<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1996
REGISTRATION NO. 333-6573
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
PINKERTON'S, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 13-5318100
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
15910 VENTURA BOULEVARD, SUITE 900
ENCINO, CALIFORNIA 91436-2810
(818) 380-8800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
C. MICHAEL CARTER, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL
AND CORPORATE SECRETARY
PINKERTON'S, INC.
15910 VENTURA BOULEVARD, SUITE 900
ENCINO, CALIFORNIA 91436-2810
(818) 380-8800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
ANDREW E. BOGEN, ESQ. NICHOLAS P. SAGGESE, ESQ.
GIBSON, DUNN & CRUTCHER LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM
333 SOUTH GRAND AVENUE 300 SOUTH GRAND AVENUE, SUITE 3400
LOS ANGELES, CA 90071 LOS ANGELES, CALIFORNIA 90071
(213) 229-7000 (213) 687-5000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement from the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 3, 1996
PROSPECTUS
, 1996
2,360,000 SHARES
[LOGO OF PINKERTON]
COMMON STOCK
Of the 2,360,000 shares of Common Stock, par value $.001 per share (the
"Common Stock"), being offered hereby (the "Offering"), 1,700,000 shares are
being sold by Pinkerton's, Inc. ("Pinkerton" or the "Company"), and 660,000
shares are being sold by a stockholder of the Company (the "Selling
Stockholder"). See "Principal Stockholders and Selling Stockholder." The
Company will not receive any of the proceeds from the sale of shares of Common
Stock by the Selling Stockholder. The Common Stock of the Company is traded on
the New York Stock Exchange ("NYSE") under the symbol "PKT." On July 1, 1996,
the last reported sale price of the Common Stock was $23 1/4 per share. See
"Price Range of Common Stock and Dividend Policy."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER(3)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
Total(4)......................... $ $ $ $
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting the Company's share of expenses, estimated at $300,000.
(3) Before deducting the Selling Stockholder's share of expenses, estimated at
$11,500.
(4) The Company has granted to the Underwriters an option, exercisable within
30 days hereof, to purchase up to an aggregate of 354,000 additional shares
of Common Stock at the price to the public less underwriting discounts and
commissions for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total price to the public,
underwriting discounts and commissions, proceeds to the Company and
proceeds to the Selling Stockholder will be $ , $ , $ and $ ,
respectively. See "Underwriting."
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to various prior conditions, including the rights of
the Underwriters to reject any order in whole or in part. It is expected that
delivery of the shares will be made in New York, New York on or about ,
1996.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
PRUDENTIAL SECURITIES INCORPORATED
SCHRODER WERTHEIM & CO.
<PAGE>
[FOUR PHOTOGRAPHS OF PINKERTON EMPLOYEES ON DUTY]
NOTE ON FORWARD-LOOKING STATEMENTS
Certain information set forth in this Prospectus includes "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act") and is subject to certain risks and uncertainties,
including those identified under the caption "Risk Factors." Readers are
cautioned not to place undue reliance on these statements, which speak only as
of the date hereof. The Company undertakes no obligation to release publicly
any revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect unanticipated events or
developments. This Prospectus also contains market data derived, without
independent verification, from a 1995 report (the "Freedonia Report") by the
Freedonia Group, Inc., an independent research firm. The Freedonia Report
projects growth in the Company's industry; however, there can be no assurance
that such industry growth will materialize or will occur at the levels
projected.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
Pinkerton is a registered trademark of Pinkerton's, Inc.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements, including the Notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated, (i) all
information in this Prospectus assumes no exercise of the Underwriters' over-
allotment option and (ii) all market data are derived from the Freedonia
Report. The following summary includes "forward-looking statements." See "Note
on Forward-Looking Statements."
THE COMPANY
Pinkerton is one of the world's leading providers of contract security and
security-related services. The Company, which was founded in 1850 by the
original "private eye," Allan Pinkerton, provides uniformed security officer
services to more than 5,000 industrial, commercial and governmental customers
domestically and internationally, including approximately half of the United
States "Fortune 1,000" companies. In addition to security officer services,
Pinkerton provides security systems design and integration services; security
consulting; pre-employment background verification and assessment services;
general, undercover and specialized investigations; and patrol and alarm
response services. The Company operates more than 220 offices in the United
States, Canada, Mexico, Europe and Asia and has more than 45,000 employees.
During 1994, the Company recruited a new senior management team, implemented
a number of measures designed to improve the Company's operating results and
initiated a corporate strategy to position Pinkerton for long-term growth and
profitability. Management performed a detailed analysis of the Company's
profitability on a contract-by-contract basis, which enabled it to identify,
renegotiate and when necessary terminate many unprofitable contracts.
Management also refocused the Company's sales and marketing efforts, replaced a
number of underperforming district managers, instituted a new incentive system
designed to promote profitability at the district office level and tightened
cost controls. After surveying many customers to better understand their
security needs, the Company rededicated itself to providing quality services by
commencing total quality management and enhancing employee training programs.
These measures have enabled the Company to report increased gross margins in
each of the last five quarters over the comparable prior periods. In addition,
for the fiscal year ended December 29, 1995 and the twelve weeks ended March
22, 1996, operating profit (before non-recurring items) increased by 154.4% and
26.2%, respectively, over the comparable prior periods.
BUSINESS STRATEGY
Pinkerton's strategic objective is to be a world-class, global security
solutions provider by offering and integrating traditional security services
with electronic security systems and a range of consulting services to address
all of a customer's security needs. As part of this strategy, the Company
intends to: (i) capitalize on its worldwide customer base, widely-recognized
brand name and reputation for superior quality by cross-marketing higher
margin, value-added services and products, thereby creating security
partnerships with its customers and increasing customer retention and (ii)
pursue an aggressive acquisition strategy designed both to add core
competencies, such as security systems integration, and to grow its security
officer franchise. Specifically, the Company's strategy consists of the
following:
. Promote Widely-Recognized Brand Name. The Company believes that
"Pinkerton" is the most widely- recognized brand name in the security
industry worldwide. The Company intends to continue to capitalize on
Pinkerton's brand name and reputation for superior quality security
services and products.
. Emphasize World-Class Service. The Company intends to maintain its strong
commitment to providing its clients with world-class service and believes
that its employee selection process and training programs are the most
rigorous and effective in the industry. As the primary interface with its
customers on a day-to-day basis, Pinkerton's security officers are the
key to the Company's ability to provide world-class customer service and
differentiate itself from its competition.
3
<PAGE>
. Offer a Full Range of Security Services. The Company intends to
aggressively expand its offerings of higher margin, value-added services
and products in order to become a single-source provider of security
solutions for its existing and future customers. As part of this effort,
the Company plans to capitalize on its worldwide customer base by cross-
marketing its expanded security service and product offerings. Management
believes that as a full-service provider of innovative security solutions
Pinkerton can create security partnerships with its existing and future
customers, promote customer retention and expand the Company's customer
base.
. Capitalize on "Outsourcing" and Centralization Trends. Management intends
to continue to capitalize on the growing trends among businesses to
outsource non-core functions, such as security, and to centralize the
procurement and oversight of such functions at the corporate level in
order to minimize the number of vendor relationships. Pinkerton believes
it has a number of competitive advantages to capitalize on these trends
toward outsourcing and centralization, including its long-standing
expertise in recruiting, training and managing large numbers of security
personnel, its demonstrated ability to manage large, multi-site corporate
security contracts and its extensive knowledge of customer security
needs. These capabilities have enabled the Company to obtain a contract
extending to 1999 to provide security officer services for all of General
Motors' North American facilities, a function which General Motors had
previously handled primarily in-house. Pinkerton has over 50 customers
for which it provides security services on a national or regional level
at multiple locations.
The Company has embarked on an aggressive effort to broaden its core
competencies through acquisitions. Key elements of the Company's acquisition
strategy include:
. Expand Strategically Into Security Systems Integration. The Company
intends to assemble an extensive network of security systems integration
businesses in major metropolitan areas as part of its effort to be a
single-source provider of security solutions. Since the beginning of
1995, Pinkerton has acquired three regional security systems integration
businesses. These businesses provide higher margin, value-added services
and products by integrating diverse electronic security systems, such as
access control, closed circuit television, alarm monitoring and digital
badging, into a coherent interrelated operating system that enhances
security and automates alarm response. These businesses also provide
ongoing maintenance of such systems.
. Consolidate Security Officer Companies. The market for security officer
services is highly fragmented, with only a few national operators and
over 9,000 independent vendors, most of which serve discrete local
markets. The Company estimates, based on industry sources, that Pinkerton
and the other two largest companies in the security industry currently
have a combined domestic market share of approximately 29%, and that the
20 largest operators have a combined domestic market share of
approximately 48%. Management believes that Pinkerton has several
competitive advantages to enable it to succeed as an industry
consolidator, including a widely-recognized brand name, a strong
financial position, access to capital, a reputation for superior quality,
the ability to service national and international accounts, management
experience in identifying and assimilating acquisitions and sophisticated
management information systems.
. Expand International Operations. The Company intends to capitalize on
future strategic opportunities for international expansion to enhance its
ability to provide global security solutions to its existing and future
customers. The Company currently has offices in 18 countries throughout
North America, Europe and Asia.
INDUSTRY
The domestic security-related services industry, which includes security
officer and investigative services, system integration services, alarm
monitoring services, patrol services and security consulting services,
accounted for revenues of approximately $16.6 billion in 1994 and is projected
to increase at a compound annual
4
<PAGE>
growth rate of approximately 7.9% per year to approximately $26 billion by the
year 2000. The domestic security officer services segment of the market, from
which the Company generated approximately 80% of its revenues in 1995,
accounted for approximately $8.6 billion of revenues in 1994 and is projected
to increase at a compound annual growth rate of 7.4% to almost $13.2 billion by
the year 2000. The Company believes that the projected growth in the security-
related services industry in general, and the security officer services segment
in particular, is attributable primarily to three factors: (i) increasing
incidents of crime, violence and terrorism, (ii) governmental budgetary
constraints which limit the resources available to combat such crime, violence
and terrorism and (iii) the growing trend among businesses to outsource certain
non-core operations, such as security services, to limit required capital
expenditures and reduce administrative and labor costs.
The Company was incorporated in 1925 in the State of Delaware. The Company's
principal executive offices are located at 15910 Ventura Boulevard, Suite 900,
Encino, California 91436-2810; its telephone number is (818) 380-8800.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective investors.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered:
By Pinkerton.................... 1,700,000 shares
By the Selling Stockholder...... 660,000 shares
---------
Total......................... 2,360,000 shares
---------
---------
Common Stock to be outstanding
after the Offering.............. 10,050,269 shares(a)
Use of Proceeds.................. To redeem debt and for general corporate purposes,
including future acquisitions. See "Use of Proceeds."
NYSE Symbol...................... PKT
</TABLE>
- --------------------
(a) Excludes 903,663 shares subject to outstanding options to purchase shares
of Common Stock under the Company's employee stock option plans as of July
1, 1996.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables present summary historical financial data for the fiscal
years ended December 27, 1991, December 25, 1992, December 31, 1993, December
30, 1994, and December 29, 1995, derived from the Company's Consolidated
Financial Statements audited by KPMG Peat Marwick LLP, and for the twelve week
periods ended March 24, 1995 and March 22, 1996 and at March 22, 1996, derived
from the Company's unaudited interim period Consolidated Financial Statements
prepared by the Company's management that include all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the Company's
financial position and results of operations for the indicated interim periods.
The results for the twelve-week periods ended March 24, 1995 and March 22, 1996
are not necessarily indicative of the results to be expected for the full
fiscal year. Such data should be read in conjunction with such Consolidated
Financial Statements, the Notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
FISCAL YEARS ENDED(a) TWELVE WEEKS ENDED(a)
---------------------------------------------------------------- ---------------------
DECEMBER 27, DECEMBER 25, DECEMBER 31, DECEMBER 30, DECEMBER 29, MARCH 24, MARCH 22,
1991 1992 1993(B) 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Service revenues....... $ 637,837 $ 703,676 $ 772,026 $ 849,960 $ 862,793 $ 198,321 $ 200,036
Gross profit........... 71,685 78,391 83,031 76,434 91,621 18,751 23,186
Non-recurring income
(expense), net(c)..... -- (2,500) (3,800) (12,066) -- -- --
Operating profit
(loss)................ 26,312 19,011 15,926 (3,855) 20,891 3,185 4,018
Net income (loss)...... 12,573 8,587 3,201 (10,242) 10,500 1,471 1,709
Net income (loss) per
common share.......... 1.66 1.04 0.39 (1.24) 1.26 0.18 0.20
Weighted average common
shares and common
share equivalents..... 7,373 8,257 8,284 8,288 8,351 8,345 8,408
OTHER DATA:
EBITDA(d).............. $ 33,284 $ 32,518 $ 32,762 $ 24,159 $ 35,596 $ 6,562 $ 7,616
EBITA(e)............... 31,180 28,953 28,109 18,582 29,964 5,263 6,192
Depreciation .......... 2,104 3,565 4,653 5,577 5,632 1,299 1,424
Amortization .......... 4,868 7,442 8,383 10,371 9,073 2,078 2,174
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 22, 1996
------------------------
ACTUAL AS ADJUSTED(f)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital...................................... $ 94,423 $ 95,828
Total assets......................................... 291,175 291,342
Total debt (including current maturities)............ 42,850 8,575(g)
Stockholders' equity................................. 115,561 151,356
</TABLE>
- -------------------
(a) The Company's fiscal year comprises the 52-week (or 53-week) period ending
on the Friday closest to December 31, within the reporting year. The
Company's quarterly reporting periods consist of three four-week periods
for the first, second and third quarters, and four four-week periods for
the fourth quarter.
(b) The Company's 1993 fiscal year consisted of 53 weeks, whereas all other
fiscal years presented consisted of 52 weeks.
(c) In 1994, goodwill and other intangibles, principally contract rights, were
written down in the amount of $11,501, and the Company recorded a pre-tax
charge of $2,934 consisting primarily of severance, recruiting and
relocation charges. In addition, in 1994 the Company recorded a gain from
litigation settlements in the amount of $2,369.
(d) Earnings before interest, taxes, depreciation, amortization, write-down of
intangible assets, other special charges, gain from litigation settlements,
net, and provision for reserve against investment. EBITDA should not be
construed as an alternative to net income or any other measure of
performance determined in accordance with generally accepted accounting
principles or an indicator of the Company's operating performance,
liquidity or cash flows generated by operating activities.
(e) Earnings before interest, taxes, amortization, write-down of intangible
assets, other special charges, gain from litigation settlements, net, and
provision for reserve against investment. EBITA should not be construed as
an alternative to net income or any other measure of performance determined
in accordance with generally accepted accounting principles or an indicator
of the Company's operating performance, liquidity or cash flows generated
by operating activities.
(f) Gives effect to the sale by the Company of the shares of Common Stock
offered hereby, the application of the estimated net proceeds as set forth
under "Use of Proceeds" and an assumed offering price of $23 1/4 per share.
(g) Although outstanding on an "as adjusted" basis at March 22, 1996, the
Company made a scheduled principal amortization payment on June 17, 1996 of
$8,575. Accordingly, after giving effect to the application of the net
proceeds to the Company of the Offering, total debt would be zero.
6
<PAGE>
RISK FACTORS
Each prospective investor should carefully consider all information
contained in this Prospectus or incorporated or deemed to be incorporated in
this Prospectus and should give particular consideration to the following
factors before making an investment in the Common Stock.
ACQUISITION STRATEGY
The Company is actively and currently seeking to expand its business through
selected acquisitions which may be substantial in size. Accomplishing this
goal will depend on a number of factors, including the Company's ability to
identify and acquire acceptable businesses, hire and train qualified managers
and integrate new acquisitions into the Company's operations. The process of
consummating acquisitions involves greater risks than management of an
existing business, and assimilating acquired businesses may be prolonged due
to unforeseen difficulties, may require a disproportionate amount of resources
and management's attention and may not result in the expected economic
benefits. Factors which may affect the success of an acquisition include,
among other things, the retention of acquired contracts and management,
compatibility of the acquired company's culture with Pinkerton's, the
appropriateness of overhead structure in relation to the size of the acquired
business and the targeted market and trends affecting the industry generally.
There can be no assurance that any one or more acquisition candidates can be
identified or acquired at acceptable prices or be successful. Management may
determine that it is necessary or desirable to obtain financing for such
acquisitions through bank borrowings or the issuance of debt or equity
securities. Debt financing of any such acquisition could increase the leverage
of the Company. Equity financing of any such acquisition may dilute the
ownership of the Company's stockholders.
Since the beginning of 1995, Pinkerton has acquired three regional security
systems integration businesses. Despite achieving higher gross margins than
the Company's security officer business, the Company's security systems
integration business has not, in the aggregate, achieved results superior to
the Company's security officer business because of the operating expenses
associated with assimilating these acquisitions, organizing the division and
pursuing additional acquisitions. There can be no assurance that management's
anticipated results will be achieved with security systems integration
businesses acquired or to be acquired by the Company.
INTERNATIONAL OPERATIONS
The Company's presence in the United Kingdom, Mexico, Continental Europe and
Asia is primarily the result of international expansion between 1991 and 1994.
The new Pinkerton management team conducted a review of these operations and
determined that operations in the United Kingdom and Asia were in need of
reorganization, refocusing and strengthening and that the business in
Continental Europe required additional volume to become profitable. In the
aggregate, the Company's international operations sustained operating losses
in 1993, 1994 and 1995. See "Note 14 of Notes to Consolidated Financial
Statements." While management believes that the reorganization, refocusing and
investment in foreign operations should enable the Company to restore these
operations to profitability, no assurance can be given that this will occur.
Pinkerton's international operations are vulnerable to currency
fluctuations, the difficulty of doing business in a foreign culture and
regulatory environment and potential government and economic instability,
particularly in Mexico, where the Company's operations were negatively
impacted by a prior currency devaluation. Moreover, the Company's ability to
expand its international presence profitably will depend, in large part, upon
its successful completion of acquisitions that carry out its strategic goals
in the various markets.
PRINCIPAL STOCKHOLDER
Upon completion of the Offering, Thomas W. Wathen will beneficially own
approximately 21.2% of Pinkerton's Common Stock (20.5% if the Underwriters'
over-allotment option is exercised in full). Such concentration of ownership
may have the effect of delaying, deferring or preventing a change in control
of Pinkerton pursuant to a transaction which might otherwise be beneficial to
stockholders.
7
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
the offering could adversely affect the prevailing market price. Beginning 120
days after the date of this Prospectus, approximately 2,393,792 additional
shares (251,625 shares of which are subject to currently exercisable options)
will become eligible for sale in the public market upon the expiration of
certain lock-up agreements with the Underwriters, subject to compliance with
Rule 144 of the Securities Act of 1933, as amended (the "Securities Act"). As
of July 1, 1996, Pinkerton has reserved for issuance up to 1,398,463 shares of
Common Stock under its employee stock option plans, of which 903,663 shares
are subject to currently outstanding options.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and has no
current plans to pay any such dividends in the future. There can be no
assurance as to the amount of funds, if any, that will be available for the
declaration and payment of dividends in the future.
USE OF PROCEEDS
The net proceeds to Pinkerton from the Offering, after payment of
underwriting discounts and commissions and expenses, are estimated to be
approximately $ million ($ million if the Underwriters' over-allotment
option is exercised in full), assuming a public offering price of $ per
share. Pinkerton will not receive any of the proceeds of the sale of shares of
Common Stock by the Selling Stockholder. The Company will use a portion of the
estimated net proceeds of the Offering to redeem its 10.35% Senior Notes due
2000 (the "Senior Notes"). Assuming the redemption of the Senior Notes were
effected on July 31, 1996, using an assumed Treasury Note rate of 6.43%, the
aggregate redemption price (including accrued interest and pre-payment charge)
would be $37.1 million after giving effect to an amortization payment of
approximately $8.6 million made on June 17, 1996. Any net proceeds to
Pinkerton from the Offering not used to redeem the Senior Notes will be used
for general corporate purposes including future acquisitions. As of the date
hereof, the Company has no definitive agreement or commitment to make any
material acquisition. See "Risk Factors--Acquisition Strategy."
8
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the NYSE under the symbol "PKT."
From its 1990 initial public offering to June 25, 1996, the Company's Common
Stock was traded on the Nasdaq National Market ("Nasdaq") under the symbol
"PKTN." The following table sets forth for the periods indicated the range of
high and low bid prices of the Common Stock as reported by Nasdaq and high and
low sale prices of the Common Stock as reported by the NYSE, as applicable. As
of July 1, 1996, there were approximately 135 holders of record of Common
Stock.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
---------------
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 30, 1994:
1st Quarter.................................................. $22 $18
2nd Quarter.................................................. 21 1/4 15 1/4
3rd Quarter.................................................. 17 1/2 15 1/4
4th Quarter.................................................. 20 1/2 14
FISCAL YEAR ENDED DECEMBER 29, 1995:
1st Quarter.................................................. $19 3/4 $15 1/2
2nd Quarter.................................................. 17 14 3/4
3rd Quarter.................................................. 18 3/4 15 3/4
4th Quarter.................................................. 21 1/2 17 5/8
FISCAL YEAR ENDED DECEMBER 27, 1996:
1st Quarter.................................................. $20 1/2 $18 1/4
2nd Quarter.................................................. 26 19
3rd Quarter (through July 1, 1996)........................... 25 22 1/2
</TABLE>
On July 1, 1996, the last sale price of the Common Stock, as reported by the
NYSE, was $23 1/4 per share.
Pinkerton has never paid cash dividends on its Common Stock. The Company
intends to retain all of its future earnings to finance its operations and its
acquisition program, and does not anticipate paying cash dividends in the
foreseeable future. The Senior Notes contain restrictions on the payment of
dividends; however, the Company intends to apply a portion of the net proceeds
of the Offering to redeem all of the Senior Notes. See "Use of Proceeds."
9
<PAGE>
CAPITALIZATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth the consolidated capitalization of the
Company at March 22, 1996, and as adjusted to give effect to the sale by the
Company of 1,700,000 shares of Common Stock in the Offering and the
application of the net proceeds therefrom, assuming no exercise of the
Underwriters' over-allotment option. This table should be read in conjunction
with the Consolidated Financial Statements and the Notes thereto.
<TABLE>
<CAPTION>
AT MARCH 22, 1996
------------------------
ACTUAL AS ADJUSTED(a)
-------- --------------
<S> <C> <C>
Cash, cash equivalents and marketable securities................... $ 43,002 $ 43,052
======== ========
Total debt (including current portion)(b).......................... $ 42,850 $ 8,575 (c)
Stockholders' equity:
Common Stock, par value $.001 per share; authorized 100,000,000
shares; issued and outstanding 8,346,469 shares; as adjusted
10,046,469 shares............................................... 8 10
Preferred Stock, authorized 5,068,000 shares; none outstanding... -- --
Additional paid-in capital....................................... 74,485 111,633
Retained earnings................................................ 50,185 48,830
Other adjustments(d)............................................. (9,117) (9,117)
-------- --------
Total stockholders' equity..................................... 115,561 151,356
-------- --------
Total capitalization............................................... $158,411 $159,931
======== ========
</TABLE>
- ---------------------
(a) Based on a public offering price of $23 1/4 per share for the sale by the
Company of 1,700,000 shares of Common Stock offered hereby, less
underwriting discounts and commissions and estimated expenses of the
Offering.
(b) As of March 22, 1996, there was no outstanding balance under the Company's
revolving credit facility.
(c) Although outstanding on an "as adjusted" basis at March 22, 1996, the
Company made a scheduled principal amortization payment on June 17, 1996
of $8,575. Accordingly, after giving effect to the application of the net
proceeds to the Company of the Offering, total debt would be zero.
(d) Consisting principally of pension adjustments arising from the application
of SFAS No. 87 and foreign currency translation adjustments under SFAS No.
52.
