<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.142-12
PITTWAY CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
200 South Wacker Drive
Chicago, Illinois 60606-5802
- ------------------------------------------
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD
ON MAY 19, 1994
- ---------------------------------
TO THE STOCKHOLDERS:
The annual meeting of stockholders of Pittway Corporation will be held on
Thursday, May 19, 1994 at 9:30 A.M., local time, at the Seven Continents Skybird
Meeting Center, Rotunda Building, O'Hare International Airport, Chicago,
Illinois, for the following purposes:
1. To elect directors for the ensuing year.
2. To act on a proposal of the Board of Directors to amend the Company's 1990
Stock Awards Plan.
3. To transact such other business as may properly be brought before the
meeting.
The annual meeting may be postponed or adjourned from time to time without any
notice other than announcement at the meeting, and any and all business for
which notice is hereby given may be transacted at any such postponed or
adjourned meeting.
The Board of Directors has fixed the close of business on April 1, 1994 as the
record date for determination of stockholders entitled to notice of and to vote
at the meeting.
A list of stockholders entitled to vote at the annual meeting will be available
for examination by any stockholder, for any purpose germane to the meeting,
during ordinary business hours at the Company's principal executive offices, 200
South Wacker Drive, Suite 700, Chicago, Illinois 60606-5802 during the ten days
preceding the meeting.
Stockholders are requested to complete and sign the enclosed proxy, which is
solicited by the Board of Directors, and promptly return it in the accompanying
envelope.
BECAUSE TWO CLASSES OF STOCK OF THE COMPANY ARE OUTSTANDING, A SEPARATE FORM OF
PROXY HAS BEEN PREPARED WITH RESPECT TO EACH CLASS OF STOCK: A WHITE PROXY WHICH
RELATES TO THE COMPANY'S COMMON STOCK AND A BLUE PROXY WHICH RELATES TO THE
COMPANY'S CLASS A STOCK. STOCKHOLDERS WHO OWN OF RECORD SHARES OF ONLY ONE CLASS
ARE BEING FURNISHED ONLY WITH THE PROXY RELATING TO THAT CLASS. STOCKHOLDERS WHO
OWN OF RECORD SHARES OF BOTH CLASSES ARE BEING FURNISHED WITH BOTH PROXIES (IN
SEPARATE MAILINGS, EACH OF WHICH ALSO INCLUDES A COPY OF THIS NOTICE AND THE
PROXY STATEMENT). STOCKHOLDERS WHO RECEIVE BOTH PROXIES MUST COMPLETE, SIGN AND
RETURN BOTH PROXIES IN ORDER FOR THE SHARES OF BOTH CLASSES TO BE VOTED BY
PROXY.
By Order of the Board of Directors
NICHOLAS J. CACCAMO
SECRETARY
Chicago, Illinois
April 8, 1994
<PAGE>
[LOGO]
- ---------------------------------
PROXY STATEMENT
- ---------------------------------
This proxy statement is furnished in connection with the solicitation by the
Board of Directors of Pittway Corporation (herein called the "Company") of
proxies for use at the annual meeting of stockholders to be held on Thursday,
May 19, 1994 and at any postponement or adjournment thereof. All shares of
Common Stock and Class A Stock entitled to vote at the annual meeting which are
represented by properly executed proxies will, unless such proxies have been
revoked, be voted in accordance with the instructions given in such proxies or,
if no contrary instructions are given therein, will be voted in the election of
directors as described under "Election of Directors", will be voted FOR the
proposal of the Board of Directors to amend the Company's 1990 Stock Awards
Plan, and as to any other matters that may properly be presented to the meeting
will be voted as described under "Other Matters." Any stockholder who has given
a proxy with respect to any matter may revoke it at any time prior to the
closing of the polls as to that matter at the annual meeting by delivering a
notice of revocation or a duly executed proxy bearing a later date to the
Secretary of the Company, or by attending the annual meeting and voting in
person.
Proxy statements and proxies are being mailed to stockholders on or about April
8, 1994. The mailing address of the principal executive offices of the Company
is 200 South Wacker Drive, Suite 700, Chicago, Illinois 60606-5802.
The Company was formerly named Standard Shares, Inc. The Company changed its
name to Pittway Corporation in connection with the December 28, 1989 merger (the
"Merger") into the Company of Pittway Corporation, a Pennsylvania corporation
("Pennsylvania Pittway") 50.1% of which was owned by the Company.
