PINKERTONS INC, S-3, 1996-06-21

PINKERTONS INC
S-3, 1996-06-21
DETECTIVE, GUARD & ARMORED CAR SERVICES

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 1996

REGISTRATION NO. 333-
===============================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

---------------

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. [_]

CALCULATION OF REGISTRATION FEE
===============================================================================
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(2) OFFERING PRICE(1) FEE(2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per 2,714,000
share(3)................................. shares $24.75 $67,171,500 $23,163
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of determining the registration fee.
(2) Calculated pursuant to Rule 457(c) based upon the average of the high and
low prices of the Common Stock on the Nasdaq National Market on June 18,
1996.
(3) Including the associated Preferred Stock purchase rights issued by the
Registrant pursuant to the Rights Agreement dated July 12, 1991 between
the Company and The Bank of New York, as successor Rights Agent.

---------------

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.
===============================================================================

<PAGE>

SUBJECT TO COMPLETION, DATED JUNE 21, 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 June , 1996,
the last reported sale price of the Common Stock was $ 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.

(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, the 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>

[PICTURES TO BE PROVIDED BY AMENDMENT]

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. 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 new 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 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,
gross profit increased by 19.9% and 23.7%, 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-selling higher margin,
value-added services and products, thereby creating a security partnership 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 continue to
maintain the highest 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 its ability to provide world-class
customer service and differentiate itself from its competition.

3
<PAGE>

. Offer 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 intends to capitalize on its worldwide customer base by
cross-marketing its expanded product and security offerings. Management
believes that as a full-service provider of innovative security solutions
it can expand the nature and scope of its security partnership with its
existing customers and promote customer retention as well as expand the
Company's customer base.

. Capitalize on "Outsourcing" Trend. Management intends to continue to
capitalize on the growing trend among businesses to outsource non-core
functions, such as security, and to centralize the procurement and
oversight of such functions at the corporate level. Pinkerton believes it
has a number of competitive advantages to capitalize on the growing trend
among businesses 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 (including over 50 national
accounts) and its extensive knowledge of customer security needs and
solutions. 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 previously had handled primarily in-house.

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 acquire an extensive network of security systems integration
businesses in major metropolitan areas as part of its effort to provide
innovative security solutions by offering higher margin, value-added
security services and products. Since the beginning of 1995, Pinkerton
has acquired three regional security systems integration businesses that
integrate 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 and that provide ongoing maintenance of such
systems.

. Consolidate Security Officer Businesses. 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 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 49%. Management
believes that Pinkerton has several competitive advantages to enable it
to succeed as an industry consolidator, including a widely-recognized
brand name, a reputation for superior quality, the ability to service
national and international accounts, management experience in identifying
and assimilating acquisitions, sophisticated management information
systems, a strong financial position and access to capital.

. 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

4
<PAGE>

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 security officer services segment, in particular, is
attributable primarily to three factors: (i) increasing incidents of crime,
violence and terrorism, (ii) budgetary constraints which limit the resources
available to governmental units 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 909,675 shares subject to outstanding options to purchase shares
of Common Stock under the Company's employee stock option plans.

5
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS 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 includes 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>
AT MARCH 22, 1996
------------------------
ACTUAL AS ADJUSTED(D)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital...................................... $ 94,438 $ 97,957
Total assets......................................... 291,175 293,456
Total debt (including current maturities)............ 42,850 8,575(e)
Stockholders' equity................................. 115,561 153,485
</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 $11,500, and the Company recorded a pre-tax
charge of $2,900 consisting primarily of severance, recruiting and
relocation charges. In addition, the Company recorded a gain from
litigation settlements in the amount of $2,400.
(d) Gives effect to the sale by the Company of 1,700,000 shares of Common Stock
offered hereby and the application of the estimated net proceeds as set
forth under "Use of Proceeds."
(e) 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 competent 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 undertaken 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. 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.

CONTROL BY 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 June 13, 1996, Pinkerton has reserved for issuance up to 1,402,975 shares
of Common Stock under its employee stock option plans, of which 909,675 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 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 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 June 18, 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 June 18, 1996).......................... 25 24 1/2
</TABLE>

On June 18, 1996, the last sale price of the Common Stock, as reported by
Nasdaq, was $24 9/16 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)

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 $ 45,166
======== ========
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....................................... 74,485 113,747
Retained earnings................................................ 50,185 48,830
Other adjustments(d)............................................. (9,117) (9,117)
-------- --------
Total stockholders' equity..................................... 115,561 153,470
-------- --------
Total capitalization............................................... $158,411 $162,045
======== ========
</TABLE>
- ---------------------
(a) Based on a public offering price of $24 9/16 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. Amounts may be drawn in the future under the
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
(DOLLARS 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 includes 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
(000s)................ 7,373 8,257 8,284 8,288 8,351 8,345 8,408
</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 $ 94,438
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... 111,415 114,202 111,631 103,422 113,725 115,576
</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 fiscal year 1993 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 $11,500, and the Company recorded a pre-tax
charge of $2,900 consisting primarily of severance, recruiting and
relocation charges.