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables present selected historical financial data for the
fiscal years ended and at December 27, 1991, December 25, 1992, December 31,
1993, December 30, 1994 and December 29, 1995, derived from the Company's
Consolidated Financial Statements audited by KPMG Peat Marwick LLP, and for
the twelve week periods ended March 24, 1995 and March 22, 1996 and at March
22, 1996, derived from the Company's unaudited interim period Consolidated
Financial Statements prepared by the Company's management that include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the Company's financial position and results of operations for
the indicated interim periods. The results for the twelve week periods ended
March 24, 1995 and March 22, 1996 are not necessarily indicative of the
results to be expected for the full fiscal year. Such data should be read in
conjunction with such Consolidated Financial Statements, the Notes thereto,
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
<TABLE>
<CAPTION>
FISCAL YEARS ENDED(a) TWELVE WEEKS ENDED(a)
---------------------------------------------------------------- ---------------------
DECEMBER 27, DECEMBER 25, DECEMBER 31, DECEMBER 30, DECEMBER 29, MARCH 24, MARCH 22,
1991 1992 1993(B) 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Service revenues....... $ 637,837 $ 703,676 $ 772,026 $ 849,960 $ 862,793 $ 198,321 $ 200,036
Cost of services....... 566,152 625,285 688,995 773,526 771,172 179,570 176,850
--------- --------- --------- --------- --------- ---------- ----------
Gross profit........... 71,685 78,391 83,031 76,434 91,621 18,751 23,186
Operating expenses..... 41,184 49,827 54,982 57,983 61,857 13,523 17,032
Amortization of
intangible assets..... 4,189 7,053 8,323 10,240 8,873 2,043 2,136
Write-down of
intangible assets and
other special
charges(c)............ -- (2,500) (3,800) (14,435) -- -- --
Gain from litigation
settlements, net...... -- -- -- 2,369 -- -- --
--------- --------- --------- --------- --------- ---------- ----------
Operating profit
(loss)................ 26,312 19,011 15,926 (3,855) 20,891 3,185 4,018
Provision for reserve
against investment.... -- -- 3,267 -- -- -- --
Interest expense, net.. 5,146 5,062 4,238 3,969 2,870 508 604
--------- --------- --------- --------- --------- ---------- ----------
Income (loss) before
income taxes.......... 21,166 13,949 8,421 (7,824) 18,021 2,677 3,414
Provision for income
taxes................. 8,593 5,362 5,220 2,418 7,521 1,206 1,705
--------- --------- --------- --------- --------- ---------- ----------
Net income (loss)...... $ 12,573 $ 8,587 $ 3,201 $ (10,242) $ 10,500 $ 1,471 $ 1,709
========= ========= ========= ========= ========= ========== ==========
Net income (loss) per
common share.......... $ 1.66 $ 1.04 $ 0.39 $ (1.24) $ 1.26 $ 0.18 $ 0.20
Weighted average common
shares and common
share equivalents..... 7,373 8,257 8,284 8,288 8,351 8,345 8,408
OTHER DATA:
EBITDA(d).............. $ 33,284 $ 32,518 $ 32,762 $ 24,159 $ 35,596 $ 6,562 $ 7,616
EBITA(e)............... 31,180 28,953 28,109 18,582 29,964 5,263 6,192
Depreciation........... 2,104 3,565 4,653 5,577 5,632 1,299 1,424
Amortization........... 4,868 7,442 8,383 10,371 9,073 2,078 2,174
</TABLE>
<TABLE>
<CAPTION>
AT
--------------------------------------------------------------------------
DECEMBER 27, DECEMBER 25, DECEMBER 31, DECEMBER 30, DECEMBER 29, MARCH 22,
1991 1992 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........ $ 94,434 $ 99,032 $ 92,100 $ 85,400 $ 90,225 $ 94,423
Total assets........... 264,460 260,828 282,738 278,090 287,344 291,175
Total debt (including
current maturities)... 60,000 60,000 60,000 51,425 42,850 42,850
Stockholders' equity... 111,415 114,202 111,631 103,422 113,725 115,561
</TABLE>
- -------------------
(a) The Company's fiscal year comprises the 52-week (or 53-week) period ending
on the Friday closest to December 31, within the reporting year. The
Company's quarterly reporting periods consist of three four-week periods
for the first, second and third quarters, and four four-week periods for
the fourth quarter.
(b) The Company's 1993 fiscal year consisted of 53 weeks, whereas all other
fiscal years presented consisted of 52 weeks.
(c) In 1994, goodwill and other intangibles, principally contract rights, were
written down in the amount of $11,501, and the Company recorded a pre-tax
charge of $2,934 consisting primarily of severance, recruiting and
relocation charges.
(d) Earnings before interest, taxes, depreciation, amortization, write-down of
intangible assets, other special charges, gain from litigation
settlements, net, and provision for reserve against investment. EBITDA
should not be construed as an alternative to net income or any other
measure of performance determined in accordance with generally accepted
accounting principles or an indicator of the Company's operating
performance, liquidity or cash flows generated by operating activities.
(e) Earnings before interest, taxes, amortization, write-down of intangible
assets, other special charges, gain from litigation settlements, net, and
provision for reserve against investment. EBITA should not be construed as
an alternative to net income or any other measure of performance
determined in accordance with generally accepted accounting principles or
an indicator of the Company's operating performance, liquidity or cash
flows generated by operating activities.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with the
information set forth under "Selected Consolidated Financial Data" and the
Consolidated Financial Statements and Notes thereto included elsewhere herein.
Pinkerton's fiscal year comprises the 52-week (or 53-week) period ending on
the Friday closest to December 31, within the reporting year. The Company's
quarterly reporting periods consist of three four-week periods for the first,
second and third quarters, and four four-week periods for the fourth quarter.
RESULTS OF OPERATIONS
FIRST QUARTER 1996 COMPARED WITH FIRST QUARTER 1995
Service Revenues. The Company's service revenues increased by $1.7 million,
or 0.9%, from $198.3 million in the first quarter of 1995 to $200.0 million in
the first quarter of 1996.
Domestic Service Revenues. The Company's domestic service revenues increased
by $1.2 million, or 0.7%, from $168.0 million in the first quarter of 1995 to
$169.2 million in the first quarter of 1996. This increase reflects the
revenues of systems integration businesses acquired of $6.1 million less
service reductions of $4.9 million. The service reductions occurred primarily
as a result of an active program to improve profitability by eliminating
unprofitable accounts.
International Service Revenues. Service revenues of the Company's
international operations increased by $0.5 million, or 1.6%, from $30.3
million in the first quarter of 1995 to $30.8 million in the first quarter of
1996. This increase primarily results from $1.0 million of new business offset
by foreign currency exchange reductions of $0.5 million.
Cost of Services and Gross Profit. The Company's cost of services decreased
by $2.7 million, or 1.5%, from $179.6 million in the first quarter of 1995 to
$176.9 million in the first quarter of 1996. This decrease results primarily
from the impact of cost efficiencies resulting from the Company's ongoing
efforts to reduce the cost of services. Gross profit increased $4.4 million,
or 23.4%, from $18.8 million in the first quarter of 1995 to $23.2 million in
the first quarter of 1996. Gross profit as a percentage of service revenues
increased from 9.5% in the first quarter of 1995 to 11.6% in the first quarter
of 1996 reflecting the changes in cost of services discussed above. Gross
profit was also favorably impacted by the inclusion of the Company's security
systems integration service operations, which typically experience higher
gross margins than the Company's security service operations.
Operating Expenses. Operating expenses increased by $3.5 million, or 25.9%,
from $13.5 million in the first quarter of 1995 to $17.0 million in the first
quarter of 1996. As a percentage of service revenues, operating expenses
increased from 6.8% in the first quarter of 1995 to 8.5% in the first quarter
of 1996. The increased operating expense percentage reflects the operations of
the Company's security systems integration service operations which have
different operating ratios with both higher gross profit margins and operating
expenses than the Company's security service operations. Operating expenses
also reflect the Company's ongoing expenditures for quality processes and
training programs implemented to enhance customer value.
Amortization. Amortization of costs in excess of net assets acquired
increased by $0.1 million from $2.0 million in the first quarter of 1995 to
$2.1 million in the first quarter of 1996. This reflects additional
amortization of intangible assets arising from acquisitions consummated
subsequent to the first quarter of 1995.
Operating Profit. Operating profit was $4.0 million, or 2.0% of service
revenues, for the first quarter of 1996 as compared to $3.2 million, or 1.6%
of service revenues, for the same period last year. Operating profit
12
<PAGE>
increased due to improved gross profit margins, partially offset by an
increase in operating expenses discussed above.
Income Taxes. The effective tax rate in the first quarter of 1996 was 50.0%
as compared to 45.0% in 1995. The higher tax rate in 1996 is primarily
attributable to an increase in certain non-United States losses that have no
tax benefit as well as a reduction in targeted jobs tax credits that expired
in 1995.
1995 COMPARED WITH 1994
Service Revenues. The Company's services revenues increased by $12.8
million, or 1.5%, from $850.0 million in 1994 to $862.8 million in 1995. This
increase reflects $8.9 million of revenues from businesses acquired during
1995, a net increase in all other business of $9.5 million and revenue
reductions arising from currency fluctuations of $5.6 million.
Domestic Service Revenues. Compared with the prior year, the Company's
domestic service revenues increased by $11.7 million, or 1.6%, from $714.5
million in 1994 to $726.2 million in 1995. This increase reflects $8.9 million
of revenues from businesses acquired during 1995 with revenues from all other
domestic sources increasing $2.8 million. Domestic service revenues reflect
$96.4 million and $92.3 million of revenue generated by the General Motors
account in 1995 and 1994, respectively. Domestic service revenues, net of
acquisition and General Motors revenues, declined $1.2 million in 1995. This
decline occurred primarily as a result of an active program to improve
profitability by eliminating unprofitable business, which resulted in a
reduction in domestic service hours of 2.5%.
International Service Revenues. Service revenues of the Company's
international operations increased by $1.1 million, or 0.8%, from $135.5
million in 1994 to $136.6 million in 1995. This increase was attributable to
increased service requirements from new and existing clients partially offset
by reductions arising from currency fluctuations. As a percentage of total
service revenues, international operations were 15.9% in 1994 and 15.8% in
1995.
Cost of Services and Gross Profit. The Company's cost of services decreased
by $2.3 million, or 0.3%, from $773.5 million in 1994 to $771.2 million in
1995. This decrease was primarily due to operating cost efficiencies and the
improved availability of labor in the markets in which the Company operates,
partially offset by payroll and related expenses accompanying the increase in
service revenues noted above. Gross profit increased $15.2 million, or 19.9%,
from $76.4 million in 1994 to $91.6 million in 1995. The Company's gross
profit margin also improved from 9.0% in 1994 to 10.6% in 1995 principally as
a result of operating cost efficiencies and reduction in the number of
unprofitable contracts.
Operating Expenses. Operating expenses increased by $3.9 million, or 6.7%,
from $58.0 million in 1994 to $61.9 million in 1995. Operating expenses were
7.2% of service revenues in 1995 and 6.8% of service revenues in 1994. The
increase in 1995 reflects the Company's expenditures in international markets
to develop new business as well as company-wide expenditures to advance
Pinkerton's quality initiatives, improve the recruitment and training of
employees and improve other processes.
Amortization. Amortization of intangible assets decreased by $1.3 million,
or 12.7%, from $10.2 million in 1994 to $8.9 million in 1995. This decrease
reflects lower amortization in the United Kingdom and Mexico due to a write-
down of related intangibles in the fourth quarter of 1994.
Operating Profit. Operating profit was $20.9 million, or 2.4% of service
revenues in 1995, as compared with an operating loss of $3.9 million, or 0.5%
of revenues in 1994. Operating profit increased as a percentage of revenues
due to improved gross profit margins, partially offset by an increase in
operating expenses discussed above. The operating loss in 1994 reflects the
write-down of intangible assets of $11.5 million and other special charges of
$2.9 million.
13
<PAGE>
Interest. Interest income increased $1.2 million to $2.7 million in 1995.
The increase resulted from higher average interest rates in 1995 as well as an
increase in average invested funds as compared with 1994. Interest expense
increased by $0.1 million, or 1.8%, from $5.5 million in 1994 to $5.6 million
in 1995.
Income Taxes. Income taxes were $7.5 million in 1995 as compared with $2.4
million in 1994. The effective tax rate in 1994 was not meaningful in
consideration of the positive tax provision and a net loss. The Company has
historically experienced a high effective tax rate due to the cost of
expansion into international markets and amortization of intangibles which
have historically not been tax deductible. In 1995, the Company employed tax
minimization strategies and experienced job-related tax credits which lowered
its effective tax rate to 41.7%.
1994 COMPARED WITH 1993
Service Revenues. The Company's service revenues increased by $78.0 million,
or 10.1%, from $772.0 million in 1993 to $850.0 million in 1994. This increase
was primarily due to approximately $64.7 million of additional service revenue
generated by the General Motors account during the year. Also adding to
revenue were increases in bill rates in the United States and international
security divisions and contract security businesses acquired in domestic and
international markets in 1994. Such increases were partially offset by the
effects of a 52-week year in 1994 as compared with a 53-week year in 1993 and
lower foreign exchange rates related to the Company's international
operations.
Domestic Service Revenues. Compared with the prior year, the Company's
domestic service revenues increased by $52.8 million, or 8.0%, from $661.7
million in 1993 to $714.5 million in 1994. This increase was primarily due to
approximately $53.3 million of additional service revenue generated by the
General Motors account during the year. Adding to growth were contract
security revenues of $14.0 million derived from businesses acquired in 1994.
All other increases, net, amounted to $3.8 million. Offsetting growth in 1994
were service reductions by existing clients and the selective elimination of
unprofitable contracts and businesses, thereby lowering operating revenues by
approximately $20.0 million.
International Service Revenues. Service revenues of the Company's
international operations increased by $25.2 million, or 22.8%, from $110.3
million in 1993 to $135.5 million in 1994. This increase was primarily
attributable to revenue generated by the General Motors contract of $11.4
million, increases in service hours and bill rates, and the acquisition of new
operations in Germany. These increases were partially offset by lower foreign
exchange rates. As a percentage of total service revenues, international
operations increased from 14.3% in 1993 to 15.9% in 1994.
Cost of Services and Gross Profit. The Company's cost of services increased
by $84.5 million, or 12.3%, from $689.0 million in 1993 to $773.5 million in
1994. These increases were primarily due to payroll and related expenses
accompanying the increase in service revenues described above and increased
labor costs arising from unbillable overtime which occurred as a result of the
Company's inability to fill all available security officer positions due to
labor shortages in certain markets. Labor shortages resulted from the improved
economy and lower unemployment rates. Cost of services was also affected by an
increase in insurance costs in 1994 of $9.1 million resulting primarily from
higher payments on claims and increased costs in international operations due
to acquisition due diligence and the effects of economic dislocation in
Mexico. Gross profit decreased $6.6 million, or 8.0%, from $83.0 million in
1993 to $76.4 million in 1994. Gross profit as a percentage of service
revenues decreased from 10.8% in 1993 to 9.0% in 1994. Increased competition
for security officer contracts did not permit the Company to increase prices
enough to fully recover the increased costs.
Operating Expenses. Operating expenses increased by $3.0 million, or 5.5%,
from $55.0 million in 1993 to $58.0 million in 1994. The increase in operating
expenses resulted from the increase in service revenues, although at a lower
rate. Operating expenses were 6.8% of service revenues in 1994 and 7.1% of
service revenues in 1993. Actions were taken during 1994 to reduce operating
expenses and improve efficiency.
14
<PAGE>
Write-down of Intangibles and Other Special Charges. Goodwill and other
intangibles, principally contract rights, were written down in 1994 in the
amount of $11.5 million. This write-down relates primarily to the Company's
business in the United Kingdom ("U.K."). From the inception of the
acquisitions which formed the U.K. business, the revenue and earnings
projections made at the time of these acquisitions were not attained due to a
prolonged economic recession, increased competitive pressures, the loss of
contracts and difficulties encountered in developing and managing a large,
national U.K. company. These conditions resulted in significant losses after
amortization in 1994 and a significant deficiency in the U.K. subsidiary's
equity. The Company determined that these trends would continue, and that
projected results would not support the remaining balance of goodwill and
other intangible assets.
The methodology used by the Company to assess the recovery of goodwill and
other intangibles was to review recent trends and where appropriate to project
future results of operations, considering all available information, for the
period of amortization which coincided with the life of the intangible asset
as of December 30, 1994. Such methodology established that certain balances of
goodwill and other intangible assets in two international businesses (U.K. and
Mexico) were impaired and could not be recovered from future operations.
Therefore, these intangible assets were written down based on projected
discounted future cash flows using a discount rate reflecting the Company's
average cost of capital.
During 1994, the Company also recorded a pre-tax charge of $2.9 million
consisting primarily of severance, recruiting and relocation charges.
In 1993, the Company recorded a pre-tax charge of $3.8 million for
realignment of field management, the consolidation of headquarters facilities
and selected field operations, and a write-down of uniform inventory.
Amortization. Amortization of intangible assets increased by $1.9 million,
or 22.9%, from $8.3 million in 1993 to $10.2 million in 1994. This increase
reflects full-year amortization related to business acquisitions made during
1993 and amortization related to 1994 acquisitions.
Operating Loss. Operating loss was $3.9 million, or 0.5% of service
revenues, as compared with operating profit of $15.9 million, or 2.1% of
revenues, for 1993. Operating profit declined as a percentage of revenues due
to increased labor and insurance costs, the write-down of goodwill and other
intangible assets, increased amortization costs and higher operating expenses
as discussed above.
Interest Expense. Interest expense decreased by $0.2 million, or 3.5%, from
$5.7 million in 1993 to $5.5 million in 1994. This decline reflects the
scheduled repayment of $8.6 million principal amount of Senior Notes made in
June 1994.
Income Taxes. The Company's positive tax provision in 1994, in spite of an
overall loss, reflects the non-deductibility of the goodwill write-down in the
U.K., other non-United States losses for which no benefit has been recorded,
and fixed, nondeductible goodwill in the United States. The United States
statutory rates for 1994 and 1993 approximated 42% (federal rate of 35.0% and
average effective state rate of approximately 7%).
CAPITAL RESOURCES AND LIQUIDITY
Pinkerton's cash needs during the first six months of each year are greater
because of higher payroll taxes. At March 22, 1996, the Company had $18.2
million in cash and cash equivalents, a decrease of $2.0 million from December
29, 1995; and $24.8 million in marketable securities, a $5.4 million increase
from December 29, 1995. Net cash provided by operating activities of $7.3
million for the first quarter of 1996 was reduced by $9.3 million of net cash
payments relating to investing activities. The Company's principal investing
activities during the first quarter of 1996 were net purchases of marketable
securities ($5.3 million), acquisitions ($2.8 million) and purchases of
equipment and leasehold improvements ($1.2 million). The Company intends to
apply a portion of the net proceeds to the Company from the Offering to redeem
all of its outstanding Senior Notes, including the payment of accrued interest
and prepayment charges. See "Use of Proceeds." Such redemption will cause
recognition of extraordinary debt extinguishment expenses in the quarter in
which it is effected.
15
<PAGE>
The Company has an acquisition program intended to implement its strategy to
become a world-class, global security solutions provider. The Company also has
an ongoing program to replace capital equipment as required. Both of these
activities will continue for the balance of 1996.
The Company has an unsecured revolving credit facility with a group of banks
for borrowings up to $70.0 million, of which $50.0 million may be letters of
credit. The facility also provides for a possible increase up to $100.0
million of borrowings (of which $50.0 million may be letters of credit) upon
certain conditions. No cash borrowings have been made during 1996. At July 1,
1996 no amounts were outstanding under the cash borrowing facility and $39.1
million in letters of credit had been issued by the Company to secure
obligations under the Company's self-insurance programs.
The Company believes existing liquid resources, cash generated from
operations and funds available under the revolving credit facility are
sufficient for its acquisition program and operating and capital requirements
during the next 12 months. The Company also has access to capital markets, if
necessary, to raise funds for working capital, capital spending, acquisitions
and other investments for business growth. See "Risk Factors--Acquisition
Strategy."
SUBSEQUENT EVENT
During the second quarter of 1996, the Company entered into a settlement
related to the acquisition of Pinkerton's, Inc. by California Plant
Protection, Inc. in 1988. As a result of this settlement, the Company received
a cash payment of $5.2 million in the second quarter of 1996. Of this amount,
$3.3 million represented a recovery of income and other taxes paid on behalf
of the previous owner which were previously carried on the Company's balance
sheet; the remaining $1.9 million (which is not taxable) will be recorded as
other income in the second quarter of 1996.
16
<PAGE>
Certain information set forth below includes "forward-looking statements."
See "Note on Forward-Looking Statements."
BUSINESS
OVERVIEW
Pinkerton is one of the world's leading providers of contract security and
security-related services. The Company, which was founded in 1850 by the
original "private eye," Allan Pinkerton, provides uniformed security officer
services to more than 5,000 industrial, commercial and governmental customers
domestically and internationally, including approximately half of the United
States "Fortune 1,000" companies. In addition to security officer services,
Pinkerton provides security systems design and integration services; security
consulting; pre-employment background verification and assessment service;
general, undercover and specialized investigations; and patrol and alarm
response services. The Company operates more than 220 offices in the United
States, Canada, Mexico, Europe and Asia and has more than 45,000 employees.
During 1994, the Company recruited a new senior management team, implemented
a number of measures designed to improve the Company's operating results and
initiated a corporate strategy to position Pinkerton for long-term growth and
profitability. Management performed a detailed analysis of the Company's
profitability on a contract-by-contract basis, which enabled it to identify,
renegotiate and when necessary terminate many unprofitable contracts.
Management also refocused the Company's sales and marketing efforts, replaced
a number of underperforming district managers, instituted a new incentive
system designed to promote profitability at the district office level and
tightened cost controls. After surveying many customers to better understand
their security needs, the Company rededicated itself to providing quality
services by commencing total quality management and enhancing employee
training programs. These measures have enabled the Company to report increased
gross margins in each of the last five quarters over the comparable prior
periods. In addition, for the fiscal year ended December 29, 1995 and the
twelve weeks ended March 22, 1996, operating profit (before non-recurring
items) increased by 154.4% and 26.2%, respectively, over the comparable prior
periods.
BUSINESS STRATEGY
Pinkerton's strategic objective is to be a world-class, global security
solutions provider by offering and integrating traditional security services
with electronic security systems and a range of consulting services to address
all of a customer's security needs. As part of this strategy, the Company
intends to: (i) capitalize on its worldwide customer base, widely-recognized
brand name and reputation for superior quality by cross-marketing higher
margin, value-added services and products, thereby creating security
partnerships with its customers and increasing customer retention and (ii)
pursue an aggressive acquisition strategy designed both to add core
competencies, such as security systems integration, and to grow its security
officer franchise. See "Risk Factors--Acquisition Strategy." Specifically, the
Company's strategy consists of the following:
. Promote Widely-Recognized Brand Name. The Company believes that
"Pinkerton" is the most widely- recognized brand name in the security
industry worldwide. The Company intends to continue to capitalize on
Pinkerton's brand name and reputation for superior quality security
services and products.
. Emphasize World-Class Service. The Company intends to maintain its strong
commitment to providing its clients with world-class service and believes
that its employee selection process and training programs are the most
rigorous and effective in the industry. As the primary interface with its
customers on a day-to-day basis, Pinkerton's security officers are the
key to the Company's ability to provide world-class customer service and
differentiate itself from its competition.
. Offer a Full Range of Security Services. The Company intends to
aggressively expand its offerings of higher margin, value-added services
and products in order to become a single-source provider of security
solutions for its existing and future customers. As part of this effort,
the Company plans to capitalize on its worldwide customer base by cross-
marketing its expanded security service and product offerings.
17
<PAGE>
Management believes that as a full-service provider of innovative security
solutions Pinkerton can create security partnerships with its existing and
future customers, promote customer retention and expand the Company's
customer base.
. Capitalize on "Outsourcing" and Centralization Trends. Management intends
to continue to capitalize on the growing trends among businesses to
outsource non-core functions, such as security, and to centralize the
procurement and oversight of such functions at the corporate level in
order to minimize the number of vendor relationships. Pinkerton believes
it has a number of competitive advantages to capitalize on these trends
toward outsourcing and centralization, including its long-standing
expertise in recruiting, training and managing large numbers of security
personnel, its demonstrated ability to manage large, multi-site corporate
security contracts and its extensive knowledge of customer security
needs. These capabilities have enabled the Company to obtain a contract
extending to 1999 to provide security officer services for all of General
Motors' North American facilities, a function which General Motors had
previously handled primarily in-house. Pinkerton has over 50 customers
for which it provides security services on a national or regional level
at multiple locations.
The Company has embarked on an aggressive effort to broaden its core
competencies through acquisitions. See "Risk Factors--Acquisition Strategy."
Key elements of the Company's acquisition strategy include:
. Expand Strategically Into Security Systems Integration. The Company
intends to assemble an extensive network of security systems integration
businesses in major metropolitan areas as part of its effort to be a
single-source provider of security solutions. Since the beginning of
1995, Pinkerton has acquired three regional security systems integration
businesses. These businesses provide higher margin, value-added services
and products by integrating diverse electronic security systems, such as
access control, closed circuit television, alarm monitoring and digital
badging, into a coherent interrelated operating system that enhances
security and automates alarm response. These businesses also provide
ongoing maintenance of such systems.
. Consolidate Security Officer Companies. The market for security officer
services is highly fragmented, with only a few national operators and
over 9,000 independent vendors, most of which serve discrete local
markets. The Company estimates, based on industry sources, that Pinkerton
and the other two largest companies in the security industry currently
have a combined domestic market share of approximately 29%, and that the
20 largest operators have a combined domestic market share of
approximately 48%. Management believes that Pinkerton has several
competitive advantages to enable it to succeed as an industry
consolidator, including a widely-recognized brand name, a strong
financial position, access to capital, a reputation for superior quality,
the ability to service national and international accounts, management
experience in identifying and assimilating acquisitions and sophisticated
management information systems.
. Expand International Operations. The Company intends to capitalize on
future strategic opportunities for international expansion to enhance its
ability to provide global security solutions to its existing and future
customers. The Company currently has offices in 18 countries throughout
North America, Europe and Asia.
MARKET OVERVIEW
Industry research firms have categorized the United States' security services
market into the following segments: security officer and investigation
services; armored car services; central station monitoring services; and
security consulting and other services. Security officer and investigation
services is the oldest and largest segment of the security industry. Services
in this market segment include armed and unarmed security officer and patrol
services and various types of investigation services, including background,
undercover, insurance claims, financial fraud and other investigations. These
services are often characterized as either "proprietary" or "contract." Under
proprietary arrangements, users of the services employ, schedule and manage
their own security officers and investigators. In contrast, contract services
are provided by independent security officer and investigation service
companies such as Pinkerton to end users pursuant to contracts.
18
<PAGE>
The domestic security-related services industry, which includes security
officer and investigative services, systems integration services, alarm
monitoring services, patrol services and security consulting services,
accounted for revenues of approximately $16.6 billion in 1994 and is projected
to increase at a compound annual growth rate of approximately 7.9% per year to
approximately $26 billion by the year 2000. The domestic security officer
services segment of the market, from which the Company generated approximately
80% of its revenues in 1995, accounted for approximately $8.6 billion of
revenues in 1994 and is projected to increase at a compound annual growth rate
of 7.4% to almost $13.2 billion by the year 2000. The Company believes that
the projected growth in the security-related services industry in general, and
the security officer services segment in particular, is attributable primarily
to three factors: (i) increasing incidents of crime, violence and terrorism,
(ii) governmental budgetary constraints which limit the resources available to
combat such crime, violence and terrorism and (iii) the growing trend among
businesses to outsource certain non-core operations, such as security
services, to limit required capital expenditures and reduce administrative and
labor costs.