The Company had outstanding on April 1, 1994, the record date for the annual
meeting, 2,626,024 shares of Common Stock and 11,314,700 shares of Class A
Stock. Both classes are traded on the American Stock Exchange.
Pursuant to the Company's Restated Certificate of Incorporation, as amended,
prior to the Change of Control Date (as defined therein) generally the holders
of Class A Stock voting as a class are entitled to elect such number of
directors, but not less than two, as equal 25% of the total number of directors
constituting the full Board of Directors and the holders of Common Stock voting
as a class are entitled to elect the remaining directors, and with respect to
all other matters voted upon by the stockholders of the Company, the holders of
Common Stock are entitled to one vote per share of Common Stock and the holders
of Class A Stock are entitled to one-tenth of one vote per share of Class A
Stock.
Subject to certain exceptions, the "Change of Control Date" is defined as the
first date on which the shares of Harris Group Stock (as defined below) are
entitled to cast fewer than 1,496,110 votes (counting the Class A Stock as
entitled to cast one-tenth of one vote per share for this purpose). "Harris
Group Stock" means, at any point in time, shares of Common Stock and Class A
Stock which, at such time, any member of the "Harris Group" (as defined below),
either alone or in combination with any other member or members of the Harris
Group, directly or indirectly beneficially owns (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as such Rule was in effect and interpreted
at 5:00 P.M. Central Standard
1
<PAGE>
Time on December 28, 1989), without taking into account any shares of Common
Stock acquired by any member of the Harris Group subsequent to May 31, 1989 in
excess of shares of Common Stock disposed of by members of the Harris Group
subsequent to such date. The "Harris Group" means Messrs. Irving B. Harris,
Neison Harris, King Harris, William W. Harris and Sidney Barrows, and their
respective spouses, descendants and spouses of descendants, trustees of trusts
established for the benefit of such persons, and executors of estates of such
persons. Irving B. Harris and Neison Harris are brothers and Sidney Barrows is
their brother-in-law. William W. Harris is the son of Irving B. Harris and King
Harris is the son of Neison Harris.
So long as the Change of Control Date does not occur prior to the annual meeting
(which the Company believes to be a reasonable assumption), at the meeting the
holders of Class A Stock voting as a class will be entitled to elect three
directors, the holders of Common Stock voting as a class will be entitled to
elect eight directors, and the holders of Common Stock will be entitled to one
vote per share of Common Stock and the holders of Class A Stock to one-tenth of
one vote per share of Class A Stock with respect to the proposal of the Board of
Directors to amend the Company's 1990 Stock Awards Plan and with respect to any
other business as may properly be brought before the meeting.
Under the Company's By-Laws, attendance at the meeting in person or by proxy by
the holders of Class A Stock entitled to cast at least a majority of the votes
which the Class A Stock is entitled to cast at the meeting is required in order
to establish a quorum for the purpose of electing the directors to be elected by
the Class A Stock, attendance at the meeting in person or by proxy by the
holders of Common Stock entitled to cast at least a majority of the votes which
the Common Stock is entitled to cast at the meeting is required in order to
establish a quorum for the purpose of electing the directors to be elected by
the Common Stock, and attendance at the meeting in person or by proxy by the
holders of Common Stock and Class A Stock entitled to cast at least a majority
of the votes which such stock is entitled to cast at the meeting on matters
other than the election of directors is required in order to establish a quorum
for the purpose of considering the proposal of the Board of Directors to amend
the Company's 1990 Stock Awards Plan and for the purpose of any other business.
Pursuant to Delaware law, shares entitled to cast votes on a matter at the
meeting which are the subject of an ABSTAIN on that matter will be treated for
all purposes relevant to that matter as being present at the meeting and
entitled to vote and thus will have the same effect as a vote of such shares
against that matter. Shares entitled to cast votes on a matter at the meeting
which are the subject of a broker non-vote on that matter will be treated for
quorum purposes relevant to that matter as being present at the meeting and
entitled to vote but will not be so treated in determining whether a majority or
other required percentage of the "shares present and entitled to vote" on that
matter has been obtained.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership (as such term is used in Section 13(d) of the Securities Exchange Act
of 1934 (the "Exchange Act")) as of April 1, 1994 of Common Stock and Class A
Stock by (a) the persons known by the Company to be the beneficial owners of
more than 5% of the outstanding shares of Common Stock or Class A Stock, (b)
each director of the Company, (c) each nominee for director of the Company who
is not already a director, (d) each of the executive officers of the Company
listed in the Summary Compensation Table, (e) all directors and executive
officers of the Company as a group, and (f) the current members of the Harris
Group. The information set forth in the table as to directors, nominees who are
not already directors, and executive officers is based upon
2
<PAGE>
information furnished to the Company by them in connection with the preparation
of this Proxy Statement. Except where otherwise indicated, the mailing address
of each of the stockholders named in the table is: c/o Pittway Corporation, 200
South Wacker Drive, Suite 700, Chicago, Illinois 60606-5802.
