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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
_______
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 27, 1996
------------------------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ____________________ TO _______________________
COMMISSION FILE NUMBER: 1-11841
PINKERTON'S, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-5318100
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
15910 VENTURA BOULEVARD, SUITE 900, ENCINO, CALIFORNIA 91436-2810
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 380-8800
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
PREFERRED STOCK PURCHASE RIGHTS
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [X]
THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT ON FEBRUARY 28, 1997 WAS $147,252,205 (EXCLUDING STOCK HELD BY
DIRECTORS AND EXECUTIVE OFFICERS WITHOUT DETERMINING AFFILIATE STATUS).
THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK, PAR VALUE $.001 PER
SHARE, OUTSTANDING ON FEBRUARY 28, 1997 WAS 8,363,355.
DOCUMENTS INCORPORATED BY REFERENCE:
PORTIONS OF THE REGISTRANT'S 1996 ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR
ENDED DECEMBER 27, 1996 ARE INCORPORATED BY REFERENCE IN PARTS I AND II HEREOF.
WITH THE EXCEPTION OF THOSE PORTIONS WHICH ARE EXPRESSLY INCORPORATED BY
REFERENCE IN THE ANNUAL REPORT ON FORM 10-K, THE REGISTRANT'S 1996 ANNUAL REPORT
TO STOCKHOLDERS IS NOT DEEMED FILED AS PART OF THIS REPORT. PORTIONS OF THE
REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION PRIOR TO THE EXPIRATION OF 120 DAYS AFTER DECEMBER 27, 1996,
IN CONNECTION WITH THE REGISTRANT'S ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
APRIL 24, 1997, ARE INCORPORATED BY REFERENCE IN PART III HEREOF.
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PART I
ITEM 1. BUSINESS
GENERAL
Pinkerton's, Inc. (with its consolidated subsidiaries, "Pinkerton" or the
"Company") 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 clients
domestically and internationally, including approximately half of the United
States "Fortune 1000" 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.
Pinkerton is primarily the result of the combination of the businesses of
California Plant Protection, Inc. ("CPP"), founded as a merchant patrol service
in 1947, and Pinkerton's, Inc., founded in 1850 as an investigation service. By
the end of 1987, CPP had grown to become the fourth largest security officer
service company in the United States. CPP acquired Pinkerton in January 1988
from American Brands, Inc. Immediately prior to the acquisition, Pinkerton was
the second largest supplier of security officer services in the United States
and one of the largest national and international investigation companies. As a
consequence of its long and sometimes colorful history, Pinkerton has become one
of the best-known security companies in the world. Immediately after the
acquisition, CPP merged with and into Pinkerton.
In 1996 Pinkerton made progress towards its strategy of being a world-class,
global security solutions provider. The Company made progress in building its
security systems integration business, a keystone of this strategy, by acquiring
four regional systems integrators in 1996 and another in January 1997.
Pinkerton is now the largest independent security systems integrator in the
United States and continues to seek acquisitions to build this capability
nationwide. Pinkerton also acquired the security operations of Select Security,
Inc. in Canada in 1996, and on January 1, 1997 acquired WKD Security GmbH, a
security service provider in Germany. To broaden the spectrum of services and
products provided by Pinkerton, the Company established several strategic
alliances with companies having expertise in areas such as electronic data and
computer network security and workplace violence and crisis management. During
1996 the Company also launched a variety of initiatives intended to make total
quality and continuous improvement a permanent way of life at Pinkerton.
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.
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.
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The Company believes that it offers the broadest array of security and security-
related services and products in its industry. The Company promotes the concept
of "one-stop shopping" as an advantage to clients.
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 to 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 clients are frequently the result of competitive bidding. Most contracts
extend for one year but are often terminable on relatively short notice (usually
30-90 days) by either party.
In fiscal years 1994, 1995 and 1996, security officer services accounted for
approximately 96%, 96% and 92%, respectively, of the Company's revenues.
SECURITY SYSTEMS INTEGRATION SERVICES
Pinkerton integrates diverse electronic security systems, such as access
control, closed circuit television, alarm monitoring and digital badging, into a
coherent interrelated operating system that enhances security and automates
alarm response. The Company also provides ongoing maintenance of such systems.
Pinkerton has supplier and distribution agreements with the manufacturers of the
equipment that the Company believes best meets client needs. The equipment used
by Pinkerton is widely available from several suppliers. Management believes
that, in order to service an installed security system effectively, a service
provider must be located within a three to four hour drive of the client.
Pinkerton currently provides these services in many, but not all, regions in the
United States, and in some international areas. The Company expects to continue
to expand these services by growing internally and by acquiring additional
regional security systems integration companies in order to assemble nationwide
capabilities.
ALARM MONITORING SERVICES
Through its Advanced Technology Center, located near Atlanta, Georgia, Pinkerton
provides alarm monitoring services. Such services primarily involve remote
monitoring of security systems, event monitoring and service automation. The
center can monitor many types of electronic systems, such as credit card
blocking, card access systems for office buildings and emergency telephones in
elevators.
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. The
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Company's risk assessment service provides daily, weekly and monthly assessments
of international travel and asset risk related to terrorism, crime and political
instability
INVESTIGATION AND OTHER SECURITY-RELATED SERVICES AND PRODUCTS
Pinkerton provides investigation services to a diverse array of businesses,
including general and undercover investigations as well as insurance and other
fraud investigations, surveillance, personal background checks, mystery
shopping, business due diligence investigations and intellectual property
infringement investigations. Pinkerton 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
occasionally performs 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
Pinkerton 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. Clients can obtain software from Pinkerton that enables the
client to send background verification requests and retrieve results on-line
from its own PCs. These services are proactive security solutions designed to
prevent rather than react to security breaches.
STRATEGIC ALLIANCES
The Company has entered into strategic alliances with other companies that allow
Pinkerton to provide its clients with an even broader spectrum of security-
related services. Through these relationships, Pinkerton can provide clients
with crisis prevention and management services, computer network security and
related consulting services.
SALES
Pinkerton organizes its operations into domestic and international regions. The
Company markets and cross-sells its security and security-related services and
products both through its individual district offices worldwide and through its
separate marketing and sales organizations.
COMPETITION
The market for all of Pinkerton's services 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.
In 1996 Pinkerton became the largest independent security systems integrator in
the United States on the basis of annual revenue. There are no other national,
independent security systems integrators. However, there are many security
product manufacturers that sell and install their own manufactured products and,
to various degrees, integrate them with other products; and there are numerous
smaller regional and local security systems installers and integrators in the
United States and international markets.
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Competition in the security officer service industry and in the Company's other
service areas is intense and is based primarily on price in relation to the
quality of service; the scope of services performed; the extent and quality of
security officer supervision, recruiting, selection and training; and local
and/or national reputation.
CUSTOMERS
The Company provides services to more than 5,000 industrial, commercial and
governmental, including approximately half of the United States "Fortune 1000"
companies. Internationally, the Company provides security officer and
investigation services to firms in the financial, manufacturing, retail and
transportation areas, as well as the United States and foreign governments. The
Company's largest client, General Motors Corporation, contracts for over 120,000
security officer hours per week. Total revenue under this contract accounted for
approximately 13% of the Company's revenue in 1996. The loss of sales to any
single client, with the exception of General Motors, would not have a material
adverse effect on the Company. The Company's agreements to supply contract
security to General Motors currently extend to 1999.
EMPLOYEES
Pinkerton believes that the quality of its security officers is key to its
ability to offer world-class service. Pinkerton subjects each security officer
candidate to a selection process involving an integrity and work ethic test, a
structured computer-assisted employment interview, a ten-step background
verification and records check and a drug test. Pinkerton managers are screened
carefully through a series of interviews, a background verification and a
records check.
Pinkerton's 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.
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. Once on the job, Pinkerton provides investigators with
field manuals and periodic training.
Pinkerton has more than 45,000 employees. At any given time, up to approximately
one-third of the Company's employees are considered part-time employees.
Collective bargaining agreements cover approximately 5% of its employees in the
United States, approximately 83% 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 of its 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's employees, even though they may be stationed regularly at a 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
geographic areas experiencing low unemployment. The premium portion of overtime
expense is typically absorbed by the Company.
REGULATION AND LEGAL CONSIDERATIONS
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, most 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.
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Federal legislation has been introduced to establish minimum Federal standards
for security officer qualification and training and similar legislation is
pending in several of those states that 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. The Company does not expect the establishment of minimum Federal
standards to have an adverse affect on the Company's business. The Company also
must comply with city, county and state licensing requirements in order to
provide certain systems integration and alarm monitoring services. 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.
FINANCIAL INFORMATION ABOUT FOREIGN OPERATIONS
See Note 15 to Notes to Consolidated Financial Statements in the Company's 1996
Annual Report to Stockholders incorporated herein by reference.
ITEM 2. PROPERTIES
Pinkerton leases approximately 56,000 square feet of office space in Encino,
California for its corporate headquarters. The lease expires in 2003. Pinkerton
has two successive options to further extend the lease until 2013.
Except for a few office locations owned by security systems integration
subsidiaries, Pinkerton has entered into leases covering each of its office
locations. For the year ended December 27, 1996, the aggregate annual rental for
all office space under lease, including the Company's foreign operations, was
approximately $9.4 million. Leases that expire generally are expected to be
renewed or replaced by other leases.
ITEM 3. LEGAL PROCEEDINGS
The nature of the Company's business subjects it to a significant volume of
ordinary, routine claims and lawsuits incidental to such business. The Company
maintains self-insurance programs and insurance coverage that it believes are
appropriate for its liability risks. Nonetheless, many claims or lawsuits
brought against the Company allege substantial damages that, if awarded and
ultimately paid by the Company (rather than insurers or indemnitors), could have
a material adverse effect on the results of operations or financial condition of
the Company. In the opinion of management, based on currently known facts and
the advice of legal counsel, there is no single claim or lawsuit, or group of
claims or lawsuits based on the same facts, pending against the Company the
disposition of which will have a material adverse effect on the results of
operations or financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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EXECUTIVE OFFICERS OF REGISTRANT
Set forth below are the names and positions and ages as of the date hereof of
the Company's current executive officers.
Denis R. Brown (57) 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 as Chairman of the Board and Chief
Executive Officer from April 1992 until August 1993, as Chairman of the Board,
President and Chief Executive Officer from July 1991 until April 1992, and as
Vice Chairman of the Board, President and Chief Executive Officer from September
1990 until July 1991. Mr. Brown served as President and Chief Executive Officer
of Penn Central Industries Group from May 1985 until January 1990. Prior to
joining Penn Central, Mr. Brown spent 15 years with ITT Corporation, serving as
Corporate Vice President and Group Executive of the Defense Space Group and as
President of the Defense Communications Division. Mr. Brown is also serving as a
director of Farr Company, a producer and distributor of filters and filtration
systems, and CalMat Co., a construction materials supplier and property
development and management company.
C. Michael Carter (53) has served as Executive Vice President, General Counsel
and Corporate Secretary of Pinkerton since joining the Company in September
1994. He directs strategic planning and marketing, corporate development, risk
management and legal. Prior to joining Pinkerton, Mr. Carter served at
Concurrent Computer Corporation 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.
James P. McCloskey (56) 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 Computer Corporation 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.
Don W. Walker (55) was named Executive Vice President, The Americas in March
1997, after serving 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 (50) 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.
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Anthony R. Miller (56) has served as Corporate Vice President, Total Quality
Management 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 (47) has served as Corporate Vice President, Strategic
Planning and Marketing since December 1996, after serving as Corporate Vice
President, Marketing since joining the Company in May 1995. Prior to joining the
Company, Mr. Stugrin served at Concurrent Computer Corporation from 1992 to 1995
in various senior positions, including Director of Strategic Planning, Director
of Corporate and Marketing Communications and Director of National Series 3200
Sales. He served at Unisys Corporation from 1984 to 1992 in various senior
marketing and communications positions and at Westinghouse Electric Corporation
on its Executive Support Staff from 1981 to 1984.
Steven A. Lindsey (46) has served as Controller of the Company since joining the
Company in July 1994, and became Vice President and Controller in March 1997.
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.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information called for by this Item is included under the caption "Stock
Market Information" in the Company's 1996 Annual Report to Stockholders and is
incorporated herein by reference, except for information regarding the Company's
limitations on the ability to pay dividends on its Common Stock, which is
provided below in response to this Item.
The ability of the Company to pay cash dividends on its Common Stock is limited
by its Note Purchase Agreement. Under the Note Purchase Agreement, the Company
may not declare, pay or incur any liability to make any payment as dividends
unless, after giving effect thereto, (i) no event of default would occur or
exist, (ii) the Company would be permitted to incur Funded Indebtedness (as
defined in the Note Purchase Agreement) and (iii) the aggregate Restricted
Payments (as defined in the Note Purchase Agreement) made since December 31,
1989 would not exceed the sum of 50% of cumulative Consolidated Net Income (as
defined in the Note Purchase Agreement) plus $1.5 million.
ITEM 6. SELECTED FINANCIAL DATA
The information called for by this Item is included under the caption "Selected
Financial Data" in the Company's 1996 Annual Report to Stockholders and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information called for by this Item is included under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's 1996 Annual Report to Stockholders and is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item is included under the captions
"Consolidated Balance Sheets", "Consolidated Statements of Operations",
"Consolidated Statements of Changes in Stockholders' Equity", "Consolidated
Statements of Cash Flows", "Notes to Consolidated Financial Statements" and
"Independent Auditors' Report" in the Company's 1996 Annual Report to
Stockholders and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this Item is incorporated herein by reference to
the Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission prior to the expiration of 120 days after December 27, 1996
in connection with the Company's Annual Meeting of Stockholders to be held on
April 24, 1997, except for information regarding the executive officers of the
Company, which is provided in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item is incorporated herein by reference to
the Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission prior to the expiration of 120 days after December 27, 1996
in connection with the Company's Annual Meeting of Stockholders to be held on
April 24, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item is incorporated herein by reference to
the Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission prior to the expiration of 120 days after December 27, 1996
in connection with the Company's Annual Meeting of Stockholders to be held on
April 24, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item is incorporated herein by reference to
the Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission prior to the expiration of 120 days after December 27, 1996
in connection with the Company's Annual Meeting of Stockholders to be held on
April 24, 1997.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) Index to Consolidated Financial Statements, Consolidated Financial
Statement Schedules and Exhibits.
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Page
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1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at December 27, 1996, and
December 29, 1995........................................................... 30*
Consolidated Statements of Operations for the Years Ended
December 27, 1996, December 29, 1995, and
December 30, 1994........................................................... 31*
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 27, 1996,
December 29, 1995, and December 30, 1994.................................... 32*
Consolidated Statements of Cash Flows for the Years
Ended December 27, 1996, December 29, 1995 and
December 30, 1994........................................................... 33*
Notes to Consolidated Financial Statements.................................. 34*
Independent Auditors' Report................................................ 45*
</TABLE>
* Incorporated herein by reference from the indicated pages of the Company's
1996 Annual Report to Stockholders.
With the exception of the information expressly incorporated by reference in the
Annual Report on Form 10-K, the 1996 Annual Report to Stockholders is not deemed
to be "filed" with the Securities and Exchange Commission or otherwise subject
to the liabilities of Section 18 of the Securities and Exchange Act of 1934.
<TABLE>
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2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Independent Auditors' Report on Financial Statement Schedule.................. S-1
Schedule II - Valuation and Qualifying Accounts............................... S-2
</TABLE>
All other schedules are omitted because they are not required, are not
applicable, or the information is included in the Consolidated Financial
Statements or Notes thereto.
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3. EXHIBIT INDEX
The exhibits set forth below are filed as part of this Annual Report or are
incorporated herein by reference. Where an exhibit is incorporated by reference,
the letter which follows the Exhibit number indicates the document to which the
reference is made.
<TABLE>
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EXHIBIT
NUMBER DESCRIPTION
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3.1 (h) Restated Certificate of Incorporation of Registrant.
3.2 Amended and Restated By-Laws of Registrant, and Amendment.
4.1 (h) Specimen Common Stock Certificate.
4.2 (c) Rights Agreement, dated July 12, 1991, between Registrant
and Bank of New York, as successor Rights Agent.
10.1 (d) 1990 Stock Option Plan and all amendments.*
10.2 (a) Note Purchase Agreement by and between Registrant and The
Travelers Insurance Company, The Travelers Indemnity
Company, The Equitable Life Assurance Society of the United
States, Equitable Variable Life Assurance Company, Tandem
Life Insurance Company and The Equitable of Colorado, Inc.,
dated as of June 14, 1990.
10.3 (b) Form of Directors' and Officers' Indemnification Agreement.
10.4 (e) Master Lease by and between Registrant and Trizec
Properties, Inc., dated August 20, 1993 for World Support
Center office.
10.5 (f) Employment Agreement by and between Registrant and Denis R.
Brown, dated April 20, 1994.*
10.6 (f) Personal Services Agreement by and between Registrant and
Thomas W. Wathen, dated February 10, 1994.*
10.7 (g) Amendment No. 1 to Employment Agreement by and between
Registrant and Denis R. Brown, dated June 15, 1994.*
10.8 (h) Amendment No. 2 to Employment Agreement between Denis R.
Brown and the Registrant, dated February 15, 1995.*
10.9 (h) Supplemental letter agreement regarding employment of C.
Michael Carter dated December 9, 1994, with supplement
dated February 15, 1995.*
10.10 (h) Supplemental letter agreement regarding employment of James
P. McCloskey dated December 9, 1994, with supplement dated
February 15, 1995.*
10.11 (h) 1995 Pinkerton Performance and Equity Incentive Plan.*
10.12 (i) First Amendment to the 1995 Pinkerton Performance and
Equity Incentive Plan.*
10.13 (j) Severance Plan for Executive Vice Presidents.*
10.14 (j) Severance Plan for Corporate Vice Presidents.*
10.15 (j) Revolving Credit Agreement dated as of November 21, 1995
among the Registrant, Pinkerton GmbH Holding, Pinkerton
North Atlantic Limited, the Financial Institutions named
therein and Citicorp USA, Inc., as agent.
10.16 (j) Amendment dated November 21, 1995 to Pinkerton's, Inc. Note
Purchase Agreement.
10.17 (j) Form of Stock Option Agreement under 1990 Stock Option
Plan.*
10.18 (j) Form of Stock Option Agreement (Employee) under 1995
Pinkerton Performance and Equity Incentive Plan.*
10.19 (j) Form of Stock Option Agreement (Non-Employee Director)
under 1995 Pinkerton Performance and Equity Incentive
Plan.*
10.20 (k) Amendment No. 4 to the Employment Agreement between Denis
R. Brown and the Registrant, dated July 1, 1996.*
10.21 Second Amendment to the 1995 Pinkerton Performance and
Equity Incentive Plan.*
10.22 Third Amendment to the 1995 Pinkerton Performance and
Equity Incentive Plan.*
10.23 Supplemental Retirement Income Plan, as restated, effective
January 1, 1996.*
10.24 First Amendment to Revolving Credit Agreement, dated as of
December 1, 1996.
11. Computation of Earnings Per Share.
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
13. Sections of the 1996 Annual Report to Stockholders
incorporated herein by reference.
21. List of Subsidiaries.
23. Consent of KPMG Peat Marwick LLP.
27. Financial Data Schedule.
</TABLE>
(a) Previously filed with Form 10-K for Fiscal Year ended December 28, 1990.
(b) Previously filed with Registration Statement on Form S-1 (No. 33-39718).
(c) Previously filed with Registration Statement on Form 8-A filed on July 19,
1991.
(d) Previously filed with Registration Statement on Form S-8 (No. 33-68492).
(e) Previously filed with Form 10-K for Fiscal Year ended December 31, 1993.
(f) Previously filed with Form 10-Q for Quarter ended March 25, 1994.
(g) Previously filed with Form 10-Q for Quarter ended June 17, 1994.
(h) Previously filed with Form 10-K for Fiscal Year ended December 30, 1994.
(i) Previously filed with Form 10-Q for Quarter ended September 8, 1995.
(j) Previously filed with Form 10-K for Fiscal Year ended December 29, 1995.
(k) Previously filed with Form 10-Q for Quarter ended September 6, 1996.
* Denotes management contract or compensatory plan or arrangement.
_______________________
(b) Reports on Form 8-K.
None.
(c) Refer to (a) 3 above.
(d) Refer to (a) 2 above.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PINKERTON'S, INC.
Date: March 14, 1997 BY: /S/ C. MICHAEL CARTER
--------------------------------------
C. Michael Carter
Executive Vice President,
General Counsel and Corporate Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ DENIS R. BROWN President and Chief Executive Officer March 14, 1997
- ----------------------------- (Principal Executive Officer)
Denis R. Brown
/S/ JAMES P. MCCLOSKEY Executive Vice President March 14, 1997
- ----------------------------- and Chief Financial Officer
James P. McCloskey (Principal Financial Officer)
/S/ STEVEN A. LINDSEY Vice President and Controller March 14, 1997
- ----------------------------- (Principal Accounting Officer)
Steven A. Lindsey
/S/ PETER H. DAILEY Director March 14, 1997
- -----------------------------
Peter H. Dailey
/S/ JOHN A. GAVIN Director March 14, 1997
- -----------------------------
John A. Gavin
/S/ JAMES R. MELLOR Director March 14, 1997
- -----------------------------
James R. Mellor
/S/ GERALD D. MURPHY Director March 14, 1997
- -----------------------------
Gerald D. Murphy
/S/ J. KEVIN MURPHY Director March 14, 1997
- -----------------------------
J. Kevin Murphy
/S/ ROBERT H. SMITH Director March 14, 1997
- -----------------------------
Robert H. Smith
/S/ THOMAS W. WATHEN Director March 14, 1997
- -----------------------------
Thomas W. Wathen
/S/ WILLIAM H. WEBSTER Director March 14, 1997
- -----------------------------
William H. Webster
</TABLE>
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
and Stockholders
Pinkerton's, Inc.:
Under date of February 20, 1997, we reported on the consolidated balance sheets
of Pinkerton's, Inc. and subsidiaries as of December 27, 1996 and December 29,
1995, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the three years ended December 27, 1996,
December 29, 1995 and December 30, 1994 as contained in the 1996 Annual Report
to Stockholders. These consolidated financial statements and our report thereon
are incorporated by reference in the Annual Report on Form 10-K for the year
1996. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related consolidated financial
statement schedule as listed in the accompanying index. This consolidated
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the consolidated financial
statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
February 20, 1997
S-1
<PAGE>
SCHEDULE II
PINKERTON'S, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
DESCRIPTION YEAR EXPENSES ACCOUNTS (1) DEDUCTIONS (2) END OF YEAR
----------- ------------ ---------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
receivables:
Year ended
December 27, 1996 $2,881 $1,635 $1,069 $3,013 $2,572
Year ended
December 29, 1995 2,784 1,719 958 2,580 2,881
Year ended
December 30, 1994 2,795 1,461 1,147 2,619 2,784
</TABLE>
- -----------------------------
(1) Amount represents recoveries of accounts receivable previously written off
and opening reserve balances for businesses acquired during the year.