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 reducing
unprofitable business.

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 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 $7.8 million, and revenue
reductions arising from currency fluctuations of $3.9 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 reducing unprofitable business, which resulted in a reduction
in domestic service hours of 2.2%.

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. 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 $66.3 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 $55.0 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 $11.0
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 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. and fixed, nondeductible goodwill in the United States. The incremental
statutory rates for 1994 and 1993 were 51.0% and 47.6%, respectively (federal
rate of 35.0% and average effective state rate of 16.0% and 12.6%,
respectively).

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. Such redemption will cause recognition of debt
extinguishment expenses in the quarter in which it is effected. See "Use of
Proceeds."

15
<PAGE>

The Company has an acquisitions 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 June 18,
1996 no amounts were outstanding under the cash borrowing facility and $33.2
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
over the next 12 months. The Company also has access to capital markets, if
necessary, to raise funds for working capital, capital spending, 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

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 new 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 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, gross profit increased by 19.9% and 23.7%, 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-selling higher margin,
value-added services and products, thereby creating a security partnership
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:

17
<PAGE>

on its worldwide customer base by cross-marketing its expanded product and
security offerings. Management believes that as a full-service provider of
innovative security solutions it can expand the nature and scope of its
security partnership with its existing customers and promote customer
retention as well as expand the Company's customer base.

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:

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, alarm monitoring services, patrol
services, security consulting services and other security 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 $26.1 billion by the year 2000. The security officer services
segment of the market, from which the Company generated approximately 95% 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 security
officer services segment, in particular, is attributable primarily to three
factors: (i) increasing incidents of crime, violence and terrorism, (ii)
budgetary constraints which limit the resources available to governmental
units 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 97%, 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 products and services 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 and provides ongoing
maintenance of such systems. Pinkerton has supplier and distribution
agreements with the manufacturers of the equipment that the division believes
best meets client needs. Equipment used by the division is widely available
from several suppliers. In order to service an installed security system
effectively, a vendor 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
acquiring additional regional security systems integration companies and by
growing internally.

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 services, including quality
assurance, construction and budget management and technical documentation.
Pinkerton's Risk Assessment provides daily, weekly and monthly assessments of
international travel and asset risk related to terrorism, crime and political
instability.

19
<PAGE>

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 clients on a specific
project basis and charges its clients an hourly rate for services performed.
Pinkerton does though, from time to time, perform such services on a retainer
or fixed fee basis. Most agreements between Pinkerton and its clients covering
investigation services provide that Pinkerton or the client 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 through its offices worldwide and its 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 market for all of the services provided by Pinkerton is 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 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 U.S. government. 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 11% 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, client 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 clients are Pinkerton employees, even though they may be stationed
regularly at the clients' 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 parts of the country 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. 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........... 45 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.

23
<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
31, 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

24
<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 a director of Atlantic Richfield Corporation, Dresser Industries, 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 U.S. 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, 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 service in 1995.

25
<PAGE>

PRINCIPAL STOCKHOLDERS AND SELLING STOCKHOLDER

The following table sets forth information as to the ownership of the Common
Stock on June 13, 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)................ 420,020 5.0 -- 420,020 4.2
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 2,727,001 shares and
46,869 shares of Mr. Wathen's Common Stock, respectively. Of the shares
being offered by Mr. Wathen hereby, 46,869 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 10, 1996, based on public filings. According to public filings,
Tweedy, Browne Company L.P. and Vanderbilt Partners, L.P. may be deemed 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 366,005 of such shares and shared
dispositive power and no voting power over 46,915 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 4.0%, 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
Preferred Stock). At June 13, 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 133
holders of record of Pinkerton Common Stock. On June 13, 1996, there were
1,402,975 shares of Common Stock reserved for issuance to employees and
directors under incentive compensation arrangements (of these shares, 909,675
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.
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 and
nominations of persons for election to the Board of Directors 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) 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 (vii)
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, at any time following the Stock Acquisition Date (i) any
person becomes the beneficial owner of 20% or more of the outstanding shares
of Common Stock, (ii) the Company is acquired in a 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 (iii) 50% or
more of the Company's assets or earning power is transferred, each holder of a
Right 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. Upon the occurrence of any of the foregoing events, Rights held
by an Acquiring Person shall become void. Notwithstanding the foregoing, this
provision shall not apply to transactions where the acquisition of Common
Stock of the Company is pursuant to a Qualified Offer. 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 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.

29
<PAGE>

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.

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 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 under the Securities
Act. 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 under the
Securities Act and only to the extent that such shares can be sold in such
offering after the Company has sold all of the shares it offers. Mr. Wathen is
required to pay all expenses of a registration of his shares pursuant to the
Personal Services Agreement. 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 June 13, 1996, Pinkerton has reserved 648,525 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 261,150 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
Donaldson, Lufkin & Jenrette Securities Corporation ("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 an aggregate of 1,700,000 shares
of Common Stock and an aggregate of 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.

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 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.

31
<PAGE>

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 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- , 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.