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
NUMBER OF PERCENT OF NUMBER OF OUTSTANDING OUTSTANDING VOTES
SHARES OF OUTSTANDING SHARES SHARES OF SHARES OF ON MATTERS OTHER
COMMON OF CLASS A CLASS A THAN ELECTION
NAME STOCK(1) COMMON STOCK STOCK(1) STOCK OF DIRECTORS
- ------------------------------------------ ----------- ------------------- ----------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
William Harris Investors, Inc.(2)(3)...... 817,257 31.1% 1,187,665 10.5% 24.9%
2 North LaSalle Street
Suite 505
Chicago, Illinois 60602
Mario J. Gabelli et al.(4)................ 568,500 21.6 3,806,092 33.6 25.3
One Corporate Center
Rye, New York 10580
American National Bank and Trust Company
of Chicago(5)............................. 172,896 6.6 272,631 2.4 5.3
33 North LaSalle Street
Chicago, Illinois 60690
Irving B. Harris(3)(6).................... 817,257 31.1 1,187,665 10.5 24.9
King Harris(3)(7)(16)..................... 366,610 14.0 604,762 5.3 11.4
Neison Harris(3)(8)....................... 282,111 10.7 492,174 4.3 8.8
Sidney Barrows(3)(9)...................... 25,694 1.0 41,881 .4 .8
William W. Harris(3)(10).................. 817,257 31.1 1,187,665 10.5 24.9
Eugene L. Barnett(11)..................... 400 * 652 * *
Fred Conforti(12)(16)..................... 1,100 * 31,018 .3 .1
E. David Coolidge III..................... None - 5,000 * *
Anthony Downs............................. 1,100 * 4,793 * *
Leo A. Guthart(13)(16).................... None - 58,657 .5 .2
Jerome Kahn, Jr.(3)(14)................... 817,437 31.1 1,187,958 10.5 24.9
James H. Lorie............................ 3,329 .1 5,426 * .1
Sal F. Marino(16)......................... None - 26,616 .2 .1
Daniel J. Ramella(15)(16)................. None - 7,315 .1 *
All Directors and Executive Officers of
the Company as a group (17
persons)(16)(17)........................ 1,420,052 54.1 2,368,664 20.9 44.1
The Current Harris Group(3)............... 1,385,334 52.8 2,146,693 19.0 42.6
<FN>
- ----------
* Less than one-tenth of one percent.
(1) Except as otherwise indicated below, beneficial ownership means the sole
power to vote and dispose of shares.
(2) The information as to William Harris Investors, Inc. ("WHI") is derived in
part from statements, as amended January 31, 1994, filed with the
Securities and Exchange Commission (the "Commission") pursuant to Section
13(g) of the Exchange Act. Such statements, together with advice furnished
to the Company separately by WHI, disclose that (i) WHI, an investment
adviser registered under the Investment Advisers Act of 1940, holds all
such shares on behalf, and in terminable discretionary accounts, of Irving
B. Harris, William W. Harris, Sidney Barrows and certain other members of
the Harris Group, (ii) WHI shares voting power with such persons, and has
sole dispositive power, with respect to all such shares, (iii) Irving B.
Harris and his children (including William W. Harris) are the sole
stockholders, and Irving B. Harris and William W. Harris are the
controlling stockholders, of WHI and (iv) Irving B. Harris, William W.