(2) Amount represents accounts receivable written off.
S-2
<PAGE>
EXHIBIT INDEX
The exhibits set forth below are filed as part of this Annual Report or are
incorporated herein by reference. Where an exhibit is incorporated by
reference, the letter which follows the Exhibit number indicates the document to
which the reference is made.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<S> <C>
3.1 (h) Restated Certificate of Incorporation of Registrant.
3.2 Amended and Restated By-Laws of Registrant, and Amendment.
4.1 (h) Specimen Common Stock Certificate.
4.2 (c) Rights Agreement, dated July 12, 1991, between Registrant
and Bank of New York, as successor Rights Agent.
10.1 (d) 1990 Stock Option Plan and all amendments.*
10.2 (a) Note Purchase Agreement by and between Registrant and The
Travelers Insurance Company, The Travelers Indemnity
Company, The Equitable Life Assurance Society of the United
States, Equitable Variable Life Assurance Company, Tandem
Life Insurance Company and The Equitable of Colorado, Inc.,
dated as of June 14, 1990.
10.3 (b) Form of Directors' and Officers' Indemnification Agreement.
10.4 (e) Master Lease by and between Registrant and Trizec
Properties, Inc., dated August 20, 1993 for World Support
Center office.
10.5 (f) Employment Agreement by and between Registrant and Denis R.
Brown, dated April 20, 1994.*
10.6 (f) Personal Services Agreement by and between Registrant and
Thomas W. Wathen, dated February 10, 1994.*
10.7 (g) Amendment No. 1 to Employment Agreement by and between
Registrant and Denis R. Brown, dated June 15, 1994.*
10.8 (h) Amendment No. 2 to Employment Agreement between Denis R.
Brown and the Registrant, dated February 15, 1995.*
10.9 (h) Supplemental letter agreement regarding employment of C.
Michael Carter dated December 9, 1994, with supplement dated
February 15, 1995.*
10.10 (h) Supplemental letter agreement regarding employment of James
P. McCloskey dated December 9, 1994, with supplement dated
February 15, 1995.*
10.11 (h) 1995 Pinkerton Performance and Equity Incentive Plan.*
10.12 (i) First Amendment to the 1995 Pinkerton Performance and Equity
Incentive Plan.*
10.13 (j) Severance Plan for Executive Vice Presidents.*
10.14 (j) Severance Plan for Corporate Vice Presidents.*
10.15 (j) Revolving Credit Agreement dated as of November 21, 1995
among the Registrant, Pinkerton GmbH Holding, Pinkerton
North Atlantic Limited, the Financial Institutions named
therein and Citicorp USA, Inc., as agent.
10.16 (j) Amendment dated November 21, 1995 to Pinkerton's, Inc. Note
Purchase Agreement.
10.17 (j) Form of Stock Option Agreement under 1990 Stock Option
Plan.*
10.18 (j) Form of Stock Option Agreement (Employee) under 1995
Pinkerton Performance and Equity Incentive Plan.*
10.19 (j) Form of Stock Option Agreement (Non-Employee Director) under
1995 Pinkerton Performance and Equity Incentive Plan.*
10.20 (k) Amendment No. 4 to the Employment Agreement between Denis R.
Brown and the Registrant, dated July 1, 1996.*
10.21 Second Amendment to the 1995 Pinkerton Performance and
Equity Incentive Plan.*
10.22 Third Amendment to the 1995 Pinkerton Performance and Equity
Incentive Plan.*
10.23 Supplemental Retirement Income Plan, as restated, effective
January 1, 1996.*
10.24 First Amendment to Revolving Credit Agreement, dated as of
December 1, 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
11. Computation of Earnings Per Share.
13. Sections of the 1996 Annual Report to
Stockholders incorporated herein by reference.
21. List of Subsidiaries.
23. Consent of KPMG Peat Marwick LLP.
27. Financial Data Schedule.
</TABLE>
(a) Previously filed with Form 10-K for Fiscal Year ended December 28, 1990.
(b) Previously filed with Registration Statement on Form S-1 (No. 33-39718).
(c) Previously filed with Registration Statement on Form 8-A filed on July 19,
1991.
(d) Previously filed with Registration Statement on Form S-8 (No. 33-68492).
(e) Previously filed with Form 10-K for Fiscal Year ended December 31, 1993.
(f) Previously filed with Form 10-Q for Quarter ended March 25, 1994.
(g) Previously filed with Form 10-Q for Quarter ended June 17, 1994.
(h) Previously filed with Form 10-K for Fiscal Year ended December 30, 1994.
(i) Previously filed with Form 10-Q for Quarter ended September 8, 1995.
(j) Previously filed with Form 10-K for Fiscal Year ended December 29, 1995.
(k) Previously filed with Form 10-Q for Quarter ended September 6, 1996.
* Denotes management contract or compensatory plan or arrangement.
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
of
PINKERTON'S, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I OFFICES........................................................ 1
Section 1.01 REGISTERED OFFICE......................................... 1
Section 1.02 PRINCIPAL OFFICE.......................................... 1
Section 1.03 OTHER OFFICES............................................. 1
ARTICLE II MEETINGS OF STOCKHOLDERS....................................... 1
Section 2.01 ANNUAL MEETINGS........................................... 1
Section 2.02 SPECIAL MEETINGS.......................................... 1
Section 2.03 PLACE OF MEETINGS......................................... 1
Section 2.04 NOTICE OF MEETINGS........................................ 2
Section 2.05 QUORUM.................................................... 2
Section 2.06 VOTING.................................................... 3
Section 2.07 LIST OF STOCKHOLDERS...................................... 4
Section 2.08 INSPECTOR OF ELECTION..................................... 4
Section 2.09 ADVANCE NOTICE OF STOCKHOLDER PROPOSALS
BEFORE ANY MEETING OF STOCKHOLDERS........................ 4
Section 2.10 FIXING DATE FOR DETERMINATION OF
STOCKHOLDERS OF RECORD.................................... 5
ARTICLE III BOARD OF DIRECTORS............................................. 6
Section 3.01 GENERAL POWERS............................................ 6
Section 3.02 NUMBER AND TERM........................................... 6
Section 3.03 ELECTION OF DIRECTORS..................................... 7
Section 3.04 RESIGNATION AND REMOVAL................................... 8
Section 3.05 VACANCIES................................................. 8
Section 3.06 PLACE OF MEETING; TELEPHONE CONFERENCE MEETING............ 8
Section 3.07 FIRST MEETING............................................. 9
Section 3.08 REGULAR MEETINGS.......................................... 9
Section 3.09 SPECIAL MEETINGS.......................................... 9
Section 3.10 QUORUM AND ACTION......................................... 9
Section 3.11 ACTION BY CONSENT......................................... 9
Section 3.12 COMPENSATION.............................................. 10
Section 3.13 COMMITTEES................................................ 10
Section 3.14 OFFICERS OF THE BOARD..................................... 10
ARTICLE IV OFFICERS....................................................... 11
Section 4.01 OFFICERS.................................................. 11
Section 4.02 ELECTION AND TERM......................................... 11
Section 4.03 SUBORDINATE OFFICERS...................................... 11
Section 4.04 REMOVAL AND RESIGNATION................................... 11
Section 4.05 VACANCIES................................................. 12
Section 4.06 CHIEF EXECUTIVE OFFICER................................... 12
Section 4.07 PRESIDENT................................................. 12
</TABLE>
i
<PAGE>
Section 4.08 EXECUTIVE VICE PRESIDENT.................................. 12
Section 4.09 VICE PRESIDENT............................................ 12
Section 4.10 SECRETARY................................................. 13
Section 4.11 TREASURER................................................. 13
ARTICLE V CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.................. 14
Section 5.01 EXECUTION OF CONTRACTS.................................... 14
Section 5.02 CHECKS, DRAFTS, ETC....................................... 14
Section 5.03 DEPOSIT................................................... 14
Section 5.04 GENERAL AND SPECIAL BANK ACCOUNTS......................... 14
ARTICLE VI SHARES AND THEIR TRANSFER...................................... 15
Section 6.01 CERTIFICATES FOR STOCK.................................... 15
Section 6.02 TRANSFER OF STOCK......................................... 15
Section 6.03 REGULATIONS............................................... 15
Section 6.04 LOST, STOLEN, DESTROYED AND MUTILATED
CERTIFICATES.............................................. 16
Section 6.05 REPRESENTATION OF SHARES OF OTHER
CORPORATIONS.............................................. 16
ARTICLE VII INDEMNIFICATION................................................ 16
Section 7.01 ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE
CORPORATION............................................... 16
Section 7.02 ACTIONS BY OR IN THE RIGHT OF THE
CORPORATION............................................... 17
Section 7.03 DETERMINATION OF RIGHT OF INDEMNIFICATION................. 17
Section 7.04 INDEMNIFICATION AGAINST EXPENSES OF
SUCCESSFUL PARTY.......................................... 17
Section 7.05 ADVANCE OF EXPENSES....................................... 17
Section 7.06 OTHER RIGHTS AND REMEDIES................................. 18
Section 7.07 INSURANCE................................................. 18
Section 7.08 CONSTITUENT CORPORATIONS.................................. 18
Section 7.09 EMPLOYEE BENEFIT PLANS.................................... 18
Section 7.10 BROADEST LAWFUL INDEMNIFICATION........................... 19
Section 7.11 TERM...................................................... 20
Section 7.12 SEVERABILITY.............................................. 20
Section 7.13 AMENDMENTS................................................ 20
ARTICLE VIII MISCELLANEOUS.................................................. 20
Section 8.01 SEAL...................................................... 20
Section 8.02 WAIVER OF NOTICES......................................... 20
Section 8.03 LOANS AND GUARANTIES...................................... 21
Section 8.04 GENDER.................................................... 21
Section 8.05 AMENDMENTS................................................ 21
ii
<PAGE>
AMENDED AND RESTATED
BY-LAWS
of
PINKERTON'S, INC.
a Delaware Corporation
ARTICLE I
OFFICES
-------
Section 1.01 REGISTERED OFFICE. The registered office of
Pinkerton's, Inc. (hereinafter called the "Corporation") shall be at such place
in the State of Delaware as shall be designated by the Board of Directors
(hereinafter called the "Board").
Section 1.02 PRINCIPAL OFFICE. The principal office for the
transaction of the business of the Corporation shall be at such location, within
or without the State of Delaware, as shall be designated by the Board.
Section 1.03 OTHER OFFICES. The Corporation may also have an office
or offices at such other place or places, either within or without the State of
Delaware, as the Board may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 2.01 ANNUAL MEETINGS. Annual meetings of the stockholders of
the Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at such
time, date and place as the Board shall determine by resolution.
Section 2.02 SPECIAL MEETINGS. Except as otherwise required by law
and subject to any provision fixed by, or pursuant to, the Certificate of
Incorporation of the Corporation, special meetings of the stockholders of the
Corporation for any purpose or purposes may be called at any time by the Board
pursuant to a resolution approved by a majority of the entire Board, or by the
Chairman of the Board or the Chief Executive Officer or President of the
Corporation or by a committee of the Board (duly authorized and empowered by the
Board to call such meetings), but such special meetings shall not be called by
any other person or persons.
Section 2.03 PLACE OF MEETINGS. All meetings of the stockholders
shall be held at such places, within or without the State of Delaware, as
<PAGE>
may from time to time be designated by the person or persons calling the
respective meetings and specified in the respective notices or waivers of notice
thereof.
Section 2.04 NOTICE OF MEETINGS. Except as otherwise required by
law, notice of each meeting of the stockholders, whether annual or special,
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder of record entitled to vote at such
meeting by delivering a typewritten or printed notice thereof to him personally,
or by depositing such notice in the United States mail, in a postage prepaid
envelope, directed to him at his address furnished by him to the Secretary of
the Corporation for such purpose or, if he shall not have furnished to the
Secretary his address for such purpose, then at his address last known to the
Secretary, or by transmitting a notice thereof to him at such address by
telegraph, cable or wireless. Except as otherwise expressly required by law, no
publication of any notice of a meeting of the stockholders shall be required.
Every notice of a meeting of the stockholders shall state the place, date and
hour of the meeting, and, in the case of a special meeting, shall also state the
purpose or purposes for which the meeting is called. Except as otherwise
expressly required by law, notice of any adjourned meeting of the stockholders
need not be given if the time and place thereof are announced at the meeting at
which the adjournment is taken.
Notice shall not be required to be given to any stockholder to whom
(i) notice of two consecutive annual meetings, and all notices of meetings or of
the taking of action by written consent without a meeting to such person during
the period between such two consecutive annual meetings, or (ii) all, and at
least two, payments of dividends or interest on securities during a twelve month
period, have been sent by first class mail addressed to such person at his
address as shown on the records of the Corporation and have been returned
undeliverable. Any action or meeting which shall have been taken or held
without notice to such person shall have the same force and effect as if such
notice had been duly given. If any such person shall deliver to the Corporation
a written notice setting forth his then current address, the requirement that
notice be given to such person shall be reinstated.
No notice need be given to any person with whom communication is
unlawful, nor shall there be any duty to apply to any governmental authority or
agency for any permit or license to give notice to any such person.
Section 2.05 QUORUM. Except as provided by law or by the Certificate
of Incorporation, the holders of record of a majority in voting interest of the
shares of stock of the Corporation entitled to be voted, present in person or by
proxy, shall constitute a quorum for the transaction of business at any meeting
of the stockholders of the Corporation or any adjournment thereof. The
stockholders present at a duly called or held meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum. In the absence of
a quorum at any meeting or any adjournment thereof, a majority in voting
interest of the stockholders
<PAGE>
present in person or by proxy and entitled to vote thereat or, in the absence
therefrom of all the stockholders, any officer entitled to preside at or to act
as secretary of such meeting may adjourn such meeting from time to time. At any
such adjourned meeting at which a quorum is present any business may be
transacted which might have been transacted at the meeting as originally called.
Section 2.06 VOTING.
(a) At each meeting of the stockholders, each stockholder shall be
entitled to vote in person or by proxy each share or fractional share of the
stock of the Corporation which has voting rights on the matter in question and
which shall have been held by him and registered in his name on the books of the
Corporation:
(i) on the date fixed pursuant to Section 2.10 of these By-laws as
the record date for the determination of stockholders entitled to notice of and
to vote at such meeting, or
(ii) if no such record date shall have been so fixed, then (A) at the
close of business on the day next preceding the day on which notice of the
meeting shall be given or (B) if notice of the meeting shall be waived, at the
close of business on the day next preceding the day on which the meeting shall
be held.
(b) Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors in such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary capacity
shall be entitled to vote such stock. Persons whose stock is pledged shall be
entitled to vote, unless in the transfer by the pledgor on the books of the
Corporation he shall have expressly empowered the pledgee to vote thereon, in
which case only the pledgee, or his proxy, may represent such stock and vote
thereon. Stock having voting power standing of record in the names of two or
more persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, tenants by the entirety or otherwise or with respect to which
two or more persons have the same fiduciary relationship, shall be voted in
accordance with the provisions of the General Corporation Law of the State of
Delaware (the "GCL").
(c) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by his proxy appointed by an instrument in
writing, subscribed by such stockholder or by his attorney thereunto authorized
and delivered to the secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from its date unless said proxy
shall provide for a longer period. The attendance at any meeting of a
stockholder who may theretofore have given a proxy shall not have the effect of
revoking the same unless he shall in writing so notify the secretary of the
meeting prior to the voting of the proxy. At any meeting of the stockholders,
all matters, except as otherwise provided in the
<PAGE>
Certificate of Incorporation, in the By-laws or by law, shall be decided by the
vote of a majority in voting interest of the stockholders present in person or
by proxy and entitled to vote thereat and thereon. The vote at any meeting of
the stockholders on any question need not be by ballot, unless so directed by
the chairman of the meeting. On a vote by ballot, each ballot shall be signed by
the stockholder voting, or by his proxy if there be such proxy, and it shall
state the number of shares voted.
Section 2.07 LIST OF STOCKHOLDERS. The Secretary of the Corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the entire duration thereof, and may be inspected by any stockholder who
is present.
Section 2.08 INSPECTOR OF ELECTION. At any meeting of the
stockholders, the chairman of such meeting may appoint an inspector or
inspectors of election to act with respect to such vote. Each inspector so
appointed shall first subscribe an oath faithfully to execute the duties of an
inspector at such meeting with strict impartiality and according to the best of
his ability. Such inspectors shall decide upon the qualification of the voters
and shall report the number of shares represented at the meeting and entitled to
vote on such question, shall conduct and accept the votes, and, when the voting
is completed, shall ascertain and report the number of shares voted respectively
for and against the question. Reports of the inspectors shall be in writing and
subscribed and delivered by them to the Secretary of the Corporation.
Inspectors need not be stockholders of the Corporation, and any officer of the
Corporation may be an inspector on any question other than a vote for or against
a proposal in which he shall have a material interest.
Section 2.09 ADVANCE NOTICE OF STOCKHOLDER PROPOSALS BEFORE ANY
MEETING OF STOCKHOLDERS. At any special meeting of stockholders, only such
business shall be conducted as shall have been set forth in the notice of
special meeting. To be properly brought before an annual meeting of
stockholders, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board, (b) otherwise
properly brought before the meeting by or at the direction of the Board or (c)
otherwise properly brought before the meeting by a stockholder of the
Corporation who is a stockholder of record at the time of giving of the notice
provided for below and at the time of the annual meeting at which the business
is proposed to be conducted, who shall be entitled to vote at such meeting upon
such proposed business if the same shall come before the meeting and who
complies with the procedures set forth in this
<PAGE>
Section 2.09. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive offices of the
Corporation not less than one hundred twenty (120) days prior to the first
anniversary of the date of the proxy statement given by the Corporation to its
stockholders in connection with the previous year's annual meeting. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting: (i) a brief description of the
business desired to be brought and the reasons for conducting such business at
the meeting, (ii) the name and record address of the stockholder proposing such
business and any other stockholders known by such stockholder to be supporting
such proposal, (iii) the class and number of shares of the Corporation which are
beneficially owned by the stockholder and by any other stockholders known by
such stockholder to be supporting such proposal, and (iv) any material or
financial interest of the stockholder in such business.
Notwithstanding anything in these By-laws to the contrary, no business
shall be conducted at any meeting of the stockholders except in accordance with
the procedures set forth in this Section 2.09. The Chairman of the Board or
other presiding officer shall, if the facts warrant, determine and declare at
any meeting of the stockholders that business was not properly brought before
the meeting in accordance with the provisions of this Section 2.09, and if he
should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted. In addition to
the foregoing provisions of this Section 2.09, a stockholder shall also comply
with all applicable requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder with respect to the matters
contemplated by this Section 2.09.
Section 2.10 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board, and which record date shall not be more than sixty (60) nor less
than ten (10) days before the date of such meeting. If no record date is fixed
by the Board, the record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
meeting.
<PAGE>
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board, and which record
date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the Board. If no record date
has been fixed by the Board, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is required by the GCL, shall be the
first date on which a signed consent setting forth the action taken or proposed
to be taken is delivered to the Corporation in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board and prior action by the Board is required by the
GCL, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall not be more than sixty (60) days prior to such
actions. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board adopts the resolution related thereto.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 3.01 GENERAL POWERS. The property, business and affairs of
the Corporation shall be managed by or under the direction of the Board, which
may exercise all of the powers of the Corporation, except such as are by the
Certificate of Incorporation, by the By-laws or by law conferred upon or
reserved to the stockholders.
Section 3.02 NUMBER AND TERM. The authorized number of directors of
the Corporation shall be between six (6) and twelve (12), as established from
time to time by resolution of the Board. Until changed by resolution of the
Board, the authorized number of directors of the Corporation shall be eight (8).
Directors need not be stockholders of the Corporation. Each director shall hold
office until a successor is elected and qualified or until the director resigns
or is removed.
<PAGE>
Section 3.03 ELECTION OF DIRECTORS.
(a) The directors shall be elected by the stockholders of the
Corporation, and at each election the persons receiving the greatest number of
votes, up to the number of directors then to be elected, shall be the persons
then elected. The election of directors is subject to any provisions contained
in the Certificate of Incorporation relating thereto, including any provision
for a classified Board of Directors.
(b) Nomination of persons for election to the Board, other than those
made by or at the direction of the Board or by any nominating committee or
person appointed by the Board, shall be made by a stockholder only if timely
written notice of such nomination or nominations has been given to the Secretary
of the Corporation. To be timely, such notice shall be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
fifty (50) days nor more than seventy-five (75) days prior to the annual
meeting; provided, however, that in the event that less than sixty (60) days'
notice or prior public disclosure of the date of the annual meeting is given or
made to stockholders, notice by the stockholder to be timely must be so received
not later than the close of business on the tenth day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. Each such notice to the Secretary shall set forth: (i) the
name and address of record of the stockholder who intends to make the nomination
or nominations; (ii) the class and number of shares of capital stock of the
Corporation that are beneficially owned by the stockholder and a representation
that the stockholder intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (iii) the name, age,
business address and residence address, and principal occupation or employment
of each nominee; (iv) the class and number of shares of capital stock of the
Corporation that are beneficially owned by each nominee; (v) a description of
all arrangements or understandings between the stockholder and each nominee and
any other person or persons pursuant to which the nomination or nominations are
to be made by the stockholder; (vi) such other information regarding each
nominee as would be required to be disclosed and included in a proxy statement
pursuant to the proxy rules then in effect promulgated by the Securities and
Exchange Commission under Section 14 of the Securities Exchange Act of 1934, as
amended; and (vii) the consent of each nominee to serve as a director of the
Corporation if so elected. The Corporation may require any proposed nominee to
furnish such other information as may reasonably be required by the Corporation
to determine the eligibility of such proposed nominee to serve as a director of
the Corporation.
The Board may reject any nomination by a stockholder not timely made
or otherwise not in accordance with the terms of paragraph (b) of this Section
3.03. If the Board reasonably determines that the information provided in the
stockholder's notice does not satisfy the informational requirements of this
paragraph (b) in any material respect, the Secretary of the Corporation shall
promptly notify such stockholder of the deficiency in writing. The stockholder
shall have an opportunity to
<PAGE>
cure the deficiency by providing additional information to the Secretary within
such period of time, not to exceed ten (10) days from the date such deficiency
notice is given to the stockholder, as the Board shall reasonably determine. If
the deficiency is not cured within such period, or if the Board reasonably
determines that the additional information provided by the stockholder, together
with the information previously provided, does not satisfy the requirements of
this paragraph (b) in any material respect, then the Board may reject such
stockholder's nomination. The Secretary of the Corporation shall notify a
stockholder in writing whether his nomination has been made in accordance with
the requirements of this paragraph (b).