PINKERTON OPERATIONS
Security Officer Services. Pinkerton's principal business consists of
providing security officer services to a wide variety of industrial,
commercial and retail businesses, hospitals, governmental units and promoters
of special events. Security services include the furnishing of uniformed
security officers and other personnel to perform services associated with
physical security and protection. Depending on the needs of the client,
security officers are on hand, often around-the-clock, to provide facility
security, access control, personnel security checks and traffic and parking
control and to protect against fire, theft, sabotage and safety hazards. In
addition, Pinkerton security officers respond to emergency situations and
report fires, intrusions, natural disasters, work accidents and medical crises
to appropriate authorities. Pinkerton services automated teller machines and
provides specialized vehicle patrol and inspection services and alarm
monitoring and response services. Although Pinkerton supplies both armed and
unarmed security officers, the vast majority are unarmed.
Security officer services are generally provided under specific contracts in
which Pinkerton assumes responsibility to employ, schedule and pay all
security officers and provide uniforms, equipment, training, supervision,
fringe benefits, bonding and workers' compensation insurance. Pinkerton
customarily charges its clients for its services at an hourly rate per person.
The contract may provide for a fixed or variable hourly rate. Contracts
between Pinkerton and its customers are frequently the result of competitive
bidding. Most contracts extend for one year but are often terminable on
relatively short notice (usually 30 days) by either party.
In fiscal years 1993, 1994 and 1995, security officer services accounted for
approximately 96%, 96% and 95%, respectively, of the Company's revenues. Since
the Company historically has provided primarily security officer services to
its customer base of over 5,000 clients, it is well positioned to cross-market
additional value-added services and products which could provide the Company
with significant opportunities for future growth.
Security Systems Integration Services. Through its newly-formed security
systems integration division, Pinkerton integrates diverse electronic security
systems, such as access control, closed circuit television, alarm monitoring
and digital badging, into a coherent interrelated operating system that
enhances security and automates alarm response. The Company also provides
ongoing maintenance of such systems. Pinkerton has supplier and distribution
agreements with the manufacturers of the equipment that management believes
best meets client needs. Equipment used by the division is widely available
from several suppliers. Management believes that, in order to service an
installed security system effectively, a service provider must be located
within a three to four hour drive of the customer. Although Pinkerton
currently provides these services only in certain regions, the Company expects
to expand this division significantly by growing internally and by acquiring
additional regional security systems integration companies in order to
assemble nationwide capabilities. See "Risk Factors--Acquisition Strategy."
Security Consulting Services. Pinkerton provides security consulting
services worldwide. These services include security surveys, assessments,
contingency and crisis planning, design and engineering services including
computer-aided designs and specifications and systems design. Pinkerton also
provides project management
19
<PAGE>
services, including quality assurance, construction and budget management and
technical documentation. The Company's risk assessment service provides daily,
weekly and monthly assessments of international travel and asset risk related
to terrorism, crime and political instability.
Investigation and Other Security-related Services and Products. Pinkerton
provides investigation services to a diverse array of businesses, including
general and undercover investigations as well as insurance and other fraud
investigations, surveillance, personnel background checks, business due
diligence investigations and intellectual property infringement
investigations. Pinkerton Investigations also provides workplace violence
prevention and management services as well as investigations related to kidnap
and ransom and product contamination incidents.
Pinkerton usually offers investigation services to customers on a specific
project basis and charges its customers an hourly rate for services performed.
However, Pinkerton occasionally performs such services on a retainer or fixed
fee basis. Most agreements between Pinkerton and its customers covering
investigation services provide that Pinkerton or the customer may terminate
their relationship at any time. Pinkerton, as a matter of Company policy, does
not perform divorce or political investigations or generally work on behalf of
plaintiffs in civil litigation or defendants in criminal litigation.
Pre-Employment and Workplace Services. Through its Pinkerton Services Group,
the Company provides anonymous employee reporting, security and safety
incident tracking, integrity testing, employee awareness programs, pre-
employment background verifications and assessment services for employee
selection such as attitude surveys. These services are proactive security
solutions designed to prevent rather than react to security breaches.
SALES
Pinkerton organizes its operations into domestic and international regions.
The Company markets and cross-sells its security and security-related services
and products both through its individual district offices worldwide and
through its separate marketing and sales organizations. Management has
refocused the Company's sales and marketing efforts, replaced a number of
underperforming district managers and instituted a new incentive system
designed to promote profitability at the district office level.
COMPETITION
The markets for Pinkerton's services are highly fragmented and competitive.
Domestically, there are approximately ten national security officer and
investigation service companies, of which Pinkerton believes it is the second
largest on the basis of annual revenue. The Company also competes with large
national and multinational security officer companies in certain of its
overseas markets and with numerous smaller regional and local companies
providing similar services in the United States and international markets.
Competition in the security officer industry is intense and is based on many
factors, including price in relation to the quality of service, the scope of
services performed, and the extent and quality of security officer
supervision, recruiting and selection, training and local and/or national
reputation.
CUSTOMERS
During 1995, the Company provided services to more than 5,000 industrial,
commercial and governmental customers, including approximately one-half of the
United States "Fortune 1,000" companies. Internationally, the Company provides
security officer and investigation services to firms in the financial,
manufacturing, retail and transportation areas, as well as the United States
and foreign governments. The Company's largest customer, General Motors,
contracts for over 120,000 security officer hours per week. Total revenue
under this contract accounted for approximately 13% of the Company's revenue
in 1995. The Company's agreement to supply contract security to General Motors
currently extends to 1999. Other prominent customers include Northrop Grumman,
Hewlett Packard, Home Savings of America, ITT Sheraton, General Electric,
Toyota, Xerox, Saks Fifth Avenue and Whirlpool Corporation. The loss of sales
to any single customer, with the exception of General Motors, would not have a
material adverse effect on the Company.
20
<PAGE>
EMPLOYEES
Pinkerton believes that the quality of its security officers is key to its
ability to offer world-class service. Pinkerton subjects security officer
candidates to a selection process involving a psychological profile, a
structured computer-assisted employment interview, a ten-step background
verification and records check and a drug test. Pinkerton managers complete a
battery of psychological evaluations and background verification and records
check.
Many applicants for investigative positions have had experience in law
enforcement, the insurance industry or military branches specializing in
investigation prior to joining Pinkerton and, as such, are trained
professionals with field experience. Pinkerton training efforts consist of
providing employees with field manuals, training films, tests, customer-
specific operating instructions and weekly recorded telephone updates. All
security district managers, security and operations managers and field
supervisors also must complete Pinkerton's proprietary, accredited Advanced
Certification Training Course. In addition, Pinkerton encourages all of its
security officers to take this course.
Pinkerton has approximately 45,000 full-time and part-time employees.
Collective bargaining agreements cover approximately 8% of its employees in
the United States, approximately 72% of its employees in Canada and
approximately 94% of its employees in Mexico. The Company is not a party to
any collective bargaining agreement covering any Pinkerton employees in Europe
or Asia. Relations with employees have generally been satisfactory, and
Pinkerton has not experienced any significant work stoppages attributable to
labor disputes. Security officers and other personnel supplied by Pinkerton to
its customers are Pinkerton employees, even though they may be stationed
regularly at a customer's premises.
Pinkerton's business is labor intensive and, as a result, is affected by the
availability of qualified personnel and the cost of labor. The Company's
ability to pass along any increases in labor costs may be limited by contract
or by price competition within the industry, which has been intense for
several years. Labor shortages can cause the Company to incur significant
overtime expense in geographic areas experiencing low unemployment. The
premium portion of overtime expense is typically absorbed by the Company.
REGULATION AND LEGAL PROCEEDINGS
Pinkerton is subject to and complies with a large number of city, county and
state occupational licensing and firearm laws that apply to security officers
and private investigators. In addition, many states have laws requiring
training and registration of security officers, regulating the use of badges
and uniforms, prescribing the use of identification cards or badges and
imposing minimum bond surety or insurance standards. Federal legislation has
been introduced to establish minimum Federal standards for security officer
qualification and training and similar legislation is pending in several
states which do not already have standards governing security services. The
Company, either directly or through industry trade associations, generally
supports the creation of minimum standards for the industry. Due to its high
qualification and training standards, the Company does not expect the
establishment of minimum Federal standards or new state standards to have a
material adverse effect on the Company's business. Many foreign countries also
have laws that restrict the ability of Pinkerton to render certain services,
including laws prohibiting the provision of private security services and
those limiting foreign investment, in which case the Company provides only the
permitted services and may enter into joint venture or alliance arrangements
with local security companies in order to offer customers a full range of
security services. Many states also require licenses for various aspects of
the security systems integration business.
In certain circumstances, Pinkerton may potentially be liable for the
negligent acts or misconduct of its agents or employees performed while on
duty and in the course and scope of their employment. The nature of the
services provided by Pinkerton (such as armed and unarmed security officers,
crowd control and fire protection) potentially exposes Pinkerton to greater
risks of liability for employee conduct than are experienced by many non-
security businesses. The Company experiences a significant volume of claims
and litigation asserting that the Company is liable for damages as a result of
the conduct of its employees or others. Some claims or litigation allege
substantial damages. The Company maintains self-insurance programs and
insurance
21
<PAGE>
coverage for this liability risk. The Company also seeks to mitigate this risk
exposure through indemnification or liability limitations in its contracts,
analysis of client facilities and programs for employee screening, training,
anonymous reporting and supervision. The Company believes that it has
established adequate provisions for litigation liabilities in its Consolidated
Financial Statements. Management believes, based on currently known facts,
that there is no claim or litigation pending against the Company the
disposition of which will materially affect its financial position or future
operating results, although no assurance can be given with respect to the
ultimate outcome of any such claim or litigation. In addition, exposure to
litigation is inherent in the Company's ongoing business and may have a
material adverse effect in the future.
22
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas W. Wathen............ 66 Chairman of the Board
Denis R. Brown.............. 56 President, Chief Executive Officer and Director
C. Michael Carter........... 53 Executive Vice President, General Counsel and
Corporate Secretary
James P. McCloskey.......... 55 Executive Vice President and Chief Financial
Officer
Don W. Walker............... 54 Executive Vice President, North American
Operations
Gary J. Hasenbank........... 49 Corporate Vice President, Human Resources
Anthony R. Miller........... 55 Corporate Vice President, Total Quality
Michael A. Stugrin.......... 46 Corporate Vice President, Marketing
Steven A. Lindsey........... 46 Controller
Peter H. Dailey............. 66 Director
John A. Gavin............... 65 Director
Gerald D. Murphy............ 68 Director
J. Kevin Murphy............. 69 Director
Robert H. Smith............. 60 Director
William H. Webster.......... 72 Director
</TABLE>
THOMAS W. WATHEN joined the Company's predecessor in 1963 and served on a
full-time basis as President, Chief Executive Officer and Chairman of the
Board from 1964 to January 1988. Since January 1988, Mr. Wathen has served as
President (until October 1990 and from July 1992 until April 1994), Chief
Executive Officer (until April 1994) and Chairman of the Board of the Company.
For the five years prior to joining the Company's predecessor, Mr. Wathen
served as a security representative for North American Aviation and as a
security director for RCA and Mattel Toys. From 1951 to 1958, Mr. Wathen
served as an industrial security officer for the United States Air Force and
special agent for the Department of Defense.
DENIS R. BROWN was elected the President and Chief Executive Officer and a
director of the Company in April 1994. Prior to joining the Company, Mr. Brown
served at Concurrent Computer Corporation ("Concurrent") as Vice Chairman of
the Board, President and Chief Executive Officer from September 1990 until
July 1991, then Chairman of the Board, President and Chief Executive Officer
until April 1992, and then Chairman of the Board and Chief Executive Officer
until August 1993. Mr. Brown served as President and Chief Executive Officer
of Penn Central Industries Group from May 1985 until January 1990. Prior to
joining Penn Central, Mr. Brown spent 15 years with ITT Corporation, serving
as Corporate Vice President and Group Executive of the Defense Space Group and
as President of the Defense Communications Division. Mr. Brown currently
serves as a director of Raydyne Corp. and a privately-held corporation.
C. MICHAEL CARTER has served as Executive Vice President, General Counsel
and Corporate Secretary of Pinkerton since joining the Company in September
1994. He also directs corporate development, corporate strategy and risk
management. Prior to joining Pinkerton, Mr. Carter served at Concurrent as
Senior Vice President, Operations and Secretary from August 1993 to September
1994, and served as Vice President, General Counsel and Secretary and directed
corporate development from May 1987 to August 1993. He also served as a
director of Concurrent from June 1994 to September 1994. Prior to his
employment at Concurrent, Mr. Carter was Senior Corporate Counsel and
Assistant Secretary for RJR Nabisco, Inc. and General Counsel and Secretary of
RJ Reynolds Development Corporation. He also held senior positions in legal
affairs with The Singer Company and was an associate with Winthrop, Stimpson,
Putnam & Roberts in New York. He currently serves as a director of a
privately-held corporation.
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<PAGE>
JAMES P. MCCLOSKEY has served as Executive Vice President and Chief
Financial Officer of the Company since joining the Company in October 1994.
Prior to joining the Company, Mr. McCloskey served as Vice President Finance,
Treasurer and Chief Financial Officer of Concurrent from 1986 to 1994 and of
Sybron Corporation from 1980 to 1986. Prior to that time, Mr. McCloskey held a
number of financial and operating positions with W.R. Grace & Company. He
began his career with Price Waterhouse. Mr. McCloskey currently serves as a
director of a privately-held corporation.
DON W. WALKER has served as Executive Vice President, North American
Operations since November 1994. Prior to that he served as Executive Vice
President, Investigations since joining the Company in November 1991 and
Executive Vice President, Investigations and International Operations since
June 1993. Mr. Walker was the founder of Business Risks International ("BRI"),
a firm specializing in security consulting, investigations and loss
prevention, and served as its President and Chief Executive Officer from
September 1985 until joining the Company upon its acquisition of BRI. Prior to
founding BRI, Mr. Walker was Assistant General Counsel and Corporate Security
Director for Genesco Inc. Mr. Walker also is a former Special Agent of the
Federal Bureau of Investigation, and a former President/Chairman of the
American Society for Industrial Security.
GARY J. HASENBANK has served as Corporate Vice President, Human Resources
since joining the Company in April 1994. Prior to joining the Company, Mr.
Hasenbank served as Corporate Director of Human Resources of Herbalife
International of America, Inc. from July 1993 until joining the Company. He
served at Baxter Healthcare International Pharmaseal Division as Division
Director of Human Resources from 1988 to 1993, and as Director of Employee
Relations from 1981 to 1988. Prior to that, Mr. Hasenbank had spent six years
as Human Resources Manager at PepsiCo International and six years as
Employment and Compensation Manager at Cessna Aircraft Company.
ANTHONY R. MILLER has served as Corporate Vice President, Total Quality
since joining the Company in May 1995. Prior to joining the Company, Mr.
Miller served as Vice President--Chief Quality Officer of Banc One Services
Corporation from May 1990 to July 1994. He served at Citicorp Global Payment
Products as Vice President--Director Service Management from 1987 to 1990 and
as Vice President--Director of Performance Engineering from 1986 to 1987.
Prior to that, Mr. Miller spent four years with American Express and three
years with International Telephone & Telegraph in systems development
positions.
MICHAEL A. STUGRIN has served as Corporate Vice President, Marketing since
joining the Company in May 1995. Prior to joining the Company, Mr. Stugrin
served at Concurrent from 1992 to 1995 in various senior positions, including
Director of Strategic Planning and Director of Corporate and Marketing
Communications. He served at Unisys Corporation from 1984 to 1992 in various
senior marketing and communications positions.
STEVEN A. LINDSEY has served as Controller of the Company since joining the
Company in July 1994. Prior to joining the Company, Mr. Lindsey served as
Corporate Controller at Mitsubishi Electronics of America, Inc. from September
1993 until July 1994. Prior to Mitsubishi, Mr. Lindsey spent 10 years with
Standard Brands Paint Co. serving as the Vice President, Treasurer and
Controller. He began his career with Arthur Andersen & Co.
PETER H. DAILEY has been a director of the Company since February 1990. Mr.
Dailey is Chairman of Enniskerry Financial, Ltd., a private investment
company, and Chairman of the Supervisory Board of Memorex Telex Corporation.
Mr. Dailey has been the Chief Executive Officer of Memorex Telex since March
1996. Previously he was Vice Chairman, director and principal stockholder of
the Interpublic Group of Companies, a holding company for advertising
agencies. Mr. Dailey also is a director of Chicago Title and Trust Company,
Jacobs Engineering Group, Inc., Sizzler International, Inc. and The Wirthlin
Group. Prior to government service, he was a director of Walt Disney
Productions and Cement Roadstone Corporation PLC of Ireland. Mr. Dailey has
served as United States Ambassador to Ireland and as Special Presidential
Envoy to NATO countries for intermediate nuclear weapons negotiations. Mr.
Dailey also served as a member of the eleven-member Presidential Advisory
Committee on Arms Control and Disarmament. He was appointed by President
Reagan
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<PAGE>
and reaffirmed by President Bush in the same capacity. From 1985 to 1988, he
served in the Central Intelligence Agency as Counselor to William Casey,
Director of Central Intelligence. He also served as the principal media
strategist in the election campaigns of President Nixon in 1972, President
Reagan in 1980, and the primary campaign of President Ford in 1976. In 1984,
he served as Senior Advisor to the re-election campaign of President Reagan.
JOHN A. GAVIN has been a director of the Company since April 1993. Mr. Gavin
is the founder and is currently Chairman of Gamma Services, Inc., an
international venture capital and consulting firm. Mr. Gavin is also serving
as Chairman of the Advisory Board of Dresser Industries de Mexico, as Managing
Director of Hicks, Muse, Tate and Furst (Latin America) and as a director of
Atlantic Richfield Corporation, Wirekraft Holdings Corp. and the Hotchkis &
Wiley Funds. From 1987 to 1990, Mr. Gavin served as President of Univisa
Satellite Communications, a Spanish-language broadcast communications network,
and from 1986 to 1987 he was a Vice President of Atlantic Richfield
Corporation. In 1981, Mr. Gavin was appointed United States Ambassador to
Mexico by President Reagan and served in this capacity until 1986. Mr. Gavin
was also United States Advisor to the Secretary General of the Organization of
American States from 1961 through 1974. He remains a consultant to the United
States State Department.
GERALD D. MURPHY has been a director of the Company or of its predecessor
corporation since 1975. Mr. Murphy is Chairman of the Board and Chief
Executive Officer of ERLY Industries, Inc. (formerly Early California
Industries), a publicly-held company principally involved in international
agribusiness, with three major subsidiaries: American Rice, Inc., Chemonics
International-Consulting and Chemonics Industries-Fire-Trol. Mr. Murphy is
also Chairman of the Board of Directors of American Rice, Inc. and has served
as a director for Sizzler International, Inc., Wynn's International, Inc. and
Leisure Technology, Inc.
J. KEVIN MURPHY has been a director of the Company since October 1990. Mr.
Murphy is currently a business consultant to various companies and serves as a
director of Health Systems International, Inc. He served as Vice Chairman and
a director of Qual-Med, Inc. from 1990 to February 1994 and as Vice Chairman
and a director of Preferred Health Network, Inc., a preferred provider health
care company from February 1992 to June 1996. Mr. Murphy was President of 655
Associates, Inc., a crisis management and management consulting firm from 1985
to 1991. He is a past president of Purolator Courier Corporation and
Trailways, Inc.
ROBERT H. SMITH has been a director of the Company since April 1993. Mr.
Smith is currently a Managing Director and the Chief Executive Officer of
Smith & Crowley, Inc., an investment banking firm specializing in banks. He
serves as a director of Edison International, J. G. Boswell Co. and Oasis
Residential, Inc. From 1961 to 1992, Mr. Smith served in numerous managerial
positions with Security Pacific National Bank and Security Pacific
Corporation. From 1991 until April 1992, he served as Chairman of the Board
and Chief Executive Officer of Security Pacific Corporation and Chairman of
the Board of Security Pacific National Bank. Mr. Smith also served during 1992
as a member of the Board and President and Chief Operating Officer of
BankAmerica Corporation and Bank of America NT&SA.
WILLIAM H. WEBSTER has been a director of the Company since August 1992 and
a partner of the law firm of Milbank, Tweed, Hadley & McCloy since September
1991. Judge Webster is a director of Anheuser-Busch Companies, Inc., Maritz,
Inc. and T.L.C. Beatrice International Holdings, Inc. From May 1987 to
September 1991, he served as the Director of Central Intelligence and directed
the Central Intelligence Agency. From February 1978 to May 1987, Judge Webster
served as the Director of the Federal Bureau of Investigation. In 1970, Judge
Webster was appointed a Judge of the United States District Court for the
Eastern District of Missouri, and in 1973 was elevated to the United States
Court of Appeals for the Eighth Circuit. The Company retained Milbank, Tweed,
Hadley & McCloy for legal services in 1995.
25
<PAGE>
PRINCIPAL STOCKHOLDERS AND SELLING STOCKHOLDER
The following table sets forth information as to the ownership of the Common
Stock on July 1, 1996 (unless otherwise indicated), and as adjusted to reflect
the sale of the shares of Common Stock offered by the Company and the Selling
Stockholder hereby (assuming no exercise of the Underwriter's over-allotment
option), by all those known by the Company to be beneficial owners of more
than five percent of its Common Stock:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
---------------------- NUMBER OF ----------------------
NAME AND ADDRESS NUMBER OF SHARES BEING NUMBER OF
OF BENEFICIAL OWNER SHARES PERCENT OFFERED SHARES PERCENT
------------------- ------------ --------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Thomas W. Wathen(1)..... 2,792,370 33.4% 660,000 2,132,370 21.2%
15910 Ventura Blvd.
Suite 900
Encino, CA 91436
Southeastern Asset
Management, Inc.(2).... 830,700 9.9 -- 830,700 8.3
6075 Poplar Avenue
Memphis, TN 38119
J.P. Morgan & Co.
Incorporated(3)........ 539,230 6.5 -- 539,230 5.4
60 Wall Street
New York, NY 10260
Tweedy, Browne Company
L.P./
Vanderbilt Partners,
L.P.(4)................ 535,735 6.4 -- 535,735 5.3
52 Vanderbilt Avenue
New York, NY 10017
</TABLE>
- ---------------------
(1) Mr. Wathen is Chairman of the Board of Directors of the Company. The
Thomas W. Wathen Trust (the "Trust") and the Thomas W. Wathen Charitable
Remainder Unitrust (the "Unitrust") hold of record 2,729,388 shares and
44,482 shares of Mr. Wathen's Common Stock, respectively. Of the shares
being offered by Mr. Wathen hereby, 44,482 shares are those held of record
by the Unitrust, and the balance are held of record by the Trust. The
Trust, which is revocable, and the Unitrust, which is irrevocable, were
established for the sole benefit of Mr. Wathen during his lifetime. Mr.
Wathen has sole voting and investment power with respect to all shares
shown as beneficially owned. Also included in Mr. Wathen's beneficial
ownership are 18,500 shares of Common Stock issuable under options
exercisable currently or within sixty days.
(2) As of February 9, 1996, based on public filings. According to public
filings, Southeastern Asset Management, Inc., an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940, has
sole voting and dispositive power over 427,500 of such shares, sole
dispositive and no voting power over 47,000 of such shares, and shared
voting and dispositive power over 356,200 of such shares.
(3) As of February 16, 1996, based on public filings. According to public
filings, J.P. Morgan & Co. Incorporated has sole dispositive power over
all such shares and sole voting power over 286,750 of such shares.
(4) As of June 20, 1996, based on public filings. According to public filings,
Tweedy, Browne Company L.P. and Vanderbilt Partners, L.P. disclaim
membership in a "group" within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
According to public filings, Tweedy, Browne Company L.P., a broker-dealer
and investment advisor registered with the Securities and Exchange
Commission, has sole voting power and shared dispositive power over
464,420 of such shares and shared dispositive power and no voting power
over 64,215 of such shares, and Vanderbilt Partners, L.P. has sole voting
and dispositive power over 7,100 of such shares.
The Underwriters have been granted a 30-day over-allotment option to
purchase from the Company up to an aggregate of 354,000 additional shares of
Common Stock. See "Underwriting." If the over-allotment option is exercised in
full, Mr. Wathen, Southeastern Asset Management, Inc., J.P. Morgan & Co.
Incorporated and Tweedy, Browne Company L.P./Vanderbilt Partners L.P. would
beneficially own 20.5%, 8.0%, 5.2% and 5.1%, respectively, of the Common Stock
after completion of the Offering.
26
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Pinkerton's authorized capital stock consists of 100,000,000 shares of
Common Stock, $.001 par value, 68,000 shares of Preferred Stock and 5,000,000
shares of Designated Preferred Stock. There are 1,000 authorized shares of
Class A Preferred Stock, $100.00 par value ("Class A Preferred Stock"), 47,000
authorized shares of Class B Preferred Stock, $100.00 par value ("Class B
Preferred Stock"), 20,000 authorized shares of Class C Preferred Stock,
$100.00 par value ("Class C Preferred Stock"), and 5,000,000 authorized shares
of Designated Preferred Stock, $.001 par value ("Designated Preferred Stock,"
of which 200,000 shares have been designated Series A Junior Participating
Designated Preferred Stock). At July 1, 1996, there were 8,350,269 shares of
Common Stock outstanding and no shares of Class A, B or C Preferred Stock or
Designated Preferred Stock outstanding. On the same date, there were 135
holders of record of Pinkerton Common Stock. On July 1, 1996, there were
1,398,463 shares of Common Stock reserved for issuance to employees and
directors under incentive compensation arrangements (of these shares, 903,663
shares underlie outstanding options).
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders. Subject to the preferences
applicable to the outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably those dividends declared by the Board of Directors
out of legally available funds. In the event of a liquidation, dissolution, or
winding up of Pinkerton, the holders of Common Stock are entitled to share
ratably all assets remaining after all liabilities and the liquidation
preference applicable to the outstanding Preferred Stock have been paid. The
holders of Common Stock have no preemptive rights or cumulative voting rights
and no rights to convert their Common Stock into any other securities. All
outstanding shares of Common Stock are fully paid and nonassessable.