Harris and Jerome Kahn, Jr. are, respectively, the Chairman, the President
and a Vice President of WHI.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
(3) The information as to the Current Harris Group (as defined below), Irving
B. Harris, King Harris, Neison Harris, Sidney Barrows and William W.
Harris is derived in part from statements, as amended January 15, 1990,
filed with the Commission pursuant to Section 13(d) of the Exchange Act
and statements, as amended November 15, 1991, filed with the Commission
pursuant to such Section. Such statements were filed on behalf of such
persons as well as those other persons and entities who are currently
members of the Harris Group beneficially owning, directly or indirectly,
shares of Common Stock or Class A Stock (collectively referred to as the
"Current Harris Group"). Such statements disclose that, because of the
relationships among members of the Current Harris Group, such persons may
be deemed to be a group within the meaning of Section 13(d) of the
Exchange Act and the rules and regulations thereunder. Jerome Kahn, Jr.
may also be deemed to be a member of any such group. Irving B. Harris,
King Harris, Neison Harris, Sidney Barrows and William W. Harris (and, if
elected a director, Jerome Kahn, Jr.) may be deemed in control of the
Company by reason of beneficial ownership of stock of the Company by
themselves and other members of the Current Harris Group and by reason of
their positions with the Company and its subsidiaries. The aggregate
number of outstanding shares which may be deemed to be beneficially owned
by the Current Harris Group includes all the shares shown in this table
for WHI, American National Bank and Trust Company of Chicago, Irving B.
Harris, King Harris, Neison Harris, Sidney Barrows and William W. Harris.
Total excludes duplication of shares within the Current Harris Group.
Addition of the shares beneficially owned by Jerome Kahn, Jr. separate
from WHI would not affect the percentages of outstanding shares or
outstanding votes shown for the Current Harris Group.
(4) The information as to Mario J. Gabelli and entities controlled directly or
indirectly by Mr. Gabelli is derived from statements, as amended September
20, 1993 and February 11, 1994, filed with the Commission pursuant to
Section 13(d) of the Exchange Act. Such statements disclose that (i) Mr.
Gabelli is the chief investment officer for most of the entities signing
such statements and is deemed to have beneficial ownership of the shares
beneficially owned by all such entities, (ii) Mr. Gabelli and such
entities do not admit that they constitute a group within the meaning of
Section 13(d) of the Exchange Act and the rules and regulations thereunder
and (iii) Mr. Gabelli and such entities have the sole power to vote and
dispose of all the shares of which they are beneficial owners except
14,089 shares of Class A Stock as to which voting and dispositive power is
shared (unless the aggregate voting interest of all such entities exceeds
25% of the Company's total voting interest or other special circumstances
exist, in which case the proxy voting committees of certain of such
entities would have the sole power to vote certain of 149,000 shares of
Common Stock and 986,000 shares of Class A Stock) and 43,800 shares of
Common Stock and 259,879 shares of Class A Stock as to which they have no
voting power.
(5) The information as to American National Bank and Trust Company of Chicago
("ANB") is derived in part from a statement, dated February 11, 1994,
filed with the Commission pursuant to Section 13(g) of the Exchange Act.
Such statement discloses that (i) ANB is beneficial owner of all such
shares as co-trustee of trusts created by Neison Harris, (ii) ANB has no
voting power with respect to such shares and shares dispositive power with
its co-trustees, King Harris and another member of the Harris Group, and
(iii) ANB is a wholly-owned subsidiary of American National Corporation,
which in turn is a wholly-owned subsidiary of First Chicago Corporation.
(6) Consists of the shares held by WHI (of which Irving B. Harris is a
controlling stockholder), certain of which are held by WHI for the account
of Mr. Harris or would otherwise be deemed beneficially owned by him
without regard to WHI. As set forth in note (2), the voting power of the
shares held by WHI is shared by WHI with the respective persons for whose
account they are held and WHI has sole dispositive power with respect to
such shares.
(7) King Harris shares the power to vote and dispose of 345,464 of such shares
of Common Stock and 535,585 of such shares of Class A Stock (including in
each case all shares listed in the table for ANB).
(8) Neison Harris shares the power to vote and dispose of 112,951 of such
shares of Common Stock and 227,459 of such shares of Class A Stock. He also
shares with another member of the Current Harris Group the power to dispose
of, but not vote, an additional 30,500 shares of Common Stock and 38,700
shares of Class A Stock.