Section 3.04 RESIGNATION AND REMOVAL. Any director of the Corporation
may resign at any time by giving written notice to the Board or to the Secretary
of the Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time is not specified, it shall take effect immediately upon
its receipt; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Except as and to the extent provided in the Corporation's Certificate
of Incorporation, any or all of the directors of the Corporation may be removed
from office at any time, but only for cause and only by the affirmative vote of
the holders of eighty percent (80%) of the outstanding voting stock of the
Corporation, voting as a single class.
Section 3.05 VACANCIES. Except as otherwise provided in the
Certificate of Incorporation, any vacancy in the Board, whether because of
death, resignation, disqualification, an increase in the number of directors, or
any other cause may be filled by vote of the majority of the remaining
directors, although less than a quorum, or by a sole remaining director. Each
director so chosen to fill a vacancy shall hold office until his successor shall
have been elected and shall qualify or until he shall resign or shall have been
removed. No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of his term of office.
Upon the resignation of one or more directors from the Board,
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have the power to fill such vacancy
or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided hereinabove in the filling of other vacancies.
Section 3.06 PLACE OF MEETING; TELEPHONE CONFERENCE MEETING. The
Board may hold any of its meetings at such place or places within or without the
State of Delaware as the Board may from time to time by resolution designate or
as shall be designated by the person or persons calling the meeting or in the
notice or waiver of notice of any such meeting. Directors may participate in
any regular or special meeting of the Board or any meeting of a committee
thereof by
<PAGE>
means of conference telephone or similar communications equipment pursuant to
which all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
Section 3.07 FIRST MEETING. The Board shall meet as soon as
practicable after each annual election of directors and notice of such first
meeting shall not be required.
Section 3.08 REGULAR MEETINGS. Regular meetings of the Board may be
held at such times as the Board shall from time to time by resolution determine.
If any day fixed for a meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting shall be held at the same hour and place
on the next succeeding business day which is not a legal holiday. Except as
provided by law, notice of regular meetings need not be given.
Section 3.09 SPECIAL MEETINGS. Special meetings of the Board may be
called at any time by the Chairman of the Board, a Chairman Emeritus, the Chief
Executive Officer, or by any three (3) directors, to be held at the principal
office of the Corporation, or at such other place or places, within or without
the State of Delaware, as the person or persons calling the meeting may
designate.
Notice of the time and place of special meetings shall be given to
each director either (i) by mailing or otherwise sending to him a written notice
of such meeting, charges prepaid, addressed to him at his address as it is shown
upon the records of the Corporation, or if it is not so shown on such records or
is not readily ascertainable, at the place in which the meetings of the
directors are regularly held, at least seventy-two (72) hours prior to the time
of the holding of such meeting; or (ii) by orally communicating the time and
place of the special meeting to him at least twenty-four (24) hours prior to the
time of the holding of such meeting. Either of the notices as above provided
shall be due, legal and personal notice to such director.
Section 3.10 QUORUM AND ACTION. Except as otherwise provided in the
By-laws or by law, the presence of a majority of the authorized number of
directors shall be required to constitute a quorum for the transaction of
business at any meeting of the Board, and all matters shall be decided at any
such meeting, a quorum being present, by the affirmative votes of a majority of
the directors present. In the absence of a quorum, a majority of directors
present at any meeting may adjourn the same from time to time until a quorum
shall be present. Notice of any adjourned meeting need not be given. The
directors shall act only as a Board, and the individual directors shall have no
power as such.
Section 3.11 ACTION BY CONSENT. Any action required or permitted to
be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or such committee. Such
action
<PAGE>
by written consent shall have the same force and effect as the unanimous vote of
such directors.
Section 3.12 COMPENSATION. No stated salary need be paid to
directors, as such, for their services but, as fixed from time to time by
resolution of the Board, the directors may receive directors' fees, compensation
and reimbursement for expenses for attendance at directors' meetings, for
serving on committees and for discharging their duties; provided that nothing
herein contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 3.13 COMMITTEES. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board to act at the meeting in place of any such absent or disqualified
member. Any such committee, to the extent permitted by law and provided in the
resolution of the Board establishing such committees, shall have and may
exercise all the powers and authority of the Board in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except as provided by law), adopting an agreement
of merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders the dissolution of the Corporation or
revocation of a dissolution, or amending the By-laws; and unless the resolution
of the Board expressly so provides, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock or to adopt
a certificate of ownership and merger.
Unless the Board otherwise provides, each committee designated by the
Board may make, alter and repeal rules for the conduct of its business. In the
absence of such rules each committee shall conduct its business in the same
manner as the Board conducts its business pursuant to these By-laws. Any such
committee shall keep written minutes of its meetings and report the same to the
Board when required.
Section 3.14 OFFICERS OF THE BOARD. The Board shall have a Chairman
of the Board and may, at the discretion of the Board, have a Vice Chairman. The
Chairman of the Board or the Vice Chairman shall be appointed from time to time
by the Board and shall have such powers and duties as shall be approved by the
Board or as prescribed in the By-laws. The Chairman of the Board
<PAGE>
shall preside at the meetings of the Board and of the stockholders, provided
that, at his option, he may delegate these duties, or either of them, to the
Chief Executive Officer.
ARTICLE IV
OFFICERS
--------
Section 4.01 OFFICERS. The Officers of the Corporation shall be a
Chief Executive Officer, a President, one or more Executive Vice Presidents, one
or more Vice Presidents, a Secretary and a Treasurer. The Corporation may also
have, at the discretion of the Board, one or more Assistant Vice Presidents, one
or more Assistant Secretaries, one or more Assistant Treasurers and such other
officers as may be appointed in accordance with the provisions of Section 4.03
of these By-laws. One person may hold two or more offices, except that the
Secretary may not also hold the office of President or Chief Executive Officer.
The salaries of all officers of the Corporation shall be fixed from time to time
by the Board.
Section 4.02 ELECTION AND TERM. The officers of the Corporation,
except such officers as may be appointed in accordance with the provisions of
Section 4.03 or Section 4.05 of these By-laws, shall be chosen annually by the
Board, and each shall hold his office until he shall resign or shall be removed
or otherwise disqualified to serve, or until his successor shall be elected and
qualified.
Section 4.03 SUBORDINATE OFFICERS. The Board may appoint, or may
authorize the Chief Executive Officer to appoint, such other officers as the
business of the Corporation may require, each of whom shall have such authority
and perform such duties as are provided in the By-laws or as the Board or the
Chief Executive Officer from time to time may specify, and shall hold office
until he shall resign or shall be removed or otherwise disqualified to serve.
Section 4.04 REMOVAL AND RESIGNATION. Any officer may be removed,
with or without cause, by a majority of the directors at the time in office, at
any regular or special meeting of the Board, or, except in the case of an
officer chosen by the Board, by any officer upon whom such power of removal may
be conferred by the Board.
The Chief Executive Officer may resign at any time by giving written
notice to the Chairman of the Board and the Secretary and any other officer may
resign at any time by giving written notice to the Chief Executive Officer or
the Secretary of the Corporation. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein; and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
<PAGE>
Section 4.05 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the By-laws for the regular appointments to such office.
Section 4.06 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
of the Corporation shall, subject to the control of the Board, have general
supervision, direction and control of the business and affairs of the
Corporation. He shall have the general powers and duties of management usually
vested in the chief executive officer of a corporation, and shall have such
other powers and duties with respect to the administration of the business and
affairs of the Corporation as may from time to time be assigned to him by the
Board or as prescribed by the By-laws. In the absence or disability of the
President, the Chief Executive Officer, in addition to his assigned duties and
powers, shall perform all the duties of the President and when so acting shall
have all the powers and be subject to all the restrictions upon the President.
Section 4.07 PRESIDENT. The President shall exercise and perform
such powers and duties with respect to the administration of the business and
the affairs of the Corporation as may from time to time be assigned to him by
the Chief Executive Officer (unless the President is also the Chief Executive
Officer) or by the Board or as is prescribed in the By-laws. In the absence or
disability of the Chief Executive Officer, the President shall perform all of
the duties of the Chief Executive Officer and when so acting shall have all the
powers and be subject to all of the restrictions upon the Chief Executive
Officer.
Section 4.08 EXECUTIVE VICE PRESIDENT. The Executive Vice Presidents
shall exercise and perform such powers and duties with respect to the
administration of the business and affairs of the Corporation as from time to
time may be assigned to each of them by the President, the Chief Executive
Officer, the Board or as is prescribed by the By-laws. In the absence or
disability of the President and the Chief Executive Officer, the Executive Vice
Presidents, in order of their rank as fixed by the Board, or if not ranked, the
Executive Vice President designated by the Board, shall perform all of the
duties of the President and when so acting shall have all of the powers of and
be subject to all the restrictions upon the President.
Section 4.09 VICE PRESIDENT. The Vice Presidents shall exercise and
perform such powers and duties with respect to the administration of the
business and affairs of the Corporation as from time to time may be assigned to
each of them by the President, the Chief Executive Officer, the Board or as is
prescribed by the By-laws. The Board may authorize the Chief Executive Officer
to appoint such Vice Presidents as the business of the Corporation may require,
each of whom shall have such authority and perform such duties as are provided
in the By-laws or as the Board or the Chief Executive Officer from time to time
may specify, and shall hold office until he shall resign or shall be removed or
otherwise disqualified to serve.
<PAGE>
Section 4.10 SECRETARY. The Secretary shall keep, or cause to be
kept, a book of minutes at the principal office for the transaction of the
business of the Corporation, or such other place as the Board may order, of all
meetings of directors and stockholders, with the time and place of holding,
whether regular or special, and if special, how authorized and the notice
thereof given, the names of those present at directors' meetings, the number of
shares present or represented at stockholders' meetings and the proceedings
thereof.
The Secretary shall keep, or cause to be kept, at the principal office
for the transaction of the business of the Corporation or at the office of the
Corporation's transfer agent, a share register, or a duplicate share register,
showing the names of the stockholders and their addresses, the number and
classes of shares held by each, the number and date of certificates issued for
the same, and the number and date of cancellation of every certificate
surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the stockholders and of the Board required by the By-laws or by law
to be given, and he shall keep the seal of the Corporation in safe custody, and
shall have such other powers and perform such other duties as may be prescribed
by the Board or the By-laws. If for any reason the Secretary shall fail to give
notice of any special meeting of the Board called by one or more of the persons
identified in Section 3.09 of these By-laws, or if he shall fail to give notice
of any special meeting of the stockholders called by one or more of the persons
identified in Section 2.02 of these By-laws, then any such person or persons may
give notice of any such special meeting.
Section 4.11 TREASURER. The Treasurer shall keep and maintain, or
cause to be kept and maintained, adequate and correct accounts of the properties
and business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, surplus and
shares. Any surplus, including earned surplus, paid-in surplus and surplus
arising from a reduction of capital, shall be classified according to source and
shown in a separate account. The books of account at all reasonable times shall
be open to inspection by any director.
The Treasurer shall deposit all moneys and other valuables in the name
and to the credit of the Corporation with such depositories as may be designated
by the Board. He shall disburse the funds of the Corporation as may be ordered
by the Board, shall render to the President, to the Chief Executive Officer and
to the directors, whenever they request it, an account of all of his
transactions as Treasurer and of the financial condition of the Corporation, and
shall have such other powers and perform such other duties as may be prescribed
by the Board or the By-laws.
<PAGE>
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
----------------------------------------------
Section 5.01 EXECUTION OF CONTRACTS. The Board, except as otherwise
provided in the By-laws, may authorize any officer or officers, agent or agents,
or employee or employees to enter into any contract or execute any instrument in
the name and on behalf of the Corporation, and such authority may be general or
confined to specific instances; and unless so authorized by the Board or by the
By-laws, no officer, agent or employee shall have any power or authority to bind
the Corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or in any amount.
Section 5.02 CHECKS, DRAFTS, ETC. All checks, drafts or other
orders for payment of money, notes or other evidence of indebtedness, issued in
the name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board. Each such person shall give such bond, if any, as
the Board may require.
Section 5.03 DEPOSIT. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board may select, or
as may be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and for the
purpose of collection for the account of the Corporation, the President, the
Chief Executive Officer, any Executive Vice President or the Treasurer (or any
other officer or officers, assistant or assistants, agent or agents, or attorney
or attorneys of the Corporation who shall be determined by the Board from time
to time) may endorse, assign and deliver checks, drafts and other orders for the
payment of money which are payable to the order of the Corporation.
Section 5.04 GENERAL AND SPECIAL BANK ACCOUNTS. The Board from time
to time may authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board may
select or as may be selected by an officer or officers, assistant or assistants,
agent or agents, or attorney or attorneys of the Corporation to whom such power
shall have been delegated by the Board. The Board may make such special rules
and regulations with respect to such bank accounts, not inconsistent with the
provisions of the By-laws, as it may deem expedient.
<PAGE>
ARTICLE VI
SHARES AND THEIR TRANSFER
-------------------------
Section 6.01 CERTIFICATES FOR STOCK. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, in such
form as the Board shall prescribe, certifying the number and class of shares of
the stock for the Corporation owned by him. The certificates representing
shares of such stock shall be numbered in the order in which they shall be
issued and shall be signed in the name of the Corporation by the Chairman of the
Board, the President or an Executive Vice President and by the Secretary or an
Assistant Secretary or by the Treasurer or an Assistant Treasurer. Any or all
of the signatures on the certificates may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon any such certificate shall thereafter have ceased to be such
officer, transfer agent or registrar before such certificate is issued, such
certificate may nevertheless be issued by the Corporation with the same effect
as though the person who signed such certificate, or whose facsimile signature
shall have been placed thereupon, were such officer, transfer agent or registrar
at the date of issue. A record shall be kept of the respective names of the
persons, firms or corporations owning the stock represented by such
certificates, the number and class of shares represented by such certificates,
respectively, and the respective dates thereof, and in case of cancellation, the
respective dates of cancellation. Every certificate surrendered to the
Corporation for exchange or transfer shall be cancelled, and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so cancelled, except in cases provided
for in Section 6.04 of these By-laws.
Section 6.02 TRANSFER OF STOCK. Transfer of shares of stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary, or with a transfer clerk or a
transfer agent appointed as provided in Section 6.03 of these By-laws, and upon
surrender of the certificate or certificates for such shares properly endorsed
and the payment of all taxes thereon. The person in whose name shares of stock
stand on the books of the Corporation shall be deemed the owner thereof for all
purposes as regards the Corporation. Whenever any transfer of shares shall be
made for collateral security, and not absolutely, such fact shall be stated
expressly in the entry of transfer if, when the certificate or certificates
shall be presented to the Corporation for transfer, both the transferor and the
transferee request the Corporation to do so.
Section 6.03 REGULATIONS. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with the By-laws,
concerning the issue, transfer and registration of certificates for shares of
the stock of the Corporation. The Board may appoint, or authorize any officer
or officers to appoint, one or more transfer clerks or one or more transfer
agents and one or more registrars,
<PAGE>
and may require all certificates for stock to bear the signature or signatures
of any of them.
Section 6.04 LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. In
any case of loss, theft, destruction, or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, theft, destruction,
or mutilation and upon the giving of a bond of indemnity to the Corporation in
such form and in such sums as the Board may direct; provided, however, that a
new certificate may be issued without requiring any bond when, in the judgment
of the Board, it is proper to do so.
Section 6.05 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
President or any Executive Vice President and the Secretary or any Assistant
Secretary of this Corporation are authorized to vote, represent and exercise on
behalf of this Corporation all rights incident to all shares of any other
corporation or corporations standing in the name of this Corporation. The
authority herein granted to said officers to vote or represent on behalf of this
Corporation any and all shares held by this Corporation in any other corporation
or corporations may be exercised either by such officers in person or by any
person authorized so to do by proxy or power of attorney duly executed by said
officers.
ARTICLE VII
INDEMNIFICATION
---------------
Section 7.01 ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise or as a member of any committee or similar
body, against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, that he had
reasonable cause to believe that his conduct was unlawful.
<PAGE>
Section 7.02 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or as a member of any committee or similar
body, against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 7.03 DETERMINATION OF RIGHT OF INDEMNIFICATION. Any
indemnification under Section 7.01 or 7.02 of these By-laws (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in Sections 7.01 and 7.02 of these By-laws. Such
determination shall be made (i) by the Board by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (ii) if such a quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (iii) by the stockholders.
Section 7.04 INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding the other provisions of this Article VII, to the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Section 7.01 or 7.02 of these By-laws, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 7.05 ADVANCE OF EXPENSES. Expenses incurred by an officer
or director in defending a civil or criminal action, suit or proceeding may be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding as authorized by the Board upon receipt of an undertaking by or on
behalf of the director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article VII. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the Board deems
appropriate.
<PAGE>
Section 7.06 OTHER RIGHTS AND REMEDIES. The indemnification and
advancement of expenses provided by, or granted pursuant to, the other Sections
of this Article VII shall not be deemed exclusive and are declared expressly to
be nonexclusive of any other rights to which those seeking indemnification or
advancements of expenses may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
Section 7.07 INSURANCE. Upon resolution passed by the Board, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise or as a member of any committee or similar body against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article VII.
Section 7.08 CONSTITUENT CORPORATIONS. For the purposes of this
Article VII, references to "the Corporation" include in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise or as a member of any committee or similar body shall
stand in the same position under the provisions of this Article VII with respect
to the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
Section 7.09 EMPLOYEE BENEFIT PLANS. For the purposes of this
Article VII, references to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on a person
with respect to any employee benefit plan; and references to "serving at the
request of the Corporation" shall include any service as a director, officer,
employee or agent of the Corporation which imposes duties on, or involves
services by, such director, officer, employee or agent with respect to an
employee benefit plan, its participants or beneficiaries; and a person who acted
in good faith and in a manner he reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the Corporation"
as referred to in this Article VII.
<PAGE>
Section 7.10 BROADEST LAWFUL INDEMNIFICATION. In addition to the
foregoing, the Corporation shall, to the broadest and maximum extent permitted
by Delaware law, as the same exists from time to time (but, in case of any
amendment to or change in Delaware law, only to the extent that such amendment
or change permits the Corporation to provide broader rights of indemnification
than is permitted to the Corporation prior to such amendment or change),
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative by reason of the fact that he
is or was a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding. In addition, the Corporation shall, to the broadest
and maximum extent permitted by Delaware law, as the same may exist from time to
time (but, in case of any amendment to or change in Delaware law, only to the
extent that such amendment or change permits the Corporation to provide broader
rights of payment of expenses incurred in advance of the final disposition of an
action, suit or proceeding than is permitted to the Corporation prior to such
amendment or change), pay to such person any and all expenses (including
attorneys' fees) incurred in defending or settling any such action, suit or
proceeding in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director or
officer, to repay such amount if it shall ultimately be determined by a final
judgment or other final adjudication that he is not entitled to be indemnified
by the Corporation as authorized in this Section 7.10. The first sentence of
this Section 7.10 to the contrary notwithstanding, the Corporation shall not
indemnify any such person with respect to any of the following matters: (i)
remuneration paid to such person if it shall be determined by a final judgment
or other final adjudication that such remuneration was in violation of law; or
(ii) any accounting of profits made from the purchase or sale by such person of
the Corporation's securities within the meaning of Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law; or (iii) actions brought about or
contributed to by the dishonesty of such person, if a final judgment or other
final adjudication adverse to such person establishes that acts of active and
deliberate dishonesty were committed or attempted by such person with actual
dishonest purpose and intent and were material to the adjudication; or (iv)
actions based on or attributable to such person having gained any personal
profit or advantage to which he was not entitled, in the event that a final
judgment or other final adjudication adverse to such person establishes that
such person in fact gained such personal profit or other advantage to which he
was not entitled; or (v) any matter in respect of which a final decision by a
court with competent jurisdiction shall determine that indemnification is
unlawful; provided, however, that the Corporation shall perform its obligations
under the second sentence of this Section 7.10 on behalf of such person until
such time as it shall be ultimately determined by a final judgment or other
final adjudication that he is
<PAGE>
not entitled to be indemnified by the Corporation as authorized by the first
sentence of this Section 7.10 by virtue of any of the preceding clauses (i),
(ii), (iii), (iv) or (v).
Section 7.11 TERM. The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article VII shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 7.12 SEVERABILITY. If any part of this Article VII shall be
found, in any action, suit or proceeding or appeal therefrom or in any other
circumstances or as to any particular officer, director, employee or agent to be
unenforceable, ineffective or invalid for any reason, the enforceability, effect
and validity of the remaining parts or of such parts in other circumstances
shall not be affected, except as otherwise required by applicable law.
Section 7.13 AMENDMENTS. The foregoing provisions of this Article
VII shall be deemed to constitute an agreement between the Corporation and each
of the persons entitled to indemnification hereunder, for as long as such
provisions remain in effect. Any amendment to the foregoing provisions of this
Article VII which limits or otherwise adversely affects the scope of
indemnification or rights of any such persons hereunder shall, as to such
persons, apply only to claims arising, or causes of action based on actions or
events occurring, after such amendment and delivery of notice of such amendment
is given to the person or persons so affected. Until notice of such amendment
is given to the person or persons whose rights hereunder are adversely affected,
such amendment shall have no effect on such rights of such persons hereunder.
Any person entitled to indemnification under the foregoing provisions of this
Article VII shall, as to any act or omission occurring prior to the date of
receipt of such notice, be entitled to indemnification to the same extent as had
such provisions continued as By-laws of the Corporation without such amendment.
ARTICLE VIII
MISCELLANEOUS
-------------
Section 8.01 SEAL. The Board shall provide a corporate seal, which
shall be in the form of a circle and shall bear the name of the Corporation and
words and figures showing that the Corporation was incorporated in the State of
Delaware and showing the year of incorporation.
Section 8.02 WAIVER OF NOTICES. Whenever notice is required to be
given under any provision of the By-laws, the Certificate of Incorporation or by
law, a written waiver, signed by the person entitled to notice, whether before
or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when
<PAGE>
a person attends a meeting for the express purpose of objecting at the beginning
of the meeting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders, directors, or
members of a committee of directors need be specified in any written waiver of
notice unless required by the Certificate of Incorporation.
Section 8.03 LOANS AND GUARANTIES. The Corporation may lend money
to, or guarantee any obligation of, and otherwise assist any officer or other
employee of the Corporation or of its subsidiaries, including any officer who is
a director, whenever, in the judgment of the Board, such loan, guaranty or
assistance may reasonably be expected to benefit the Corporation. The loan,
guaranty, or other assistance may be with or without interest, and may be
unsecured or secured in such manner as the Board shall approve, including,
without limitation, a pledge of shares of stock of the Corporation.
