the event of a Change in Control, all
restrictions upon any Shares of Restricted Stock shall lapse
immediately and all such Shares shall become Filly vested in the
Awardee.
9.5 Modification or Substitution: Subject to the terms of the Plan, the
Committee may modify outstanding Awards of Restricted Stock or accept
the surrender of outstanding Awards of Restricted Stock (to the extent
not exercised) and grant new Awards in substitution for them.
Notwithstanding the foregoing no modification of an Award shall
adversely alter or impair any rights or obligations under the
Agreement without the Awardee's consent.
9.6 Treatment of Dividends: At the time the Award of Shares of Restricted
Stock is granted, the Committee may, in its discretion, determine that
the payment to the Awardee of dividends, or a specified portion
thereof, declared or paid on such Shares by the Company shall be (i)
deferred until the lapsing of the restrictions imposed upon such
Shares and (ii) held by the Company for the account of the Awardee
until such time. If dividends are to be deferred, the Committee shall
determine whether such dividends are to be reinvested in Shares (which
shall be held as additional shares of Restricted Stock) or held in
cash. If deferred dividends are to be held in cash, there may be
credited at the end of each year (or portion thereof) interest on the
amount of the account at the beginning of the year at a rate per annum
as the Committee, in its discretion, may determine. Payment of
deferred dividends, together with interest accrued thereon, shall be
made upon the lapsing of restrictions imposed on such Shares, and any
dividends deferred (together with any interest accrued thereon) in
respect of any Shares of Restricted Stock shall be forfeited upon the
forfeiture of such Shares.
9.7 Delivery of Shares: Upon the lapse of the restrictions on Shares of
Restricted Stock, the Committee shall cause a stock certificate to be
delivered to the Awardee with respect to such Shares, free of all
restrictions hereunder.
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1O. Effect of a Termination of Employment:
The Agreement evidencing the grant of each Employee Option and each Award
shall set forth the terms and conditions applicable to such Employee Option
or Award upon a termination or change in the status of the employment of
the Optionee or Grantee by the Company, a Subsidiary or a Division
(including a termination or change by reason of the sale of a Subsidiary or
a Division), as the Committee may, in its discretion, determine at the time
the Employee Option or Award is granted or thereafter.
11. Adjustment Upon Changes in Capitalization:
(a) In the event of a Charge in Capitalization, the Committee shall
conclusively determine the appropriate adjustments, if any, to the (i)
maximum number and class of Shares or other stock or securities with
respect to which Options or Awards may be granted under the Plan (ii)
the maximum number of Shares with respect to which Options or Awards
may be granted to any Eligible Employee during the term of the Plan,
(iii) the number and class of Shares or other stock or securities
which are subject to Director Options issuable under Section 6 hereof;
(iv) the number and class of Shares or other stock or securities which
are subject to outstanding Options or Awards granted under the Plan,
and the purchase price therefor, if applicable; and (v) the
Performance Objectives.
(b) Any such adjustment in the Shares or other stock or securities subject
to outstanding Incentive Stock Options (including any adjustments in
the purchase price) shall be made in such manner as not to constitute
a modification as defined by Section 424(h)(3) of the Code and only
to the extent otherwise permitted by Sections 422 and 424 of the Code.
(c) Any stock adjustment in the Shares or other stock or securities
subject to outstanding Director Options (including any adjustments in
the purchase price) shall be made only to the extent necessary to
maintain the proportionate interest of the Optionee and preserve,
without exceeding, the value of such Director Option.
(d) If, by reason of a Change in Capitalization, a Grantee of an Award
shall be entitled to, or an Optionee shall be entitled to exercise an
Option with respect to, new, additional or different shares of stock
or securities, such new additional or different shares shall thereupon
be subject to all of the conditions, restrictions and performance
criteria which were applicable to the Shares subject to the Award or
Option, as the case may be, prior to such Change in Capitalization.
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12. Effect of Certain Transactions:
Subject to Sections 8.4 and 10.4(b) hereof, in the event of (i) the
liquidation or dissolution of the Company or (ii) a merger or consolidation
of the Company (a "Transaction"), the Plan and the Options and Awards
issued hereunder shall continue in effect in accordance with their
respective terms and each Optionee and Awardee shall be entitled to receive
in respect of each Share subject to any outstanding Options or Awards, as
the case may be, upon exercise of any Option or payment or transfer in
respect of any Award, the same number and kind of stock, securities, cash,
property, or other consideration that each holder of a Share was entitled
to receive in the Transaction in respect of a Share.
13. Termination and Amendment of the Plan:
The Plan shall terminate on the day preceding the tenth anniversary of the
date of its adoption by the Board and no Option or Award may be granted
thereafter. The Board may sooner terminate the Plan and the Board may at
any time and from time to time amend, modify or suspend the Plan; provided,
however, that:
(a) No such amendment, modification, suspension or termination shall
impair or adversely alter any Options or Awards theretofore granted
under the Plan, except with the consent of the Optionee or Awardee,
nor shall any amendment, modification, suspension or termination
deprive any Optionee or Awardee of any Shares which he or she may have
acquired through or as a result of the Plan;
(b) To the extent necessary under Section 16(b) of the Exchange Act and
the rules and regulations promulgated thereunder or other applicable
law, no amendment shall be effective unless approved by the
stockholders of the Company in accordance with applicable law and
regulations; and
(c) The provisions of Section 6 hereof shall not be amended more often
than once every six (6) months, other than to comport with changes in
the Code, the Employee Retirement Income Security Act of 1974, as
amended, or the rules and regulations promulgated thereunder.