(9) Does not include 81,200 shares of Common Stock and 132,356 shares of Class
A Stock owned by Mr. Barrows' wife, as to which shares he disclaims
beneficial ownership. Includes 8,994 shares of Common Stock and 14,660
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
shares of Class A Stock held by WHI for the account of Mr. Barrows. As set
forth in note (2), the voting power of
such shares is shared by WHI with Mr. Barrows and WHI has sole dispositive
power with respect to such shares. Mr. Barrows shares the power to vote and
dispose of the shares not held by WHI.
(10) Consists of the shares held by WHI (of which William W. Harris is a
controlling stockholder), certain of which are held by WHI for the account
of Mr. Harris or would otherwise be deemed beneficially owned by him
without regard to WHI. As set forth in note (2), the voting power of the
shares held by WHI is shared by WHI with the respective persons for whose
account they are held and WHI has sole dispositive power with respect to
such shares.
(11) Eugene Barnett shares power to vote and dispose of all such shares.
(12) Does not include 6,000 shares of Class A Stock owned by Mr. Conforti's
wife, as to which shares he disclaims beneficial ownership. Includes 22,735
shares of Class A Stock as to which he shares voting and dispositive power.
(13) Includes 18,939 shares of Class A Stock as to which Mr. Guthart shares
voting and dispositive power.
(14) Includes the shares held by WHI, with respect to which Mr. Kahn acts as
portfolio manager, and 180 shares of Common Stock and 293 shares of Class A
Stock held by Mr. Kahn. As set forth in note (2), the voting power of the
shares held by WHI is shared by WHI with the respective persons for whose
account they are held and WHI has sole dispositive power with respect to
such shares.
(15) Mr. Ramella shares power to vote and dispose of 7,148 of such shares.
(16) Includes shares of Class A Stock beneficially owned as of December 31, 1993
through participation in the Company's salary reduction plan (such date
being the most recent date for which information regarding account balances
under such plan is available).
(17) Includes 959,086 shares of Common Stock and 1,468,813 shares of Class A
Stock as to which voting power is shared other than with directors and
officers of the Company and 989,586 shares of Common Stock and 1,507,513
shares of Class A Stock as to which dispositive power is so shared. Total
excludes duplication of shares within such group.
</TABLE>
ELECTION OF DIRECTORS
Eleven directors are to be elected to serve until the next annual meeting of
stockholders and until their respective successors shall be elected and
qualified. Three of such directors are to be elected by the Class A Stock voting
as a class and the remaining eight directors are to be elected by the Common
Stock voting as a class. The directors to be elected by a particular class will
be elected by plurality of the votes cast FOR directors of such class. Except to
the extent that stockholders voting in a particular class indicate otherwise on
their proxies solicited by the Company's Board of Directors relating to such
class, the holders of such proxies intend to vote such proxies for the election
as directors of the persons named in the following table as nominees for
election by such class (all but one of whom are now serving as directors elected
by such class), provided that if any of the nominees for election by such class
shall be unable or shall fail to act as such by virtue of an unexpected
occurrence, such proxies will be voted for such other person or persons as shall
be determined by the holders of such proxies in their discretion or, so long as
such action does not conflict with the provisions of the Company's Restated
Certificate of Incorporation, as amended, relating to the proportion of
directors to be elected by the Class A Stock, the Board of Directors may, in its
discretion, reduce the number of directors to be elected.