PREFERRED STOCK
Up to 5,000,000 shares of Designated Preferred Stock may be issued from time
to time in one or more series, and the Board of Directors, without further
approval of the stockholders, is authorized to fix the dividend rights and
terms, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, sinking fund and any other rights, preferences,
privileges and restrictions applicable to each such series of Preferred Stock.
There currently are 200,000 shares of Designated Preferred Stock designated
Series A Junior Participating Designated Preferred Stock. See "--Stockholder
Rights Plan and Junior Preferred Stock." The purpose of authorizing the Board
of Directors to determine such rights and preferences is to eliminate delays
associated with a stockholder vote on specific issuances. The issuances of
Designated Preferred Stock, while providing flexibility in connection with
possible financings, acquisitions and other corporate purposes, could, among
other things, adversely affect the voting power of the holders of Common Stock
and, under certain circumstances, may have the effect of deterring hostile
takeovers or delaying changes in control or management of the Company.
Shares of Class A, B and C Preferred Stock were originally issued to an
employee stock ownership plan and have all been redeemed. The terms of such
Preferred Stock provide that it may only be issued to an employee stock
ownership plan. Pinkerton currently has no employee stock ownership plan.
CERTAIN PROVISIONS OF PINKERTON'S CHARTER AND BY-LAWS
A provision of Pinkerton's Restated Certificate of Incorporation relates to
the rights of stockholders to vote on certain mergers, asset sales and other
extraordinary transactions to or with a person or entity who is, or has
publicly disclosed a plan or intention to become, the beneficial owner of at
least 5% of Pinkerton outstanding voting stock (an "Interested Stockholder").
In general, such business combinations must be approved by (i) the affirmative
vote of the holders of 80% of Pinkerton outstanding voting stock, exclusive of
shares owned by the Interested Stockholder or (ii) the affirmative vote of a
majority of the Continuing Directors of Pinkerton. A Continuing Director is
defined as a director who is not an Interested Stockholder or an affiliate or
associate of an Interested Stockholder and (i) was a member of the Board of
Directors prior to the time that an Interested Stockholder became an
Interested Stockholder or (ii) a director who became a member of the Board of
Directors
27
<PAGE>
after the Interested Stockholder became an Interested Stockholder, if such
director's nomination for election to the Board of Directors was recommended
or approved by a majority of the Continuing Directors then in office.
The Company's Restated Certificate of Incorporation and Amended and Restated
By-laws also: (i) provide for a classified Board of Directors divided into
three classes of directors, with the term of office of one of the three
classes terminating each year and with each class being elected for a three-
year term (other than the initial term of each such class); (ii) permit
stockholders to remove directors only for cause and by a vote of the holders
of at least 80% of Pinkerton outstanding voting stock, (iii) provide that
stockholders may act only at a meeting and not by written consent; (iv)
provide that only certain persons, not including the stockholders, may call
special meetings of stockholders; (v) provide that advance notice (containing
certain relevant information) be given of stockholder proposals not less than
120 days prior to the first anniversary of the date of the proxy statement
given by the Company to its stockholders in connection with the previous
year's annual meeting; (vi) provide that advance notice (containing certain
relevant information) be given of nominations of persons for election to the
Board of Directors not less than 50 days nor more than 75 days (or within 10
days following notice of a stockholders' meeting, if such notice is not given
60 days before such meeting) before any meeting of stockholders; (vii) require
that the By-laws of Pinkerton may only be adopted, amended or repealed by the
Board of Directors or by the vote of the holders of at least 80% of Pinkerton
outstanding voting stock; and (viii) require the vote of the stockholders of
at least 80% of Pinkerton outstanding voting stock to amend or repeal any of
the foregoing provisions (excluding the provision relating to the
authorization of Designated Preferred Stock, which may be amended or repealed
by a vote of the holders of at least a majority of Pinkerton outstanding
voting stock).
In addition, Pinkerton is a Delaware corporation subject to Section 203 of
the Delaware General Corporation Law ("GCL"). Generally, Section 203 prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless:
(i) prior to such date, either the business combination or such transaction
that resulted in the stockholder becoming an interested stockholder is
approved by the board of directors of the corporation; (ii) upon consummation
of the transaction which resulted in the stockholder's becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock; or (iii) on or after such date, the business combination is
approved by the board of directors of the corporation and by the affirmative
vote of at least 66 2/3% of the outstanding voting stock that is not owned by
the interested stockholder. A "business combination" includes mergers, asset
sales and other transactions resulting in a financial benefit to the
interested stockholder. An "interested stockholder" is a person who, together
with affiliates and associates, owns (or, within three years, did own) 15% or
more of the corporation's outstanding voting stock.
All of the foregoing provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management of Pinkerton.
STOCKHOLDER RIGHTS PLAN AND JUNIOR PREFERRED STOCK
In July 1991, Pinkerton's Board of Directors adopted a stockholders' rights
plan (the "Rights Plan"), as set forth in a Rights Agreement dated July 12,
1991 (the "Rights Agreement"). The following description of the Rights Plan is
qualified in its entirety by reference to the Rights Agreement filed as an
exhibit to the Company's Annual Report on Form 10-K.
Pursuant to the Rights Plan, one right (a "Right") was distributed with
respect to each outstanding share of Company Common Stock, and one Right
accompanies each share of Common Stock (including the shares offered hereby)
issued prior to the Distribution Date or Expiration Date (each as defined
below). Each Right entitles the registered holder to purchase from the Company
one one-hundredth of a share of Series A Junior Participating Designated
Preferred Stock, par value $.001 per share (the "Junior Preferred Stock"), at
a Purchase Price of $90, subject to adjustment.
The Rights are evidenced by Common Stock certificates and no separate rights
certificates have been distributed. The Rights will separate from the Common
Stock and a distribution date will occur (the "Distribution Date") upon the
earlier of (i) the Close of Business on the tenth day following a public
28
<PAGE>
announcement that a person (an "Acquiring Person") has acquired beneficial
ownership of 15% or more of the outstanding shares of Common Stock or such
earlier date as the Company's Board of Directors shall become aware of the
existence of such Acquiring Person (the "Stock Acquisition Date") or (ii) the
Close of the Business on the tenth business day following the commencement of
a tender offer or exchange offer that would result in an Acquiring Person
beneficially owning 20% or more of the outstanding shares of Common Stock,
unless the tender offer is a cash tender offer for all outstanding shares of
Company's Common Stock which is fair to the Company's stockholders and in the
best interests of the Company and its stockholders and meets certain other
criteria specified in the Rights Agreement ("Qualified Offer"), or such later
date as designated by the Board of Directors or a committee thereof.
Notwithstanding the foregoing, neither Thomas W. Wathen or any person serving
as trustee of a Wathen Trust (as defined in the Rights Agreement) shall be
deemed a beneficial owner of the shares of Common Stock held by a Wathen
Trust.
The Rights are not exercisable until the Distribution Date and will expire
at the Close of Business on July 12, 2001 (the "Final Expiration Date"),
unless earlier redeemed or exchanged by the Company as described below.
In the event that any Acquiring Person or any affiliate or associate thereof
engages in certain self-dealing transactions with the Company enumerated in
the Rights Agreement or any Acquiring Person becomes the beneficial owner of
20% or more of the then outstanding Common Stock, except as described in the
succeeding paragraph or pursuant to a Qualified Offer, then each holder of a
Right will thereafter have the right to receive, upon exercise, Common Stock
(or, in certain circumstances, cash, property or other securities of the
Company) having a value equal to two times the exercise price of the Right.
Rights are exercisable following the occurrence of the foregoing only after
such time as the Rights are no longer redeemable by the Company, as set forth
below. Notwithstanding the foregoing, following the occurrence of one of the
events referred to in this paragraph, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by
any Acquiring Person or any associate or affiliate thereof will be null and
void.
In the event that, at any time following the Stock Acquisition Date (which,
for purposes of this provision, includes the date of the first public
announcement that any Acquiring Person has become the beneficial owner of 15%
or more of the then outstanding Common Stock pursuant to a Qualified Offer),
(i) the Company is acquired in a merger or other business combination
transaction in which the Company is not the surviving corporation or in which
the Company's outstanding Common Stock is exchanged for cash, stock or other
property, or (ii) 50% or more of the Company's assets or earning power is sold
or transferred, each holder of a Right (except Rights which previously have
been voided as set forth above) shall thereafter have the right to receive,
upon exercise, common stock of the acquiring company having a value equal to
two times the exercise price of the Right. Notwithstanding the foregoing, this
provision shall not apply to transactions described in clause (i) above where
the acquisition of Common Stock of the Company is pursuant to a Qualified
Offer meeting certain additional criteria specified in the Rights Agreement.
Upon the consummation of such a transaction, all Rights shall expire.
In general, the Company may redeem the Rights in whole, but not in part, at
a price of $0.01 per right, at any time until the earlier of (i) the Close of
Business on the twelfth day following the Stock Acquisition Date, or (ii) the
Final Expiration Date. In no event are Rights exercisable until the Company's
right of redemption has expired. Immediately upon the action of the Board of
Directors ordering redemption of the Rights, the Rights will terminate and the
only right of the holders of Rights will be to receive the $0.01 redemption
price.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends.
Any of the provisions of the Rights Agreement may be supplemented or amended
by the Company prior to any Person becoming an Acquiring Person, without
approval of the Rights holders, whether or not a supplement or amendment is
adverse to the Rights holders. After a Person becomes an Acquiring Person, the
provisions of the Rights Agreement may be amended by the Company in order to
make changes which do not adversely affect
29
<PAGE>
the interests of holders of Rights (excluding the interests of any Acquiring
Person or any affiliate or associate thereof).
The Rights Plan may have the effect of deterring hostile takeovers or
delaying changes in control or management of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The Bank of New
York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, Pinkerton will have outstanding 10,050,269
shares of Common Stock, assuming no exercise of the Underwriters' over-
allotment option and without taking into account shares of Common Stock
issuable upon exercise of outstanding options. The 2,360,000 shares sold in
the Offering will be freely tradable without restrictions under the Securities
Act, except for any shares purchased by an "affiliate" of Pinkerton, which
will be subject to the resale limitations of Rule 144 adopted under the
Securities Act ("Rule 144").
Upon completion of the Offering, Mr. Wathen will hold 2,132,370 outstanding
shares of Common Stock (18,500 shares of which are subject to currently
exercisable options) and these shares will be subject to the resale
limitations of Rule 144. All of the shares of Common Stock held by Mr. Wathen
are subject to a "lock-up" agreement between Mr. Wathen and the Underwriters
which provides that Mr. Wathen may not sell, without the prior consent of
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), any shares in the
public market until 120 days after the date of this Prospectus.
The Company and Mr. Wathen have entered into a Personal Services Agreement
dated February 10, 1994 (the "Personal Services Agreement"), which grants Mr.
Wathen certain rights to have his shares of Company Common Stock registered
under the Securities Act. Pursuant to the Personal Services Agreement, Mr.
Wathen, may, on one occasion prior to April 20, 2004, require the Company to
register not less than 250,000 shares and not more than one-half of the total
shares of Common Stock owned by Mr. Wathen, but only to the extent such shares
are not salable during a 90-day period under Rule 144. Additionally, in the
event the Company proposes to register and offer shares of Common Stock, Mr.
Wathen is entitled to have certain of his shares registered in such offering
on a pro rata basis, but only to the extent that such shares are not salable
during a 90-day period under Rule 144. The Personal Services Agreement
requires the Company to hold Mr. Wathen harmless from any liabilities and
expenses relating to any actual or alleged omission or misstatement in a
prospectus or other offering document, and Mr. Wathen is required to hold the
Company and all other persons harmless from any liabilities and expenses
relating to any actual or alleged omission or misstatement in any prospectus
or other offering document which is based on information provided to the
Company by Mr. Wathen for its used in such materials.
As of July 1, 1996, Pinkerton has reserved 644,013 shares for issuance to
executive officers, directors and key employees pursuant to Pinkerton's 1990
Stock Option Plan, all of which shares are subject to outstanding options, and
754,450 shares for issuance to employees and certain non-employee directors of
the Company pursuant to the 1995 Pinkerton Performance and Equity Incentive
Plan, of which 259,650 shares are subject to currently outstanding options.
Pinkerton has registered or will register these shares and related options
under the Securities Act, and these shares are or will be eligible for sale at
any time after purchase. No further option grants may be made under the 1990
Stock Option Plan.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who for at least two years has beneficially owned
shares privately acquired from Pinkerton or from an affiliate of Pinkerton and
persons who are "affiliates" of Pinkerton would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of (i)
1% of the then outstanding shares of Pinkerton Common Stock or (ii) the
average weekly trading volume in Pinkerton Common Stock during the four
calendar weeks preceding such sale, subject to certain limitations and
restrictions. A person (or persons whose shares are aggregated) who is not
deemed an affiliate of Pinkerton and who has beneficially owned shares for at
least three years is entitled to sell such shares under Rule 144 without
regard to the volume limitations described above.
30
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement,
a syndicate of underwriters named below (the "Underwriters"), for whom DLJ,
Prudential Securities Incorporated and Schroder Wertheim & Co. Incorporated
are acting as representatives (the "Representatives"), have severally agreed
to purchase from the Company and the Selling Stockholder 1,700,000 shares of
Common Stock and 660,000 shares of Common Stock, respectively. The number of
shares of Common Stock that each Underwriter has agreed to purchase is set
forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation..............
Prudential Securities Incorporated...............................
Schroder Wertheim & Co. Incorporated.............................
-------
Total........................................................
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions. The Underwriters are obligated to take and pay
for all the shares of Common Stock offered hereby (other than in connection
with the over-allotment option described below) if any are taken.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock directly to the public initially at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. Any Underwriter may allow, and such dealers may reallow, a discount not
in excess of $ per share to any other Underwriter and to certain other
dealers. After the initial public offering of the shares of Common Stock, the
public offering price and other selling terms may be changed by the
Representatives.
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days from the date hereof, to
purchase up to an additional 354,000 shares of Common Stock at the public
offering price less the underwriting discounts and commissions set forth on
the cover page hereof. The Underwriters may exercise such option to purchase
additional shares solely for the purpose of covering over-allotments, if any,
made in connection with the sale of the shares of Common Stock offered hereby.
To the extent such over-allotment option is exercised, each Underwriter will
become obligated, subject to certain conditions, to purchase the same
percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares
set forth on the cover page hereof.
At the request of the Company, the Underwriters have reserved up to five
percent of the number of shares of Common Stock offered hereby for sale at the
public offering price to certain directors, officers and employees of the
Company. The number of shares of Common Stock available for sale to the
general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares
offered hereby.
The Company, the Selling Stockholder, the directors and certain officers of
the Company will agree with the Underwriters not to, directly or indirectly,
offer, sell, grant any other option to purchase or otherwise dispose of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for such
31
<PAGE>
Common Stock or in any manner transfer all or a portion of the economic
consequences associated with ownership of any such Common Stock for a period of
120 after the date of this Prospectus without the prior written consent of DLJ.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required
to make in respect thereof.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Gibson, Dunn &
Crutcher LLP, Los Angeles, California and the validity of the shares of Common
Stock offered hereby will be passed upon for the Company and the Selling
Stockholder by C. Michael Carter, Esq., Executive Vice President, General
Counsel and Corporate Secretary of Pinkerton. Mr. Carter owns 1,000 shares of
Common Stock and holds options to acquire 65,000 shares of Common Stock (of
which 9,750 shares are currently exercisable). Certain legal matters in
connection with the Offering will be passed upon for the Underwriters by
Skadden, Arps, Slate, Meagher & Flom, Los Angeles, California.
EXPERTS
The consolidated financial statements of Pinkerton's, Inc. and subsidiaries
as of December 30, 1994 and December 29, 1995, and for each of the years in the
three-year period ended December 29, 1995, have been included herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-3 (the "Registration
Statement"), File No. 333-6573, with the Securities and Exchange Commission
(the "Commission") under the Securities Act with respect to the securities
covered by this Prospectus. This Prospectus omits certain information and
exhibits included in the Registration Statement, copies of which may be
obtained upon payment of a fee prescribed by the Commission or may be examined
free of charge at the principal office of the Commission in Washington, D.C.
The Company is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed with the Commission by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Regional
Offices of the Commission located at 75 Park Place, 14th Floor, New York, New
York 10007 and Northwest Atrium Center, 500 Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, at prescribed rates. The Commission maintains a
World Wide Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. Such information is also filed with the
NYSE and is available for public inspection at the NYSE, 20 Broad Street, New
York, New York 10005.
32
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are by this
reference incorporated in and made a part of this Prospectus: (i) the Company's
Annual Report on Form 10-K for the fiscal year ended December 29, 1995 (File
No. 0-3017); (ii) the Company's Quarterly Report on Form 10-Q for the quarter
ended March 22, 1996 (File No. 0-3017); (iii) the description of the Company's
Common Stock and Rights contained in its Registration Statement on Form 8-A
filed on June 18, 1996 (File No. 1-11841); and (iv) all documents filed by the
Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this Prospectus and prior to the termination of the Offering. Any
statement contained in a document incorporated or deemed to be incorporated by
reference in the Prospectus shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference in the Prospectus modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
Copies of all documents that are incorporated herein by reference (not
including the exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents or into this Prospectus) will be
provided without charge to each person, including any beneficial owner, to whom
this Prospectus is delivered, upon a written or oral request to Pinkerton's,
Inc., Attention: Corporate Secretary, 15910 Ventura Boulevard, Suite 900,
Encino, California 91436-2810, telephone number (818) 380-8800.
33
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets at December 30, 1994 and December 29, 1995.. F-3
Consolidated Statements of Operations for the Years Ended December 31,
1993, December 30, 1994 and December 29, 1995.......................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1993, December 30, 1994 and December 29, 1995....... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1993, December 30, 1994 and December 29, 1995.......................... F-6
Notes to Consolidated Financial Statements for the Years Ended December
31, 1993, December 30, 1994 and December 29, 1995...................... F-7
Consolidated Balance Sheets at December 29, 1995 and March 22, 1996
(unaudited)............................................................ F-19
Consolidated Statements of Earnings for the Quarters Ended March 24,
1995 and March 22, 1996 (unaudited).................................... F-20
Consolidated Statements of Cash Flows for the Quarters Ended March 24,
1995 and March 22, 1996 (unaudited).................................... F-21
Notes to Unaudited Consolidated Financial Statements for the Quarters
Ended March 24, 1995 and March 22, 1996................................ F-22
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of Pinkerton's, Inc.:
We have audited the accompanying consolidated balance sheets of Pinkerton's,
Inc. and subsidiaries as of December 30, 1994 and December 29, 1995 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the three years ended December 31, 1993, December 30, 1994
and December 29, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Pinkerton's, Inc. and subsidiaries as of December 30, 1994 and December 29,
1995 and the results of their operations, changes in stockholders' equity and
cash flows for the years ended December 31, 1993, December 30, 1994 and
December 29, 1995, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Los Angeles, California
February 16, 1996
F-2
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 29,
1994 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 27,744 $ 20,215
Investment in marketable securities................ 10,581 19,396
Accounts receivable (includes unbilled amounts of
$28,136 in 1994 and $28,981 in 1995).............. 111,750 113,127
Less allowance for doubtful receivables............ 2,784 2,881
-------- --------
108,966 110,246
-------- --------
Inventory.......................................... 984 2,516
Prepaid expenses and taxes......................... 13,067 13,762
Deferred income taxes.............................. 4,440 6,836
-------- --------
Total current assets............................. 165,782 172,971
-------- --------
Equipment and leasehold improvements, net of
accumulated depreciation and amortization of $16,593
in 1994 and $21,619 in 1995......................... 13,430 14,017
Other assets:
Intangible assets, net............................. 62,201 60,895
Deferred income taxes.............................. 23,277 23,612
Other.............................................. 13,400 15,849
-------- --------
98,878 100,356
-------- --------
$278,090 $287,344
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 5,673 $ 7,304
Accrued liabilities................................ 66,134 66,867
Current maturities of long-term debt............... 8,575 8,575
-------- --------
Total current liabilities........................ 80,382 82,746
-------- --------
Accrued retirement benefits and other non-current
liabilities......................................... 51,436 56,598
Long-term debt, less current maturities.............. 42,850 34,275
Commitments and contingencies
Stockholders' equity:
Preferred stock.................................... 16 15
Common stock....................................... 8 8
Additional paid-in capital......................... 73,745 74,463
Other adjustments.................................. (8,325) (9,238)
Retained earnings.................................. 37,978 48,477
-------- --------
103,422 113,725
-------- --------
$278,090 $287,344
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, DECEMBER 29,
1993 1994 1995
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Service revenues....................... $772,026 $849,960 $862,793
Cost of services....................... 688,995 773,526 771,172
-------- -------- --------
Gross profit........................... 83,031 76,434 91,621
Operating expenses..................... 54,982 57,983 61,857
Amortization of intangible assets...... 8,323 10,240 8,873
Write-down of intangible assets and
other special charges................. 3,800 14,435 --
Gain from litigation settlements, net.. -- (2,369) --
-------- -------- --------
Operating profit (loss)................ 15,926 (3,855) 20,891
Provision for reserve against invest-
ment.................................. 3,267 -- --
Other (income) deductions:
Interest income...................... (1,509) (1,532) (2,713)
Interest expense..................... 5,747 5,501 5,583
-------- -------- --------
4,238 3,969 2,870
-------- -------- --------
Income (loss) before income taxes...... 8,421 (7,824) 18,021
Provision for income taxes............. 5,220 2,418 7,521
-------- -------- --------
Net income (loss)...................... $ 3,201 $(10,242) $ 10,500
======== ======== ========
Net income (loss) per common share..... $ .39 $ (1.24) $ 1.26
======== ======== ========
Weighted average common shares and
common share equivalents outstanding.. 8,284 8,288 8,351
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PREFERRED COMMON PAID-IN OTHER RETAINED STOCKHOLDERS'
STOCK STOCK CAPITAL ADJUSTMENTS EARNINGS EQUITY
--------- ------ ---------- ----------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 25,
1992................... $16 $ 8 $72,597 $(3,440) $ 45,021 $114,202
Dividends on preferred
stock.................. -- -- -- -- (1) (1)
Issuance of common
stock.................. -- -- 274 -- -- 274
Exercise of stock
options................ -- -- 115 -- -- 115
Minimum retirement plans
liability adjustment... -- -- -- (5,086) -- (5,086)
Foreign currency
translation
adjustment............. -- -- -- (1,074) -- (1,074)
Net income.............. -- -- -- -- 3,201 3,201
--- --- ------- ------- -------- --------
Balance at December 31,
1993................... 16 8 72,986 (9,600) 48,221 111,631
Dividends on preferred
stock.................. -- -- -- -- (1) (1)
Issuance of common
stock.................. -- -- 226 -- -- 226
Exercise of stock
options................ -- -- 533 -- -- 533
Minimum retirement plans
liability adjustment... -- -- -- 1,412 -- 1,412
Foreign currency
translation
adjustment............. -- -- -- (137) -- (137)
Net loss................ -- -- -- -- (10,242) (10,242)
--- --- ------- ------- -------- --------
Balance at December 30,
1994................... 16 8 73,745 (8,325) 37,978 103,422
Dividends on preferred
stock.................. -- -- -- -- (1) (1)
Redemption of preferred
stock.................. (1) -- -- -- -- (1)
Cancellation of
restricted common
stock.................. -- -- (233) -- -- (233)
Exercise of stock
options................ -- -- 951 -- -- 951
Minimum retirement plans
liability adjustment... -- -- -- (640) -- (640)
Foreign currency
translation
adjustment............. -- -- -- (273) -- (273)
Net income.............. -- -- -- -- 10,500 10,500
--- --- ------- ------- -------- --------
Balance at December 29,
1995................... $15 $ 8 $74,463 $(9,238) $ 48,477 $113,725
=== === ======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, DECEMBER 29,
1993 1994 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)..................... $ 3,201 $(10,242) $ 10,500
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Amortization of intangible assets..... 8,323 10,240 8,873
Depreciation and other amortization... 4,713 5,708 5,832
Provision for losses on doubtful
receivables.......................... 1,896 1,461 1,719
Provision for reserve against
investment........................... 3,267 -- --
Write-down of intangible assets....... -- 11,501 --
Changes in assets, liabilities and
stockholders' equity:
Accounts receivable................... (4,130) (4,637) 1,064
Inventory............................. 2,651 1,056 437
Prepaid expenses and taxes............ (584) (4,359) (799)
Deferred income taxes................. (6,280) (2,264) (2,731)
Other assets.......................... (1,661) (851) (2,605)
Accounts payable...................... (21) (1,527) 88
Accrued and other non-current
liabilities.......................... 7,775 14,429 468
Foreign currency revaluation of net
assets............................... (858) (565) (867)
-------- -------- --------
Net cash provided by operating
activities.......................... 18,292 19,950 21,979
-------- -------- --------
INVESTING ACTIVITIES:
Purchase of marketable securities..... (41,339) (23,273) (52,673)
Sales/redemptions of marketable
securities........................... 37,059 31,191 43,858
Purchase of equipment and leasehold
improvements......................... (6,852) (4,237) (5,336)
Payments for net assets of acquired
business, net of cash acquired....... (7,535) (11,678) (7,515)
-------- -------- --------
Net cash used in investing
activities.......................... (18,667) (7,997) (21,666)
-------- -------- --------
FINANCING ACTIVITIES:
Principal repayment of long-term
debt................................. -- (8,575) (8,575)
Exercise of stock options............. 88 405 735
Redemption of preferred stock......... -- -- (1)
Preferred dividends paid.............. (1) (1) (1)
-------- -------- --------
Net cash (used in) provided by
financing activities................ 87 (8,171) (7,842)
-------- -------- --------
Net (decrease) increase in cash...... (288) 3,782 (7,529)
Cash and cash equivalents at beginning
of year............................... 24,250 23,962 27,744
-------- -------- --------
Cash and cash equivalents at end of
year.................................. $ 23,962 $ 27,744 $ 20,215
======== ======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest.............................. $ 5,495 $ 6,222 $ 5,448
Income taxes.......................... $ 7,883 $ 9,942 $ 10,215
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. CORPORATE ORGANIZATION
Pinkerton's, Inc. and subsidiaries is the resultant corporate entity
following the acquisition on January 19, 1988 by California Plant Protection,
Inc. of Pinkerton's, Inc. (formerly owned by American Brands, Inc.).