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; (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.

32
<PAGE>

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.

Los Angeles, California/s/ KPMG PEAT MARWICK LLP
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 $103.3 million in 1994 and $108.8
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
======= ======== =======

The following is a summary of the provision for income taxes:

<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

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.......................... 32
Index to Consolidated Financial Statements............................... F-1
</TABLE>

================================================================================
================================================================================

2,360,000 SHARES

[LOGO of PINKERTON]

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. 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. 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 provides
for indemnification of persons to the extent permitted by Section 145 of the
Delaware General Corporation Law. 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

II-1
<PAGE>

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 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 (certified public accountants).
24 Power of Attorney (included on Page II-4).
27 Financial Data Schedule.
</TABLE>
- ---------------------
* To be filed by amendment.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) 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.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 of 1933 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

II-2
<PAGE>

indemnification by it is against public policy as expressed in the Securities
Act of 1933 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 of
1933, 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 of 1933 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
of 1933, 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 REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF LOS ANGELES, CALIFORNIA, ON THE 21ST DAY OF JUNE,
1996.

Pinkerton's, Inc.

/s/ C. Michael Carter
By: _________________________________
C. MICHAEL CARTER
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND CORPORATE
SECRETARY

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature to this
Registration Statement appears below hereby constitutes and appoints C.
Michael Carter, Esq. and James P. McCloskey as such person's true and lawful
attorney-in-fact and agent with full power of substitution for such person and
in such person's name, place and stead, in any and all capacities, to sign and
to file with the Securities and Exchange Commission, any and all amendments
and post-effective amendments to this Registration Statement, with exhibits
thereto and other documents in connection therewith, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact
and agent, or any substitute therefore, may lawfully do or cause to be done by
virtue thereof.

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

/s/ Denis R. Brown President and Chief June 21, 1996
- ------------------------------------- Executive Officer
DENIS R. BROWN (Principal
Executive Officer)

/s/ James P. McCloskey Executive Vice June 21, 1996
- ------------------------------------- President, Chief
JAMES P. MCCLOSKEY Financial Officer
(Principal
Financial Officer)

/s/ Steven A. Lindsey Controller June 21, 1996
- ------------------------------------- (Principal
STEVEN A. LINDSEY Accounting Officer)

II-4
<PAGE>

SIGNATURE TITLE DATE

/s/ Peter H. Dailey Director June 21, 1996
- -------------------------------------
PETER H. DAILEY

/s/ John A. Gavin Director June 21, 1996
- -------------------------------------
JOHN A. GAVIN

/s/ Gerald D. Murphy Director June 21, 1996
- -------------------------------------
GERALD D. MURPHY

/s/ J. Kevin Murphy Director June 21, 1996
- -------------------------------------
J. KEVIN MURPHY

/s/ Robert H. Smith Director June 21, 1996
- -------------------------------------
ROBERT H. SMITH

/s/ Thomas W. Wathen Director June 21, 1996
- -------------------------------------
THOMAS W. WATHEN

/s/ William H. Webster Director June 21, 1996
- -------------------------------------
WILLIAM H. WEBSTER

II-5
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------
<C> <S> <C>
1* Form of Underwriting Agreement.
5* Opinion of C. Michael Carter, Esq.
Consent of C. Michael Carter, Esq. (included in Exhibit
23.1* 5).
Consent of KPMG Peat Marwick LLP (certified public
23.2 accountants).
24 Power of Attorney (included on Page II-4).
27 Financial Data Schedule.
</TABLE>
- ---------------------
* To be filed by amendment.

<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
June 21, 1996

<PAGE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-29-1995 MAR-22-1996
<PERIOD-START> DEC-31-1994 DEC-30-1995
<PERIOD-END> DEC-29-1995 MAR-22-1996
<CASH> 20,215 18,225
<SECURITIES> 19,396 24,777
<RECEIVABLES> 113,127 116,448
<ALLOWANCES> 2,881 2,706
<INVENTORY> 2,516 2,260
<CURRENT-ASSETS> 172,971 176,919
<PP&E> 35,636 37,042
<DEPRECIATION> 21,619 23,072
<TOTAL-ASSETS> 287,344 291,175
<CURRENT-LIABILITIES> 82,746 82,496
<BONDS> 34,275 34,275
0 0
15 0
<COMMON> 74,471 74,493
<OTHER-SE> 39,239 41,068
<TOTAL-LIABILITY-AND-EQUITY> 287,344 291,175
<SALES> 862,793 200,036
<TOTAL-REVENUES> 862,793 200,036
<CGS> 771,172 176,850
<TOTAL-COSTS> 771,172 176,850
<OTHER-EXPENSES> 76,532 18,929
<LOSS-PROVISION> 1,719 239
<INTEREST-EXPENSE> 2,870 604
<INCOME-PRETAX> 18,021 3,414
<INCOME-TAX> 7,521 1,705
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,500 1,709
<EPS-PRIMARY> 1.26 0.20
<EPS-DILUTED> 1.26 0.20

</TABLE>