5
<PAGE>
NOMINEES FOR ELECTION BY THE HOLDERS OF CLASS A STOCK
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION
NOMINEE SINCE AGE AND DIRECTORSHIPS
- --------------------------------------------- -------- --- -------------------------------------------------------
<S> <C> <C> <C>
Eugene L. Barnett............................ 1980 66 Retired; Consultant from March 1991 to April 1993 to,
prior thereto Chairman and Chief Executive Officer
of, The Brand Companies, Inc. (specialty contractor);
Vice President of the Company from 1979 to 1993;
Director, AptarGroup, Inc. (specialty packaging
components manufacturer) and National Service
Corporation (specialty contractor)
E. David Coolidge III........................ -- 50 Manager of Corporate Finance Department of William
Blair & Company (investment banker), Partner therein
since prior to 1989; Director, United Stationers,
Inc. (office supplies distributor)
Anthony Downs(A)............................. 1971 63 Senior Fellow, Brookings Institution (non-profit social
policy research center) since prior to 1989;
Consultant since 1991; Director, Bedford Properties,
Inc. (real estate investment trust), General Growth
Properties, Inc. (real estate investment trust) and
Massachusetts Mutual Life Insurance Corporation
(insurance company)
</TABLE>
NOMINEES FOR ELECTION BY THE HOLDERS OF COMMON STOCK
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION
NOMINEE SINCE AGE AND DIRECTORSHIPS
- --------------------------------------------- -------- --- -------------------------------------------------------
<S> <C> <C> <C>
Sidney Barrows(E)+........................... 1963 75 Of counsel since January 1994 to, prior thereto
shareholder in, law firm of Leonard, Street and
Deinard, Minneapolis, Minnesota; Vice Chairman of the
Board of the Company since the Merger; Vice President
of the Company from 1963 to the Merger; Treasurer of
the Company from 1974 to the Merger
Fred Conforti................................ The 52 President of Pittway Systems Technology Group (division
Merger* of Pennsylvania Pittway until the Merger, division of
the Company since the Merger); Vice President of the
Company since the Merger; Vice President of
Pennsylvania Pittway from 1977 to the Merger
Leo A. Guthart............................... 1980 56 Chairman and Chief Executive Officer of Ademco Security
Group (division of Pennsylvania Pittway until the
Merger, division of the Company since the Merger);
Vice Chairman of the Board of the Company since the
Merger and of Pennsylvania Pittway from 1984 to the
Merger; Vice President of Pennsylvania Pittway from
1970 to 1984; Director, AptarGroup, Inc. (specialty
packaging components manufacturer)
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION
NOMINEE SINCE AGE AND DIRECTORSHIPS
- --------------------------------------------- -------- --- -------------------------------------------------------
<S> <C> <C> <C>
Irving B. Harris(C)(E)+...................... 1953 83 Chairman of the Executive Committee of the Company
since the Merger; President of the Company from 1964
to the Merger; Chairman of the Executive Committee of
Pennsylvania Pittway from 1984 to the Merger;
Chairman of the Board of Pennsylvania Pittway from
1962 to 1984; Chairman of the Board of Acorn
Investment Trust (mutual funds); Director, Teva
Pharmaceutical Industries Ltd. (pharmaceutical
manufacturer)
King Harris(E)+.............................. 1975 50 President and Chief Executive Officer of the Company
since the Merger; President of Pennsylvania Pittway
from 1984 to the Merger; Vice President of
Pennsylvania Pittway from 1978 to 1984; Director,
AptarGroup, Inc. (specialty packaging components
manufacturer)
Neison Harris(C)(E)+......................... 1963 79 Chairman of the Board of the Company since 1974;
Chairman of the Board of Pennsylvania Pittway from
1984 to the Merger; President of Pennsylvania Pittway
from 1966 to 1984
William W. Harris+........................... 1975 54 Private Investor; Treasurer of KidsPac (political
action committee) since prior to 1989; Director,
AptarGroup, Inc. (specialty packaging components
manufacturer)
Jerome Kahn, Jr.............................. -- 59 Vice President of William Harris Investors, Inc.
(investment advisors) since prior to 1989; Director,
Acorn Investment Trust (mutual funds)
<FN>
- ----------
(A) Member of Audit Committee
(C) Member of Compensation Committee
(E) Member of Executive Committee
* Director of Pennsylvania Pittway prior to the Merger
+ Irving B. Harris and Neison Harris are brothers and Sidney Barrows is their
brother-in-law. William W. Harris is the son of Irving B. Harris and King
Harris is the son of Neison Harris.
</TABLE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company met seven times during 1993.
The Company's Board of Directors has an Audit Committee and a Compensation
Committee. The Board does not have a Nominating Committee.
The Audit Committee reviews and, as it deems appropriate, approves internal
accounting and financial controls for the Company and accounting principles and
auditing practices and procedures to be employed in preparation and review of
financial statements of the Company. The Audit Committee also makes
recommendations to the full Board concerning the engagement of independent
public accountants to audit the annual financial statements of the Company and
its subsidiaries and arranges with such
7
<PAGE>
accountants the scope of the audit to be undertaken by such accountants. The
current members of the Audit Committee are James H. Lorie (Chairman) and Anthony
Downs. During 1993, the Committee met twice.