Section 8.04 GENDER. All personal pronouns used in the By-laws shall
include the other genders, whether used in the masculine, feminine or neuter
gender, and the singular shall include the plural, and vice versa, whenever and
as often as may be appropriate.
Section 8.05 AMENDMENTS. The By-laws, or any of them, may be
rescinded, altered, amended or repealed, and new By-laws may be made (i) by the
Board, by vote of a majority of the number of directors then in office as
directors, acting at any meeting of the Board, or (ii) by the stockholders, by
the vote of the holders of eighty (80%) percent of the outstanding voting stock
of the Corporation, at any annual or special meeting of stockholders, provided
that notice of such proposed amendment, modification, repeal or adoption is
given in the notice of the annual or special meeting; provided, however, that
the By-laws can only be amended if such amendment would not conflict with the
Certificate of Incorporation. Any By-laws made or altered by the requisite
number of stockholders may be altered or repealed by the Board of Directors or
may be altered or repealed by the requisite number of stockholders.
<PAGE>
CERTIFICATE OF SECRETARY
I, C. Michael Carter, Corporate Secretary of Pinkerton's, Inc., a Delaware
Corporation (the "Corporation"), do hereby certify that the following
Resolutions were duly adopted at a meeting of the Board of Directors of the
Corporation, duly called and held on December 11, 1996, at which a quorum was
present and acting throughout, and that said Resolutions have not been
rescinded, amended or modified:
RESOLVED, that Section 3.02 of the By-Laws of the Corporation be amended to
read in its entirety as follows:
"Section 3.02 NUMBER AND TERM. The authorized number of directors of the
Corporation shall be established from time to time by the Board. Until
changed by amendment to this Section 3.02, the authorized number of
directors of the Corporation shall be nine (9). Directors need not be
stockholders of the Corporation. Each director shall hold office until a
successor is elected and qualified or until the director resigns or is
removed."
RESOLVED, that the chief executive, financial and legal officers of the
Corporation be, and each of them hereby is, authorized to take all such
actions, and to execute and deliver such agreements, instruments and
documents, in the name and on behalf of the Corporation and under its
corporate seal, and to pay such expenses as in their judgment shall be
necessary, proper and advisable to fully carry out the intent and
accomplish the purposes of the foregoing resolution.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of December, 1996.
/s/ C. Michael Carter
-----------------------
C. Michael Carter
<PAGE>
EXHIBIT 10.21
SECOND AMENDMENT TO THE
1995 PINKERTON PERFORMANCE AND EQUITY INCENTIVE PLAN
Subject to and upon the approval of this Amendment by the stockholders at
the 1996 Annual Meeting of Stockholders of Pinkerton's, Inc., the 1995 Pinkerton
Performance and Equity Incentive Plan is hereby amended to replace in its
entirety the first sentence of Section 4(a) - Maximum Number of Shares of Common
Stock with the following sentence:
The maximum number of shares of Common Stock in respect of which Awards may
be granted under the Plan, subject to adjustment as provided in Section 15
of the Plan shall be Seven Hundred Fifty-four Thousand Four Hundred Fifty
(754,450).
IN WITNESS THEREOF, the undersigned authorized officer of Pinkerton's, Inc.
certifies that the foregoing Amendment has been duly approved and adopted by the
Board of Directors and the stockholders as of April 26, 1996.
PINKERTON'S, INC.
By: /s/ C. Michael Carter
----------------------------------
C. Michael Carter
Executive Vice President, General
Counsel and Corporate Secretary
<PAGE>
EXHIBIT 10.22
THIRD AMENDMENT TO THE
1995 PINKERTON PERFORMANCE AND EQUITY INCENTIVE PLAN
The 1995 Pinkerton Performance and Equity Incentive Plan is hereby amended
as of December 11, 1996 to modify Section 2(e) - Definitions as follows:
1. For any Award granted prior to December 11, 1996, the definition of
"Change of Control" appearing in Section 2(e) shall apply.
2. For any Award granted on or after December 11, 1996 to persons other
than those identified on Schedule A hereto, the definition of "Change of
----------
Control" appearing in Section 2(e) shall be deemed modified to insert at
the beginning of clauses (iii) and (iv) of the definition, after the words
"approval by the stockholders of the Company" the words "and the subsequent
completion".
IN WITNESS THEREOF, the undersigned authorized officer of Pinkerton's, Inc.
certifies that the foregoing Amendment has been duly approved and adopted by the
Board of Directors as of December 11, 1996.
PINKERTON'S, INC.
By: /s/ C. Michael Carter
----------------------------------
C. Michael Carter
Executive Vice President, General
Counsel and Corporate Secretary
<PAGE>
Schedule A
to
Third Amendment to the
1995 Pinkerton Performance and Equity Incentive Plan
----------------------------------------------------
Persons for whom modified definition of "Change of Control" for any Award
granted on or after December 11, 1996 does not apply:
Denis R. Brown
C. Michael Carter
James P. McCloskey
<PAGE>
EXHIBIT 10.23
PINKERTON'S, INC.
-----------------
SUPPLEMENTAL RETIREMENT INCOME PLAN
-----------------------------------
AS RESTATED, EFFECTIVE JANUARY 1, 1996
--------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
I. PLAN HISTORY AND FEATURES........................... 1
II. DEFINITIONS......................................... 2
2.1 "Age"..................................... 2
2.2 "Anniversary Date"........................ 2
2.3 "Beneficiary"............................. 2
2.4 "Benefit"................................. 3
2.5 "Board"................................... 3
2.6 "Employee"................................ 3
2.7 "Employer"................................ 3
2.8 "Employment".............................. 3
2.9 "Final Average Monthly Compensation"...... 4
2.10 "Grandfathered Benefit"................... 4
2.11 "Normal Benefit Form"..................... 5
2.12 "Normal Retirement Age"................... 5
2.13 "Participant"............................. 5
2.14 "Plan".................................... 5
2.15 "Plan Administrator"...................... 6
2.16 "Plan Year"............................... 6
2.17 "Retirement".............................. 6
2.18 "Vested".................................. 6
2.19 "Years of Service"........................ 6
2.20 "Years of Participation".................. 6
</TABLE>
<PAGE>
<TABLE>
<S> <C>
III. EMPLOYEE PARTICIPATION.............................. 7
3.1 Requirements for Participation................. 7
IV. BENEFITS............................................ 8
4.1 Benefits on Retirement..................... 8
4.2 Benefit Formula............................ 9
4.3 Pre-Retirement Death Benefits.............. 11
4.4 Suspension of Benefits..................... 12
V. FUNDING OF BENEFITS................................. 13
5.1 Source of Funds............................ 13
VI. VESTING............................................. 14
6.1 Vesting.................................... 14
6.2 Forfeiture Events.......................... 15
6.3 Vesting upon a Change of Control........... 15
VII. ADMINISTRATION OF THE PLAN.......................... 20
7.1 Duties of the Plan Administrator........... 20
7.2 Claims Procedure........................... 21
7.3 Arbitration Procedure...................... 24
7.4 Effect of Plan Administrator Action........ 28
7.5 Administrative Committee................... 29
VIII. AMENDMENT AND TERMINATION OF THE PLAN............... 30
8.1 Amendment/Termination...................... 30
</TABLE>
<PAGE>
<TABLE>
<S> <C>
IX. MISCELLANEOUS PROVISIONS............................ 31
9.1 Payments................................... 31
9.2 Termination of Employment.................. 32
9.3 Alienation................................. 32
9.4 Duty to Provide Data....................... 33
9.5 Limitation on Rights of Employees.......... 34
9.6 Governing Law.............................. 34
9.7 Plurals.................................... 35
9.8 Titles..................................... 35
9.9 References................................. 35
APPENDIX I.................................................... 36
APPENDIX II................................................... 38
SCHEDULE I ................................................... 39
</TABLE>
<PAGE>
PINKERTON'S, INC.
-----------------
SUPPLEMENTAL RETIREMENT INCOME PLAN
-----------------------------------
AS RESTATED, EFFECTIVE JANUARY 1, 1996
--------------------------------------
ARTICLE I
---------
PLAN HISTORY AND FEATURES
-------------------------
California Plant Protection adopted this Plan, effective October 1, 1987.
Pinkerton's, Inc. assumed sponsorship of this Plan when California Plant
Protection was merged into it. The Plan was amended and restated in its
entirety as of April 26, 1990 and again as of March 29, 1991, amended in certain
particulars as of October 1, 1991 and again as of May 21, 1993, and again
amended and restated in its entirety as of May 1, 1994. The plan was further
amended as of February 15, 1995, on May 31, 1995 (as of May 31, 1994) and as of
May 31, 1995. In addition, with respect to four specific individuals, the
benefits of the Plan were modified in 1994 as evidenced by confidential written
agreements between these individuals and Pinkerton's, Inc.
Effective January 1, 1996, this document restates this Plan in its
entirety. This document shall govern all persons' rights under the Plan,
whether accrued before or after January 1, 1996. A confidential Appendix to the
Plan sets forth the provisions of the written agreements by and between the four
specific individuals and Pinkerton's, Inc. as referenced above.
This Plan is an unfunded retirement plan that benefits a select group of
management and highly compensated employees.
1
<PAGE>
While the Plan is subject to the Employee Retirement Income Security Act of
1974, it is not intended to be a qualified retirement plan under applicable
provisions of the Internal Revenue Code or similar provisions of state law.
ARTICLE II
----------
DEFINITIONS
-----------
The following terms, when capitalized, shall have the meanings specified
below unless the context clearly indicates to the contrary.
2.1 "Age" shall mean the age of the person as of his or her last birthday.
---
2.2 "Anniversary Date" shall mean the last day of the Plan Year.
----------------
2.3 "Beneficiary" shall mean a person or entity entitled to receive benefits
-----------
upon a Participant's death. A Participant may designate, revoke and redesignate
a Beneficiary or Beneficiaries in a written form acceptable to the Plan
Administrator, which shall be effective upon delivery to and acceptance by the
Plan Administrator. Spousal consent to the designation of a Beneficiary other
than the Participant's spouse is required to the extent the Participant's
Benefit would be considered community property. When the Participant dies, his
or her Beneficiary shall be the Beneficiary or Beneficiaries properly designated
by the Participant surviving when distributions are due to commence. If no
designated Beneficiary or Beneficiaries are then alive, the Participant's
Beneficiary shall be the Participant's surviving spouse, or, if none, the
Participant's
2
<PAGE>
estate. If a Beneficiary dies after receiving the first payment the Beneficiary
is due under the Plan, the remaining amounts payable to the Beneficiary shall be
paid to the Beneficiary's estate, except as the Participant may have otherwise
provided in his or her written designation of beneficiary.
2.4 "Benefit" shall mean the benefit to which the Participant in question is
-------
then entitled under Section 4.1, provided it is Vested under Article VI.
2.5 "Board" shall mean the Board of Directors of Pinkerton's, Inc.
-----
2.6 "Employee" shall mean an individual who renders services to the Employer as
--------
a common law employee or officer, as determined by the Plan Administrator.
2.7 "Employer" shall mean Pinkerton's, Inc. and any other company which adopts
--------
the Plan, any successor entity which continues the Plan or such companies
collectively.
2.8 "Employment" shall mean the period during which an individual is an
----------
Employee. Employment with a predecessor to or affiliate of the Employer shall
be treated as Employment with the Employer, unless otherwise specified by the
Plan Administrator. Employment shall commence on the day the individual first
performs services for the Employer as an Employee and shall terminate on the day
such services for the Employer cease, as determined under Section 9.2. If a
Participant has more than one period of Employment, only the most recent period
of Employment shall be taken into account for any Plan purpose, except as
otherwise specified by the Plan Administrator in a written notice
3
<PAGE>
to the Participant and except as provided in Section 4.4(a).
2.9 "Final Average Monthly Compensation" shall mean one-sixtieth of a
----------------------------------
Participant's total "earnings" (as defined below) paid (or accrued, in the case
of annual incentive plan awards) during the five year period ending on his or
her last day of Employment. If the individual was an Employee for less than
five years, his or her "Final Average Monthly Compensation" shall mean the
Participant's total "earnings" (as defined below), paid (or accrued, in the case
of annual incentive plan awards) in his or her number of full months of
Employment dividied by such number of full months of Employment. A
Participant's "earnings" shall mean the Participant's regular base salary and
annual incentive plan award, determined in accordance with the following special
rules:
(a) Except as provided in subsection (b), an Employee's earnings shall not
include severance pay, sign-on bonuses, commissions, incentive compensation
(other than annual incentive plan awards), pay in lieu of vacations,
reimbursements or other expense allowances, options, phantom stock, company car
or car allowances, employee benefits, deferred compensation, fringe benefits,
moving expenses, or payments or benefits similar to any of the foregoing.
(b) Notwithstanding subsection (a), a Participant's earnings shall include
amounts that would otherwise have been "earnings" under this Section if the
Participant had not made a salary reduction election under a cash or deferred,
cafeteria or similar plan of the Employer.
2.10 "Grandfathered Benefit" shall mean the dollar amount of the
---------------------
4
<PAGE>
monthly vested benefit to which the Participant in question was entitled as of
April 30, 1994, under the Plan as then in effect, as conclusively set forth on
Schedule I hereto. This amount shall not increase because of subsequent
increases in Final Average Monthly Compensation or Years of Participation. A
Participant's Grandfathered Benefit shall be payable in the Normal Benefit Form
commencing upon the later of (A) termination of Employment with the Employer, or
(B) attainment of the earlier of age fifty-five (55) or age fifty (50) and
completion of twenty (20) Years of Participation.
2.11 "Normal Benefit Form" shall mean the normal form of benefit under the Plan,
-------------------
which shall consist of monthly payments to the Participant commencing as of the
first day of the calendar month coincident with or next following the
Participant's Retirement and ending with the payment for the calendar month in
which the Participant dies, with the provision that, if the Participant dies
before having received one hundred eighty (180) monthly payments, the
Participant's Beneficiary shall continue receiving such monthly payments until a
total of one hundred eighty (180) monthly payments have been made to either the
Participant or his or her Beneficiary.
2.12 "Normal Retirement Age" shall mean the first day of the month following the
---------------------
month in which the Participant reaches age sixty-two (62).
2.13 "Participant" shall mean any Employee who is included in the Plan pursuant
-----------
to Article III and any current or former Employee who has a Vested Benefit.
2.14 "Plan" shall mean this document, including Schedule I and
----
5
<PAGE>
the Appendices hereto. The Appendices are on file in the office of the
President and Chief Executive Officer of Pinkerton's, Inc., and shall only be
made available to Participants identified in each Appendix, except as the Plan
Administrator otherwise authorizes.
2.15 "Plan Administrator" shall mean Pinkerton's, Inc., acting through the
------------------
Administrative Committee appointed pursuant to Section 7.5.
2.16 "Plan Year" shall mean a twelve (12) consecutive month period beginning
---------
January 1st and ending December 31st.
2.17 "Retirement" shall mean the commencement of benefit payments to a
----------
Participant in accordance with Section 4.1 on or after his or her termination of
Employment.
2.18 "Vested" shall mean that a Participant's Benefit has become nonforfeitable,
------
as more fully provided in Article VI, subject to the exceptions set forth in
Section 6.2.
2.19 "Years of Service" shall mean years of Employment, pro rated to the nearest
----------------
1/12th year.
2.20 "Years of Participation" shall mean the Plan Years in which an Employee
----------------------
completes twelve (12) full months as a Participant; however, for any Plan Year
in which an Employee completes less than twelve (12) full months as a
Participant, Years of Participation shall be calculated as a fraction, the
numerator of which shall be the number of full months of Participation as a
Participant during the Plan Year and the denominator of which shall be twelve
(12), subject to the following special rules:
6
<PAGE>
(a) If the Employee became a Participant before April 1, 1991, his or her
Years of Participation shall be determined based on the number of Years of
Service since the individual became an Employee.
(b) In no event shall any period after a Participant ceases actively
participating in the Plan ever be taken into account in determining his or her
Years of Participation.
(c) In the event of termination of Employment before the date upon which
his or her benefit can first commence, any fractional Year of Participation the
Participant may have shall be rounded down to the next lowest whole number.
(d) If a Participant works to or past the date upon which his or her
Benefit can first commence, any fractional Year of Participation the Participant
may have shall be taken into account in calculating the Participant's Benefit.
Hence, for example, if the Participant has 14.25 Years of Participation, in
applying the formula in Section 4.2, 14.25 Years of Participation will be taken
into account.
ARTICLE III
-----------
EMPLOYEE PARTICIPATION
----------------------
3.1 Requirements for Participation
------------------------------
Only a select group of management or highly compensated employees may
participate in this Plan. The Plan Administrator, acting with the approval of
the Board, shall determine which
7
<PAGE>
Employees shall be Participants and when their active participation in this Plan
shall begin or end. In order to actively participate in this Plan and begin or
continue accruing benefits under the Plan, an Employee must sign such
participation agreements as may from time to time may be prescribed by the Plan
Administrator. If a Participant's active participation under the Plan ceases
for any reason, the amount of his or her Benefit under Section 4.1 shall be
determined as if the Participant terminated Employment on the date his or her
active participation ceased.
ARTICLE IV
----------
BENEFITS
--------
4.1 Benefit on Retirement
---------------------
(a) A current Employee who has a Vested Benefit and who has attained age
fifty-five (55) may elect Retirement, except that, if the individual has a
Grandfathered Benefit and has not attained age fifty-five (55), he or she may
elect Retirement after attaining both age fifty (50) and completing twenty (20)
Years of Participation. A Retirement election must be made in advance, by
written notice to the Plan Administrator in accordance with procedures it
specifies. A former Employee shall be deemed to have retired on the earliest
date upon which he or she could have elected Retirement if still an Employee.
Commencing at Retirement, Benefits shall be paid in the Normal Benefit Form in
the amount determined under Subsection (b).
(b) A Participant's Benefit shall be the greater of (1) the dollar amount
determined under Section 4.2 to the extent Vested,
8
<PAGE>
reduced by .00416667 for each full calendar month (approximately five percent
(5%) per year) in which the benefit commencement date precedes the calendar
month in which the Participant attains his or her Normal Retirement Age or (2)
his or her Grandfathered Benefit.
4.2 Benefit Formula
---------------
(a) The monthly benefit of a Participant commencing at Normal Retirement
Age in the Normal Benefit Form shall be equal to two percent (2%) or three and
one-half percent (3.5%) of the Participant's Final Average Monthly Compensation
for each Year of Participation, whichever percentage the Plan Administrator,
with the consent of the Board, specifies as applying to the Participant. A
Participant's maximum benefit under the preceding sentence shall be forty
percent (40%) of his or her Final Average Monthly Compensation if the
Participant is accruing benefits at the two percent (2%) benefit accrual rate or
fifty-two and one-half percent (52.5%) of his or her Final Average Monthly
Compensation if the Participant is accruing benefits at the three and one-half
percent (3.5%) benefit accrual rate. The benefit determined under this
Subsection shall then be reduced by the offsets in Subsection (d).
(b) If the Plan Administrator changes the benefit accrual percentage
applicable to a Participant, the Participant's benefit under this Section 4.2
shall be determined by multiplying each benefit accrual percentage by the Years
of Participation completed while the benefit accrual percentage was applicable,
adding the results and then multiplying that sum by the Participant's Final
Average Monthly Compensation. The maximum benefit limitations of Subsection (a)
shall then be applied as follows:
9
<PAGE>
If the Participant's rate of benefit accrual is raised from two percent (2%) to
three and one-half percent (3.5%), his or her benefit under this Section shall
not thereafter exceed fifty-two percent (52%) of the Participant's Final Average
Monthly Compensation. If the Participant's rate of benefit accrual is lowered
to two percent (2%) from three and one half percent (3.5%), his or her benefit
under this Section shall not thereafter exceed the greater of forty percent
(40%) of the Participant's Final Average Monthly Compensation or the benefit to
which the Participant would have been entitled under this Section had his or her
Employment terminated immediately before the change in accrual rates went into
effect. Any benefit determined under this Subsection shall then be reduced by
the offsets in Subsection (d).
(c) See Section 3.1 for the method of determining the benefit of a
Participant whose active participation in the Plan ceases for any reason.
(d) A Participant's benefit under this Section shall be reduced (but not
below zero) by the actuarial equivalent of all of the following amounts (such
actuarial equivalents to be determined by an Enrolled Actuary retained by the
Plan Administrator, using the methods and assumptions that both the Plan
Administrator and the Enrolled Actuary determine to be appropriate):
(i) Any employer-provided pension or similar benefits (whether paid
before or after the Participant's benefit goes into pay status under this Plan)
accrued while employed for another company during periods for which the
Participant was given past service credit for benefit accrual purposes under
this Plan;
10
<PAGE>
(ii) Except as otherwise provided by the Plan Administrator, the
amount of any judgment, arbitration award, settlement or similar payment the
Employer is obligated to pay the Participant on account of or related to a
dispute arising in connection with his or her termination of Employment, whether
paid before or after the Participant's Benefit goes into pay status.
4.3 Pre-Retirement Death Benefits
-----------------------------
If a Participant dies with a Vested Benefit before benefit payments from
the Plan commence, the Participant's Beneficiary shall be entitled to a monthly
payment for one hundred eighty (180) months. A Participant's Benefit shall
become one hundred percent (100%) Vested if the Participant dies while still an
Employee. The monthly amount payable to the Beneficiary shall be determined
under Subsection (a) or (b), whichever is applicable.
(a) If the Participant dies after his or her Benefit could have commenced
under Section 4.1, the monthly payment to the Beneficiary shall be equal in
amount to the monthly payment the Participant would have received if his or her
Benefit had commenced just before the Participant died.
(b) If the Participant dies before his or her Benefit could commence under
Section 4.1, the monthly payment to the Beneficiary shall be determined as
follows: The Benefit that would have been payable to the Participant had he or
she ceased active participation in the Plan on the date of death and thereafter
commenced receiving benefits on the earliest allowable date under Section 4.1
shall be determined. The resulting amount shall then be reduced actuarially (by
an enrolled actuary
11
<PAGE>
selected by the Plan Administrator using the methods and assumptions that both
the Plan Administrator and the enrolled actuary determine to be appropriate) by
the cost of commencing the death benefit before the earliest date upon which the
Participant's Benefit could have commenced.
4.4 Suspension of Benefits
----------------------
(a) If a Participant's benefit has commenced and the Participant again
becomes an Employee, the Participant's benefit shall cease to be payable.