14. Certain Limitations:
Notwithstanding any other provision of the Plan to the contrary:
(i) stockholder approval shall be required for any material amendment of
the Plan to become effective (with materiality as determined for
purposes of Section 16(b) of the Exchange Act, the rules and
regulations promulgated thereunder, and the
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interpretations of the Securities and Exchange Commission and its
staff in connection therewith);
(ii) no amendment or adjustment of the exercise price of an Option (whether
through amendment, cancellation or replacement grants, or other means
of repricing of such Options), in respect of an Option having an
exercise price greater than the Fair Market Value of a Share as of the
date of such amendment or adjustment, shall be authorized under the
Plan unless stockholder approval of such repricing is obtained;
(iii) stockholder approval shall be required for any lapse or waiver of
restrictions on Shares of Restricted Stock not expressly specified in
the Agreement evidencing the Award; and
(iv) an Award of Shares of Restricted Stock shall provide for the lapse of
restrictions in no less than three years after the date of the Award
in respect of at least 50% of the Shares subject to that Award.
However, the Committee shall have the discretion to act in respect of
Options or Awards in a manner not in compliance with the requirements of
this Section 14.1, provided that the number of Shares which are the subject
of such Options or Awards does not exceed in the aggregate three percent
(3%) of the maximum number of Shares that may be made the subject of
Options and Awards under the Plan as set forth in Section 5.1 hereof.
15. Non-Exclusivity of the Plan:
Except as provided in Section 2 hereof, the adoption of the Plan by the
Board shall not be construed as amending, modifying or rescinding any
previously approved incentive arrangement or as creating any limitations on
the power of the Board to adopt such other incentive arrangements as it may
deem desirable, including, without limitation, the granting of stock
options otherwise than under the Plan, and such arrangements may be either
applicable generally or only in specific cases.
16. Limitation of Liability:
As illustrative of the limitations of liability of the Company, but not
intended to be exhaustive thereof, nothing in the Plan shall be construed
to:
(i) give any person any right to be granted an Option or Award other than
at the sole discretion of the Committee;
(ii) give any person any rights whatsoever with respect to Shares except as
specifically provided in the Plan;
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(iii) limit in any way the right of the Company to terminate the employment
of any person at any time; or
(iv) be evidence of any agreement or understanding, expressed or implied,
that the Company will employ any person at any particular rate of
compensation or for any particular period of time.
17. Regulations and Other Approvals; Governing Law:
17.1 Except as to matters of federal law, this Plan and the rights of all
persons claiming hereunder shall be construed and determined in
accordance with the laws of the State of Delaware without giving
effect to conflicts-of-law principles.
17.2 The obligation of the Company to sell or deliver Shares with respect
to Options and Awards granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable
federal and state securities laws, and the obtaining of all such
approvals by governmental agencies as may be deemed necessary or
appropriate by the Committee.
17.3 The Plan is intended to comply with Rule 16b-3 promulgated under the
Exchange Act and the Committee shall interpret and administer the
provisions of the Plan or any Agreement in a manner consistent
therewith. Any provisions inconsistent with such Rule shall be
inoperative and shall not affect the validity of the Plan.
17.4 The Board may make such changes as may be necessary or appropriate to
comply with the rules and regulations of any government authority, or
to obtain for Eligible Employees granted Incentive Stock Options the
tax benefits under the applicable provisions of the Code and
regulations promulgated thereunder.
17.5 Each Option and Award is subject to the requirement that, if at any
time the Committee determines, in its discretion, that the listing,
registration or qualification of Shares issuable pursuant to the Plan
is required by any securities exchange or under any state or federal
law, or the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the
grant of an Option or Award or the issuance of Shares, no Options or
Awards shall be granted or payment made or Shares issued, in whole or
in part, unless listing, registration, qualification, consent or
approval has been effected or obtained free of any conditions as
acceptable to the Committee.
17.6 Notwithstanding anything contained in the Plan or any Agreement to the
contrary, in the event that the disposition of Shares acquired
pursuant to the Plan is not covered by a then current registration
statement under the Securities Act of 1933,
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as amended, and is not otherwise exempt from such registration, such
Shares shall be restricted against transfer to the extent required by
the Securities Act of 1933, as amended, and Rule 144 or other
regulations thereunder. The Committee may require any individual
receiving Shares pursuant to an Option or Award granted under the
Plan, as a condition precedent to receipt of such Shares, to represent
and warrant to the Company in writing that the Shares acquired by such
individual are acquired without a view to any distribution thereof and
will not be sold or transferred other than pursuant to an effective
registration thereof under said Act or pursuant to an exemption
applicable under the Securities Act of 1933, as amended, or the rules
and regulations promulgated thereunder. The certificates evidencing
any of such Shares shall be appropriately amended to reflect their
status as restricted securities as aforesaid.