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING CYCLE
Pinkerton's fiscal year comprises the 52-week (or 53-week) period ending on
the Friday closest to December 31, within the reporting year. The Company's
quarterly reporting periods consist of three four-week periods for the first,
second and third quarters, and four four-week periods for the fourth quarter.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Pinkerton's,
Inc. ("the Company") and its subsidiaries which are primarily wholly owned.
All significant intercompany accounts and transactions have been eliminated.
Certain reclassifications to prior year amounts have been made to conform to
the presentation of financial information for the year ended December 29,
1995.
REVENUE RECOGNITION
The Company's operations consist mainly of providing security officer and
investigation services to industrial, commercial, financial and other similar
business clients. Substantially all business activity is with customers
located throughout the United States, Canada, Europe, Asia and Mexico, and is
not concentrated in any particular geographical region therein or by any type
of economic activity. Service revenues are recognized as services are
provided, including amounts for unbilled, rendered services.
Sales to a single customer aggregated $105.3 million in 1994 and $109.5
million in 1995.
USE OF ESTIMATES
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles requires management to make certain estimates
and assumptions. These affect the reported amounts of assets, liabilities, and
the amount of contingent assets or liabilities disclosed in the consolidated
financial statements. Actual results could differ from the estimates made.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are recorded at cost. Equipment is
depreciated over the estimated useful life of the related assets. The
estimated useful life of equipment is 3 to 5 years. Leasehold improvements are
amortized over the period of the related lease or the estimated life of the
improvement, whichever is shorter. Accelerated methods of depreciation are
used for income tax purposes, and the straight-line method is utilized for
substantially all assets for financial reporting purposes. When equipment and
leasehold improvements are retired or otherwise disposed of, the cost and
related accumulated depreciation and amortization are removed from the
accounts and any resulting gain or loss is included in the results of
operations.
INTANGIBLE ASSETS
Intangible assets represent the excess of the purchase price of acquired
businesses over fair values of related net tangible assets (goodwill) and
values assigned to other intangible assets such as non-compete agreements,
F-7
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
contract rights and copyrights. Goodwill and other intangibles are amortized
on a straight-line basis over periods of 10 to 25 years, and 3 to 10 years,
respectively.
The Company assesses the recoverability of goodwill and other intangible
assets by determining whether the amortization of those balances can be
recovered through projected (undiscounted) future results. The amount of
impairment, if any, is measured based on projected discounted future cash
flows using a discount rate reflecting the Company's average cost of capital.
SELF-INSURANCE RESERVES
The Company maintains various self-insurance programs for workers'
compensation, general liability, fidelity, health, dental and automobile
liability risks in the United States. These programs are administrated by the
Company, insurance companies and other third parties. The Company is self-
insured up to specified per-occurrence limits and maintains coverage for
losses in excess of specified amounts and for certain international
activities. Estimated costs under these programs, including incurred but not
reported claims, are recorded as expenses based upon actuarially determined
historical experience and trends of paid and incurred claims.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carry forward. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enacted date.
Deferred income taxes have not been provided on undistributed earnings of
foreign subsidiaries as the earnings for U.S. tax purposes would be fully
offset by foreign tax credit.
FOREIGN CURRENCY TRANSLATION
The Company translates revenues and expenses of its foreign subsidiaries
using an average of exchange rates in effect during the year. The assets and
liabilities of such subsidiaries are translated at the rate of exchange in
effect at year end and translation adjustments are recorded as a component of
stockholders' equity in the consolidated balance sheet. At December 29, 1995,
the cumulative multi-year effect of translation adjustments was a decrease to
stockholders' equity of $4.9 million.
INCOME (LOSS) PER SHARE
Income (loss) per common share is computed based on the weighted average
number of shares of common stock and common stock equivalents, if dilutive,
outstanding during each period. Common stock equivalents represent the number
of shares that would be issued, assuming the exercise of dilutive stock
options, reduced by the number of shares that could be repurchased on the open
market with the proceeds from the exercise of those options.
Net income (loss) applicable to common shares represents net income less
dividends on the Company's cumulative preferred stock.
STATEMENT OF CASH FLOWS
The Company considers cash equivalents to be all highly liquid investments
with original maturities of 90 days or less.
F-8
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year balances to
conform to the 1995 presentation.
MARKETABLE SECURITIES
The Company adopted Statement of Financial Accounting Standards No. 115
(SFAS 115), "Accounting for Certain Investments in Debt and Equity
Securities," on January 1, 1994. SFAS 115 requires investments to be
classified in one of three categories: held-to-maturity securities, available-
for-sale securities, and trading securities. The Company classifies its
investments, comprised principally of highly liquid debt instruments with
maturities greater than 90 days, as available-for-sale securities. Available-
for-sale securities are reported at fair value.
NOTE 3. ACQUISITIONS
In June 1993, the Company signed a Purchase Agreement (commenced in August
1993) to acquire the internal uniformed security operations and assets of
General Motors' U.S. security operations.
In August 1994, the Company acquired various security contracts from Stanley
Smith Security, Inc.
The Company is pursuing its strategic plan to provide a broader array of
services and products to its client base including security integration
services and products. In pursuit of these plans, the Company acquired two
regional security integration companies in 1995 with a third company being
acquired in January 1996. Pro-forma financial information is not included as
it is insignificant to the consolidated financial statements.
NOTE 4. INTANGIBLE ASSETS, NET
Intangible assets, net, in the accompanying consolidated balance sheets
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 29,
1994 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Goodwill........................................... $ 68,847 $ 73,380
Less accumulated amortization...................... (17,828) (28,028)
Write-down of goodwill............................. (7,791) --
-------- --------
43,228 45,352
-------- --------
Other intangibles.................................. 35,137 36,947
Less accumulated amortization...................... (12,454) (21,404)
Write-down of other intangibles.................... (3,710) --
-------- --------
18,973 15,543
-------- --------
Total............................................ $ 62,201 $ 60,895
======== ========
</TABLE>
Goodwill and other intangibles, principally contract rights, were written
down in the fourth quarter of 1994 in the amount of $11.5 million. This write-
down related primarily to the Company's business in the United Kingdom (U.K.).
From inception of the acquisitions which formed the U.K. business, the sales
and earnings projections made at the time of these acquisitions were not
attained due to a prolonged economic recession, increased competitive
pressures, the loss of contracts and difficulties encountered in developing
and managing a large, national U.K. company. These conditions resulted in
significant losses after amortization in 1994 and a significant deficiency in
the U.K. subsidiary's equity. The Company determined that these conditions
would continue, and that projected results would not support the remaining
balance of goodwill and other intangible assets amounting to $15.4 million.
F-9
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The methodology used by the Company to assess the recovery of goodwill and
other intangibles was to review recent trends and where appropriate to project
future results of operations, considering all available information, for the
remaining life of the intangible asset as of December 30, 1994. Such
methodology established that certain balances of goodwill and other intangible
assets in two international businesses (U.K. and Mexico) were impaired and
could not be recovered from future operations. Therefore, these intangible
assets were written down based on projected discounted future cash flows using
a discount rate reflecting the Company's average cost of capital.
NOTE 5. LONG-TERM DEBT
On June 14, 1990, the Company issued $60.0 million of unsecured Senior Notes
to major insurance companies. Under the terms of the Note Purchase Agreement,
which extends for a period of ten years, interest is fixed at a rate of 10.35%
per annum, payable semi-annually on June 15 and December 15 of each year. Six
annual principal payments of $8,575,000 are required under the agreement
beginning in June 1994 with an additional seventh payment of $8,550,000
required at maturity. The fair value of the Senior Notes is estimated to be
$48.8 million at December 29, 1995 based on market interest rates for
comparable loans.
In November 1995, the Company replaced its existing revolving credit
facility with an unsecured revolving credit facility with a group of banks for
multi-currency borrowings up to $70.0 million, of which $50.0 million may be
letters of credit (used primarily to support obligations under the Company's
self-insurance programs) through November 1998. The facility also provides for
a possible increase up to $100.0 million of borrowings (of which $50.0 million
may be letters of credit) upon certain conditions. Under the agreement, the
Company is required to pay a fee on outstanding letters of credit of 0.6% per
annum, payable quarterly, and interest on cash borrowings computed at the
prime rate of the agent bank, payable monthly. A commitment fee of .225% per
annum payable monthly is also required on any unused portions of the facility.
At December 29, 1995, $33.3 million in letters of credit were outstanding and
there were no cash borrowings at any time during the year under the revolving
line of credit.
Under the terms of the Note Purchase Agreement and Revolving Credit
Agreement, the Company is required to maintain certain financial ratios and
meet certain net worth and working capital requirements. As of December 29,
1995 the Company was in compliance with its covenants. In addition, the
agreements limit the Company's ability to pay dividends, dispose of assets,
make capital expenditures and acquisitions, and incur additional indebtedness,
as well as other limitations.
The Company has no foreign or domestic derivatives, interest rate swaps or
other hedge products as of December 29, 1995.
NOTE 6. ACCRUED AND OTHER NON-CURRENT LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 29,
1994 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Self-insurance reserves............................ $12,689 $15,086
Salaries and wages................................. 22,142 21,824
Payroll taxes and withholdings..................... 8,227 7,199
Estimated liability for vacation benefits.......... 7,334 6,805
Other.............................................. 15,742 15,953
------- -------
$66,134 $66,867
======= =======
</TABLE>
F-10
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company establishes self-insurance reserves for the estimated costs
under workers' compensation, general liability, fidelity, health, dental and
automobile liability insurance programs, including reserves for known claims,
estimates of incurred but not reported claims and the expected loss
development of unsettled claims. Estimated requirements are periodically
reviewed and revisions are charged to operations in the period that estimates
are changed. Activity in these reserve accounts for 1993, 1994, and 1995 is
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, DECEMBER 29,
1993 1994 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year........ $ 34,097 $ 38,189 $ 45,078
Provision charged to operations..... 42,033 51,179 44,500
Payments............................ (37,941) (44,290) (39,739)
-------- -------- --------
Balance at end of year.............. 38,189 45,078 49,839
-------- -------- --------
Less current portion included in ac-
crued liabilities.................. 10,750 12,689 15,086
-------- -------- --------
Long-term portion................... $ 27,439 $ 32,389 $ 34,753
======== ======== ========
</TABLE>
The Company is required to secure its financial obligation to cover
potential future claims. This requirement is being satisfied with letters of
credit issued under the revolving credit facility.
The Company has established trust accounts for its contributions to a
voluntary employees' beneficiary association (VEBA) from which all employee
medical insurance claims, premiums and vacation pay under Company sponsored
plans are paid. Accrued liabilities at December 30, 1994 and December 29, 1995
reflect the estimated liability to the trusts.
NOTE 7. INCOME TAXES
The components of income (loss) before income taxes for domestic and foreign
operations were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, DECEMBER 29,
1993 1994 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic.......................... $13,355 $ 5,303 $22,132
Foreign........................... (4,934) (13,127) (4,111)
------- -------- -------
$ 8,421 $ (7,824) $18,021
======= ======== =======
</TABLE>
The following is a summary of the provision for income taxes:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, DECEMBER 29,
1993 1994 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................... $ 7,228 $ 3,360 $ 7,891
State............................. 2,365 1,809 1,855
Foreign........................... 242 234 506
------- -------- -------
9,835 5,403 10,252
------- -------- -------
Deferred:
Federal........................... (3,899) (2,516) (2,343)
State............................. (732) (511) (388)
------- -------- -------
(4,631) (3,027) (2,731)
------- -------- -------
Tax benefit-exercise of employee
stock options...................... 16 42 --
------- -------- -------
$ 5,220 $ 2,418 $ 7,521
======= ======== =======
</TABLE>
F-11
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table shows the components of the deferred income tax expense
(benefit) for the years ended December 31, 1993, December 30, 1994 and December
29, 1995:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, DECEMBER 29,
1993 1994 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Allowance for doubtful receivables.. $ 176 $ 40 $ 75
Self-insurance reserves............. (756) (3,122) (1,945)
Contribution to VEBA................ (846) (406) 161
Deferred state tax.................. 256 179 136
Depreciation........................ (9) (365) (252)
Amortization of intangibles......... -- (767) (548)
Retirement plans.................... (327) 154 (1,004)
Provision for reserve against in-
vestment........................... (1,371) -- --
Uniform reserve..................... (755) 555 324
Vacation pay........................ -- -- 171
Foreign losses carryover............ (1,727) (699) (333)
Special charges..................... (714) 538 --
Cumulative effect of change in Fed-
eral tax rate...................... (351) -- --
Other, net.......................... 66 167 151
Valuation allowance................. 1,727 699 333
------- ------- -------
$(4,631) $(3,027) $(2,731)
======= ======= =======
</TABLE>
The provision for income taxes for the years ended December 31, 1993,
December 30, 1994 and December 29, 1995 differed from the amount computed by
applying the statutory federal income tax rate of 35% in each year to income
(loss) before income taxes. The reasons for these differences are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, DECEMBER 29,
1993 1994 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. Federal income tax (benefit) at
statutory rate..................... $ 2,947 $(2,738) $6,307
State income taxes, net of Federal
benefit............................ 1,063 849 954
------- ------- ------
4,010 (1,889) 7,261
Changes resulting from:
Targeted jobs tax credit.......... (1,105) (1,448) (986)
Amortization of intangible assets,
domestic & foreign............... 1,781 1,695 789
Foreign taxes, in excess of U.S.
tax rate......................... (768) (690) 211
Foreign write-down of intangible
assets........................... -- 3,896 --
Tax-exempt interest income........ (151) (225) (92)
Cumulative effect of change in
Federal tax rate................. (351) -- --
Other, net........................ 77 380 5
Change in valuation allowance..... 1,727 699 333
------- ------- ------
$ 5,220 $ 2,418 $7,521
======= ======= ======
</TABLE>
F-12
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 29,
1994 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful receivables............... $ 825 $ 750
Self-insurance reserves.......................... 17,817 19,762
Depreciation..................................... -- 32
Retirement plans................................. 5,658 6,662
Uniform reserve.................................. 324 --
Provision against investment..................... 1,597 1,596
Vacation pay..................................... 2,777 2,606
Benefit from acquired net operating loss......... 938 828
Amortization of intangibles...................... 1,507 2,055
Foreign loss carryover........................... 5,516 5,849
Other, net....................................... 125 97
------- -------
Total deferred tax assets...................... $37,084 $40,237
======= =======
Deferred tax liabilities:
State taxes...................................... $ 1,737 $ 1,873
Prepaid insurance................................ 757 704
Contribution to VEBA............................. 141 302
Depreciation..................................... 220 --
Other, net....................................... 996 1,061
------- -------
Total deferred tax liabilities................. 3,851 3,940
------- -------
Deferred tax assets valuation allowance............ (5,516) (5,849)
------- -------
Net deferred tax assets........................ $27,717 $30,448
======= =======
</TABLE>
NOTE 8. OTHER SPECIAL CHARGES
In 1993, the Company recorded a pre-tax charge of $3.8 million for the
realignment of field management and operations, the consolidation of
headquarters facilities and the write-down of uniform inventory. In 1993, a
pre-tax charge of $3.3 million was recorded representing a reserve against the
Company's investment in an advanced technology security equipment company.
In 1994, the Company recorded a pre-tax charge of $2.9 million consisting
primarily of severance, recruiting and relocation charges.
NOTE 9. RETIREMENT PLANS
In 1987, the Company established the Supplemental Income Retirement Plan
(the "SERP"). On May 1, 1994 this plan was replaced by the Supplemental
Retirement Income Plan (the "SRIP") covering certain executives and key
employees. Under provisions designed to simplify the plan, two benefit levels
were established: (i) a benefit at age 62 of 2.0% of final five-year average
compensation for each full year of participation, up to a maximum of 40.0% or
(ii) a benefit at age 62 of 3.5% of final five-year average compensation for
each full year of participation, up to a maximum of 52.5%.
F-13
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A participant's vested benefit under the SERP as of April 30, 1994 will not
be reduced because of the change to the SRIP. Vesting of benefits under the
SRIP normally occurs when a participant has five years of SRIP participation.
The SRIP has no plan assets. The Company has purchased life insurance
policies on the lives of individual executives as an investment that it may
use to provide pre-retirement death benefits and retirement benefits. The cash
surrender value of these policies aggregated $5.6 million and $7.1 million as
of December 30, 1994 and December 29, 1995, respectively, and are included in
other assets on the Company's consolidated balance sheets.
In connection with the acquisition of Pinkerton, the Company assumed
liability for the Discretionary Unfunded Deferred Compensation Plan for Key
Employees (the "DUDCPKE"), a plan covering a group of former Pinkerton
executives. Participants are entitled to receive monthly payments of deferred
compensation for life upon reaching age 60 in amounts ranging from 20.0% to
40.0% of the average three highest annual compensation amounts, depending on
years of service. In connection with the operation of a large security
contract at the Company's Canadian subsidiary, the Company operates an
unfunded Canadian Pension Plan for the related security guards.
The following table sets forth the status of the Company's retirement plans
and amounts recognized in the Company's consolidated balance sheets as of
December 30, 1994 and December 29, 1995:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 29,
1994 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation................. $17,243 $21,907
------- -------
Projected benefit obligation................... $17,982 $22,249
------- -------
Plan assets.................................... -- --
Projected benefit obligation less than (in
excess of) plan assets........................ 17,982 22,249
Unrecognized net (loss)........................ (5,390) (6,208)
Prior service cost not yet recognized in net
retirement plan cost.......................... (3,921) (6,046)
------- -------
Accrued periodic retirement plan cost before min-
imum liability.................................. 8,671 9,995
Additional minimum liability..................... 8,572 11,912
------- -------
Liability included in accrued retirement benefits
and other non-current liabilities............... $17,243 $21,907
======= =======
</TABLE>
Net retirement plan cost for 1993, 1994 and 1995 included the following
components:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, DECEMBER 29,
1993 1994 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Service costs benefits earned dur-
ing the period.................... $1,010 $1,384 $1,349
Interest cost on projected benefit
obligation........................ 740 900 1,531
Amortization of net loss........... -- 411 137
Amortization of past service cost.. -- 322 313
------ ------ ------
Net periodic retirement plan cost.. $1,750 $3,017 $3,330
====== ====== ======
</TABLE>
F-14
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Assumptions used in accounting for the retirement plans as of 1993, 1994 and
1995 were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, DECEMBER 29,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Discount rates...................... 7.5% 8.5% 7.0%
Rates of increase in compensation
levels............................. 4.0% 4.0% 4.0% to 5.0%
</TABLE>
The Company has no significant post retirement obligations other than the
SRIP, DUDCPKE and the Canadian Pension Plan.
NOTE 10. EMPLOYEE STOCK OWNERSHIP PLAN
The Company has a stock purchase plan for eligible employees under which
Company stock can be purchased at market value through payroll deductions.
NOTE 11. STOCK OPTION PLANS
1988 NON-QUALIFIED STOCK OPTION PLAN
In September 1988, the Company adopted a non-qualified stock option plan
(the "1988 Plan") and ultimately reserved 358,199 shares of common stock for
future grants subject to adjustment for the effect of future sales or
issuances of common stock, other options, warrants, stock dividends, stock
splits and convertible securities. The 1988 Plan provided that options be
granted at an exercise price of $3.59 per share. In February 1990, the Board
of Directors amended the 1988 Plan to freeze, effective as of December 29,
1989, the number of shares issuable upon the exercise of outstanding options.
Options issued under the 1988 Plan became exercisable 120 days after the
effective date of the Company's initial public offering of common stock. These
options were exercisable for a period of five years and expired on August 2,
1995. At December 29, 1995, there were no options under the 1988 Plan
outstanding or exercisable.
1990 STOCK OPTION PLAN
In February 1990, the Company adopted the 1990 Stock Option Plan (the "1990
Plan"), which provides for the granting of either incentive stock options or
nonstatutory stock options to key employees and directors of the Company to
purchase up to an aggregate 270,000 shares of common stock, subject to
adjustment for stock splits, stock dividends or similar capital adjustments.
In April 1993, the 1990 Plan was amended to increase the number of shares of
common stock reserved for issuance upon the exercise of options granted under
the Plan from 270,000 to 1,220,000.
In February 1995, in connection with and subject to stockholder approval of
the 1995 Pinkerton Performance and Equity Incentive Plan, the 1990 Plan was
frozen such that no further grants would be made under the plan. At that time,
under the 1990 Plan, options with respect to 783,550 shares were outstanding,
options with respect to 32,000 shares had been exercised, and there remained
404,450 shares available under the plan with respect to which future option
grants could have been made. At December 29, 1995, options with respect to
672,150 shares were outstanding, expiring through February 14, 2005, of which
options with respect to 202,005 shares were exercisable.
1995 PINKERTON PERFORMANCE AND EQUITY INCENTIVE PLAN
In February 1995, the Company adopted the 1995 Pinkerton Performance and
Equity Incentive Plan (the "1995 Plan"), which provides for the granting of
stock options, stock appreciation rights, restricted stock awards
F-15
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and performance awards to employees and stock options or certain common stock
awards to non-employee directors of the Company. The maximum number of shares
of common stock with respect to which awards may be granted is 404,450,
subject to adjustment for stock dividends, stock splits, recapitalizations or
similar capital changes.
At December 29, 1995, options with respect to 24,750 shares were
outstanding, expiring through May 29, 2005, none of which were exercisable.
The Company's stock option plans are administered by the Compensation
Committee of the Board of Directors, which consists of four independent
directors. The committee is authorized to determine the participants in the
1995 Plan and the time of, type of and number of shares underlying awards
under such plan.
Transactions involving the stock option plans are as follows:
<TABLE>
<CAPTION>
OPTION PRICE PER SHARE NUMBER OF SHARES
---------------------- ----------------
<S> <C> <C>
Outstanding at December 25, 1992... $ 3.59-27.13 269,637
Exercised........................ 3.59-15.25 (6,700)
------------ -------
Outstanding at December 31, 1993... 3.59-27.13 262,937
Granted.......................... 14.75-19.50 614,750
Exercised........................ 3.59-15.50 (29,424)
Canceled......................... 15.20-27.13 (66,404)
------------ -------
Outstanding at December 30, 1994... 3.59-27.13 781,859
Granted.......................... 15.50-19.50 33,200
Exercised........................ 3.59-15.50 (62,759)
Canceled......................... 15.25-27.13 (55,400)
------------ -------
Outstanding at December 29, 1995... $14.75-27.13 696,900
============ =======
</TABLE>
NOTE 12. CAPITAL STOCK
Capital stock at December 30, 1994 and December 29, 1995 consists of the
following:
<TABLE>
<CAPTION>
NUMBER OF SHARES
-------------------------
DECEMBER 30, DECEMBER 29,
1994 1995
------------ ------------
<S> <C> <C>
8% cumulative preferred stock, $100 par value:
Class A:
Authorized...................................... 1,000 1,000
Issued and outstanding.......................... -- --
Class B:
Authorized...................................... 47,000 47,000
Issued and outstanding.......................... 159 153
11% cumulative preferred stock, $100 par value:
Class C:
Authorized...................................... 20,000 20,000
Issued and outstanding.......................... 1 1
Designated preferred stock, $.001 par value:
Authorized...................................... 5,000,000 5,000,000
Issued and outstanding.......................... -- --
Common stock, $.001 par value:
Authorized...................................... 100,000,000 100,000,000
Issued and outstanding.......................... 8,294,214 8,344,969
</TABLE>
F-16
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13. COMMITMENTS AND CONTINGENCIES
The Company has commitments under operating leases, primarily for building
and office space, expiring at various dates through December 2017. Certain of
the leases provide for additional rent based on increases in the consumer
price index or upon stated future rent revisions, payment of insurance,
property taxes and for certain other costs of occupancy. Most leases contain
renewal options. Rental expense for the years ended December 31, 1993,
December 30, 1994 and December 29, 1995 was approximately $6,029,000,
$7,679,000 and $7,747,000, respectively. The following is a schedule of future
minimum annual rental payments required under the Company's operating leases
as of December 29, 1995:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
1996.......................................................... $ 8,024
1997.......................................................... 6,439
1998.......................................................... 5,091
1999.......................................................... 4,125
2000.......................................................... 3,769
2001 and thereafter........................................... 11,588
-------
$39,036
=======
</TABLE>
In addition to the above, the Company has agreements with leasing companies
to lease automobiles over periods of 24 to 60 months, which are primarily used
in the conduct of the Company's security operations. At December 29, 1995, the
Company had 1,534 vehicles leased under these operating lease agreements. The
maximum aggregate future rental commitment on the vehicles currently leased is
$5,576,000.
The nature of the Company's business subjects it to a significant volume of
claims and litigation incidental to such business asserting that the Company
is liable for damages as a result of the conduct of its employees or others.
Some claims or litigation allege substantial damages. The Company maintains
self-insurance programs and insurance coverage for a significant portion of
this liability risk. In the opinion of management, based on currently known
facts, there is no claim or litigation pending the disposition of which will
have a material adverse effect on the results of operations or financial
condition of the Company.
During 1994 the Company reached litigation settlements relating to the
procurement of uniforms and services provided. As a result of these
settlements, the Company recorded a net pre-tax gain of $2.4 million.