Thereafter, his or her rights under this Plan shall be determined as if he or
she had never previously commenced benefits, except that, if the Participant's
benefit had first commenced before age sixty-two (62), it shall be actuarially
reduced (but not below the dollar level previously in pay status) by the value
of all benefit payments previously made, as determined by an enrolled actuary
selected by the Plan Administrator, using the methods and assumptions that both
the Plan Administrator and the enrolled actuary determine to be appropriate. If
a Participant dies while his or her Benefit is suspended under Subsection (a),
the pre-retirement death benefit payable under Section 4.3 shall be the Benefit
that would have been payable to the Participant, as determined in accordance
with this Section, if he or she had retired on his or her date of death, but the
one hundred eighty (180) monthly death benefit payments due under Section 4.3
shall be reduced by the number of benefit payments the Participant received
prior to his or her death.
(b) No amounts shall be paid under this Plan to a Participant while that
Participant is engaged in "Other Employment" as defined below, without the Plan
Administrator's
12
<PAGE>
written consent. A Benefit suspended under this subsection shall recommence
when the Participant's Other Employment ends. "Other Employment" shall mean the
rendering of full or part-time services as an employee, consultant, officer or
director to any company (other than the Employer or an affiliate), but only if
such services commenced after April 30, 1994. The Plan Administrator shall
consent to a Participant's Other Employment if the Participant furnishes
information reasonably required by the Plan Administrator and, on the basis of
that information, the Plan Administrator determines that the Other Employment
will not aid an entity which is in competition with the Employer or its
affiliates. If the facts change, or if the Participant refuses to furnish any
additional information that the Plan Administrator requests, the Plan
Administrator may revoke a consent it has previously given. If a Participant
dies while his or her Benefit is suspended for Other Employment under this
Subsection (b), the Participant's Beneficiary shall receive a monthly payment in
the amount the Participant was receiving prior to the suspension of his or her
Benefit until a total of one hundred eighty (180) monthly payments have been
made in the aggregate to both the Participant and his or her Beneficiary. If a
Participant dies while engaged in Other Employment (with or without the Plan
Administrator's consent) but before his or her Benefit commences, the pre-
retirement death benefit provided for in Section 4.3 shall be payable.
ARTICLE V
---------
FUNDING OF BENEFIT
------------------
5.1 Source of Funds
---------------
All benefits under this Plan shall be paid by the
13
<PAGE>
Employer out of its general assets except to the extent the Employer establishes
other funding mechanisms.
ARTICLE VI
----------
VESTING
-------
6.1 Vesting
-------
Grandfathered Benefits are one hundred percent (100%) Vested. A
Participant's Benefit under Section 4.2 shall become one hundred percent (100%)
Vested upon completion of five (5) Years of Participation; provided that if the
--------
Employee was a grade level 14 (or above) employee prior to becoming a
Participant, was eligible to participate in the Employer's District Managers'
Insurance Bonus Plan (the "DMIBP") as of the date he or she became a
Participant, and ceased to be eligible to participate in or accrue benefits
under the DMIBP as of the date he or she became a Participant, then, for the
sole purpose of determining when the Participant's Benefit has Vested and not
for the purpose of determining the amount of the Participant's Benefit, his or
her completion of five (5) Years of Participation shall be determined based upon
the number of months since the Employee first became both a grade level 14 (or
above) employee and eligible to participate in the DMIBP. For the purpose of
this Section 6.1, an Employee becomes eligible to participate in the DMIBP as of
the date from which the three (3) years of service with Employer, required by
Section 3(a) of the DMIBP to enter the DMIBP, begins being counted by Employer.
Even if Vested, a Benefit shall be subject to forfeiture under Section 6.2.
14
<PAGE>
6.2 Forfeiture Events
-----------------
The unvested portion of a Participant's Benefit shall be forfeited upon
termination of Employment. In addition, a Participant's Benefit, whether or not
Vested, shall be forfeited to the extent specified by the Board, if the Board
determines that the Participant, while an Employee, committed (1) any act of
civil or criminal fraud that causes serious harm to the Employer or any
affiliate; (2) any act involving the personnel or property of the Employer or
any affiliate (or of any of their customers, clients or suppliers) which likely
constitutes a felony (whether or not the Employee is indicted or convicted of
such felony); or (3) any violation of the Employer's policies on ethical
business conduct or similar matters which causes or is likely to cause
significant harm to the Company.
6.3 Vesting upon a Change of Control
--------------------------------
(a) If a "Change in Control" of the Employer occurs, as defined in
Subsection (b) below a Participant's Benefit shall become one hundred percent
(100%) Vested if, within the two (2) year period following the date of the
Change of Control, the Plan is terminated or the Participant is discharged or
laid off.
(b) A "Change in Control" shall be deemed to have occurred on and after
the effective date of this Plan Restatement, upon the occurrence of any of the
following events:
(i) the acquisition by any individual, entity or group (a "Person"),
including any "person" within the meaning of Sections 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of
beneficial ownership within the meaning of Rule 13d-3 promulgated under the
Exchange
15
<PAGE>
Act, of twenty percent (20%) or more of either (A) the then outstanding shares
of Common Stock of the Company (the "Outstanding Company Common Stock") or (B)
the combined voting power of the then outstanding securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following acquisitions
-----------------
shall not constitute a Change in Control: (1) any acquisition directly from the
Company (excluding any acquisition resulting from the exercise of a conversion
or exchange privilege in respect of outstanding convertible or exchangeable
securities), (2) any acquisition by the Company, (3) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, (4) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation involving the
Company, if, immediately after such reorganization, merger or consolidation,
each of the conditions described in clauses (A), (B) and (C) of subsection (iii)
of this definition shall be satisfied, (5) any purchase of Outstanding Company
Common Stock by any Person that on April 20, 1994 owned more than twenty percent
(20%) of the Outstanding Company Common Stock (a "Substantial Holder") if the
number of shares purchased, when added to all other shares of Outstanding
Company Common Stock purchased by such Substantial Holder after April 20, 1994,
is less than ten percent (10%) of the Outstanding Company Common Stock, or (6)
upon the death of a Substantial Holder, the transfer (a) by testamentary
disposition or the laws of intestate succession to the estate or the legal
beneficiaries or heirs of such Substantial Holder, or (b) by the provisions of
any living trust to the named current income beneficiaries thereof as of April
20, 1994, of Outstanding Company Common Stock beneficially owned by such
Substantial Holder at the time of his death; and
16
<PAGE>
provided further that, for purposes of clause (2), if any Person (other than the
- ----------------
Company or any employee benefit plan (or related trust) sponsored or maintained
by the Company or any corporation controlled by the Company) shall become the
beneficial owner of twenty percent (20%) or more of the Outstanding Company
Common Stock or twenty percent (20%) or more of the Outstanding Company Voting
Securities by reason of an acquisition by the Company and such Person shall,
after such acquisition by the Company, become the beneficial owner of any
additional shares of the Outstanding Company Common Stock or any additional
Outstanding Voting Securities and such beneficial ownership is publicly
announced, such additional beneficial ownership shall constitute a Change of
Control;
(ii) individuals who, as of the date following the Company's 1994
Annual Meeting of Shareholders, constitute the Board (the "Incumbent Board")
cease for any reason to constitute at least sixty-six and two-thirds percent
(66-2/3%) of such Board; provided, however, that any individual who becomes a
-----------------
director of the Company subsequent to such date whose election, or nomination
for election by the Company's stockholders, was approved by the vote of at least
sixty-six and two-thirds percent (66-2/3%) of the directors then comprising the
Incumbent Board shall be deemed to have been a member of the Incumbent Board;
and provided, further, that no individual who was initially elected as a
-----------------
director of the Company as a result of an actual or threatened election contest,
as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act, or any other actual or threatened solicitation of proxies or
consents by or on behalf of any Person other than the Board shall be deemed to
have been a member of the Incumbent Board;
17
<PAGE>
(iii) approval by the stockholders of the Company and the subsequent
completion of a reorganization, merger or consolidation unless, in any such
case, immediately after such reorganization, merger or consolidation, (A) more
than sixty percent (60%) of the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or consolidation and more
than sixty percent (60%) of the combined voting power of the then outstanding
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals or entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and the Outstanding
Company Voting Securities immediately prior to such reorganization, merger or
consolidation and in substantially the same proportions relative to each other
as their ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and the Outstanding
Company Voting Securities, as the case may be, (B) no Person (other than the
Company or any employee benefit plan (or related trust) sponsored or maintained
by the Company or the corporation resulting from such reorganization, merger or
consolidation (or any corporation controlled by the Company), or any Person
which beneficially owned, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, twenty percent (20%) or more of the
Outstanding Company Common Stock or the Outstanding Company Voting Securities,
as the case may be) beneficially owned, directly or indirectly, twenty percent
(20%) or more of the then outstanding shares of common stock of such corporation
or twenty percent (20%) or more of the combined voting power of the then
outstanding securities of such corporation entitled to vote generally in the
election of directors and (C) at least sixty-six and two-thirds percent (66-
2/3%) of the members of the board of directors of the corporation
18
<PAGE>
resulting from such reorganization, merger or consolidation where members of the
Incumbent Board at the time of the execution of the initial agreement or action
of the Board providing for such reorganization, merger or consolidation; or
(iv) approval by the stockholders of the Company and the subsequent
completion of (A) a plan of complete liquidation or dissolution of the Company
or (B) the sale or other disposition of all or substantially all of the assets
of the Company other than to a corporation with respect to which, immediately
after such sale or other disposition, (1) more than sixty percent (60%) of the
then outstanding shares of common stock thereof and more than sixty percent
(60%) of the combined voting power of the then outstanding securities thereof
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and the Outstanding Company Voting Securities immediately
prior to such sale or other disposition and in substantially the same
proportions relative to each other as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities, as the case may be, (2) no Person (other
than the Company, any employee benefit plan (or related trust) sponsored or
maintained by the Company or such corporation (or any corporation controlled by
the Company) and any Person which beneficially owned, immediately prior to such
sale or other disposition, directly or indirectly, twenty percent (20%) or more
of the Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly,
twenty percent (20%) or more of the then
19
<PAGE>
outstanding shares of common stock thereof or twenty percent (20%) or more of
the combined voting power of the then outstanding securities thereof entitled to
vote generally in the election of directors and (3) at least sixty-six and two-
thirds percent (66-2/3%) of the members of the board of directors thereof were
members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other disposition.
ARTICLE VII
-----------
ADMINISTRATION OF THE PLAN
--------------------------
7.1 Duties of the Plan Administrator
--------------------------------
The Plan Administrator shall be responsible for the general administration
and management of the Plan. The Plan Administrator shall have all powers and
duties necessary to fulfill its responsibilities, including, but not limited to,
the following powers and duties:
(a) To interpret the Plan as it, in its discretion, determines to be
appropriate;
(b) To determine all questions relating to the right of any person to
receive benefits;
(c) To determine the amount and kind of benefits payable to Participants
and their Beneficiaries;
(d) To administer the claims procedure set forth in Section 7.2;
20
<PAGE>
(e) To exercise all other powers or duties granted to the Plan
Administrator by other provisions of the Plan;
(f) To provide the Board with recommendations as to which Employees should
participate in the Plan and the benefit accrual rates that should apply to them;
and
(g) To recommend to the Board any amendments to the Plan which the Plan
Administrator determines to be appropriate or necessary.
7.2 Claims Procedure
----------------
(a) Normally, a Participant or Beneficiary need not present a formal claim
in order to qualify for rights or benefits under this Plan. However, if any
such person (a "Claimant") does not believe that he or she will receive the
benefits to which the person is entitled or believes that the Plan is not being
operated properly or that his or her legal rights have been or are being
violated with respect to the Plan, the Claimant must file a formal claim under
the procedures set forth in this Section. A formal claim must be filed within
six (6) months of the date upon which the Claimant (or his or her predecessor in
interest) first knew (or should have known) of the facts upon which the claim is
based, unless the Plan Administrator, in writing, consents otherwise. The
procedures in this Section shall apply to all claims that any person has with
respect to the Plan.
(b) A claim by any person shall be presented to the Plan Administrator in
writing. A claims official appointed by the Plan Administrator shall, within
ninety (90) days of
21
<PAGE>
receiving the claim, consider the claim and issue his or her determination
thereon in writing to the Claimant, his or her representative and the Plan
Administrator. The claims official may extend the determination period for up
to an additional ninety (90) days by giving the Claimant written notice. With
the written consent of the Claimant, the determination period can be extended
further. If the claim is granted, the benefits or relief the Claimant seeks
will be provided.
(c) If the claim is wholly or partially denied, the claims official shall,
within ninety (90) days (or such longer period as described above), provide the
Claimant with written notice of the denial, setting forth, in a manner
calculated to be understood by the Claimant,
(i) the specific reason or reasons for the denial;
(ii) specific references to pertinent Plan provisions on which the
denial is based;
(iii) a description of any additional material or information
necessary for the Claimant to perfect the claim and an explanation of why the
material or information is necessary, and
(iv) an explanation of the Plan's claim review procedure.
If the claims official fails to respond to the claim in a timely manner, the
Claimant may treat the claim as having been denied by the claims official.
(d) Each Claimant shall have the opportunity to appeal in
22
<PAGE>
writing the claims official's denial of a claim to a review official designated
by the Plan Administrator (which may be a person, a committee or the Plan
Administrator) for a full and fair review. A Claimant must request review of a
denied claim within sixty (60) days after receipt by the Claimant of written
notice of denial of his or her claim or within sixty (60) days after such
written notice was due, if the written notice was not sent. In connection with
the review proceeding, the Claimant or his or her duly authorized representative
may review pertinent documents and may submit issues and comments in writing.
The Claimant may only present evidence and theories during the review which the
Claimant presented during the claims procedure, except for information which the
claims official requested the Claimant to provide to perfect the claim (See
Subsection (c)(iii)). Any claims which the Claimant does not in good faith
pursue through the review stage of the procedure shall be treated as having been
irrevocably waived.
(e) The Plan Administrator may adopt procedures pursuant to which claims
shall be reviewed and may, in its discretion, adopt different procedures for
different claims without being bound by past actions. Any procedures adopted,
however, shall be designed to afford a Claimant a full and fair review of his or
her claim.
(f) The decision by the review official upon review of a claim shall be
made not later than sixty (60) days after the written request for review is
received by the Plan Administrator, unless special circumstances require an
extension of time for processing, in which case a decision shall be rendered as
soon as possible, but not later than one hundred twenty (120) days after receipt
of the request for review, unless the Claimant agrees to a greater extension of
that deadline.
23
<PAGE>
(g) The decision on review shall be in writing and shall include specific
reasons for the decision written in a manner calculated to be understood by the
Claimant, with specific references to the pertinent Plan provisions on which the
decision is based.
(h) If a Claimant pursued his or her claim through the review stage of the
claims procedure and the claim was denied (or the review official failed to
decide the claim on a timely basis, in which case it shall be deemed denied),
the Claimant will be permitted to appeal the denial by arbitration pursuant to
Section 7.3 of the Plan. In no event shall any claim to which this procedure
applies be subject to resolution by any means (such as in a court of law) other
than by this claims procedure or arbitration under Section 7.3.
(i) This Section shall apply to a claim notwithstanding any failure by the
Plan Administrator or his delegates to follow the procedures in this Section
with respect to the claim. However, an arbitrator reviewing such a claim may
permit a Claimant to present additional evidence or theories if the arbitrator
determines that the Claimant was precluded from presenting them during the claim
and review procedures due to procedural errors of the Plan Administrator or its
delegates.
7.3 Arbitration Procedure
---------------------
(a) If a Claimant's appeal is denied, his or her sole remaining remedy
shall be to appeal the matter to an impartial arbitrator. Arbitration shall be
in accordance with the
24
<PAGE>
Employment Dispute Resolutions Rules of the American Arbitration Association
(the "AAA") before an arbitrator who is familiar with employee benefit matters
and who is licensed to practice law in the State in which the arbitration is
convened (the "Arbitrator"). The Arbitrator shall be selected in the following
manner from a list of eleven (11) arbitrators drawn by the AAA from its panel of
labor and employment arbitrators: Each party shall designate all arbitrators on
the list whom they find acceptable; the Arbitrator shall be chosen by alternate
striking from the list of arbitrators acceptable to both parties, with the party
who did not initiate the arbitration striking first. If only one arbitrator is
acceptable to both parties, he or she shall be the Arbitrator. If none of the
arbitrators are acceptable to both parties, a new panel of arbitrators shall be
obtained from the AAA and the selection process shall recommence. The
arbitration shall take place in or near the city in which the Claimant is or was
last employed by the Employer, or, in which the Plan is principally
administered, whichever is specified by the Plan Administrator, or in such other
location as may be acceptable to both the Claimant and the Plan Administrator.
The Arbitrator shall apply federal law. The Arbitrator shall have the exclusive
authority to resolve any factual or legal claim relating to the Plan or relating
to the interpretation, applicability or enforceability of this arbitration
provision, including, but not limited to, any claim that all or any part of this
provision is void or voidable. The arbitration shall be final and binding upon
all parties.
(b) The Claimant must submit a request for arbitration to the Plan
Administrator within sixty (60) days of receipt of the written denial of his or
her appeal (or within sixty (60) days of the date he or she should have received
that determination).
25
<PAGE>
(c) The Claimant and the Plan shall equally share the fees and costs of
the Arbitrator. Each party shall pay its own costs and attorneys' fees, if any.
The Arbitrator, in his or her discretion, may award reasonable attorneys' fees
to the prevailing party.
(d) The Claimant must deposit with the Plan Administrator one-half (1/2)
of the anticipated fees and costs of the Arbitrator, as reasonably determined by
the Plan Administrator before the arbitration. At least two (2) weeks before
delivering his or her decision, the Arbitrator shall send his or her final bill
for fees and costs to the Plan Administrator for payment. The Plan
Administrator shall apply the amount deposited by the Claimant to pay the
Claimant's share of the Arbitrator's fees and costs and shall return any surplus
deposit after all fees and costs have been billed by the Arbitrator. If
Claimant's deposit is exhausted, Claimant shall be billed for any remaining fees
and costs Claimant owes. Failure to pay any amount or deposit any amount within
seven (7) days after the Claimant has actual knowledge of the bill shall
constitute the Claimant's irrevocable election to withdraw Claimant's
arbitration request and abandon his or her claim.
(e) At least thirty (30) days before the arbitration hearing, the parties
must exchange lists of witnesses, including any expert witness, and copies of
all exhibits intended to be used at the hearing. The Claimant may not present
any evidence, facts, arguments or theories at the arbitration which were not
pursued in the appeal, except pursuant to Section 7.2(i) or in response to new
evidence, facts, arguments or theories presented on behalf of the Plan.
26
<PAGE>
(f) The Plan Administrator shall submit to the Arbitrator a certified copy
of the record upon which the review official's decision was made. The
Arbitrator may grant the Claimant's appeal, in whole or in part, only if the
Arbitrator determines that its grant is justified because (1) the review
official was in error upon an issue of law, (2) the review official acted
arbitrarily or capriciously in denying the appeal, or (3) the review official's
findings of fact, if applicable, were not supported by substantial evidence.
(g) The Arbitrator shall have jurisdiction to hear and rule on pre-hearing
disputes and is authorized to hold pre-hearing conferences by telephone or in
person as the Arbitrator deems necessary. The Arbitrator shall apply the
Federal Rules of Evidence and shall have the authority to entertain a motion to
dismiss or a motion for summary judgment by any party and shall apply the
standards governing such motions under the Federal Rules of Civil Procedure.
The Arbitrator shall render an award and opinion in the form typically rendered
in labor arbitrations. The results of the arbitration, unless otherwise agreed
to by the parties or ordered by the Arbitrator on motion, shall not be
confidential and may be reported by any news agency or legal publisher or
service.
(h) Either party may (1) designate one expert witness, (2) take the
deposition of one individual and the other party's expert witness, (3) propound
requests for production of documents to any party, (4) subpoena witnesses and
documents for the arbitration, but only as to the discovery permitted in this
paragraph (or any additional discovery permitted by the Arbitrator on a showing
of substantial need), (5) arrange for a court reporter to provide a stenographic
record of the
27
<PAGE>
proceedings at the party's own cost (6) upon request at the close of the
hearing, be given leave to file a post-hearing brief within the time limit
established by the Arbitrator and (7) bring an action in any court of
appropriate jurisdiction to compel arbitration under this provision and to
enforce an arbitration award.
(i) If any part of these arbitration procedures are void and
unenforceable, in whole or in part, that shall not affect the validity of the
remainder of the procedures.
(j) No party has the right to sue in any federal or state court with
respect to any matter to which the Plan's claim or arbitration procedure
applies, except as provided in Subsection (h).
(k) To be entitled to any benefit under this Plan, the Claimant must agree
to these arbitration provisions, which agreement shall be presumed unless the
Claimant asserts otherwise, in which case the Claimant shall not be entitled to
any benefits under the Plan.
7.4 Effect of Plan Administrator Action
-----------------------------------
The Plan shall be interpreted by the Plan Administrator and all its
delegates and agents in accordance with the terms of the Plan and their intended
meanings, but interpretations of the Plan document, as in effect prior to
January 1, 1996, shall not be thereafter applicable and such prior
interpretations shall not be used in any arbitration or other legal proceeding.
The Plan Administrator and all its delegates or agents shall have the discretion
to make any findings of fact needed in the administration of the Plan, and shall
have the discretion to
28
<PAGE>
interpret or construe ambiguous, unclear or implied (but omitted) terms in any
fashion they deem to be appropriate in their sole judgment. The validity of any
such finding of fact, interpretation, construction or decision shall not be
given de novo review if challenged in court, by arbitration or in any other
-------
forum, and shall be upheld unless clearly arbitrary or capricious. To the
extent the Plan Administrator or its delegate or agent has been granted
discretionary authority under the Plan, the Plan Administrator's or such
delegate's or agent's prior exercise of such authority shall not obligate it to
exercise its authority in a like fashion thereafter. If, due to errors in
drafting, any Plan provision does not accurately reflect its intended meaning,
as demonstrated by consistent interpretations or other evidence of intent, or as
determined by the Plan Administrator in its sole and exclusive judgment, the
provision shall be considered ambiguous and shall be interpreted by the Plan
Administrator and its delegates and agents in a fashion consistent with its
intent, as determined by the Plan Administrator in its reasonable discretion.
The Plan may be amended retroactively to cure any such ambiguity. This Section
may not be invoked by any person to require the Plan to be interpreted in a
manner which is inconsistent with its interpretation by the Plan Administrator.
All actions taken and all determinations made in good faith by the Plan
Administrator or its delegates and agents shall be final and binding upon all
persons claiming any interest in or under the Plan.
7.5 Administrative Committee
------------------------
(a) The Plan Administrator is Pinkerton's, Inc., acting through the
Administrative Committee that serves pursuant to this Section.
29
<PAGE>
(b) The Administrative Committee shall consist of those members of the
Board who then serve on the Board's Compensation Committee, augmented by one
officer of Pinkerton's, Inc., appointed by, and serving at the pleasure of the
Compensation Committee and who shall have no voting rights.