18. Miscellaneous:
18.1 Multiple Agreements: The terms of each Option or Award may differ from
other Options or Awards granted under the Plan at the same time, or at
some other time. The Committee may also grant more than one Option or
Award to a given Eligible Employee during the term of the Plan, either
in addition to, or in substitution for, one or more Options or Awards
previously granted to that Eligible Employee.
18.2 Withholding of Taxes: (a) The Company shall have the right to deduct
from any distribution of cash to any Optionee or Awardee, an amount
equal to the federal, state and local income taxes and other amounts
as may be required by law to be withheld (the "Withholding Taxes")
with respect to any Option or Award. If an Optionee or Awardee is to
experience a taxable event in connection with the receipt of Shares
pursuant to an Option exercise or payment of an Award (a "Taxable
Event"), the Optionee or Awardee shall pay the Withholding Taxes to
the Company prior to the issuance, or release from escrow, of such
Shares. In satisfaction of the obligation to pay Withholding Taxes to
the Company, the Optionee or Awardee may make a written election (the
"Tax Election"), which may be accepted or rejected in the discretion
of the Committee, to have withheld a portion of the Shares then
issuable to him or her having an aggregate Fair Market Value, on the
date preceding the date of such issuance, equal to the Withholding
Taxes, provided that in respect of an Optionee or Awardee who may be
subject to liability under Section 16(b) of the Exchange Act either:
(i) in the case of a Taxable Event involving an Option or an Award (A)
the Tax Election is made at least six (6) months prior to the date of
the Taxable Event and (B) the Tax Election is irrevocable with respect
to all Taxable Events of a similar nature occurring prior to the
expiration of six (6) months following a revocation of the Tax
Election; or (ii) in the case of the exercise of an Option (A) the
Optionee makes the Tax Election at least six (6) months after the date
the Option was
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granted, (B) the Option is exercised during the ten (10) day period
beginning on the third business day and ending on the twelfth business
day following the release for publication of the Company's quarterly
or annual statement of sales and earnings (a "Window Period") and (C)
the Tax Election is made during the Window Period in which the related
Option is exercised or prior to such Window Period and subsequent to
the immediately preceding Window Period; or (iii) in the case of a
Taxable Event relating to the payment of an Award (A) the Awardee
makes the Tax Election at least six (6) months after the date the
Award was granted and (B) the Tax Election is made (x) in the case of
a Taxable Event occurring within a Window Period, during the Window
Period in which the Taxable Event occurs, or (y) in the case of a
Taxable Event not occurring within a Window Period, during the Window
Period immediately preceding the Taxable Event relating to the Award.
Notwithstanding the foregoing, the Committee may, by the adoption of
rules or otherwise, (i) modify the provisions of this Section 18.2
(other than as regards Director Options) or impose such other
restrictions or limitations on Tax Elections as may be necessary to
ensure that the Tax Elections will be exempt transactions under
Section 16(b) of the Exchange Act, and (ii) permit Tax Elections to be
made at such other times and subject to such other conditions as the
Committee determines will constitute exempt transactions under Section
16(b) of the Exchange Act.
(b) If an Optionee makes a disposition, within the meaning of Section
424(c) of the Code and regulations promulgated thereunder, of any
Share or Shares issued to such Optionee pursuant to the exercise
of an Incentive Stock Option within the two-year period
commencing on the day after the date of the grant or within the
one-year period commencing on the day after the date of transfer
of such Share or Shares to the Optionee pursuant to such
exercise, the Optionee shall, within ten (10) days of such
disposition, notify the Company thereof, by delivery of written
notice to the Company at its principal executive office.
(c) The Committee shall have the authority, at the time of grant of
an Employee Option under the Plan or at any time thereafter, to
award tax bonuses to designated Optionees, to be paid upon their
exercise of Employee Options granted hereunder. The amount of any
such payments shall be determined by the Committee. The Committee
shall have full authority in its absolute discretion to determine
the amount of any such tax bonus and the terms and conditions
affecting the vesting and payment thereof.
18.3.Interpretation: Unless otherwise expressly stated in the relevant
Agreement, any grant of Options or an Award is intended to be
performance-based compensation within the meaning of Section
162(m)(4)(C) of the Code. The Committee shall
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not be entitled to exercise any discretion otherwise authorized
hereunder with respect to such Options or Awards if the ability to
exercise such discretion or the exercise of such discretion itself
would cause the compensation attributable to such Options or Awards to
fail to qualify as performance-based compensation.
19. Effective Date:
The effective date of the Plan shall be the date of its adoption by the
Board, subject only to the approval by the affirmative vote of the holders
of a majority of the securities of the Company present, or represented, and
entitled to vote at a meeting of stockholders duly held in accordance with
the applicable laws of the State of Delaware within twelve (12) months of
such adoption.
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