NOTE 14. INTERNATIONAL OPERATIONS
The Company has international operations located in Europe, Canada, Mexico
and Asia. Summarized information relating to the international subsidiaries is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, DECEMBER 29,
1993 1994 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
For the year:
Service revenues.................... $110,280 $135,445 $136,611
Operating profit (loss)............. $ (965) $(15,410) $ (3,062)
At year end:
Total assets........................ $ 47,696 $ 39,600 $ 37,842
Stockholders' equity................ $ 12,682 $ 9,007 $ 3,998
</TABLE>
In 1994, the Company recorded an $11.5 million write-down of goodwill and
other intangible assets associated primarily with the Company's business in
the United Kingdom. The Company also recapitalized its United Kingdom
subsidiary to include in stockholders' equity approximately $6.6 million of
intercompany debt.
F-17
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Pinkerton's fiscal year is comprised of the 52-week (or 53-week) period
ending on the Friday closest to December 31, within the reporting year. The
Company's quarterly reporting periods consist of three four-week periods for
the first, second and third quarters, and four four-week periods for the
fourth quarter.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER(a) QUARTER QUARTER QUARTER(b)
---------- -------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Year ended December 30, 1994
Service revenues..................... $191,545 $193,836 $198,296 $266,283
Gross profit......................... 16,314 18,670 19,703 21,747
Net income (loss).................... 1,327 162 1,820 (13,551)
Income (loss) per common share(c).... $ .16 $ .02 $ .22 $ (1.64)
Weighted average common shares and
common share equivalents
outstanding......................... 8,298 8,290 8,282 8,283
Year ended December 29, 1995
Service revenues..................... $198,321 $195,442 $197,942 $271,088
Gross profit......................... 18,751 19,560 22,235 31,075
Net income........................... 1,471 1,563 1,974 5,492
Income per common share(c)........... $ .18 $ .19 $ .24 $ .65
Weighted average common shares and
common share equivalents
outstanding......................... 8,345 8,303 8,333 8,407
</TABLE>
- ---------------------
(a) The first quarter of 1994 includes a $2.4 million gain from litigation,
net.
(b) The fourth quarter of 1994 includes the effect of the write-down of
goodwill and other intangible assets in the amount of $11.5 million and a
$2.5 million billing credit issued to a customer. The fourth quarter of
1995 includes the impact of tax minimization strategies.
(c) The sum of the quarterly income (loss) per share amounts do not equal the
annual amount reported since per share amounts are computed independently
for each quarter and for the full year, based on the respective weighted
average common shares and common share equivalents outstanding.
F-18
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DEC. 29, 1995 MARCH 22, 1996
------------- --------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 20,215 $ 18,225
Investment in marketable securities............. 19,396 24,777
Accounts receivable (includes unbilled amount of
$28,981 in 1995 and $24,753 in 1996)........... 113,127 116,448
Less allowance for doubtful receivables......... 2,881 2,706
-------- --------
110,246 113,742
-------- --------
Inventory....................................... 2,516 2,260
Prepaid expenses and taxes...................... 13,762 10,947
Deferred income taxes........................... 6,836 6,968
-------- --------
Total current assets.......................... 172,971 176,919
-------- --------
Equipment and leasehold improvements, net of
accumulated depreciation and amortization of
$21,619 in 1995 and $23,072 in 1996.............. 14,017 13,970
Other assets:
Intangible assets, net.......................... 60,895 60,008
Deferred income taxes........................... 23,612 24,078
Other........................................... 15,849 16,200
-------- --------
100,356 100,286
-------- --------
$287,344 $291,175
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 7,304 $ 6,650
Accrued liabilities............................. 66,867 67,271
Current maturities of long-term debt............ 8,575 8,575
-------- --------
Total current liabilities..................... 82,746 82,496
-------- --------
Accrued retirement benefits and other non-current
liabilities...................................... 56,598 58,843
Long-term debt, less current maturities........... 34,275 34,275
Commitments and contingencies
Stockholders' equity:
Preferred stock................................. 15 --
Common stock.................................... 8 8
Additional paid-in capital...................... 74,463 74,485
Other adjustments............................... (9,238) (9,117)
Retained earnings............................... 48,477 50,185
-------- --------
113,725 115,561
-------- --------
$287,344 $291,175
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-19
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE TWELVE WEEKS ENDED
-----------------------------
MARCH 24, 1995 MARCH 22, 1996
-------------- --------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Service revenues................................ $198,321 $200,036
Cost of services................................ 179,570 176,850
-------- --------
Gross profit.................................... 18,751 23,186
Operating expenses.............................. 13,523 17,032
Amortization of intangible assets............... 2,043 2,136
-------- --------
Operating profit................................ 3,185 4,018
Other (income) deductions:
Interest income............................... (666) (510)
Interest expense.............................. 1,174 1,114
-------- --------
508 604
-------- --------
Income before income taxes...................... 2,677 3,414
Provision for income taxes...................... 1,206 1,705
-------- --------
Net income...................................... $ 1,471 $ 1,709
======== ========
Net income per common share..................... $ .18 $ .20
======== ========
Weighted average common shares and common share
equivalents outstanding........................ 8,345 8,408
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-20
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE TWELVE WEEKS ENDED
-----------------------------
MARCH 24, 1995 MARCH 22, 1996
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Operating Activities:
Net income.................................... $ 1,471 $ 1,709
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of intangible assets............. 2,043 2,136
Depreciation and other amortization........... 1,334 1,462
Provision for losses on doubtful receivables.. 240 239
Changes in assets, liabilities and stockholders'
equity:
Accounts receivable........................... (2,056) (2,690)
Inventory..................................... (558) 526
Prepaid expenses and taxes.................... 5,925 2,842
Deferred income taxes......................... (2,948) (598)
Other assets.................................. (1,107) (386)
Accounts payable.............................. 1,549 (908)
Accrued and other non-current liabilities..... 882 2,820
Foreign currency revaluation of net assets.... 102 121
-------- -------
Net cash provided by operating activities... 6,877 7,273
-------- -------
Investing Activities:
Purchase of marketable securities............. (12,879) (6,980)
Sales/redemptions of marketable securities.... 9,695 1,599
Purchase of equipment and leasehold
improvements................................. (1,104) (1,166)
Payments for net assets of acquired
businesses, net of cash acquired............. -- (2,753)
-------- -------
Net cash used in investing activities....... (4,288) (9,300)
-------- -------
Financing Activities:
Exercise of stock options..................... 10 22
Redemption of preferred stock................. -- 15
-------- -------
Net cash provided by financing activities... 10 37
-------- -------
Net (decrease) increase in cash............. 2,599 (1,990)
Cash and cash equivalents at beginning of year.. 27,744 20,215
-------- -------
Cash and cash equivalents at end of period...... $ 30,343 $18,225
======== =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-21
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) PRESENTATION OF FINANCIAL INFORMATION
The quarterly consolidated financial statements included herein have been
prepared by the Company and include all adjustments which are, in the opinion
of management, necessary for a fair presentation of the results of operations
for the fiscal quarters ended March 24, 1995 and March 22, 1996. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted, although the Company believes the disclosures in these
consolidated financial statements are adequate to make the information
presented not misleading.
The following material is written with the presumption that the users of the
interim financial statements have read or have access to the Company's Form
10-K filed with the Securities and Exchange Commission for the fiscal year
ended December 29, 1995 and the Company's 1995 Annual Report to Stockholders.
The 1995 Annual Report contains the latest audited consolidated financial
statements and notes thereto, together with Management's Discussion and
Analysis of Financial Condition and Results of Operations as of December 29,
1995 and for the year then ended. The results of operations for the fiscal
quarters ended March 24, 1995 and March 22, 1996 are not necessarily
indicative of the results for a full year.
(2) ADOPTION OF NEW ACCOUNTING STANDARDS
In the first quarter of 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed Of." This statement provides
guidelines for recognition of impairment losses relating to long-term assets.
The adoption of this new standard did not have a material effect on the
Company's consolidated financial statements.
The Company also adopted Statement of Financial Accounting Standards No. 123
"Accounting for Stock-based Compensation." This statement encourages, but does
not require, a fair value based method of accounting for employee stock
options. The Company has elected to continue to measure compensation costs
under APB Opinion No. 25 "Accounting for Stock Issued to Employees" and to
comply with the pro forma disclosure requirements of Statement No. 123 in the
Company's annual consolidated financial statements.
(3) SUBSEQUENT EVENTS
During the second quarter of 1996, the Company entered into a settlement
related to the acquisition of Pinkerton's, Inc. by California Plant
Protection, Inc. in 1988. As a result of this settlement, the Company received
a cash payment of $5.2 million in the second quarter of 1996. Of this amount,
$3.3 million represented a recovery of income and other taxes paid on behalf
of the previous owner which were previously carried on the Company's balance
sheet; the remaining $1.9 million (which is not taxable) will be recorded as
other income in the second quarter of 1996.
F-22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER
OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDIC-
TION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE
PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLI-
CATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSE-
QUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 8
Price Range of Common Stock and Dividend Policy.......................... 9
Capitalization........................................................... 10
Selected Consolidated Financial Data..................................... 11
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 12
Business................................................................. 17
Management............................................................... 23
Principal Stockholders and Selling Stockholder........................... 26
Description of Capital Stock............................................. 27
Shares Eligible For Future Sale.......................................... 30
Underwriting............................................................. 31
Legal Matters............................................................ 32
Experts.................................................................. 32
Available Information.................................................... 32
Incorporation of Certain Documents by Reference.......................... 33
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,360,000 SHARES
LOGO
COMMON STOCK
---------------
PROSPECTUS
---------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
PRUDENTIAL SECURITIES INCORPORATED
SCHRODER WERTHEIM & CO.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes the expenses incurred by the Registrant and
Selling Stockholder in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and
commissions. All the amounts shown are estimates except the Securities and
Exchange Commission registration fee and the National Association of
Securities Dealers, Inc. filing fee.
<TABLE>
<CAPTION>
SELLING
REGISTRANT STOCKHOLDER
---------- -----------
<S> <C> <C>
Securities and Exchange Commission Registration Fee.... $ 17,530 $ 5,633
National Association of Securities Dealers, Inc. Filing
Fee................................................... 5,462 1,755
Additional listing fees................................ 7,189 0
Legal Fees and Expenses................................ 80,000 0
Accounting Fees and Expenses........................... 75,000 0
Blue Sky Fees and Expenses, including Legal Fees....... 11,352 3,648
Printing, including Registration Statement, Prospectus,
etc................................................... 100,000 0
Miscellaneous Expenses................................. 3,467 464
-------- -------
Total................................................ $300,000 $11,500
======== =======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Registrant's Amended and
Restated By-laws provide that the Registrant will indemnify its directors,
officers, employees and other agents (collectively, the "Agents") to the
extent permitted by Delaware law. Under the Registrant's Amended and Restated
By-laws, an Agent sued in his or her capacity as an Agent is entitled to
indemnification if the Agent acted in good faith and in a manner the Agent
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In stockholder
derivative actions, the Registrant will indemnify an Agent if the Agent acted
in good faith and in a manner the Agent reasonably believed to be in, or not
opposed to, the best interests of the Registrant, except that, if the Agent is
adjudged liable to the Registrant, the Registrant will not indemnify the Agent
unless the court finds that the Agent is fairly and reasonably entitled to
indemnification under the circumstances. To the extent that an Agent succeeds
in the defense of any suit or proceeding, the Registrant shall indemnify the
Agent against expenses (including attorneys' fees) he or she actually and
reasonably incurred in connection with the defense. The Amended and Restated
By-laws also require the Registrant to advance litigation expenses in the case
of stockholder derivative actions or other actions against an Agent if the
person being sued undertakes to repay such advances if it is ultimately
determined that the Agent is not entitled to indemnification. The Amended and
Restated By-laws further provide that the rights the Amended and Restated By-
laws confer shall not be deemed to be exclusive of any other right which the
Amended and Restated By-laws, agreement, vote of stockholders or disinterested
directors or otherwise may confer upon the Registrant's Agent.
In addition, the Registrant's Restated Certificate of Incorporation and
Amended and Restated By-Laws provide for indemnification of persons to the
extent permitted by Delaware law. Notwithstanding the foregoing sentence, the
Registrant shall not indemnify any person with respect to any of the following
matters: (i) remuneration paid to such person if it shall be determined by
final judgment or other final adjudication that such remuneration was in
violation of law; (ii) any accounting of profits made from the purchase or
sale by such person of the Registrant's securities within the meaning of
Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or similar provisions; (iii) actions brought about or
contributed to by the dishonesty of such person, if a final judgment or other
final adjudication adverse to such person establishes that
II-1
<PAGE>
acts of active and deliberate dishonesty were committed or attempted by such
person with actual dishonest purpose and intent and were material to the
adjudication; (iv) actions based on or attributable to such person having
gained any personal profit or advantage to which he or she was not entitled,
in the event that a final judgment or other final adjudication adverse to such
person establishes that such person in fact gained such personal profit or
other advantage to which he or she was not entitled; and (v) any matter in
respect of which a final decision by a court with competent jurisdiction shall
determine that indemnification is unlawful. The Restated Certificate of
Incorporation further provides that, pursuant to Delaware law, the
Registrant's directors shall not be liable for monetary damages for breach of
the directors' fiduciary duty of care to the Registrant and its stockholders.
The provision in the Restated Certificate of Incorporation does not eliminate
the duty of care, and in appropriate circumstances equitable remedies such as
injunctive or other forms of non-monetary relief will remain available under
Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Registrant, for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for actions leading to improper personal benefit to
the director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
The Registrant currently has an insurance policy which insures the directors
and officers of the Registrant against losses arising from claims made against
them due to wrongful acts while acting in their individual and collective
capacities as directors and officers, subject to certain exclusions. The
policy also insures the Registrant against loss as to which its officers and
directors are entitled to indemnification.
The Registrant has entered into supplemental indemnification agreements with
the Company's current directors and executive officers. These agreements
provide substantially broader indemnity rights than those provided under the
Delaware General Corporation Law and the Registrant's Restated Certificate of
Incorporation and Amended and Restated By-laws. The indemnification agreements
are not intended to deny or otherwise limit third-party or derivative suits
against the Registrant or its directors or executive officers, but to the
extent a director or executive officer is entitled to indemnity or
contribution under the indemnification agreement, the financial burden of a
third-party suit would be borne by the Registrant, and the Registrant would
not necessarily benefit from all derivative recoveries against the director or
executive officer. Certain such recoveries would accrue to the benefit of the
Registrant but would be offset by the Registrant's obligations to the director
or executive officer under the indemnification agreement.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1 Form of Underwriting Agreement.
5 Opinion of C. Michael Carter, Esq.
23.1 Consent of C. Michael Carter, Esq. (included in Exhibit 5).
23.2 Consent of KPMG Peat Marwick LLP (independent certified public
accountants).
24* Power of Attorney.
27* Financial Data Schedule.
</TABLE>
- ---------------------
* Previously filed.
ITEM 17. UNDERTAKINGS.
r The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-2
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be a part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS OF FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF LOS ANGELES, CALIFORNIA, ON THE 2ND DAY OF JULY, 1996.
Pinkerton's, Inc.
/s/ C. Michael Carter
By: _________________________________
C. MICHAEL CARTER
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND CORPORATE
SECRETARY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
President and Chief
* Executive Officer July 2, 1996
- ------------------------------------- (Principal
DENIS R. BROWN Executive Officer)
Executive Vice
* President, Chief July 2, 1996
- ------------------------------------- Financial Officer
JAMES P. MCCLOSKEY (Principal
Financial Officer)
Controller
* (Principal July 2, 1996
- ------------------------------------- Accounting Officer)
STEVEN A. LINDSEY
* Director July 2, 1996
- -------------------------------------
PETER H. DAILEY
* Director July 2, 1996
- -------------------------------------
JOHN A. GAVIN
II-4
<PAGE>
SIGNATURE TITLE DATE
* Director July 2, 1996
- -------------------------------------
GERALD D. MURPHY
* Director July 2, 1996
- -------------------------------------
J. KEVIN MURPHY
* Director July 2, 1996
- -------------------------------------
ROBERT H. SMITH
* Director July 2, 1996
- -------------------------------------
THOMAS W. WATHEN
* Director July 2, 1996
- -------------------------------------
WILLIAM H. WEBSTER
*By /s/ C. Michael Carter Attorney-in-fact July 2, 1996
----------------------------------
C. MICHAEL CARTER
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S>
1 Form of Underwriting Agreement.
5 Opinion of C. Michael Carter, Esq.
23.1 Consent of C. Michael Carter, Esq. (included in Exhibit 5).
23.2 Consent of KPMG Peat Marwick LLP (independent certified public
accountants).
24* Power of Attorney.
27* Financial Data Schedule.
</TABLE>
- ---------------------
* Previously filed.
<PAGE>
EXHIBIT 1
2,360,000 Shares
PINKERTON'S, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
July __, 1996
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
PRUDENTIAL SECURITIES INCORPORATED
SCHRODER WERTHEIM & CO. INCORPORATED
As representatives of the several
Underwriters named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
Pinkerton's, Inc., a Delaware corporation (the "Company"), and the
stockholders of the Company named in Schedule II hereto (collectively, the
"Selling Stockholders"), severally propose to sell an aggregate of 2,360,000
shares of Common Stock, par value $.001 per share, of the Company (the "Firm
Shares"), to the several underwriters named in Schedule I hereto (the
"Underwriters"). The Firm Shares consist of 1,700,000 shares to be issued and
sold by the Company and 660,000 outstanding shares to be sold by the Selling
Stockholders. The Company also proposes to issue and sell to the several
Underwriters not more than an additional 354,000 shares of Common Stock, par
value $.001 per share, of the Company (the "Additional Shares"), if requested by
the Underwriters as provided in Section 2 hereof. The Firm Shares and the
Additional Shares are herein collectively called the Shares. The shares of
Common Stock, par value $.001 per share, of the Company, to be outstanding after
giving effect to the sales contemplated hereby are hereinafter referred to as
the Common Stock. The Company and the Selling Stockholders are hereinafter
collectively called the Sellers.
<PAGE>
1. Registration Statement and Prospectus. The Company has prepared
-------------------------------------
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively called the
"Act"), a registration statement on Form S-3 (No. 333-6573), including a
prospectus relating to the Shares, which may be amended. The registration
statement, as amended at the time when it becomes effective or, if a post-
effective amendment is filed with respect thereto, as amended by such post-
effective amendment at the time of its effectiveness, including in each case any
registration statement filed pursuant to Rule 462(b) under the Act (the "Rule
462 Registration Statement") and all documents incorporated or deemed to be
incorporated by reference therein, financial statements and exhibits and the
information (if any) contained in a prospectus that is deemed to be a part of
the registration statement at the time of its effectiveness pursuant to Rule 434
under the Act, is hereinafter referred to as the "Registration Statement;" and
the prospectus (including any prospectus subject to completion meeting the
requirements of Rule 434(c) under the Act provided by the Company with any term
sheet meeting the requirements of Rule 434(c) as the prospectus provided to meet
the requirement of Section 10(a) of the Act), in the form first used to confirm
sales of Shares, whether or not filed with the Commission pursuant to Rule
424(b) under the Act, and including all documents incorporated or deemed to be
incorporated by reference therein, are hereinafter referred to as the
"Prospectus." As used herein, the term "Incorporated Documents" means the
documents that are incorporated by reference in the Registration Statement, any
prospectus, the Prospectus or any amendment or supplement thereto as such
documents exist at the time they are so incorporated.
2. Agreements to Sell and Purchase. On the basis of the
-------------------------------
representations and warranties contained in this Agreement, and subject to its
terms and conditions, (i) the Company agrees to issue and sell 1,700,000 Firm
Shares, (ii) each Selling Stockholder agrees, severally and not jointly, agrees
to sell the number of Firm Shares set forth opposite such Selling Stockholder's
name in Schedule II hereto and (iii) each Underwriter agrees, severally and not
jointly, to purchase from each Seller at a price per share of $____ (the
"Purchase Price") the number of Firm Shares (subject to such adjustments to
eliminate fractional shares as you may determine) which bears the same
proportion to the total number of Firm Shares to be sold by such Seller as the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I hereto bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to the terms and conditions hereof, (i) the Company
agrees to sell to the Underwriters, and the Underwriters shall have a right to
purchase, severally and not jointly, from time to time, up to the total number
of Additional Shares at the Purchase Price. Additional Shares may be purchased
solely for the purpose of covering over-allotments made in connection with the
offering of the Firm Shares. The Underwriters may exercise their right to
purchase Additional Shares in whole or in part from time to time by giving
written notice thereof to the Company within thirty days after the date of this
Agreement. You shall give any such notice on behalf of the Underwriters and
such notice shall specify the aggregate number of Additional Shares to be
purchased pursuant to such exercise and the date for payment and delivery
thereof. The date
2
<PAGE>
specified in any such notice shall be a business day (i) no earlier than the
Closing Date (as hereinafter defined), (ii) no later than ten business days
after such notice has been given and (iii) no earlier than two business days
after such notice has been given. If any Additional Shares are to be purchased,
each Underwriter, severally and not jointly, agrees to purchase from the Company
the number of Additional Shares (subject to such adjustments to eliminate
fractional shares as you may determine) which bears the same proportion to the
total number of Additional Shares to be purchased from the Company as the number
of Firm Shares set forth opposite the name of such Underwriter in Schedule I
bears to the total number of Firm Shares. If any Additional Shares are to be
purchased, each Underwriter, severally and not jointly, agrees to purchase the
number of Additional Shares (subject to such adjustments to eliminate fractional
shares as you may determine) which bears the same proportion to the total number
of Additional Shares to be purchased as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto bears to the total
number of Firm Shares.
The Sellers hereby agree, severally and not jointly, and the Company
shall, concurrently with the execution of this Agreement, deliver an agreement
executed by each of the directors and officers of the Company, pursuant to which
each such person agrees, not to, directly or indirectly, offer, sell, contract
to sell, grant any option to purchase, or otherwise dispose of any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for, or warrants, options or rights to purchase or to acquire Common Stock or in
any other manner transfer all or a portion of the economic consequences
associated with the ownership of any Common Stock, or enter into any agreement
to do any of the foregoing, except pursuant to this Agreement, for a period of
120 days after the date of this Agreement, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"). Notwithstanding
the foregoing, during such period (i) the Company may grant stock options
pursuant to the Company's existing stock option plans and (ii) the Company may
issue shares of its Common Stock upon the exercise of an option or warrant or
the conversion of a security outstanding on the date hereof.
3. Terms of Public Offering. The Sellers are advised by you that
------------------------
the Underwriters propose (i) to make a public offering of the Shares as soon
after the effective date of the Registration Statement as in your judgment is
advisable and (ii) initially to offer the Shares upon the terms set forth in the
Prospectus.
4. Delivery and Payment. Delivery to the Underwriters of and
--------------------
payment for the Firm Shares shall be made at 10:00 A.M., New York City time, on
the third or fourth business day unless otherwise permitted by the Commission
pursuant to Rule 15c6-1 of the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder (the "Exchange Act")
(such time and date, the "Closing Date") following the date of the initial
public offering, at such place as you shall designate. The Closing Date and the
location of delivery of and the form of payment for the Firm Shares may be
varied by agreement between you and the Sellers.
3
<PAGE>
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at such place as DLJ shall
designate at 10:00 A.M., New York City time, on the date specified in the
applicable exercise notice given by you pursuant to Section 2 (each such time
and date, an "Option Closing Date"). Any such Option Closing Date and the
location of delivery of and the form of payment for such Additional Shares may
be varied by agreement between you and the Company.
Certificates for the Shares shall be registered in such names and
issued in such denominations as you shall request in writing not later than two
full business days prior to the Closing Date or an Option Closing Date, as the
case may be. Such certificates shall be made available to you for inspection
not later than 9:30 A.M., New York City time, on the business day next preceding
the Closing Date or an Option Closing Date, as the case may be. Certificates in
definitive form evidencing the Shares shall be delivered to you or for your
account on the Closing Date or an Option Closing Date, as the case may be, with
any transfer taxes thereon duly paid by the respective Sellers, for the
respective accounts of the several Underwriters, against payment of the Purchase
Price therefor by wire transfer of same day funds to the account of the
applicable Sellers, which shall have been specified to DLJ in writing, at least
two business days preceding the Closing Date or an Option Closing Date, as the
case may be.
5. Agreements of the Company. The Company agrees with you:
-------------------------
(a) To use its best efforts to cause the Registration Statement to
become effective at the earliest possible time. The Company will comply
fully and in a timely manner with the applicable provisions of Rule 424 and
Rule 434 under the Act.
(b) To advise you promptly and, if requested by you, confirm such
advice in writing, (i) if and when the Prospectus is sent for filing
pursuant to Rule 424 under the Act (including any term sheet within the
meaning of Rule 434 under the Act), (ii) when the Registration Statement
has become effective, when any Rule 462 Registration Statement is filed and
becomes effective, and when any post-effective amendment to the
Registration Statement becomes effective, (iii) of the receipt of any
comments from the Commission that relate to the Registration Statement or
requests by the Commission for amendments to the Registration Statement or
amendments or supplements to the Prospectus or for additional information,
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement, or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction, or
the initiation of any proceeding for such purpose by the Commission or any
state securities commission or other regulatory authority and (v) of the
happening of any event during the period referred to in paragraph (e) below
which makes any statement of a material fact made in the Registration
Statement (as amended or supplemented from time to time) untrue or which
requires the making of any additions to or changes in the Registration
Statement (as amended or supplemented from time to time) in order to make
the statements therein not misleading or that makes any statement of a
material fact made in the Prospectus (as
4
<PAGE>
amended or supplemented from time to time) untrue or which requires the
making of any additions to or changes in the Prospectus (as amended or
supplemented from time to time) in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. If
at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities
commission or other regulatory authority shall issue an order suspending
the qualification or exemption of the Shares under any state securities or
Blue Sky laws, the Company shall use every reasonable effort to obtain the
withdrawal or lifting of such order at the earliest possible time.