(c) Any action of the Administrative Committee shall be taken pursuant to
a majority vote of a quorum of its members or its full membership. Any action
of the Administrative Committee may also be taken pursuant to the written
consent of a majority of its members and their action shall constitute the
action of the Administrative Committee and be as binding as if all members had
joined in the action. A quorum of the Administrative Committee shall consist of
a majority of its members. The secretary of the Administrative Committee may
execute any certificate or other written direction on behalf of the
Administrative Committee.
(d) A member of the Administrative Committee shall not vote or act upon
any matter which specifically relates to such person as a Participant or in
which the member has an interest which may affect such member's best judgment.
ARTICLE VIII
------------
AMENDMENT AND TERMINATION OF THE PLAN
-------------------------------------
8.1 Amendment/Termination
---------------------
(a) The Board reserves the right, in its nonfiduciary settlor capacity, at
any time to amend or terminate the Plan prospectively or retroactively (by a
formal, written and explicit
30
<PAGE>
instrument), but not in a way which would reduce any Vested Benefit's present
value (as determined by an Enrolled Actuary selected by the Plan Administrator
using the methods and assumptions that both the Plan Administrator and Enrolled
Actuary determine to be appropriate). For example, the Board could at any time
terminate the Plan, and in connection with that termination, satisfy all benefit
obligations by causing the Employer to pay each Participant or Beneficiary the
lump sum present value of his or her Vested Benefit.
(b) No Plan amendment, unless it expressly provides otherwise, shall be
applied retroactively to increase the Benefit or Vested percentage of a former
Participant whose Employment terminated before the date the amendment became
effective. However, in every other respect, all rights under the Plan shall be
determined under the terms of the Plan as in effect at the time the
determination is made.
ARTICLE IX
----------
MISCELLANEOUS PROVISIONS
------------------------
9.1 Payments
--------
(a) In the event any amount becomes payable under the Plan to a minor or a
person who, in the sole judgment of the Plan Administrator, is considered to be
unable to give a valid receipt for the payment by reason of physical or mental
condition, the Plan Administrator may direct that payment be made to any person
found by the Plan Administrator, in its sole judgement, to have assumed the care
of the person in question. Any payment made pursuant to such a finding shall
constitute payment by the Plan
31
<PAGE>
and result in a full release and discharge of the Plan Administrator, the
Employer and their officers, directors, employees, agents, owners and
representatives.
(b) Payment of benefits to the person entitled thereto may be sent by
first class mail, address correction requested, to the last known address on
file with the Plan Administrator. If, within six (6) months from the date of
issuance of the payment, the payment letter cannot be delivered to the person
entitled thereto or the payment has not been negotiated, the payment shall be
treated as forfeited.
(c) Taxes shall be withheld from each payment made under the Plan to the
extent required by applicable law.
9.2 Termination of Employment
-------------------------
A person's Employment shall terminate upon the first to occur of his or her
resignation from or discharge by the Employer or his or her death or Retirement.
A person's Employment shall not terminate on account of an authorized leave of
absence, sick leave or vacation, or on account of a military leave or a direct
transfer between Employers. However, failure to return to work upon expiration
of any leave of absence, sick leave or vacation or within the time period
allowed under applicable personnel policies of the Employer shall be considered
a resignation effective as of the expiration of such leave of absence, sick
leave or vacation.
9.3 Alienation
----------
The rights of a Participant or Beneficiary under the Plan
32
<PAGE>
shall not be subject to any claim or any creditor nor to attachment or
garnishment or other legal process by any creditor. A Participant or
Beneficiary shall not have the right to alienate, anticipate, commute, pledge,
encumber or assign any of the benefits or payments or proceeds which the
individual may expect to receive, contingently or otherwise, under the Plan.
The provision of this Section shall not preclude any assignment or alienation
expressly permitted under applicable pension plan law or other provisions of the
Plan.
9.4 Duty to Provide Data
--------------------
(a) Every person with an interest in the Plan or claiming benefits under
the Plan shall furnish the Plan Administrator on a timely and accurate basis
with such documents, evidence or information as it considers necessary or
desirable for the purpose of administering the Plan. This includes completing
insurance applications and submitting to medical examinations, if required by
the Plan Administrator. The Plan Administrator may deny the accrual or benefits
or postpone the payment of benefits (without accrual of interest) until such
information and such documents have been furnished.
(b) Every person claiming a benefit under this Plan shall give written
notice to the Plan Administrator of his or her postal address and each change of
postal address. Any communication, statement or notice addressed to such a
person at his or her latest post office address as filed with the Plan
Administrator will, on deposit in the United States mail with postage prepaid,
be as binding upon such person for all purposes of the Plan as if it had been
received, whether actually received or not. If a person fails to give notice of
his or her correct
33
<PAGE>
address, the Plan Administrator, the Employer and the delegates and agents shall
not be obliged to search for, or to ascertain, his or her whereabouts.
9.5 Limitation on Rights of Employees
---------------------------------
The Plan is strictly a voluntary undertaking on the part of the Employer
and shall not constitute a contract between the Employer and any Employee, or
consideration for, or an inducement or condition of, the employment of any
Employee. Except as otherwise required by statute, nothing contained in the
Plan shall give any Employee the right to be retained in the service of the
Employer or to interfere with or restrict the right of the Employer, which is
hereby expressly reserved, to discharge or retire any Employee at any time for
any reason not prohibited by statute, without the Employer being required to
show cause for the termination. Except as otherwise required by statute,
inclusion under the Plan will not give any Employee any right or claim to any
benefit hereunder except to the extent such right has specifically become fixed
under the terms of the Plan. The doctrine of substantial performance shall have
no application to Employees, Participants, or Beneficiaries. Each condition and
provision including numerical items, has been carefully considered and
constitutes the minimum limit on performance which will give rise to the
applicable right.
9.6 Governing Law
-------------
The Plan shall be interpreted, administered and enforced in accordance with
federal law. To the extent that state law is applicable, however, the laws of
the State of California shall apply.
34
<PAGE>
9.7. Plurals
-------
Where the context so indicates, the singular shall include the plural and
vice versa.
9.8 Titles
------
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of the Plan.
9.9 References
----------
Unless the context clearly indicates to the contrary, a reference to a Plan
provision, statute, regulation or document shall be construed as referred to any
subsequently enacted, adopted or executed counterpart.
Executed at Encino, California as of the 1st day of
---------
January 199 6
- ----------------- ----.
PINKERTON'S, INC.
By: /s/ Thomas W. Wathen
----------------------------------
Chairman of the Board of Directors
By: /s/ Denis R. Brown
-------------------------------------
President and Chief Executive Officer
35
<PAGE>
APPENDIX I
----------
This Appendix sets forth special provisions that relate to the
individuals identified below, notwithstanding anything in the Plan to the
contrary:
Provisions Relating to Denis R. Brown
- -------------------------------------
1. Mr. Brown's Benefit under Section 4.1 shall be Fifty-Two and one/half
percent (52.5%) of his Final Average Monthly Compensation, which shall be
determined solely on the basis of his "Executive's Base Salary" and his
"Incentive Compensation", as such terms are defined in his Employment
Agreement dated April 20, 1994. In determining Mr. Brown's Final Average
Monthly Compensation, Incentive Compensation shall be taken into account as
if paid on the last day of the Pinkerton's, Inc. fiscal year in which it
accrued and only to the extent it does not exceed one-half of the
Executive's Base Salary paid to Mr. Brown during that fiscal year.
2. Notwithstanding Section 6.1, Mr. Brown's Benefit under the Plan shall vest
as follows, so long as Mr. Brown remains an Employee:
<TABLE>
<CAPTION>
Date Vested Percentage
---- -----------------
<S> <C>
April 19, 1999 20%
August 7, 1999 46.667%
August 7, 2000 73.334%
August 7, 2001 100%
</TABLE>
3. In applying Section 4.3 (relating to pre-retirement death benefits) with
respect to Mr. Brown, paragraph 1 of this Appendix shall be applied as if
Mr. Brown's Benefit were thirty-five percent (35%) of his Final Average
Monthly Compensation
4. Wherever the term "Change of Control" appears in the Plan, when applied to
Mr. Brown, the definition of "Change of Control" in Section 3.01 of Mr.
Brown's employment agreement with Pinkerton's, Inc. dated as of April 20,
1994, shall be used.
Provisions Relating to Thomas W. Wathen
- ---------------------------------------
1. Mr. Wathen's Benefit under Section 4.1 of the Plan shall be $25,000 per
month commencing on the first day of the calendar month following the date
he ceases to be the President and Chief Executive Officer and an employee
of Pinkerton's, Inc.
36
<PAGE>
2. Mr. Wathen's Benefit shall be one hundred percent (100%) under Section 6.1,
except that Mr. Wathen's Benefit shall be forfeited under the circumstances
set forth in Sections 8.01(c) and 9.01 of his Personal Services Agreement
with the Company, as in effect on May 1, 1994.
Provisions relating to C. Michael Carter
- ----------------------------------------
1. Commencing on September 27, 1999 (i.e., the fifth anniversary of the
---
effective date of Mr. Carter's participation in the Plan), Mr. Carter shall
be deemed, for purposes of calculating benefits under the Plan, to have
completed 1.8 Years of Participation for each year or partial year during
which he is a Participant in the Plan following September 27, 1999. As a
result of the foregoing, following September 27, 1999, Mr. Carter's
effective accrual rate under the Plan shall be 6.3 percent.
2. Section 4.3 of the Plan (relating to pre-retirement death benefits) shall
be applied as if Mr. Carter's Benefit were thirty-five percent (35%) of his
Final Average Monthly Compensation.
3. Wherever the term "Change of Control" appears in the Plan, when applied to
Mr. Carter, the definition of "Change of Control" in Appendix B to Mr.
----------
Carter's employment agreement with Pinkerton's, Inc. dated December 9,
1994, shall be used.
Provisions relating to James P. McCloskey
- -----------------------------------------
1. Commencing on October 4, 1999 (i.e., the fifth anniversary of the effective
----
date of Mr. McCloskey's participation in the Plan), Mr. McCloskey shall be
deemed, for purposes of calculating benefits under the Plan, to have
completed 2.96 Years of Participation for each year or partial year during
which he is a Participant in the Plan following October 4, 1999. As a
result of the foregoing, following October 4, 1999, Mr. McCloskey's
effective accrual rate under the Plan shall be 10.35 percent.
2. Section 4.3 of the Plan (relating to pre-retirement death benefits) shall
be applied as if Mr. McCloskey's Benefit were thirty-five percent (35%) of
his Final Average Monthly Compensation.
3. Wherever the term "Change of Control" appears in the Plan, when applied to
Mr. McCloskey, the definition of "Change of Control" in Appendix B to Mr.
----------
McCloskey's employment agreement with Pinkerton's, Inc. dated December 9,
1994, shall be used.
Appendix I Approved by the Board of Directors
on December 11, 1996
37
<PAGE>
APPENDIX II
-----------
This Appendix sets forth special provisions that relate to the
individual identified below, notwithstanding anything in the Plan to the
contrary:
Provision relating to Don W. Walker
- -----------------------------------
1. Commencing on January 13, 1997 (i.e., the fifth anniversary of the
----
effective date of Mr. Walker's participation in the Plan), Mr. Walker's
Benefit shall be as follows:
<TABLE>
<CAPTION>
Date Benefit
---- -------
<S> <C>
January 13, 1997 26.250%
January 13, 1998 30.625%
January 13, 1999 35.000%
January 13, 2000 39.375%
January 13, 2001 43.700%
January 13, 2002 48.125%
January 13, 2003 52.500%
</TABLE>
Appendix II Approved by the Board of Directors
as of December 11, 1996
38
<PAGE>
SCHEDULE I
----------
GRANDFATHERED BENEFITS
----------------------
<TABLE>
<CAPTION>
Current or Former Annual
Employee Grandfathered Benefit
- -------- ---------------------
<S> <C>
Gerard Brown $51,295
George C. Davis $35,128
Maurice Dispennett $34,018
Bruce Menzies $31,236
Kevin B. O'Connor $30,599
Peter C. Sawyers $ 0
Billy L. Stephens $71,636
</TABLE>
39
<PAGE>
EXHIBIT 10.24
PINKERTON'S, INC.
FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT
This FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT (this "AMENDMENT")
is dated as of December 1, 1996 and entered into by and among Pinkerton's, Inc.,
a Delaware corporation (the "COMPANY"), the Designated Subsidiaries (as defined
in the Credit Agreement referred to below), the financial institutions listed on
the signature pages hereof (the "LENDERS"), and Citicorp USA, Inc., as agent for
the Lenders (the "AGENT"), and, for purposes of Section 3 hereof, the Subsidiary
Guarantors listed on the signature pages hereof, and is made with reference to
that certain Revolving Credit Agreement dated as of November 21, 1995 (the
"CREDIT AGREEMENT"), by and among the Company, the Designated Subsidiaries, the
Lenders and the Agent. Capitalized terms used herein without definition shall
have the same meanings herein as set forth in the Credit Agreement.
RECITALS
WHEREAS, the Company, the Designated Subsidiaries and the Lenders have
entered into the Credit Agreement, pursuant to which certain credit facilities
were extended to the Company and the Designated Subsidiaries; and
WHEREAS, the Company, the Designated Subsidiaries and the Lenders
desire to amend the Credit Agreement in certain respects;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. AMENDMENT TO THE CREDIT AGREEMENT
1.1 AMENDMENTS TO ARTICLE I: DEFINITIONS AND ACCOUNTING TERMS
---------------------------------------------------------
A. The definition of "Applicable Margin" in Section 1.01 of the
Credit Agreement is hereby amended by deleting the table set forth therein in
its entirety and substituting the following therefor:
<TABLE>
<CAPTION>
"Level I Level II Level III
Period Period Period
------- -------- ---------
<S> <C> <C>
.350% .400% .500%"
</TABLE>
1
<PAGE>
B. The definition of "Permitted Investments" in Section 1.01 of the
Credit Agreement is hereby amended by deleting it in its entirety and
substituting the following therefor:
""PERMITTED INVESTMENTS" means investments permitted under the
Company's Investment Policy, which investments are intended by the Company
to be short-term and non-speculative in nature, provided that (i) the
weighted average life of the securities comprising such investments does not
exceed one year, (ii) the maturity of each of the securities comprising such
investments does not exceed two years from the date of acquisition of such
security, and (iii) the securities comprising such investments do not
constitute more than five percent of the debt or equity (as applicable) of
the issuer of such securities.
For the purposes of this definition: "Company's Investment Policy"
---------------------------
means the Company's investment policy as approved by the Company's Chief
Executive Officer and Chief Financial Officer. The Company shall provide
copies of the Company's Investment Policy, as amended from time to time, to
the Agent and the Lenders."
C. The definition of "Termination Date" in Section 1.01 of the Credit
Agreement is hereby amended by deleting the date "November 21, 1998" set forth
therein and substituting therefor the date "November 19, 1999".
1.2 AMENDMENTS TO ARTICLE II: AMOUNTS AND TERMS OF THE ADVANCES
-----------------------------------------------------------
A. Section 2.04(a)(ii) of the Credit Agreement is hereby amended by
deleting it in its entirety and substituting the following therefor:
"(ii) the weighted average rate per annum that its derived from the
following rates: (A) a rate of .150% per annum with respect to each day
during a Level I Period; (B) a rate of .175% per annum with respect to each
day during a Level II Period; and (C) a rate of .250% per annum with respect
to each day during a Level III Period."
B. Section 2.19(a) of the Credit Agreement is hereby amended by
deleting the date "November 21, 1997" set forth therein and substituting
therefor the date "November 20, 1998".
1.3 AMENDMENT TO ARTICLE V: NEGATIVE COVENANTS OF BORROWER
------------------------------------------------------
Section 5.02(g) of the Credit Agreement is hereby amended by deleting
the amount "$10,000,000" set forth therein and substituting therefor the amount
"$15,000,000".
1.4 AMENDMENT TO ARTICLE VI: EVENTS OF DEFAULT
------------------------------------------
2
<PAGE>
Section 6.01(c) of the Credit Agreement is hereby amended by deleting
the phrase "(other than Section 5.02(f)(iv))" and substituting therefor the
phrase "(other than Sections 5.02(f)(ii) and 5.02(f)(iv))".
SECTION 2. COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this Amendment and to
amend the Credit Agreement in the manner provided herein, the Company represents
and warrants to each Lender that the following statements are true, correct and
complete:
A. CORPORATE POWER AND AUTHORITY. Each of the Company and the
Designated Subsidiaries has all requisite corporate power and authority to enter
into this Amendment, and to carry out the transactions contemplated by, and
perform its obligations under, the Credit Agreement as amended by this Amendment
(the "AMENDED AGREEMENT").
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this
Amendment and the performance of the Amended Agreement have been duly authorized
by all necessary corporate action on the part of the Company and the Designated
Subsidiaries.
C. NO CONFLICT. The execution and delivery by the Company and the
Designated Subsidiaries of this Amendment and the performance by the Company and
the Designated Subsidiaries of the Amended Agreement do not and will not (i)
violate any provision of any law or any governmental rule or regulation
applicable to the Company or any of its Subsidiaries, the Certificate or
Articles of Incorporation or Bylaws of the Company or any of its Subsidiaries or
any order, judgment or decree of any court or other agency of government binding
on the Company or any of its Subsidiaries, (ii) conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any Contractual Obligation of the Company or any of its Subsidiaries,
(iii) result in or require the creation or imposition of any Lien upon any of
the properties or assets of the Company or any of its Subsidiaries (other than
any Liens created under any of the Loan Documents in favor of the Agent on
behalf of the Lenders), or (iv) require any approval of stockholders or any
approval or consent of any Person under any Contractual Obligation of the
Company or any of its Subsidiaries.
D. GOVERNMENTAL CONSENTS. The execution and delivery by the Company
and the Designated Subsidiaries of this Amendment and the performance by the
Company and the Designated Subsidiaries of the Amended Agreement do not and will
not require any registration with, consent or approval of, or notice to, or
other action to, with or by, any federal, state or other governmental authority
or regulatory body.
3
<PAGE>
E. BINDING OBLIGATION. This Amendment and the Amended Agreement have
been duly executed and delivered by the Company and the Designated Subsidiaries
and are the legally valid and binding obligations of the Company and the
Designated Subsidiaries, enforceable against the Company and the Designated
Subsidiaries in accordance with their respective terms, except as may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or limiting creditors' rights generally or by equitable principles relating
to enforceability.
F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Article IV of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the Amendment Effective Date to the same extent as though
made on and as of that date, except to the extent such representations and
warranties specifically relate to an earlier date, in which case they were true,
correct and complete in all material respects on and as of such earlier date.
G. ABSENCE OF DEFAULT. No event has occurred and is continuing or
will result from the consummation of the transactions contemplated by this
Amendment that would constitute an Event of Default or a Potential Event of
Default.
SECTION 3. ACKNOWLEDGEMENT AND CONSENT
Each of the Subsidiary Guarantors is party to a Subsidiary Guaranty and
such Subsidiary Guarantor has guarantied the Obligations.
Each Subsidiary Guarantor hereby acknowledges that it has reviewed the
terms and provisions of the Credit Agreement and this Amendment and consents to
the amendment of the Credit Agreement effected pursuant to this Amendment. Each
Subsidiary Guarantor hereby confirms that the Subsidiary Guaranty to which it is
a party or otherwise bound will continue to guaranty to the fullest extent
possible the payment and performance of all "Subsidiary Guarantied Obligations"
as such term is defined in the applicable Subsidiary Guaranty, including without
limitation the payment and performance of all such "Subsidiary Guarantied
Obligations" in respect of the Obligations of the Company and the Designated
Subsidiaries now or hereafter existing under or in respect of the Amended
Agreement.
Each Subsidiary Guarantor acknowledges and agrees that any Subsidiary
Guaranty to which it is a party or otherwise bound shall continue in full force
and effect and that all of its obligations thereunder shall be valid and
enforceable and shall not be impaired or limited by the execution or
effectiveness of this Amendment. Each Subsidiary Guarantor represents and
warrants that all representations and warranties contained in the Amended
Agreement and the Subsidiary Guaranty to which it is a party or otherwise bound
are true, correct and complete in all material respects on and as of the
Amendment Effective Date to the same extent as though
4
<PAGE>
made on and as of that date, except to the extent such representations and
warranties specifically relate to an earlier date, in which case they were true,
correct and complete in all material respects on and as of such earlier date.
Each Subsidiary Guarantor acknowledges and agrees that (i)
notwithstanding the conditions to effectiveness set forth in this Amendment,
such Subsidiary Guarantor is not required by the terms of the Credit Agreement
or any other Loan Document to consent to the amendments to the Credit Agreement
effected pursuant to this Amendment and (ii) nothing in the Credit Agreement,
this Amendment or any other Loan Document shall be deemed to require the consent
of such Subsidiary Guarantor to any future amendments to the Credit Agreement.
SECTION 4. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
(i) On and after the Amendment Effective Date, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import referring to the Credit Agreement, and each reference
in the other Loan Documents to the "Credit Agreement", "thereunder",
"thereof" or words of like import referring to the Credit Agreement shall
mean and be a reference to the Amended Agreement.
(ii) Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and effect
and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of the
Agent or any Lender under, the Credit Agreement or any of the other Loan
Documents.
B. FEES AND EXPENSES. The Company acknowledges that all costs, fees
and expenses as described in Section 9.04 of the Credit Agreement incurred by
the Agent and its counsel with respect to this Amendment and the documents and
transactions contemplated hereby shall be for the account of the Company.
C. HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
D. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
5
<PAGE>
THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.
E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document. This Amendment shall become
effective as of the date first set forth above upon the execution of a
counterpart hereof by each of the Lenders and each of the other parties hereto
and receipt by the Company and the Agent of written or telephonic notification
of such execution and authorization of delivery thereof (such date being
referred to herein as the "AMENDMENT EFFECTIVE DATE").
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
PINKERTON'S, INC.
By: /s/ James P. McCloskey
--------------------------------
Title: EVP & CFO
-----------------------------
PINKERTON GMBH HOLDING
By: /s/ James P. McCloskey
--------------------------------
Title: Managing Director
-----------------------------
PINKERTON NORTH ATLANTIC LIMITED
By: /s/ James P. McCloskey
--------------------------------
Title: Director
-----------------------------
WKD PINKERTON SECURITY SERVICES
GMBH & CO. KG
By PINKERTON GMBH HOLDING,
general partner
By: /s/ James P. McCloskey
--------------------------------
Title: Managing Director
-----------------------------
PINKERTON MANAGEMENT CORPORATION
(for purposes of Section 3 only)
as a Subsidiary Guarantor
By: /s/ Gary J. Hasenbank
--------------------------------
Title: Vice President
-----------------------------
S-1
<PAGE>
PINKERTON SERVICE CORPORATION
(for purposes of Section 3 only)
as a Subsidiary Guarantor
By: /s/ Gary J. Hasenbank
--------------------------------
Title: Vice President
-----------------------------
S-2
<PAGE>
CITICORP USA., INC., AS A LENDER AND AS AGENT
By: /s/ Marjorie Futornick
--------------------------------
Title: Vice President
-----------------------------
CITIBANK, N.A., AS ISSUING LENDER
By: /s/ David L. Harris
--------------------------------
Title: Vice President
-----------------------------
BANK OF MONTREAL, AS A LENDER
By: /s/ [Illegible]
--------------------------------
Title: Sr. Vice President
-----------------------------
DRESDNER BANK AG, AS A LENDER
New York and Grand Cayman Branches
By: /s/ [Illegible] /s/ [Illegible]
--------------------------------
Title: V.P. V.P.
-----------------------------
PNC BANK, NATIONAL ASSOCIATION, AS A LENDER
By: /s/ [Illegible]
--------------------------------
Title: Vice President
-----------------------------
S-3
<PAGE>
UNION BANK OF CALIFORNIA, N.A., AS A LENDER
By: /s/ Linda L. Brawn
--------------------------------
Title: Vice President
-----------------------------
S-4
<PAGE>
EXHIBIT 11
Pinkerton's, Inc.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------------------------
December 27, December 29, December 30,
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Net income (loss) $ 12,450 $ 10,500 $ (10,242)
============== ============== ===============
Weighted average number of
shares outstanding 8,353 8,312 8,265
Dilutive effect of outstanding
stock options 178 39 23
-------------- -------------- ---------------
Weighted average number of
shares, as adjusted, for
calculation of earnings (loss)
per share 8,531 8,351 8,288
=============== =============== ===============
Net income (loss) per common
share $ 1.46 $ 1.26 $ (1.24)
=============== =============== ===============
</TABLE>
<PAGE>
EXHIBIT 13
SELECTED FINANCIAL DATA
Dollars and shares in thousands, except per share data
OPERATING STATEMENT DATA
<TABLE>
<CAPTION>
December 27, December 29, December 30, December 31, December 25,
Year Ended 1996 1995 1994 1993/a/ 1992
- ---------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Service revenues $906,247 $862,793 $849,960 $772,026 $703,676
Cost of services 791,877 771,172 773,526 688,995 625,285
- -------------------------------------------------------------------------------------------------------------------------------
Gross profit 114,370 91,621 76,434 83,031 78,391
Operating expenses 81,256 61,857 57,983 54,982 49,827
Amortization of intangible assets 9,335 8,873 10,240 8,323 7,053
Write-down of intangible assets and
other special charges - - 14,435 3,800 2,500
Gain from litigation settlements, net - - (2,369) - -
- -------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) 23,779 20,891 (3,855) 15,926 19,011
Provision for reserve against investment - - - 3,267 -
Interest expense, net 2,253 2,870 3,969 4,238 5,062
Other income (1,962) - - - -
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 23,488 18,021 (7,824) 8,421 13,949
Provision for income taxes 11,038 7,521 2,418 5,220 5,362
- -------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 12,450 $ 10,500 $(10,242) $ 3,201 $ 8,587
- -------------------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share $ 1.46 $ 1.26 $ (1.24) $ .39 $ 1.04
- -------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares and
common share equivalents outstanding 8,531 8,351 8,288 8,284 8,257
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
<CAPTION>
At Year End 1996 1995 1994 1993 1992
- ----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital/b/ $104,459 $ 90,225 $ 85,400 $ 92,100 $ 99,032
Total assets 315,281 290,909 278,090 282,738 260,828
Current maturities of long-term debt 8,575 8,575 8,575 8,575 -
Long-term debt, less current maturities 37,313 34,275 42,850 51,425 60,000
Total stockholders' equity 130,381 113,725 103,422 111,631 114,202
Book value per common share/c/ $ 15.28 $ 13.62 $ 12.47 $ 13.53 $ 13.87
- --------------------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA
<CAPTION>
Year 1996 1995 1994 1993 1992
- --- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross profit margin 12.6% 10.6% 9.0% 10.8% 11.1%
Operating profit (loss) margin 2.6% 2.4% (0.5)% 2.1% 2.7%
Current ratio/b/ 2.10 2.05 2.06 2.27 2.70
Long-term debt to equity ratio .29 .30 .41 .46 .53
Return on beginning equity 10.9% 10.2% (9.2)% 2.8% 7.7%
Return on ending capital/d/ 8.5% 8.8% (4.9)% 3.1% 7.3%
Operating cash flow/e/ $28,858 $25,876 $17,913 $19,504 $19,578
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
a The Company's fiscal year 1993 consisted of 53 weeks, whereas all other
fiscal years presented consisted of 52 weeks.
b Working capital and current ratio include the effect of $11.6 million
borrowed to fund the acquisition of WKD Security GmbH on January 1, 1997.
c Book value per common share has been calculated based upon weighted average
common shares and common share equivalents outstanding during each year.
d In 1994, return on ending capital was computed using the statutory tax rate.
e Operating cash flow represents net income (loss) plus amortization and
depreciation for all years. Also added back to determine operating cash flow
were: provision for reserve against investment in 1993 and write-down of
intangible assets in 1994.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Pinkerton's fiscal year comprises the 52-week (or 53-week) period
ending on the Friday closest to December 31, within the reporting year.
R E S U L T S O F O P E R A T I O N S
1996 Compared to 1995
Service Revenues
The Company's service revenues increased by $43.4 million, or 5.0%,
from $862.8 million in 1995 to $906.2 million in 1996. This increase reflects
$19.8 million of revenues from businesses acquired during 1996, a net increase
in all other business of $27.4 million, and revenue reductions arising from
currency fluctuations of $3.8 million.
Domestic Service Revenues
Compared with the prior year, the Company's domestic service revenues
increased by $21.2 million, or 2.9%, from $726.2 million in 1995 to $747.4
million in 1996. This increase reflects $14.3 million of revenues from
businesses acquired during 1996 with revenues from all other domestic sources
increasing $6.9 million. Domestic service revenues reflect $106.7 million and
$96.4 million of revenue from General Motors in 1996 and 1995, respectively.
International Service Revenues
Service revenues of the Company's international operations increased
by $22.2 million, or 16.3%, from $136.6 million in 1995 to $158.8 million in
1996. This increase reflects $5.5 million of revenues from businesses acquired
in 1996 and additional business from new and existing clients of $20.5 million,
partially offset by reductions arising from currency fluctuations of $3.8
million. As a percentage of total service revenues, international operations
were 15.8% in 1995 and 17.5% in 1996.
Cost of Services and Gross Profit
The Company's cost of services increased by $20.7 million, or 2.7%,
from $771.2 million in 1995 to $791.9 million in 1996. This increase was
primarily due to payroll and related expenses accompanying the increase in
service revenues noted above. The Company's gross profit margin improved from
10.6% in 1995 to 12.6% in 1996, principally as a result of operating cost
efficiencies and reduction in the number of unprofitable contracts. Gross
profit was also favorably impacted by the inclusion of the Company's security
systems integration operations, which typically experience higher gross margins
than the Company's security service operations.
Operating Expenses
Operating expenses increased by $19.4 million, or 31.3%, from $61.9
million in 1995 to $81.3 million in 1996. Operating expenses were 9.0% of
service revenues in 1996 and 7.2% of service revenues in 1995. The higher
operating expense percentage reflects the Company's ongoing expenditures for new
systems, quality processes and training programs implemented to enhance customer
value. Operating expenses also reflect the operations of the Company's security
systems integration service operations, which have both higher gross profit
margins and operating expenses than the Company's security service operations.
Amortization
Amortization of intangible assets increased by $0.4 million, or 4.5%,
from $8.9 million in 1995 to $9.3 million in 1996, primarily due to acquisitions
made in 1996.
Operating Profit
Operating profit was $23.8 million, or 2.6% of service revenues in
1996, as compared with an operating profit of $20.9 million, or 2.4% of revenues
in 1995. Operating profit increased as a percentage of revenues due to improved
gross profit margins, partially offset by an increase in operating expenses
discussed above.
<PAGE>
Interest
Interest income decreased $0.3 million to $2.4 million in 1996 as a
result of a decrease in interest rates in 1996 as compared with 1995. Interest
expense decreased by $1.0 million, or 17.9%, from $5.6 million in 1995 to $4.6
million in 1996 as a result of a reduced average level of outstanding debt in
1996 as compared with 1995. In December 1996, the Company borrowed DM 18
million ($11.6 million) in connection with the acquisition of WKD Security GmbH.
As a result, the Company expects interest expense to be higher in 1997.
Other Income
In 1996, the Company entered into an agreement with the previous owner
related to the acquisition of Pinkerton's, Inc. by California Plant Protection,
Inc. in 1988. As a result of this agreement, the Company received a cash
payment of $5.2 million. Of this amount, $3.2 million represents a
reimbursement of income and other taxes paid on behalf of the previous owner,
which was recorded in the consolidated balance sheet; the remaining amount of
$2.0 million was recorded as other income, since it represents an adjustment to
the original cost of acquisition.
Income Taxes
Income taxes were $11.0 million in 1996 as compared with $7.5 million
in 1995. The effective tax rate in 1996 is 47.0% as compared with 41.7% in
1995. In 1995, the Company's effective tax rate was caused by non-recurring tax
minimization strategies and benefits from targeted jobs tax credits that expired
in 1995.
***
1995 Compared to 1994
Service Revenues
The Company's service 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.
<PAGE>
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 our 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.
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, historically, have
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%.
***
F I N A N C I A L C O N D I T I O N
Capital Resources
At December 27, 1996, the Company had $33.8 million in cash, an
increase of $13.5 million from December 29, 1995, and $8.5 million in marketable
securities, a $10.9 million decrease from December 29, 1995. Net cash provided
by operating activities of $12.4 million and $3.3 million of net cash provided
by financing activities was reduced by $2.2 million of net cash payments
relating to investing activities. The Company's principal investing activities
during 1996 were acquisitions ($7.3 million), the purchase of computer and other
equipment ($5.8 million), and net sales of marketable securities ($10.9
million). The Company's principal financing activities during 1996 were a
<PAGE>
cash borrowing of $11.6 million under the revolving line of credit; an annual
principal installment of $8.6 million, reducing the Company's long-term debt;
and $0.3 million of cash receipts related to the exercise of stock options.
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 during 1997. In addition, an annual
principal installment of $8.6 million is due each June.
One of Pinkerton's significant capital resources is the Pinkerton
name, to which a value of approximately $54.8 million was assigned upon the
acquisition of Pinkerton by California Plant Protection in January 1988. The
Company believes that the value assigned to the name is representative of its
market value. Management expects that the Company will be able to further
capitalize on the Pinkerton name in the security and security-related service
and product business.
Liquidity
Pinkerton's cash needs during the first six months of each year are
greater because of the impact of higher payroll taxes. In addition, the Company
is required to make annual principal payments of approximately $8.6 million (in
the month of June) through the year 2000 in repayment of its Senior Notes. Semi-
annual interest payments of approximately $1.8 million and $1.3 million related
to the Senior Notes are due in June and December 1997, respectively.
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. At December 27, 1996, there were DM 18.0 million ($11.6
million) of cash borrowings outstanding under the revolving line of credit
which, together with $11.0 million of the Company's general funds, were utilized
on January 1, 1997, to complete the acquisition of WKD Security GmbH, more fully
discussed at Note 17 of Notes to Consolidated Financial Statements, "Subsequent
Events." Also at December 27, 1996, $32.6 million in letters of credit had been
issued by the Company to secure obligations under the Company's self-insurance
programs. Such programs cover workers' compensation, general liability,
fidelity, health, dental and automobile risks up to certain limits. Payments
under these programs are not entirely predictable.
The Company believes existing liquid resources, cash generated from
operations and funds available under the revolving credit facility are
sufficient for all planned operating and capital requirements. The Company also
has access to capital markets, if necessary, to raise funds for working capital,
capital spending and other investments for business growth.
O U T L O O K : I S S U E S A N D R I S K S
The Company's Annual Report includes discussions of its long-term
growth outlook and future plans. The following issues and risks, among others,
should also be considered in evaluating this information:
Billing Rates and Competition
Future billing rates the Company is able to charge for its services
may vary from historical levels depending on market factors.
Availability and Cost of Labor
The Company's ability to deliver quality services depends heavily on
the ready availability and cost of labor in the Company's markets. A strong
economy may cause labor shortages in a geographical market, which may result in
margins being constrained by unbillable overtime costs.
<PAGE>
Risk Arising from Litigation
The nature of the Company's business subjects it to a significant
volume of ordinary, routine claims and lawsuits incidental to such business.
The Company maintains self-insurance programs and insurance coverage that it
believes are appropriate for its liability risks. Nonetheless, many claims or
lawsuits brought against the Company allege substantial damages that, if awarded
and ultimately paid by the Company (rather than insurers or indemnitors), could
have a material adverse effect on the results of operations or financial
condition of the Company. See Note 14 of Notes to Consolidated Financial
Statements, "Commitments and Contingencies."
Currency Exchange
The Company makes acquisitions and operates in various countries and
transacts such business in international currencies, subjecting the Company to
currency rate fluctuations.
Accounting Standards
Accounting standards promulgated by the Financial Accounting Standards
Board change periodically. Changes in such standards may have an impact on the
Company's future reported earnings.
Retirement Plan Liabilities and Interest Rates
The Company maintains several unfunded retirement plans, the
liabilities of which are significantly affected by changes in long-term interest
rates. Changes in long-term interest rates could have an impact on the
Company's future reported earnings and financial position.
Termination of Contracts
A majority of the Company's revenue is derived from security guard
contracts, which are typically for one-year terms, but generally provide for
earlier termination by either party in certain circumstances. A net increase in
terminations could have an adverse impact on the Company's future reported
earnings; however, the Company has historically experienced a low rate of
cancellations.
Ability to Sustain Growth Through Acquisition
The Company's revenue growth is partially dependent upon the Company's
ability to attract and acquire additional business through acquisition.
International Operations
The Company operates in various international markets and engages in
security activities that may contain more risk than operations in the United
States. The profitability of such operations and associated risks may
affect the Company's results and recoverability of goodwill.
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 27, December 29,
In thousands 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
A S S E T S
Current assets:
Cash and cash equivalents $ 33,761 $ 20,215
Investment in marketable securities 8,460 19,396
Accounts receivable (includes unbilled amounts
of $30,196 in 1996 and $28,981 in 1995) 137,055 116,692
Less allowance for doubtful receivables 2,572 2,881
.......................................................................................
134,483 113,811
.......................................................................................
Inventory 3,799 2,516
Prepaid expenses and taxes 11,566 13,762
Deferred income taxes 7,121 6,836
.......................................................................................
Total current assets 199,190 176,536
.......................................................................................
Equipment and leasehold improvements, net
of accumulated depreciation and amortization
of $26,818 in 1996 and $21,619 in 1995 14,977 14,017
Other assets:
Intangible assets, net 57,311 60,895
Deferred income taxes 23,467 23,612
Other 20,336 15,849
.......................................................................................
101,114 100,356
.......................................................................................
$315,281 $290,909
- ---------------------------------------------------------------------------------------
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y
Current liabilities:
Accounts payable $ 9,790 $ 7,304
Accrued liabilities 76,366 70,432
Current maturities of long-term debt 8,575 8,575
.......................................................................................
Total current liabilities 94,731 86,311
.......................................................................................
Accrued retirement benefits and
other non-current liabilities 52,856 56,598
Long-term debt, less current maturities 37,313 34,275
Commitments and contingencies
Stockholders' equity:
Preferred stock -- 15
Common stock 8 8
Additional paid-in capital 74,887 74,463
Other adjustments (5,441) (9,238)
Retained earnings 60,927 48,477
.......................................................................................
130,381 113,725
.......................................................................................
$315,281 $290,909
- ---------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
Consolidated Statements of Operations
<TABLE>
<CAPTION>
December 27, December 29, December 30,
In thousands, except per share data 1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service revenues $906,247 $862,793 $849,960
Cost of services 791,877 771,172 773,526
.........................................................................................
Gross profit 114,370 91,621 76,434
Operating expenses 81,256 61,857 57,983
Amortization of intangible assets 9,335 8,873 10,240
Write-down of intangible assets
and other special charges -- -- 14,435
Gain from litigation settlements, net -- -- (2,369)
.........................................................................................
Operating profit (loss) 23,779 20,891 (3,855)
Other (income) deductions:
Interest income (2,393) (2,713) (1,532)
Interest expense 4,646 5,583 5,501
Other (1,962) -- --
.........................................................................................
291 2,870 3,969
.........................................................................................
Income (loss) before income taxes 23,488 18,021 (7,824)
Provision for income taxes 11,038 7,521 2,418
.........................................................................................
Net income (loss) $ 12,450 $ 10,500 $(10,242)
- -----------------------------------------------------------------------------------------
Net income (loss) per common share $ 1.46 $ 1.26 $ (1.24)
- -----------------------------------------------------------------------------------------
Weighted average common shares and
common share equivalents outstanding 8,531 8,351 8,288
- -----------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Additional Total
Preferred Common Paid-In Other Retained Stockholders'
In thousands Stock Stock Capital Adjustments Earnings Equity
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
...............................................................................................................................
Redemption of preferred stock (15) -- -- -- -- (15)
Cancellation of restricted common stock -- -- (2) -- -- (2)
Exercise of stock options -- -- 426 -- -- 426
Minimum retirement plans liability
adjustment -- -- -- 2,693 -- 2,693
Foreign currency translation adjustment -- -- -- 1,104 -- 1,104
Net income -- -- -- 12,450 12,450
...............................................................................................................................
Balance at December 27, 1996 $ -- $ 8 $74,887 $(5,441) $ 60,927 $130,381
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
December 27, December 29, December 30,
In thousands 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
O P E R A T I N G A C T I V I T I E S :
Net income (loss) $ 12,450 $ 10,500 $(10,242)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Amortization of intangible assets 9,335 8,873 10,240
Depreciation and other amortization 7,073 6,503 6,414
Provision for losses on doubtful receivables 1,635 1,719 1,461
Deferred income taxes (2,079) (2,731) (2,264)
Write-down of intangible assets -- -- 11,501
Changes in assets, liabilities and stockholders' equity:
Accounts receivable (18,103) (2,501) (4,637)
Inventory (430) 437 1,056
Prepaid expenses and taxes 2,342 (799) (4,359)
Other assets (5,525) (3,276) (1,557)
Accounts payable 1,196 88 (1,527)
Accrued and other non-current liabilities 3,593 4,032 14,428
Foreign currency revaluation of net assets 920 (867) (565)
.........................................................................................................................
Net cash provided by operating activities 12,407 21,978 19,949
.........................................................................................................................
I N V E S T I N G A C T I V I T I E S :
Purchase of marketable securities (21,545) (52,673) (23,273)
Sales/redemptions of marketable securities 32,481 43,858 31,191
Purchase of equipment and leasehold improvements (5,827) (5,336) (4,237)
Payments for net assets of acquired businesses, net of cash acquired (7,272) (7,515) (11,678)
.........................................................................................................................
Net cash used in investing activities (2,163) (21,666) (7,997)
.........................................................................................................................
F I N A N C I N G A C T I V I T I E S :
Proceeds from long-term debt 11,613 -- --
Principal repayment of long-term debt (8,575) (8,575) (8,575)
Exercise of stock options 279 735 405
Redemption of preferred stock (15) (1) --
.........................................................................................................................
Net cash provided by (used in) financing activities 3,302 (7,841) (8,170)
.........................................................................................................................
Net increase (decrease) in cash 13,546 (7,529) 3,782
Cash and cash equivalents at beginning of year 20,215 27,744 23,962
.........................................................................................................................
Cash and cash equivalents at end of year $ 33,761 $ 20,215 $ 27,744
- -------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 4,449 $ 5,448 $ 6,222
Income taxes $ 13,191 $ 10,215 $ 9,942
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
Notes to Consolidated Financial Statements
N O T E 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.).
N O T E 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.
Revenue Recognition
The Company's operations consist mainly of providing security officer,
systems integrator 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 $121.6 million in 1996 and
$109.5 million in 1995.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions. These affect the reported amounts of assets, liabilities, and the
amount of contingent assets or liabilities disclosed in the consolidated
financial statements. Actual results could differ from the estimates made.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are recorded at cost. Equipment
is depreciated over the estimated useful life of the related assets. The
estimated useful life of equipment is 3 to 10 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,
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.
<PAGE>
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 insurance coverage
for losses in excess of specified amounts and for certain international
activities not covered by the Company's self-insurance programs. 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, 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 35 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.
Income taxes have not been provided on the undistributed earnings of
certain foreign subsidiaries as such earnings will continue to be invested in
those subsidiaries for an indefinite period.
Foreign Currency Translation
The Company translates revenues and expenses of its foreign
subsidiaries using the weighted average exchange rates prevailing 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 sheets. At
December 27, 1996, and December 29, 1995, the cumulative multi-year effect of
translation adjustments was a decrease to stockholders' equity of $3.8 million
and $4.9 million, respectively.
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.
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments, which
principally include cash, accounts receivable, accounts payable and accrued
expenses, approximates fair value due to the relatively short maturity
of such instruments.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value.
The Company has chosen to continue to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock.
<PAGE>
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.
Statement of Cash Flows
The Company considers cash equivalents to be all highly liquid
investments with original maturities of 90 days or less.
Reclassifications
Certain reclassifications have been made to the prior year balances to
conform to the 1996 presentation.
N O T E 3
Acquisitions
The Company is pursuing its strategic plan to provide a broader array
of products and services to its client base, including security systems
integration services and products. In pursuit of these plans, the Company
acquired two regional security systems integration companies in 1995, four in
1996 and another in January 1997. The Company also acquired the security
operations of Select Security, Inc. in Canada in 1996; and WKD Security GmbH
("WKD"), a security service provider in Germany, on January 1, 1997. Pro-forma
financial information with respect to the 1995 and 1996 acquisitions is not
included, as it is not significant to the consolidated financial statements.
The acquisition of WKD is more fully discussed at Note 17 of Notes to
Consolidated Financial Statements, "Subsequent Events."
N O T E 4
Intangible Assets
Intangible assets in the accompanying consolidated balance sheets
consist of the following:
<TABLE>
<CAPTION>
December 27, December 29,
In thousands 1996 1995
- -------------------------------------------------------------
<S> <C> <C>
Goodwill $ 76,150 $ 73,380
Less accumulated amortization (31,573) (28,028)
.............................................................
44,577 45,352
.............................................................
Other intangibles 40,954 36,947
Less accumulated amortization (28,220) (21,404)
.............................................................
12,734 15,543
.............................................................
Total $ 57,311 $ 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.
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
<PAGE>
written down based on projected discounted future cash flows using a discount
rate reflecting the Company's average cost of capital.