(c) To furnish to you, without charge, four copies of the signed copy
of the Registration Statement as first filed with the Commission and of
each amendment to it, including all exhibits and Incorporated Documents,
and to furnish to you and each Underwriter designated by you such number of
conformed copies of the Registration Statement as so filed and of each
amendment to it, without exhibits, as you may reasonably request.
(d) Not to file any amendment or supplement to the Registration
Statement or to make any amendment or supplement to the Prospectus, or to
file any document which, when filed, will be incorporated or deemed to be
incorporated by reference in the Registration Statement or the Prospectus
(including the issuance or filing of any term sheet within the meaning of
Rule 434 under the Act), in each case of which you shall not previously
have been advised or to which you shall reasonably object; and to prepare
and file with the Commission, promptly upon your reasonable request, any
amendment to the Registration Statement or supplement to the Prospectus
(including the issuance or filing of any term sheet within the meaning of
Rule 434 under the Act) which may be necessary or advisable in connection
with the distribution of the Shares by you, and to use its best efforts to
cause the same to become promptly effective.
(e) Promptly after the Registration Statement becomes effective, and
from time to time thereafter for such period as in your reasonable judgment
a prospectus is required by law to be delivered in connection with sales by
an Underwriter or a dealer, to furnish to each Underwriter and each dealer,
without charge, as many copies of the Prospectus (and of any amendment or
supplement to the Prospectus) as such Underwriter or such dealer may
reasonably request.
(f) If during the period specified in paragraph (e) any event shall
occur as a result of which, in the opinion of counsel for the Underwriters
it becomes necessary to amend or supplement the Prospectus in order to make
the statements therein, in the light of the circumstances existing when the
Prospectus is delivered to a purchaser, not misleading, or if it is
necessary to amend or supplement the Prospectus to comply with any law,
forthwith to prepare and file with the Commission an appropriate amendment
or supplement to the Prospectus so that the statements in the Prospectus,
as so amended or supplemented, will not in the light of the circumstances
existing when it is so
5
<PAGE>
delivered, be misleading, or so that the Prospectus will comply with law,
and to furnish to each Underwriter and to such dealers as you shall
specify, such number of copies thereof as such Underwriter or such dealers
may reasonably request.
(g) Prior to any public offering of the Shares, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters
and by dealers under the state securities or Blue Sky laws of such
jurisdictions as you may request, to continue such qualification in effect
so long as required for distribution of the Shares and to file such
consents to service of process or other documents as may be necessary in
order to effect such registration or qualification; provided that the
Company shall not be obligated to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified nor to take any action that
would subject it to general consent to service of process in any
jurisdiction in which it is not now so subject.
(h) To mail and make generally available to its stockholders as soon
as reasonably practicable an earning statement covering a period of at
least twelve months after the effective date of the Registration Statement
(but in no event commencing later than 90 days after such date) which shall
satisfy the provisions of Section 11(a) of the Act, and to advise you in
writing when such statement has been so made available.
(i) During the period of five years after the date of this Agreement,
(i) to mail as soon as reasonably practicable after the end of each fiscal
year to the record holders of its Common Stock a financial report of the
Company and its subsidiaries on a consolidated basis (and a similar
financial report of all unconsolidated subsidiaries, if any), all such
financial reports to include a consolidated balance sheet, a consolidated
statement of operations, a consolidated statement of cash flows and a
consolidated statement of stockholders' equity as of the end of and for
such fiscal year, together with comparable information as of the end of and
for the preceding year, certified by independent certified public
accountants, and (ii) to mail and make generally available as soon as
practicable after the end of each quarterly period (except for the last
quarterly period of each fiscal year), a consolidated balance sheet, a
consolidated statement of operations and a consolidated statement of cash
flows as of the end of and for such period, and for the period from the
beginning of such year to the close of such quarterly period, together with
comparable information for the corresponding periods of the preceding year.
(j) During the period referred to in paragraph (i), to furnish to you
as soon as available a copy of each report or other publicly available
information of the Company mailed to the holders of Common Stock or filed
with the Commission and such other publicly available information
concerning the Company and its subsidiaries as you may reasonably request.
(k) Whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, to pay all costs, expenses,
fees and taxes incident to (i) the
6
<PAGE>
preparation, printing, filing and distribution under the Act of the
Registration Statement (including financial statements and exhibits), each
preliminary prospectus and all amendments and supplements to any of them
prior to or during the period specified in paragraph (e), (ii) the printing
and delivery of the Prospectus and all amendments or supplements to it
during the period specified in paragraph (e), (iii) the printing and
delivery of this Agreement, any memoranda describing state securities or
Blue Sky laws and all other agreements, memoranda, correspondence and other
documents printed and delivered in connection with the offering of the
Shares (including in each case any disbursements of counsel for the
Underwriters relating to such printing and delivery), (iv) the registration
or qualification of the Shares for offer and sale under the securities or
Blue Sky laws of the several states (including in each case the reasonable
fees and out-of-pocket disbursements of counsel for the Underwriters
relating to such registration or qualification and memoranda relating
thereto), (v) filings and clearance, if any, with the National Association
of Securities Dealers, Inc. in connection with the offering (including the
reasonable fees and disbursements of counsel for the Underwriters in
connection therewith), (vi) the listing of the Shares on the New York
Stock Exchange (the "NYSE"), (vii) furnishing copies of the Registration
Statement, the Prospectus and all amendments and supplements thereto as may
be requested for use in connection with the offering or sale of the Shares
by the Underwriters or by dealers to whom Shares may be sold and (vii) the
performance by the Sellers of their other obligations under this Agreement.
Notwithstanding the foregoing, nothing contained in this Agreement shall
affect, as between the Company and the Selling Stockholders, any agreement
which the Company and the Selling Stockholders have made or may make
regarding payment of any fees and expenses related to the transactions
contemplated by this Agreement.
(l) To use its best efforts to maintain the listing of the Common
Stock on the NYSE (or, alternatively, the Nasdaq National Market ("NNM") or
the American Stock Exchange) for a period of five years after the effective
date of the Registration Statement.
(m) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company
prior to the Closing Date and to satisfy all conditions precedent to the
delivery of the Shares.
6. Agreements of the Selling Stockholders. Each of the Selling
--------------------------------------
Stockholders, severally and not jointly, agrees with you:
(a) To take all reasonable actions in cooperation with the Company
and the Underwriters to do and perform all things to be done by it pursuant
to this Agreement prior to the Closing Date or reasonably requested by the
Company in connection herewith and to satisfy all conditions precedent to
the delivery of the Shares to be sold by it pursuant to this Agreement.
(b) Prior to any public offering of the Shares to be sold by it to
the Underwriters pursuant to this Agreement, it will cooperate with the
Underwriters and counsel
7
<PAGE>
for the Underwriters in connection with the registration or qualification
of any such Shares for offer and sale by the Underwriters and by dealers
under the securities or Blue Sky laws of such jurisdictions as the
Underwriters may reasonably request, and will continue such qualification
in effect so long as reasonably required for distribution of any such
Shares and to file such consents to service of process or other documents
as may be necessary in order to effect such registration or qualification;
provided, however, that it shall not be required to take any action that
would subject it to the general service of process in any jurisdiction
where it is not now so subject.
(c) To deliver to the Underwriters prior to or at the Closing Date,
if applicable, a properly completed and executed United States Treasury
Department Form W-9 (or other form as may be required by law).
(d) Each Selling Stockholder acknowledges for all purposes under this
Agreement (including Section 9 hereof) that the information relating to
such Selling Stockholder under the caption "Principal Stockholders and
Selling Stockholder" set forth in the Prospectus has been furnished by such
Selling Stockholder in writing expressly for use in the Registration
Statement and the Prospectus (such information constituting the "Selling
Stockholder Information").
(e) At any time during the period described in Section 5(e) hereof,
if there is any change in the Selling Stockholder Information, to promptly
notify you of such change.
7. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect;
and, to the best of its knowledge, no proceedings for such purpose are
pending before or threatened by the Commission.
(b) (i) Each part of the Registration Statement, when such part
became effective, did not contain and each such part, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii)
the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Act and (iii) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set
forth in this paragraph (b) do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon and in conformity with
(x) information relating to any
8
<PAGE>
Underwriter furnished to the Company in writing by or on behalf of such
Underwriter through you expressly for use therein or (y) any Selling
Stockholder Information). The Company acknowledges for all purposes under
this Agreement (including this paragraph and Section 9 hereof) that the
statements in the last paragraph on the cover page and in the third
paragraph under the caption "Underwriting" in the Prospectus (the
"Underwriting Information") constitute the only written information
furnished to the Company by or on behalf of the Underwriters expressly for
use in the Registration Statement, any preliminary prospectus, or the
Prospectus (or any amendment or supplement to any of them) and that the
Underwriters shall not be deemed to have provided any other information
(and therefore are not responsible for any such statements or omissions).
The Incorporated Documents, at the time they were, or hereafter are, filed
or last amended, as the case may be, with the Commission, complied and will
comply in all material respects with the requirements of the Exchange Act
and, when read together and with the other information in the Prospectus,
at the time the Registration Statement became or becomes effective, will
not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
or are made, not misleading.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(d) The Company and each of its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as it is currently being conducted
and to own, lease and operate its properties, and each is duly qualified
and is in good standing as a foreign corporation authorized to do business
in each jurisdiction in which the nature of its business or its ownership
or leasing of property requires such qualification, except where the
failure to be so qualified could not reasonably be expected to have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole
(a "Material Adverse Effect").
(e) All of the outstanding shares of capital stock of, or other
ownership interests in, each of the Company's subsidiaries have been duly
authorized and validly issued and are fully paid and non-assessable, and
are owned by the Company, free and clear of any security interest, claim,
lien, encumbrance or adverse interest of any nature.
(f) All the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholder) have been duly
authorized and validly issued and are fully paid, non-assessable and not
subject to any preemptive or similar
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rights, and the Shares to be issued and sold by the Company hereunder have
been duly authorized and, when issued and delivered to the Underwriters
against payment therefor as provided in this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive rights.
(g) The authorized capital stock of the Company, including the Common
Stock, conforms to the description thereof contained in or incorporated by
reference into the Prospectus.
(h) This Agreement has been duly authorized, executed and delivered
by the Company and is a valid and binding agreement of the Company
enforceable against the Company in accordance with its terms (except as
rights to indemnity and contribution hereunder may be limited by applicable
law).
(i) Neither the Company nor any of its subsidiaries is in violation
of its respective charter or by-laws or in default in the performance of
any obligation, agreement or condition contained in any bond, debenture,
note or any other evidence of indebtedness or in any other agreement,
indenture or instrument material to the conduct of the business of the
Company and its subsidiaries, taken as a whole, to which the Company or any
of its subsidiaries is a party or by which it or any of its subsidiaries or
their respective property is bound.
(j) The execution, delivery and performance of this Agreement,
compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not require any
consent, approval, authorization or other order of any court, regulatory
body, administrative agency or other governmental body (except as such may
be required under the securities or Blue Sky laws of the various states)
and will not conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the Company or
any of its subsidiaries or any agreement, indenture or other instrument to
which it or any of its subsidiaries is a party or by which it or any of its
subsidiaries or their respective property is bound, or violate or conflict
with any laws, administrative regulations or rulings or court decrees
applicable to the Company, any of its subsidiaries or their respective
property.
(k) Except as disclosed in the Registration Statement, there are no
material legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any of their respective
property is the subject, and, to the best of the Company's knowledge, no
such proceedings are threatened or contemplated. No contract or document
of a character required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement
is not so described or filed as required.
(l) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the
protection of human health and
10
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safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), nor any federal or state
law relating to discrimination in the hiring, promotion or pay of employees
nor any applicable federal or state wages and hours laws, nor any
provisions of the Employee Retirement Income Security Act or the rules and
regulations promulgated thereunder, which in each case could reasonably be
expected to result in any material adverse change in the business,
prospects, financial condition or results of operation of the Company and
its subsidiaries, taken as a whole (a "Material Adverse Change").
(m) The Company and each of its subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits"), including, without limitation, under any
applicable Environmental Laws, as are necessary to own, lease and operate
its respective properties and to conduct its business; the Company and each
of its subsidiaries has fulfilled and performed all of its material
obligations with respect to such permits and no event has occurred which
allows, or after notice or lapse of time would allow, revocation or
termination thereof or results in any other material impairment of the
rights of the holder of any such permit; and such permits contain no
restrictions that are materially burdensome to the Company or any of its
subsidiaries.
(n) In the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business,
operations and properties of the Company and its subsidiaries, in the
course of which it identifies and evaluates associated costs and
liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties). On the basis of such review, the Company has reasonably
concluded that such associated costs and liabilities could not, singly or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
(o) Except as disclosed in the Registration Statement or such as are
not material to the business, prospects, financial condition or results of
operation of the Company and its subsidiaries, taken as a whole, the
Company and each of its subsidiaries has good and marketable title, free
and clear of all liens, claims, encumbrances and restrictions (except liens
for taxes not yet due and payable), to all property and assets described in
the Registration Statement as being owned by it. All leases to which the
Company or any of its subsidiaries is a party are valid and binding and no
default has occurred or is continuing thereunder which could reasonably be
expected to result in any Material Adverse Change, and the Company and its
subsidiaries enjoy peaceful and undisturbed possession under all such
leases to which any of them is a party as lessee with such exceptions as do
not materially interfere with the use made or proposed to be made by the
Company or such subsidiary.
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(p) The Company and each of its subsidiaries maintains reasonably
adequate insurance.
(q) KPMG Peat Marwick LLP are independent public accountants with
respect to the Company as required by the Act.
(r) The financial statements, together with related schedules and
notes, forming part of, or incorporated or deemed to be incorporated by
reference in, the Registration Statement and the Prospectus (and any
amendment or supplement thereto), present fairly the consolidated financial
position, results of operations and changes in financial position of the
Company and its subsidiaries at the respective dates or for the respective
periods to which they apply; such statements and related schedules and
notes comply as to form in all material respects with the requirements of
the Act and have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; and the other financial and statistical
information and data set forth in or incorporated or deemed to be
incorporated by reference in the Registration Statement and the Prospectus
(and any amendment or supplement thereto) is, in all material respects,
accurately presented and prepared on a basis consistent with such financial
statements and the books and records of the Company.
(s) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(t) No holder of any security of the Company has any right to require
registration of shares of Common Stock or any other security of the
Company.
(u) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida).
(v) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens
related to or entitling any person to purchase or otherwise to acquire any
shares of the capital stock of, or other ownership interest in, the Company
or any subsidiary thereof except as otherwise disclosed or incorporated by
reference in the Registration Statement.
(w) There is (i) no significant unfair labor practice complaint
pending against the Company or any of its subsidiaries or, to the best
knowledge of the Company, threatened against any of them, before the
National Labor Relations Board or any state or local labor relations board,
and no significant grievance or arbitration proceeding arising out of or
under any collective bargaining agreement is so pending against the Company
or any of its subsidiaries or, to the best knowledge of the Company,
threatened against any of them, and (ii) no significant strike, labor
dispute, slowdown or stoppage
12
<PAGE>
pending against the Company or any of its subsidiaries or, to the best
knowledge of the Company, threatened against it or any of its subsidiaries
except for such actions specified in clause (i) or (ii) above, which,
singly or in the aggregate could not reasonably be expected to have a
Material Adverse Effect.
(x) The Company and each of its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(y) All material tax returns required to be filed by the Company and
each of its subsidiaries in any jurisdiction have been filed, other than
those filings being contested in good faith, and all material taxes,
including withholding taxes, penalties and interest, assessments, fees and
other charges due pursuant to such returns or pursuant to any assessment
received by the Company or any of its subsidiaries have been paid, other
than those being contested in good faith and for which adequate reserves
have been provided.
(z) The Company and its subsidiaries own or possess, or can acquire
on reasonable terms, the copyrights, know-how (including trade secrets and
other proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names presently employed by them in
connection with the business now operated by them, and neither the Company
nor any of its subsidiaries has received any notice of infringement of or
conflict with asserted rights of others with respect to any of the
foregoing which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, could reasonably be expected to
result in any Material Adverse Change.
(aa) No bid or purchase by the Company, and no bid or purchase that
could be attributed to the Company (as a result of bids or purchases by an
"affiliated purchaser" within the meaning of Rule 10b-6 under the Exchange
Act for or of the Common Stock, any securities of the same class or series
as the Common Stock or any securities immediately convertible into or
exchangeable for or that represent any right to acquire Common Stock, is
now pending or in progress or will have commenced at any time prior to the
completion of the distribution of the Shares.
8. Representations and Warranties of the Selling Stockholders. Each
----------------------------------------------------------
Selling Stockholder, severally and not jointly, represents and warrants to each
Underwriter that:
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(a) Such Selling Stockholder has reviewed and is familiar with the
Registration Statement and the Prospectus and, to the best knowledge of
such Selling Stockholder, the Prospectus (and any supplement thereto) does
not (and, as of the Closing Date, will not) include an untrue statement of
a material fact or omit to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading; and such Selling Stockholder is not prompted to sell
the Firm Shares by any information concerning the Company that is not set
forth in the Prospectus.
(b) Such Selling Stockholder is the registered owner of at least the
number of shares of Common Stock listed opposite such Selling Stockholder's
name in Schedule II hereto. The Firm Shares to be sold by such Selling
Stockholder are not subject to any liens, claims or encumbrances.
(c) Upon delivery to the Underwriters pursuant to this Agreement, the
Underwriters will acquire all of such Selling Stockholder's rights in the
firm Shares free of any adverse claims or restrictions on transfer imposed
by the Company (each within the meaning of Section 8302 of the California
Uniform Commercial Code).
(d) Such Selling Stockholder has, and on the Closing Date will have,
full legal right, power and authority to enter into this Agreement and the
Agreement between the Selling Stockholders and the Company, as Custodian
(the "Custody Agreement") and to sell, assign, transfer and deliver such
Shares in the manner provided herein and therein, and this Agreement and
the Custody Agreement have been duly authorized, executed and delivered by
such Selling Stockholder and each of this Agreement and the Custody
Agreement is a valid and binding agreement of such Selling Stockholder
enforceable in accordance with its terms, except as rights to indemnity and
contribution hereunder may be limited by applicable law.
(e) The execution, delivery and performance of this Agreement by such
Selling Stockholder, and compliance by such Selling Stockholder with all
the provisions hereof and the consummation of the transactions contemplated
hereby will not require any consent, authorization, approval or order of
any court, regulatory body (except as such may be necessary under state
securities or Blue Sky laws) and will not conflict with or constitute a
breach of any of the terms or provisions of, or a default under, the
declaration of trust of such Selling Stockholder, or any agreement,
indenture or other instrument to which such Selling Stockholder is bound,
or violate or conflict with any laws, administrative regulations or ruling
or court decree applicable to such Selling Stockholder or property of such
Selling Stockholder.
(f) The Selling Stockholder Information does not, and will not on the
Closing Date, include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
14
<PAGE>
(g) Such Selling Stockholder has not taken, and will not take,
directly or indirectly, any action designed to, or which might reasonably
be expected to, cause or result in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of
the Shares pursuant to the distribution contemplated by this Agreement,
and, other than as permitted by the Act, such Selling Stockholder has not
distributed and will not distribute any prospectus or other offering
material in connection with the offering and sale of the Shares.
(h) No stamp duty or similar tax or duty is payable by or on behalf
of the Underwriters in connection with the sale and delivery of the Firm
Shares by such Selling Stockholder as contemplated by this Agreement.
(i) Such Selling Stockholder acknowledges for all purposes under this
Agreement that the Underwriting Information constitutes the only written
information furnished to the Company by or on behalf of the Underwriters
for use in the Registration Statement or the Prospectus (or any amendment
or supplement to them) and that the Underwriters shall not be deemed to
have provided any other information (and therefore are not responsible for
any such statement or omission).
9. Indemnification.
---------------
(a) The Company and each Selling Stockholder jointly and severally
agree to indemnify and hold harmless (i) each of the Underwriters and (ii) each
person, if any, who controls (within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act) any of the Underwriters (any of the persons
referred to in this clause (ii) being hereinafter referred to as a "controlling
person"), and (iii) the respective officers, directors, partners, employees,
representatives and agents of any of the Underwriters or any controlling person
(any person referred to in clause (i), (ii) or (iii) may hereinafter be referred
to as an "Indemnified Person") to the fullest extent lawful, from and against
any and all losses, claims, damages, judgments, actions, costs, assessments,
expenses and other liabilities (collectively, "Liabilities"), including without
limitation and as incurred, reimbursement of all costs reasonably incurred in
investigating, preparing, pursuing or defending any claim or action, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, including the reasonable fees and expenses of counsel to any
Indemnified Person, directly or indirectly caused by, related to, based upon,
arising out of or in connection with any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or any
supplement or amendment thereto), or the Prospectus (including any amendment or
supplement thereto) or any preliminary prospectus, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of the Prospectus, in
light of the circumstances under which they were made) not misleading, except
insofar as such Liabilities are caused by an untrue statement or omission or
alleged untrue statement or omission that is made in reliance upon and in
conformity with any Underwriting Information. The Company shall notify you
promptly of the institution, threat or assertion of any claim, pro-
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<PAGE>
ceeding (including any governmental investigation) or litigation in connection
with the matters addressed by this Agreement which involves the Company or an
Indemnified Person.
(b) In case any action or proceeding (for all purposes of this
Section 8, including any governmental investigation) shall be brought or
asserted against any of the Indemnified Persons with respect to which indemnity
may be sought against the Sellers (each referred to respectively in this Section
9(b) as an "indemnifying party"), such Indemnified Person promptly shall notify
the indemnifying party in writing (provided that the failure to give such notice
shall not relieve the indemnifying party of its obligations pursuant to this
Agreement, except to the extent that such indemnifying party shall have been
prejudiced in any material respect by such failure) and the Company and the
Selling Stockholders, as the case may be, shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Person and payment of all fees and expenses. Any Indemnified Person shall have
the right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Person unless (i) the indemnifying party agrees to
pay such fees and expenses, or (ii) the indemnifying party fails promptly to
assume such defense or fails to employ counsel reasonably satisfactory to such
Indemnified Person, or (iii) the named parties to any such action or proceeding
(including any impleaded parties) include both such Indemnified Person and any
indemnifying party or an affiliate thereof, and either (x) there may be one or
more legal defenses available to such Indemnified Person that are different from
or additional to those available to any indemnifying party or such affiliate or
(y) a conflict may exist between such Indemnified Person and any indemnifying
party or such affiliate. In the event of any of clause (i), (ii) and (iii) of
the immediately preceding sentence, if such Indemnified Person notifies the
indemnifying party in writing, the indemnifying party shall not have the right
to assume the defense thereof and such Indemnified Person shall have the right
to employ its own counsel in any such action and the reasonable fees and
expenses of such counsel shall be paid, as incurred, by the indemnifying party,
regardless of whether it is ultimately determined that an Indemnified Party is
not entitled to indemnification hereunder, it being understood, however, that
the indemnifying party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) at any time for each such Indemnified Person. No
indemnifying party shall be liable for any settlement of any such action or
proceeding effected without its prior written consent, and the Sellers jointly
and severally agree to indemnify and hold harmless any Indemnified Person from
and against any Liabilities by reason of any settlement of any action effected
with the written consent of the Sellers. No indemnifying party shall, without
the prior written consent of each Indemnified Person, settle or compromise or
consent to the entry of any judgment in or otherwise seek to terminate any
pending or threatened action, claim, litigation or proceeding in respect of
which
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<PAGE>
indemnification or contribution may be sought pursuant hereto (whether or not
any Indemnified Person is a party thereto), unless such settlement, compromise,
consent or termination includes an unconditional release of each Indemnified
Person from all Liabilities arising out of such action, claim, litigation or
proceeding.
(c) Each of the Underwriters agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, the officers of the
Company who sign the Registration Statement, the Selling Stockholders and any
person controlling (within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act) either the Company or the Selling Stockholders, to the same
extent as the foregoing indemnity from the Sellers to each of the Indemnified
Persons, but only with respect to claims and actions based on any Underwriting
Information. In case any action or proceeding (including any governmental
investigation) shall be brought or asserted against any of the Sellers, any of
their directors, any such officer, or any such controlling person based on the
Registration Statement, the Prospectus or any preliminary prospectus in respect
of which indemnity is sought against any Underwriter pursuant to the foregoing
sentence, such Underwriter shall have the rights and duties given to the Company
and the Selling Stockholders (except that if the Company or the Selling
Stockholder shall have assumed the defense thereof, such Underwriter shall not
be required to do so, but may employ separate counsel therein and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Underwriter), and the Company, their directors, any such
officers, the Selling Stockholder and each such controlling person shall have
the rights and duties given to each of the Indemnified Person by Section 9(b)
above.
(d) If the indemnification provided for in this Section 9 is finally
determined by a court of competent jurisdiction to be unavailable to an
indemnified party in respect of any Liabilities referred to herein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such Liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party on the one hand and the
indemnified party on the other hand from the offering of the Shares or (ii), if
the allocation provided by clause (i), above, is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i), above, but also the relative fault of the
indemnifying parties and the indemnified party, as well as any other relevant
equitable considerations. The relative benefits received by the Sellers, on the
one hand, and the Underwriters (and their related Indemnified Persons), on the
other hand, shall be deemed to be in the same proportion as the total proceeds
from the offering (net of underwriting discounts and commissions but before
deducting expenses) received by the Sellers bears to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the Prospectus. The relative fault of the Sellers, on the one hand,
and the Underwriters, on the other hand, shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact related to
information supplied by the Sellers, on the one hand, or the Underwriters, on
the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The indemnity and contribution obligations of the Sellers set forth herein shall
be
17
<PAGE>
in addition to any liability or obligation the Company or the Selling
Stockholders may otherwise have to any Indemnified Person.
The Company, the Selling Stockholders and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 9(d)
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, judgments, liabilities or
expenses referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 9, no Underwriter (nor any of its related Indemnified Persons) shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the total underwriting discount applicable to the Shares purchased by such
Underwriter exceeds the amount of any damages or liabilities which such
Underwriter (and its related Indemnified Persons) has otherwise been required to
pay or incur by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
(e) The provisions of this Section 9 shall not affect, as between the
Company and the Selling Stockholders, any agreement which the Company and the
Selling Stockholders have made or may make regarding indemnification or
contribution with respect to the transactions contemplated by this Agreement.
(f) Each Seller hereby designates as its authorized agent, upon which
process may be served in any action, suit or proceeding which may be instituted
in any state or federal court in the State of New York by any Underwriter or any
person controlling an Underwriter asserting a claim for indemnification or
contribution under or pursuant to this Section 9.
10. Conditions of the Underwriters' Obligations. The several
-------------------------------------------
obligations of the Underwriters to purchase the Shares under this Agreement are
subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company and the
Selling Stockholders contained in this Agreement shall be true and correct
on the Closing Date with the same force and effect as if made on and as of
the Closing Date.
(b) The Registration Statement shall have become effective not later
than 5:00 P.M. on the date of this Agreement (or, if a post effective
amendment is required to be filed pursuant to Rule 430A under the Act, such
post effective amendment shall have become effective) and any Rule 462
Registration Statement that has been filed shall have become effective, and
at the Closing Date no stop order suspending the effectiveness of
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<PAGE>
the Registration Statement shall have been issued and no proceedings for
that purpose shall have been commenced or shall be pending before or
contemplated by the Commission, every request for additional information on
the part of the Commission shall have been complied with in all material
respects, and no stop order suspending the sale of the Shares in any
jurisdiction referred to in Section 5(g) shall have been issued and no
proceeding for that purpose shall have been commenced or shall be pending
or threatened.
(c) No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any governmental
agency, body or official which would, as of the Closing Date, prevent the
sale of the Shares; no injunction, restraining order or order of any nature
by a United States federal or state court of competent jurisdiction shall
have been issued as of the Closing Date which would prevent the sale of the
Shares; and, except as disclosed in the Prospectus, on the Closing Date, no
action, suit or proceeding shall be pending against, or, to the knowledge
of the Company or the Selling Stockholder, threatened against, the Company
or any of its subsidiaries or the Selling Stockholder, respectively, before
any court or arbitrator or any governmental body, agency or official which,
if adversely determined, would interfere with or adversely affect the sale
of the Shares or could reasonably be expected to have a Material Adverse
Effect, or in any manner call into question or invalidate this Agreement or
the sale of the Shares contemplated hereby.
(d) (i) Since the date of the latest balance sheet included or
incorporated by reference in the Registration Statement and the Prospectus,
there shall not have been any material adverse change, or any development
involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, affairs or business prospects,
whether or not arising in the ordinary course of business, of the Company,
(ii) since the date of the latest balance sheet included or incorporated by
reference in the Registration Statement and the Prospectus there shall not
have been any change, or any development involving a prospective material
adverse change, in the capital stock or in the long-term debt of the
Company from that set forth or incorporated by reference in the
Registration Statement and Prospectus, (iii) the Company and its
subsidiaries shall have no liability or obligation, direct or contingent,
which is material to the Company and its subsidiaries, taken as a whole,
other than those reflected or incorporated by reference in the Registration
Statement and the Prospectus and (iv) on the Closing Date you shall have
received a certificate dated the Closing Date, signed by the Chief
Executive Officer and by the Chief Financial Officer of the Company,
confirming the matters set forth in paragraphs (a), (b), (c), (d)(i),
(d)(ii) and (d)(iii) of this Section 9.
(e) You shall have received a certificate of each Selling
Stockholder, dated the Closing Date, confirming the matters set forth in
paragraphs (a), (b), (c), (d), (e), (f) and (g) of Section 8 of this
Agreement and such other matters as counsel for the Underwriters shall
reasonably request.
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(f) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing
Date, of Gibson Dunn & Crutcher LLP, counsel to the Company and the Selling
Stockholders to the effect that:
(i) the Company and each of its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and has the
corporate power and authority required to carry on its business as it
is currently being conducted and to own, lease and operate its
properties;
(ii) all of the outstanding shares of capital stock of, or
other ownership interests in, each of the Company's subsidiaries have
been duly and validly authorized and issued and are fully paid and
non-assessable, and are owned by the Company, to the best of such
counsel's knowledge after due inquiry, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature;
(iii) the shares of Common Stock to be sold by the Company
have been duly authorized and, upon delivery to the Underwriters in
accordance with this Agreement will be, validly issued and fully paid
and non-assessable and not subject to any preemptive rights;
(iv) the authorized capital stock of the Company, including
the Common Stock, conforms as to legal matters to the description
thereof contained in the Prospectus;
(v) the statements under the captions "Business-Regulation
and Legal Proceedings," "Description of Capital Stock" and
"Underwriting" in the Prospectus and Item 15 of Part II of the
Registration insofar as such statements constitute a summary of legal
matters, documents or proceedings referred to therein, fairly present
the information called for with respect to such legal matters,
documents and proceedings;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) the Registration Statement has become effective under
the Act and, to the knowledge of such counsel, after due inquiry, no
stop order suspending its effectiveness has been issued and no
proceedings for that purpose are pending before or contemplated by the
Commission;
20
<PAGE>
(viii) the Company has full power and authority to execute,
deliver and perform this Agreement; each document filed pursuant to
the Exchange Act and incorporated by reference in the Prospectus, at
the time it was filed or last amended (except for financial
statements, the notes thereto and related schedules and other
financial or accounting data included or incorporated by reference
therein or omitted therefrom, as to which such counsel need express no
opinion), complied as to form to the applicable requirements of the
Exchange Act in all material respects;
(ix) the execution, delivery and performance of this
Agreement and compliance by the Company with all the provisions hereof
and the consummation of the transactions contemplated hereby will not
require any consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other governmental
body (except such as may be required under the federal securities laws
or the Blue Sky laws of the various states) and will not conflict with
or constitute a breach of any of the terms or provisions of, or a
default under, (A) the charter or by-laws of the Company or any of its
subsidiaries or (B) any exhibit to the Registration Statement or
listed as an exhibit to the Company's reports filed since January 1,
1996 under Section 12 of the Exchange Act, or (C) violate or conflict
with any laws, administrative regulations or rulings or court decrees
that are of the type that are, in the experience of such counsel,
applicable to the Company or any of its subsidiaries or their
respective properties and transactions of the type contemplated hereby
(other than the federal securities laws or the Blue Sky laws of the
various states) except in the case of (B) or (C), for defaults or
conflicts which could not reasonably be expected to have a Material
Adverse Effect;
(x) such counsel does not know of any legal or governmental
proceeding pending or threatened to which the Company or any of its
subsidiaries is a party or to which any of their respective property
is subject which is required to be described in the Registration
Statement or the Prospectus and is not so described, or of any
contract or other document which is required to be described in the
Registration Statement or the Prospectus or is required to be filed as
an exhibit to the Registration Statement which is not described or
filed as required;
(xi) the Company and each of its subsidiaries has such
permits, licenses, franchises and authorizations of government or
regulatory authorities ("permits"), including, without limitation,
under any applicable Environmental Laws, as are necessary to own,
lease and operate its respective properties and to conduct is business
in the manner described in the Prospectus; to the best of such
counsel's knowledge, after due inquiry, the Company and each of its
subsidiaries has fulfilled and performed all of its material
obligations with respect to such permits and no event has occurred
which allows, or after notice or lapse of time would allow, revocation
or termination thereof or results in any other material
21
<PAGE>
impairment of the rights of the holder of any such permit, subject in
each case to such qualification as may be set forth in the Prospectus;
and such permits contain no restrictions that are materially
burdensome to the Company or any of its subsidiaries;
(xii) to the best of such counsel's knowledge, no holder of
any security of the Company other than the Selling Stockholder has any
right to require registration of shares of Common Stock or any other
security of the Company;
(xiii) the Company is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940, as amended;
(xiv) the Shares to be sold by the Selling Stockholders
hereunder have been duly authorized and validly issued and are fully
paid and non-assessable; and, to such counsel's knowledge, after due
inquiry, the sale of Shares by the Selling Stockholder hereunder is
not subject to any preemptive or similar rights. Each of the Firm
Shares to be sold by the Selling Stockholders is a "certificated
security" in "registered form" within the meaning of Sections
8102(1)(a) and 8102(1)(d) of the California Commercial Code and based
solely on such counsel's review of the Company's stock books such
Selling Stockholder was the registered owner of the Firm Shares;
(xv) this Agreement has been duly authorized, executed and
delivered by each Selling Stockholder;
(xvi) Assuming the Underwriters acquired their interest in
the Firm Shares to be sold by the Selling Stockholders (the "Secondary
Securities"), in good faith without notice of any adverse claims, upon
delivery of the Secondary Securities indorsed in blank to the
Underwriters in the State of California, the Underwriters will acquire
all of the Selling Stockholders' rights in the Secondary Securities
free of any adverse claims or restrictions on transfer imposed by the
Company (each within the meaning of Section 8302 of the California
Uniform Commercial Code);
(xvii) the Custody Agreement has been duly authorized,
executed and delivered by each Selling Stockholder and constitutes a
legal, valid and binding agreement of each Selling Stockholder,
enforceable in accordance with its terms, except that enforcement
thereof may be limited by: (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of
equity (regardless of whether enforceability considered in a
proceeding at law or in equity).
22
<PAGE>
(xviii) neither the Company nor any of its subsidiaries is
in violation of its respective charter or by-laws and, to the best of
such counsel's knowledge, neither the Company nor any of its
subsidiaries is in default in the performance of any obligation,
agreement or condition contained in any bond, debenture, note or any
other evidence of indebtedness or in any other agreement, indenture or
instrument material to the conduct of the business of the Company and
its subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which it or any of its subsidiaries or
their respective property is bound;
(xix) neither the sale of the Shares nor the consummation
of the transactions contemplated by this Agreement will conflict with,
result in a breach or violation of, or constitute a default under (A)
the terms of any indenture or other agreement or instrument to which
either Selling Stockholder is a party or bound, (B) any statute, rule
or regulation to which the Selling Stockholder is subject, or to which
any of the properties of either of the Selling Stockholders is
subject, or (C) any order of any court or governmental agency or body
having jurisdiction over either Selling Stockholder or any of their
respective properties, except that such counsel need express no
opinion as to state securities or Blue Sky laws; and
(xx) neither the sale of the Shares nor the consummation of
the transactions contemplated by this Agreement will violate any of
the provisions of the declaration of trust of either of the Selling
Stockholders as in effect on the date of the opinion.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of
the Company and the Selling Stockholders, representatives of the
independent public accountants for the Company, representatives of the
Underwriters and counsel for the Underwriters at which the contents of
the Registration Statement, the Prospectus and related matters were
discussed and, although such counsel is not passing upon, and does not
assume any responsibility for, the accuracy, completeness or fairness
of the statements contained in the Registration Statement or the
Prospectus and has made no independent check or verification thereof
(except for (iv) and (v) above), during the course of such
participation on the basis of the foregoing, no facts have come to
such counsel's attention that caused such counsel to believe that the
Registration Statement, at the time such Registration Statement or any
post-effective amendment became effective, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus as amended or
supplemented, if applicable, as of its date and the Closing Date,
contained an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in
light of the circumstances
23
<PAGE>
under which they were made, not misleading. Such counsel need express
no belief with respect to the financial statements, the notes thereto
and related schedules and other financial and accounting data included
in, or omitted from, the Registration Statement or the Prospectus.
(g) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing
Date, of C. Michael Carter, Esquire, the Company's General Counsel, to the
effect that:
(i) all of the outstanding shares of Common Stock (including
the Shares to be sold by the Selling Stockholders) have been duly
authorized and validly issued and are fully paid and non-assessable
and not subject to any preemptive or similar rights;
(ii) the Company and each of its subsidiaries is duly
qualified and is in good standing as a foreign corporation authorized
to do business in each jurisdiction in which the nature of its
business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified could not
reasonably be expected to have a Material Adverse Effect;
(iii) to the best of his knowledge, after due inquiry,
there are no contracts, indentures, mortgages, loan agreements, notes,
leases or other instruments required to be described or referred to in
the Registration Statement or the Incorporated Documents or to be
filed as exhibits to the Registration Statement or to the Incorporated
Documents other than those so described or referred to therein or so
filed as exhibits thereto and that the descriptions thereof insofar as
they purport to summarize certain provisions thereof are in all
material respects accurate summaries thereof and no default exists in
the due performance of any obligation, agreement, covenant or
condition exists in any such contract, indenture, mortgage, loan
agreement, note, lease or other instrument so described, referred to
or filed, except for defaults which could not reasonably be expected
to have a Material Adverse Effect;
(iv) to the best of his knowledge, after due inquiry, there
are no legal or governmental proceedings pending or threatened which
are required to be disclosed in the Registration Statement or the
Prospectus, other than those disclosed therein, and all pending legal
or governmental proceedings to which the Company or its subsidiaries
is a party or to which any of the property is subject which are not
described in the Registration Statement or Prospectus, including
ordinary routine litigation incidental to their business, are,
considered in the aggregate, not material to the financial condition
of the Company; and
(v) the information in the Prospectus under the caption
"Business-Regulation and Legal Proceedings" to the extent that it
constitutes
24
<PAGE>
matters of law, summaries of legal matters, documents or proceedings
or legal conclusions, has been reviewed by him and is correct in all
material respects.
In addition, such counsel shall state that he or lawyers
under his supervision have participated in conferences with officers
and other representatives of the Company and the Selling Stockholders,
representatives of the independent public accountants for the Company,
representatives of the Underwriters and counsel for the Underwriters
at which the contents of the Registration Statement, the Prospectus
and related matters were discussed and, although such counsel is not
passing upon, and does not assume any responsibility for, the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus and has made no independent
check or verification thereof (except for (v) above), during the
course of such participation on the basis of the foregoing, no facts
have come to his attention that caused such counsel to believe that
the Registration Statement, at the time such Registration Statement or
any post-effective amendment became effective, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus as amended or
supplemented, if applicable, as of its date and the Closing Date,
contained an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Such counsel need express no belief with respect to the financial
statements, the notes thereto and related schedules and other
financial and accounting data included in, or omitted from, the
Registration Statement or the Prospectus.
(h) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Skadden, Arps, Slate, Meagher & Flom, counsel for the
Underwriters, in form and substance reasonably satisfactory to you.
(i) You shall have received letters on and as of the date hereof as
well as on and as of the Closing Date, in form and substance satisfactory
to you, from KPMG Peat Marwick LLP, independent public accountants, with
respect to the financial statements and certain financial information
contained or incorporated by reference in the Registration Statement and
the Prospectus and substantially in the form and substance of the letter
delivered to you by KPMG Peat Marwick LLP on the date of this Agreement.
(j) The Company and the Selling Stockholder shall not have failed in
any material respect at or prior to the Closing Date to perform or comply
with any of the agreements herein contained and required to be performed or
complied with by the Company at or prior to the Closing Date.
25
<PAGE>
(k) Prior to the Closing Date, the Company and the Selling
Stockholder shall have furnished to you such further information,
certificates and documents as you may reasonably request.
(l) On or prior to the Closing Date, the Company shall have given
notice of the redemption of the Senior Notes pursuant to Section 2.5 of the
Note Purchase Agreement dated June 14, 1990 among the Company and the
purchasers named therein.
(m) The several obligations of the Underwriters to purchase any
Additional Shares hereunder are subject to satisfaction on and as of each
Option Closing Date of the conditions set forth in paragraphs (a) through
(j) except that the opinions called for in paragraphs (f), (g) and (h) and
the letters referred to in paragraph (i) shall be revised to reflect the
sale of the Additional Shares.
11. Effective Date of Agreement and Termination. This Agreement shall
-------------------------------------------
become effective upon the later of (i) execution of this Agreement and (ii) when
notification of the effectiveness of the Registration Statement (or, if a post
effective amendment is required to be filed pursuant to Rule 430A under the Act,
such post effective amendment) has been released by the Commission.
This Agreement may be terminated at any time prior to the Closing Date
by you by written notice to the Company and the Selling Stockholders if any of
the following has occurred: (i) since the respective dates as of which
information is given in the Registration Statement and the Prospectus, any
adverse change or development involving a prospective adverse change in the
condition, financial or otherwise, of the Company or any of its subsidiaries or
the earnings, affairs, or business prospects of the Company or any of its
subsidiaries, whether or not arising in the ordinary course of business, which
would, in DLJ's judgment, make it impracticable or inadvisable to market the
Shares on the terms and in the manner contemplated in the Prospectus or to
enforce contracts for the sale of the Shares, (ii) any outbreak or escalation of
hostilities or other national or international calamity or crisis or change in
economic conditions or in the financial markets of the United States or
elsewhere that, in your judgment, is material and adverse and would, in DLJ's
judgment, make it impracticable or inadvisable to market the Shares on the terms
and in the manner contemplated in the Prospectus or to enforce contracts for the
sale of the Shares, (iii) the suspension or material limitation of trading in
securities on the NYSE, the American Stock Exchange or the NNM or limitation on
prices for securities on any such exchange or the NNM, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of any court or other governmental authority which in
DLJ's judgment materially and adversely affects, or will materially and
adversely affect, the business or operations of the Company or any subsidiary of
the Company, (v) the declaration of a banking moratorium by either federal or
New York State authorities or (vi) the taking of any action by any federal,
state or local government or agency in respect of its monetary or fiscal affairs
which in DLJ's judgment has a material adverse effect on the financial markets
in the United States.
26
<PAGE>
If on the Closing Date or any Option Closing Date, as the case may be,
any of the Underwriters shall fail or refuse to purchase Firm Shares or
Additional Shares, as the case may be, which it has agreed to purchase hereunder
on such date, and the aggregate amount of Firm Shares or Additional Shares, as
the case may be, that such defaulting Underwriters agreed but failed or refused
to purchase does not exceed 10% of the total number of Shares to be purchased on
such date by all of the Underwriters, each non-defaulting Underwriter shall be
obligated severally, in the proportion which the number of Firm Shares set forth
opposite its name in Schedule I hereto bears to the total number of Firm Shares
which all the non-defaulting Underwriters, as the case may be, have agreed to
purchase, or in such other proportion as you may specify, to purchase the Firm
Shares or Additional Shares, as the case may be, that such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused to
purchase on such date; provided that in no event shall the number of Firm Shares
or Additional Shares, as the case may be, that any Underwriter has agreed to
purchase pursuant to Section 2 hereof be increased pursuant to this Section 11
by an amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter.
If, on the Closing Date or on the Option Closing Date, as the case may be, any
of the Underwriters shall fail or refuse to purchase the Firm Shares or the
Additional Shares, as the case may be, and the aggregate number of Shares with
respect to such default exceeds 10% of such total number of the Shares to be
purchased on such date by all Underwriters and arrangements satisfactory to the
other Underwriters, the Selling Stockholder and the Company for the purchase of
such Shares are not made within 48 hours after such default, this Agreement
shall terminate without liability on the part of the non-defaulting
Underwriters, the Selling Stockholder or the Company, except as otherwise
provided in this Section 11. In any such case that does not result in
termination of this Agreement, the Underwriters, the Selling Stockholder or the
Company may postpone the Closing Date or the Option Closing Date, as the case
may be, for not longer than seven (7) days, in order that the required changes,
if any, in the Registration Statement and the Prospectus or any other documents
or arrangements may be effected. Any action taken under this paragraph shall
not relieve a defaulting Underwriter from liability in respect of any default by
any such Underwriter under this Agreement.
12. Miscellaneous. Notices given pursuant to any provision of this
-------------
Agreement shall be addressed as follows: (a) if to the Company, to Pinkerton's,
Inc., 15910 Ventura Boulevard, Encino, California 91436, Attention: C. Michael
Carter, with a copy to Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los
Angeles, California 90071, Attention: Andrew E. Bogen, (b) if to any Underwriter
or to you, c/o Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park
Avenue, New York, New York 10172, Attention: Syndicate Department, with a copy
to Skadden, Arps, Slate, Meagher & Flom, 300 South Grand Avenue, Suite 3400, Los
Angeles, California 90071, Attention: Nicholas P. Saggese, and (c) if to either
Selling Stockholder, to Thomas W. Wathen, 15910 Ventura Boulevard, Suite 900,
Encino, California 91436, or in any case to such other address as the person to
be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, the Selling Stockholders, their
respective officers and
27
<PAGE>
directors and of the Underwriters set forth in or made pursuant to this
Agreement shall remain operative and in full force and effect, and will survive
delivery of and payment for the Shares, regardless of (i) any investigation, or
statement as to the results thereof, made by or on behalf of any Underwriter or
by or on behalf of the Company or the Selling Stockholders, the officers or
directors of the Company or the Selling Stockholders or any controlling person
of the Company or the Selling Stockholder, (ii) acceptance of the Shares and
payment for them hereunder and (iii) termination of this Agreement.
If this Agreement shall be terminated by the Underwriters because of
any failure or refusal on the part of the Company or either of the Selling
Stockholders to comply with the terms or to fulfill any of the conditions of
this Agreement, the party whose failure or refusal to comply with such terms or
fulfill such conditions shall reimburse the Underwriters for all out-of-pocket
expenses (including the fees and disbursements of counsel) reasonably incurred
by them.
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the Selling
Stockholders, the Underwriters, any indemnified party referred to herein and
their respective successors and assigns, all as and to the extent provided in
this Agreement, and no other person shall acquire or have any right under or by
virtue of this Agreement. The term "successors and assigns" shall not include a
purchaser of any of the Shares from any of the several Underwriters merely
because of such purchase.
THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK AS APPLIED TO CONTRACTS MADE AND
PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE COMPANY AND EACH SELLING STOCKHOLDER HEREBY
IRREVOCABLY SUBMITS TO THE SOLE AND EXCLUSIVE JURISDICTION OF THE FEDERAL AND
NEW YORK STATE COURTS LOCATED IN THE BOROUGH OF MANHATTAN, THE CITY OF NEW YORK
IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS AGREEMENT OR
ANY OF THE MATTERS CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY DEFENSE OF LACK
OF PERSONAL JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF
ANY SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT.
EACH OF THE COMPANY AND THE SELLING STOCKHOLDERS IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
Any determination that any provision of this Agreement may be, or is,
unenforceable shall not affect the enforceability of the remainder of this
Agreement.
28
<PAGE>
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
29
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
PINKERTON'S, INC.
By: _______________________________
Name:
Title:
THE THOMAS W. WATHEN TRUST
By: _______________________________
Name: Thomas W. Wathen
Title: Trustee
THOMAS W. WATHEN CHARITABLE
REMAINDER UNITRUST
By: _______________________________
Name: Thomas W. Wathen
Title: Trustee
<PAGE>
The foregoing Underwriting Agreement
is hereby confirmed and accepted
as of the date first above written.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
PRUDENTIAL SECURITIES INCORPORATED
SCHRODER, WERTHEIM & CO. INCORPORATED
Acting on severally on behalf of
themselves and as representatives of
the several Underwriters named in
Schedule I hereto:
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: _______________________________
Name: Mark W. Lannigan
Title: Managing Director
<PAGE>
SCHEDULE I
----------
<TABLE>
<CAPTION>
Number of
Firm Shares
U.S. Underwriters to be Purchased
- ----------------- ---------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation............................
Prudential Securities Incorporated..............................................
Schroder Wertheim & Co. Incorporated............................................
Total........................................................2,360,000
=========
</TABLE>
<PAGE>
SCHEDULE II
-----------
<TABLE>
<CAPTION>
Number of
Firm Shares
Selling Stockholders to be Sold
- -------------------- ----------
<S> <C>
The Thomas W. Wathen Trust............................................ 615,518
Thomas W. Wathen Charitable Remainder Unitrust........................ 44,482
-------
Total........................................................ 660,000
=======
</TABLE>
<PAGE>
WORLD HEADQUARTERS
15910 VENTURA BOULEVARD
SUITE 900
ENCINO, CA 91436-3095
FACSIMILE 818-380-8445
TELEPHONE 818-380-8800
DIRECT 818-380-8846
C. MICHAEL CARTER
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL & CORPORATE
SECRETARY
PINKERTON(R)
SECURITY &
INVESTIGATION SERVICES
July 1, 1996
Pinkerton's, Inc.
15910 Ventura Boulevard, Suite 900
Encino, California 91436-2810
Re: Pinkerton's, Inc.--Form S-3 Registration Statement (No. 333-6573)
-----------------------------------------------------------------
Ladies and Gentlemen:
I am Executive Vice President, General Counsel and Corporate Secretary of
Pinkerton's, Inc., a Delaware corporation (the "Company"), and as such I have
been requested to render this opinion in connection with the registration by
the Company of 2,714,000 shares of the Company's Common Stock (the "Shares") on
Form S-3 Registration Statement No. 333-6573 (the "Registration Statement")
under the Securities Act of 1933, as amended. Of the 2,714,000 Shares,
1,700,000 Shares are being sold by the Company, 660,000 shares are being sold
by a stockholder of the Company (the "Selling Stockholder") and 354,000 Shares
are subject to an overallotment option granted to the Underwriters (as defined
below) by the Company. I understand that the Company and the Selling
Stockholder propose to sell the Shares to a group of underwriters (the
"Underwriters") represented by Donaldson, Lufkin & Jenrette Securities
Corporation, Prudential Securities Incorporated and Schroder Wertheim & Co.
Incorporated, for offering to the public.
On the basis of such investigation as I have deemed necessary, I am of the
opinion that the Shares have been duly authorized and, when issued and sold or,
in the case of outstanding shares, sold in accordance with the terms of the
Registration Statement and an underwriting agreement among the Company, the
Selling Stockholder and the Underwriters substantially in the form filed as an
exhibit to the Registration Statement, will be legally issued, fully paid and
nonassessable.
<PAGE>
EXHIBIT 23.2
CONSENT OF KPMG PEAT MARWICK LLP
We consent to the use of our report included herein and to the reference to
our Firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
_____________________________________
KPMG Peat Marwick LLP
Los Angeles, California
July 1, 1996