N O T E 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 has a term of 10 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
$36.5 million at December 27, 1996, 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).
The termination date for the facility is November 19, 1999. 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 0.5% per annum, payable quarterly, and interest
on cash borrowings computed at the prime rate of the agent bank, payable
monthly. A commitment fee of .175% per annum, payable monthly, is also required
on any unused portions of the facility. At December 27, 1996, $32.6 million in
letters of credit were outstanding and there were DM 18.0 million ($11.6
million) of cash borrowings outstanding under the revolving line of credit,
which were used to acquire WKD on January 1, 1997.
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 27, 1996,
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 27, 1996.
N O T E 6
Accrued and Other Non-Current Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 27, December 29,
In thousands 1996 1995
- ---------------------------------------------------------
<S> <C> <C>
Self-insurance reserves,
current $12,802 $15,086
Salaries and wages 25,053 21,824
Payroll taxes and
withholdings 6,777 7,199
Estimated liability for
vacation benefits 8,376 6,805
Other 23,358 19,518
.........................................................
$76,366 $70,432
- ---------------------------------------------------------
</TABLE>
<PAGE>
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 1996, 1995 and 1994 is
summarized as follows:
<TABLE>
<CAPTION>
December 27, December 29, December 30,
In thousands 1996 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning
of year $ 49,839 $ 45,078 $ 38,189
Provision charged
to operations 35,263 44,500 51,179
Payments (37,862) (39,739) (44,290)
.......................................................................
Balance at
end of year 47,240 49,839 45,078
.......................................................................
Less current portion
included in
accrued liabilities 12,802 15,086 12,689
.......................................................................
Long-term portion $ 34,438 $ 34,753 $ 32,389
- -----------------------------------------------------------------------
</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 27, 1996, and December 29,
1995, reflect the estimated liability to the trusts.
N O T E 7
Income Taxes
The components of income (loss) before income taxes for domestic and
foreign operations were as follows:
<TABLE>
<CAPTION>
December 27, December 29, December 30,
In thousands 1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $27,378 $22,132 $ 5,303
Foreign (3,890) (4,111) (13,127)
.............................................................................
$23,488 $18,021 $ (7,824)
- -----------------------------------------------------------------------------
</TABLE>
The following is a summary of the provision (benefit) for income
taxes:
<TABLE>
<CAPTION>
December 27, December 29, December 30,
In thousands 1996 1995 1994
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 9,790 $ 7,891 $ 3,360
State 2,424 1,855 1,809
Foreign 757 506 234
.................................................................................
12,971 10,252 5,403
.................................................................................
Deferred:
Federal (1,586) (2,343) (2,516)
State (384) (388) (511)
.................................................................................
(1,970) (2,731) (3,027)
.................................................................................
Tax benefit-exercise
of employee
stock options 37 -- 42
.................................................................................
$11,038 $ 7,521 $ 2,418
- ---------------------------------------------------------------------------------
</TABLE>
<PAGE>
The provision for income taxes for the years ended December 27, 1996,
December 29, 1995, and December 30, 1994, 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 27, December 29, December 30,
In thousands 1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Federal income
tax (benefit) at
statutory rate $ 8,220 $6,307 $(2,738)
State income taxes,
net of Federal benefit 1,372 954 849
.............................................................................
9,592 7,261 (1,889)
Changes resulting from:
Targeted jobs tax credit -- (986) (1,448)
Purchase price adjustment (769) -- --
Amortization of
intangible assets 911 789 1,695
Undistributed earnings
of foreign subsidiaries 268 211 (690)
Write-down of foreign
intangible assets -- -- 3,896
Tax-exempt interest
income (123) (92) (225)
Non-taxable dividend
income (168) -- --
Other, net (313) 5 380
Change in valuation
allowance 1,640 333 699
.............................................................................
$11,038 $7,521 $ 2,418
- -----------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
December 27, December 29,
In thousands 1996 1995
- -------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for
doubtful receivables $ 727 $ 750
Self-insurance reserves 18,430 19,762
Retirement plans 5,644 6,662
Provision against investment 1,592 1,596
Vacation pay 2,911 2,606
Benefit from acquired
net operating loss 717 828
Amortization of intangibles 3,524 2,055
Foreign loss carryover 7,489 5,849
Other 771 129
.............................................................
Total deferred tax assets $41,805 $40,237
- -------------------------------------------------------------
Deferred tax liabilities:
State taxes $ 1,895 $ 1,873
Prepaid insurance 587 704
Contribution to VEBA 336 302
Other 910 1,061
.............................................................
Total deferred tax liabilities $ 3,728 $ 3,940
.............................................................
Deferred tax assets
valuation allowance (7,489) (5,849)
.............................................................
Net deferred tax assets $30,588 $30,448
- -------------------------------------------------------------
</TABLE>
<PAGE>
N O T E 8
Other Special Charges
In 1994, the Company recorded a pre-tax charge of $2.9 million,
consisting primarily of severance, recruiting and relocation charges.
N O T E 9
Other Income
In 1996, the Company entered into an agreement with the previous owner
related to the acquisition of Pinkerton's, Inc. by California Plant Protection,
Inc. in 1988. As a result of this agreement, the Company received a cash
payment of $5.2 million. Of this amount, $3.2 million represents a reimbursement
of income and other taxes paid on behalf of the previous owner, which was
recorded in the consolidated balance sheet; the remaining amount of $2.0 million
was recorded as other income, since it represents an adjustment to the original
cost of acquisition.
N O T E 10
Retirement Plans
The Company maintains the Supplemental Retirement Income Plan (SRIP)
for certain executives and key employees. The plan has two benefit levels: (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%. 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 certain 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 $9.3 million and $7.1 million
as of December 27, 1996, and December 29, 1995, respectively, and is 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 (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 a 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 27, 1996, and December 29, 1995:
<TABLE>
<CAPTION>
December 27, December 29,
In thousands 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value
of benefit obligations:
Accumulated benefit obligation $19,684 $21,907
.............................................................................
Projected benefit obligation $24,086 $22,249
.............................................................................
Plan assets 1,468 910
Projected benefit obligation
in excess of plan assets 22,618 21,339
Unrecognized net loss (5,795) (6,208)
Prior service cost not yet
recognized in net retirement
plan cost (4,763) (6,046)
.............................................................................
Accrued periodic retirement plan
cost before minimum liability 12,060 9,085
Additional minimum liability 6,397 11,912
.............................................................................
Liability included in accrued
retirement benefits and
other non-current liabilities $18,457 $20,997
- -----------------------------------------------------------------------------
</TABLE>
<PAGE>
Net retirement plan cost for 1996, 1995 and 1994 included the
following components :
<TABLE>
<CAPTION>
December 27, December 29, December 30,
In thousands 1996 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Service costs benefits
earned during
the period $1,992 $1,349 $1,384
Interest cost on
projected benefit
obligation 1,440 1,531 900
Amortization of
net loss 274 137 411
Amortization of
past service cost 313 313 322
.......................................................................
Net periodic retirement
plan cost $4,019 $3,330 $3,017
- -----------------------------------------------------------------------
</TABLE>
Assumptions used in accounting for the retirement plans as of 1996,
1995 and 1994 were:
<TABLE>
<CAPTION>
December 27, December 29, December 30,
1996 1995 1994
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rates 7.0% 7.0% 8.5%
Rates of increase
in compensation
levels 4.0% to 5.0% 4.0% to 5.0% 4.0%
- ---------------------------------------------------------------------------------
</TABLE>
The Company has no significant post-retirement obligations other than
the SRIP, DUDCPKE and the Canadian Pension Plan.
N O T E 11
Employee Stock Purchase Plan
The Company has a stock purchase plan for eligible employees, under
which Company stock can be purchased at market value through payroll deductions.
N O T E 12
Stock Option Plans
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 non-statutory 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 the adoption 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 27, 1996, options with respect to 620,112 shares were
outstanding, expiring through December 30, 2004, of which options with respect
to 295,728 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 and
performance awards to employees and stock options or certain common stock awards
to non-employee directors of the Company. In April 1996, the plan was amended
to increase the maximum number of shares of common stock with respect to which
awards may be granted to 754,450, subject to adjustment for stock dividends,
stock splits, recapitalizations or similar capital changes.
<PAGE>
At December 27, 1996, options with respect to 251,900 shares were
outstanding, expiring through July 23, 2006, of which options with respect to
21,000 shares 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.
A summary of the status of the Company's stock option plans as of
December 27, 1996, December 29, 1995, and December 30, 1994, and changes during
the years ended on those dates is presented below:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
- -----------------------------------------------------------------------
<S> <C> <C>
Outstanding at
December 31, 1993 262,937 $ 19.40
Granted 614,750 17.80
Exercised (29,424) 13.75
Canceled (66,404) 20.57
.......................................................................
Outstanding at
December 30, 1994 781,859 18.25
Granted 33,200 17.24
Exercised (62,759) 14.15
Canceled (55,400) 21.21
.......................................................................
Outstanding at
December 29, 1995 696,900 18.34
Granted 241,000 19.12
Exercised (16,801) 16.60
Canceled (49,087) 21.63
.......................................................................
Outstanding at
December 27, 1996 872,012 $ 18.40
- -----------------------------------------------------------------------
Options exercisable:
December 30, 1994 207,109
December 29, 1995 202,005
December 27, 1996 316,728
</TABLE>
The following table summarizes information about stock options
outstanding at December 27, 1996:
<TABLE>
<CAPTION>
O P T I O N S O U T S T A N D I N G
- --------------------------------------------------------------------------------
Number of Shares Weighted Weighted
Outstanding at Average Average
Range of December 27, Remaining Exercise
Exercise Prices 1996 Contractual Life Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$14.75 - 19.00 632,850 8.0 $17.29
$19.50 - 27.13 239,162 7.4 $21.36
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
O P T I O N S E X E R C I S A B L E
- -----------------------------------------------------------------
Number of Shares Weighted
Exercisable at Average
Range of December 27, Exercise
Exercise Prices 1996 Price
- -----------------------------------------------------------------
<S> <C> <C>
$14.75 - 19.00 224,850 $16.64
$19.50 - 27.13 91,878 $22.95
- -----------------------------------------------------------------
</TABLE>
Had compensation cost for the Company's stock plans been determined based
upon the fair value at the grant date for awards under these plans consistent
with the methodology prescribed under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," the Company's net
income and net income per common share would have been reduced by approximately
$0.6 million, or $0.07 per share for the year ended December 27, 1996, and
approximately $0.2 million, or $0.02 per share for the year ended December 29,
1995. The weighted average fair value of the options granted during the year
ended December 27, 1996, and December 29, 1995, was estimated as $12.14 per
share and $11.33 per share, respectively, on the date of grant using the Black-
Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
December 27, December 29,
1996 1995
- -------------------------------------------------------------
<S> <C> <C>
Dividend yield -- --
.............................................................
Volatility .37 .37
.............................................................
Risk-free interest rate 6.0% 7.0%
.............................................................
Expected life 7 years 7 years
- -------------------------------------------------------------
</TABLE>
<PAGE>
N O T E 13
Capital Stock
Capital stock at December 27, 1996, and December 29, 1995, consists of
the following:
<TABLE>
<CAPTION>
Number of Shares
---------------------------
December 27, December 29,
1996 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 -- 153
11% cumulative preferred
stock, $100 par value:
Class C:
Authorized 20,000 20,000
Issued and outstanding -- 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 8,361,679 8,344,969
- ------------------------------------------------------------------
</TABLE>
N O T E 14
Commitments and Contingencies
The Company has commitments under operating leases, primarily for
building and office space, expiring at various dates through December 2003.
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 27, 1996, December
29, 1995, and December 30, 1994, was approximately $9,403,000, $7,747,000 and
$7,679,000, respectively. The following is a schedule of future minimum annual
rental payments required under the Company's operating leases as of December 27,
1996:
<TABLE>
<CAPTION>
In thousands
- -------------------------------------------------
<S> <C>
1997 $ 8,643
1998 7,580
1999 6,104
2000 4,908
2001 3,623
2002 and thereafter 9,985
.................................................
$40,843
- -------------------------------------------------
</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
27, 1996, the Company had 1,594 vehicles leased under these operating lease
agreements. The maximum aggregate future rental commitment on the vehicles
currently leased is $7,071,000.
The nature of the Company's business subjects it to a significant
volume of ordinary, routine claims and lawsuits incidental to such business.
The Company maintains self-insurance programs and insurance coverage that it
believes are appropriate for its liability risks. Nonetheless, many claims or
lawsuits brought against the Company allege substantial damages that, if awarded
and ultimately paid by the Company (rather than insurers or indemnitors), could
have a material adverse effect on the results of operations or financial
condition of the Company.
On November 21, 1996, a jury awarded a judgment against the Company of
$10.0 million for damages related to injuries suffered by a person on property
on which the Company provided security services. The Company intends to appeal
the verdict and expects that ultimately the judgment will be overturned due to a
variety of legal defenses. Based on the advice of legal counsel, management
believes that the Company will prevail in its appeal of the case. In addition,
the same court found that the property management company must indemnify the
Company for the liability and expenses of this case. No amount related to the
judgment has been recorded in the Company's consolidated financial statements at
December 27, 1996.
<PAGE>
In the opinion of management, based on currently known facts and the
advice of legal counsel, there is no single claim or lawsuit, or group of claims
or lawsuits based on the same facts, pending against the Company 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.
N O T E 15
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 27, December 29, December 30,
In thousands 1996 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C>
For the year:
Service revenues $158,873 $136,611 $135,445
Operating loss $ (3,417) $ (3,062) $(15,410)
At year end:
Total assets $ 71,671 $ 41,407 $ 39,600
- -----------------------------------------------------------------------
</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.
N O T E 16
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>
In thousands, except First Second Third Fourth
per share data Quarter Quarter/a/ Quarter Quarter/b/
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 27, 1996
Service revenues $200,036 $200,918 $207,496 $297,797
Gross profit 23,186 23,990 27,558 39,636
Net income 1,709 3,047 3,031 4,663
Net income per
common share/c/ $ .20 $ .36 $ .36 $ .54
Weighted average
common shares
and common
share equivalents
outstanding 8,408 8,563 8,537 8,589
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
Net income per
common sharec $ .18 $ .19 $ .24 $ .65
Weighted average
common shares
and common
share equivalents
outstanding 8,345 8,303 8,333 8,407
- -----------------------------------------------------------------------------
</TABLE>
a The second quarter of 1996 includes $2.0 million of other income.
b The fourth quarter of 1995 includes the impact of tax minimization
strategies.
c The sum of the quarterly income 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.
N O T E 17
Subsequent Events
On January 1, 1997, the Company acquired all of the outstanding stock
of WKD Security GmbH, a German-based provider of uniformed security officer and
cash transit services. The purchase price was approximately $22.6 million, paid
in cash. The Company borrowed $11.6 million under its revolving line of credit,
with the borrowing being denominated in German Deutsche Marks (DM 18.0 million).
The balance of the acquisition price, or $11.0 million, was paid from the
Company's general funds. In 1996, WKD Security GmbH had revenue of $23.8
million and net income of $2.5 million. A Form 8-K pertaining to this
acquisition was filed with the Securities and Exchange Commission on January 16,
1997, and amended in March 1997.
<PAGE>
Independent Auditor's 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 27, 1996 and December 29, 1995
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the three years ended December 27, 1996, December 29,
1995 and December 30, 1994. 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 27, 1996 and December 29, 1995
and the results of their operations, changes in stockholders' equity and cash
flows for the years ended December 27, 1996, December 29, 1995 and December 30,
1994 in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
February 20, 1997
<PAGE>
Stockholder and Corporate Information
S T O C K M A R K E T I N F O R M A T I O N
The Company's common stock is traded on the New York Stock Exchange
(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 the high and low
bid quotations for each quarter of 1996 and 1995 as reported on the NYSE and
Nasdaq. Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
High Low
- -----------------------------------
<S> <C> <C>
1996
Fourth Quarter $27.00 $22.38
Third Quarter 25.00 21.00
Second Quarter 25.50 19.75
First Quarter 20.50 18.25
1995
Fourth Quarter $21.50 $17.63
Third Quarter 18.75 15.75
Second Quarter 17.00 14.75
First Quarter 19.75 15.50
- -----------------------------------
</TABLE>
The Company historically has not paid cash dividends on its common
stock, and its present policy is to retain any earnings for use in its business.
The Company does not intend to change such policy in the foreseeable future.
Additionally, certain covenants of the Company's Note Purchase Agreement place
restrictions on the Company's ability to pay dividends.
On March 5, 1997, there were 343 stockholders of record of the
Company's common stock.
A N N U A L M E E T I N G
The Annual Meeting of Stockholders will be held at 2:00 p.m. on Thursday, April
24, 1997, at the Westwood Marquis Hotel and Gardens, 930 Hilgard Avenue, Los
Angeles, California 90024-3033.
F O R M 10 - K
Upon written request to the Pinkerton Investor Relations Department, the Company
will provide, at no cost, a copy of the Company's Annual Report on Form 10-K as
filed with the Securities and Exchange Commission.
P I N K E R T O N 'S, I N C.
W O R L D S U P P O R T C E N T E R
15910 Ventura Boulevard
Suite 900
Encino, CA 91436-2810
T R A N S F E R A G E N T
A N D R E G I S T R A R
The Bank of New York
101 Barclay Street
New York, NY 10286
(800) 524-4458
I N D E P E N D E N T A U D I T O R S
KPMG Peat Marwick LLP
725 S. Figueroa Street
Los Angeles, CA 90017
<PAGE>
EXHIBIT 21
PINKERTON'S. INC.
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
NAME STATE OR COUNTRY OF ORGANIZATION
---- --------------------------------
<S> <C>
Alarm Systems, Inc. Louisiana
Alertline Limited United Kingdom
Business Risks International (Europe) Limited United Kingdom
Delta Audio Visual Security, Inc. Louisiana
Delta Audio Visual of Texas, Inc. Texas
Delta Countermeasures, Inc. Louisiana
Distribution Associates South, Inc. Georgia
Douglas Roesch Communications, Inc. California
Guardian Uniforms, Inc. California
J.L. Torbeck Co. Ohio
Judicial Services Limited United Kingdom
Omega Corporation California
Pinkerton (Asia) Limited British Virgin Islands
Pinkerton (Australia) Pty. Ltd. Australia
Pinkerton Aviation Security Limited United Kingdom
Pinkerton's of Canada Limited Canada
Pinkerton (China) Limited Hong Kong
Pinkerton Consulting (M) Sdn Bhd (49% owned) Malaysia
Pinkerton Consulting Services (Taiwan) Ltd. Taiwan
Pinkerton Court Escort Services Limited United Kingdom
Pinkerton C.R. s.r.o Czech Republic
Pinkerton's du Quebec Limitee Canada
Pinkerton (Far East) Inc. Philippines
Pinkerton Government Services, Inc. Delaware
Pinkerton GmbH Holding Germany
Pinkerton (Hong Kong) Limited Hong Kong
Pinkerton Insurance Company, Inc. Tennessee
Pinkerton Investigation Services Limited United Kingdom
Pinkerton Korea Limited Korea
Pinkerton Management Corporation California
Pinkerton North Atlantic Limited United Kingdom
Pinkerton Protection Services, L.P. Indiana
Pinkerton Security Service GmbH Germany
Pinkerton Security Services Limited United Kingdom
Pinkerton Security Services (Guernsey) Limited United Kingdom
Pinkerton Security Services Ireland
(Ireland), Ltd. (50% owned)
Pinkerton Security Systems, Inc. California
Pinkerton Service Corporation California
Pinkerton Servicios de Investigacao E Seguranca, Lda. Portugal
Pinkerton's Servicios de Seguridad Privada, S.A. de C.V. Mexico
Pinkerton (Singapore) Pte Ltd. Singapore
Pinkerton Slovakia s.r.o. Slovakia
</TABLE>
<PAGE>
PINKERTON'S. INC.
LIST OF SUBSIDIARIES
(continued)
<TABLE>
<CAPTION>
NAME STATE OR COUNTRY OF ORGANIZATION
---- --------------------------------
<S> <C>
Pinkerton (Thailand) Limited Thailand
ProNet Image & Audio, Inc. North Carolina
P. T. Pinkerton Indonesia Indonesia
Signacon Controls, Inc. New York
The Stanton Corporation North Carolina
Summons & Warrants (U.K.) Limited United Kingdom
Titan Security Services Inc. Michigan
WKD Security GmbH Germany
WKD Pinkerton Security Services GmbH & Co. KG Germany
Yeoman Security Group Limited United Kingdom
Yeoman Security Guards Limited United Kingdom
125129 Canada, Inc. (dba Canadalarm) Canada
</TABLE>
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
and Stockholders
Pinkerton's, Inc.:
We consent to incorporation by reference in the Registration Statements on Form
S-8 No. 33-68492, No. 33-41795, No. 33-36200 and No. 33-93902 of Pinkerton's,
Inc. of our reports dated February 20, 1997, relating to the consolidated
balance sheets of Pinkerton's, Inc. and subsidiaries as of December 27, 1996 and
December 29, 1995 and the related consolidated statements of operations, changes
in stockholders' equity and cash flows and related schedule for the three years
ended December 27, 1996, December 29, 1995 and December 30, 1994, which reports
appear herein or are incorporated herein by reference.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
March 14, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS INCORPORATED HEREIN BY REFERENCE
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-29-1995 DEC-27-1996
<PERIOD-START> DEC-31-1994 DEC-30-1995
<PERIOD-END> DEC-29-1995 DEC-27-1996
<CASH> 20,215 33,761
<SECURITIES> 19,396 8,460
<RECEIVABLES> 116,692 137,055
<ALLOWANCES> 2,881 2,572
<INVENTORY> 2,516 3,799
<CURRENT-ASSETS> 176,536 199,190
<PP&E> 35,636 41,795
<DEPRECIATION> 21,619 26,818
<TOTAL-ASSETS> 290,909 315,281
<CURRENT-LIABILITIES> 86,311 94,731
<BONDS> 34,275 37,313
0 0
15 0
<COMMON> 74,471 74,895
<OTHER-SE> 39,239 55,486
<TOTAL-LIABILITY-AND-EQUITY> 290,909 315,281
<SALES> 862,793 906,247
<TOTAL-REVENUES> 862,793 906,247
<CGS> 771,172 791,877
<TOTAL-COSTS> 771,172 791,877
<OTHER-EXPENSES> 69,011 86,994
<LOSS-PROVISION> 1,719 1,635
<INTEREST-EXPENSE> 2,870 2,253
<INCOME-PRETAX> 18,021 23,488
<INCOME-TAX> 7,521 11,038
<INCOME-CONTINUING> 10,500 12,450
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,500 12,450
<EPS-PRIMARY> 1.26 1.46
<EPS-DILUTED> 1.26 1.46
</TABLE>