The Compensation Committee reviews and determines the compensation of executive
officers, reviews and makes recommendations to the full Board with respect to
salaries, bonuses and deferred compensation of other officers and executives,
and makes such determinations and performs such other duties as are expressly
delegated to it pursuant to the terms of any employee benefit plan of the
Company. The Compensation Committee administers the Company's 1990 Stock Awards
Plan. The current members of the Compensation Committee are Neison Harris
(Chairman), Irving B. Harris and James H. Lorie.
Mr. Lorie is retiring as a member of the Board effective at the time of the
annual meeting. Neison Harris and Irving B. Harris are resigning from the
Compensation Committee at that time in order that the Compensation Committee may
consist solely of outside directors (as such term is used in Section 162(m) of
the Internal Revenue Code of 1986, as amended). See "Proposal to Amend the
Pittway Corporation 1990 Stock Awards Plan." The additional director(s) who will
serve on the Audit Committee, and the directors who will serve on the
Compensation Committee, following the annual meeting have not yet been
determined.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Neison Harris and Irving B. Harris, who together with James H. Lorie were the
members of the Compensation Committee during 1993, were, respectively, the
Chairman of the Board and the Chairman of the Executive Committee of the Company
during 1993.
In November 1993, the Company agreed to sell to Pulbrook Associates ("Pulbrook")
a National Pride car care center which the Company had sold to another party in
1987 for consideration including the obligation to make future payments but had
repossessed in 1993 when that party defaulted on such payments. Pulbrook is a
limited partnership of which Irving B. Harris owns 58.7% as a limited partner
and a corporation owned by a trust of which William W. Harris is a trustee owns
1.3% as the general partner. Pulbrook is to pay $193,000 for the property in the
form of a ten-year 8% mortgage note with monthly payments based on fifteen year
amortization. The purchase price is equal to the total amount due from the
defaulting party, including accrued interest, penalties, delinquent land rent
and taxes and expenditures by the Company to re-equip the facility. Pending the
closing of the sale, Pulbrook is operating the property on behalf of the Company
for a fee based on profits. The Company believes that the purchase arrangement
is at least as favorable to it as any that would have been arranged had the
other party been unrelated to members of the Harris Group.
EXECUTIVE OFFICERS
All officers of the Company are elected each year by the Board of Directors at
its annual organization meeting in May. In addition to Sidney Barrows, Fred
Conforti, Leo A. Guthart, Irving B. Harris, King Harris and Neison Harris,
information with respect to whom is set forth above, the executive officers of
the Company include the following:
Nicholas J. Caccamo, 49, Secretary of the Company since 1987, Controller
since the Merger, Secretary of Pennsylvania Pittway from 1980 to the Merger,
Controller of Pennsylvania Pittway from 1977 to the Merger.
8
<PAGE>
Paul R. Gauvreau, 54, Financial Vice President and Treasurer of the Company
since the Merger, Financial Vice President of Pennsylvania Pittway from 1979
to the Merger, Treasurer of Pennsylvania Pittway from 1972 to the Merger.
Sal F. Marino, 74, Chairman since 1990 and Chief Executive Officer since
1988 of Penton Publishing, Inc. (subsidiary of the Company), Vice President
of the Company since the Merger, Vice President of Pennsylvania Pittway from
1976 to the Merger.
Daniel J. Ramella, 42, President and Chief Operating Officer since 1990,
Senior Vice President Publishing from 1989 to 1990, and Magazine Publisher
prior thereto, of Penton Publishing, Inc. (subsidiary of the Company), Vice
President of the Company since 1991.
Edward J. Schwartz, 52, Vice President of the Company since the Merger, Vice
President-Finance of the Company from 1979 to the Merger, Vice President of
Pennsylvania Pittway from 1987 to the Merger.
COMPENSATION
BOARD COMPENSATION
Compensation to non-officer directors is paid at the rate of $2,500 per quarter
plus $2,500 for each Board meeting attended and $1,000 for each committee
meeting attended, except that $250 is paid for attending a committee meeting
held on the same day as a Board meeting. Officer directors are not separately
compensated for serving as directors.
SUMMARY COMPENSATION TABLE
The following table sets forth compensation information for the President and
Chief Executive Officer of the Company (who served as such throughout 1993) and
for each of the Company's four most highly compensated other executive officers
serving at the end of 1993. No other person who served as an executive officer
of the Company at any time during 1993 had 1993 compensation in excess of the
1993 compensation of any of the executive officers named in the table.
9
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
STOCK UNDERLYING
--------------------- AWARDS OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS ($)(1) SARS(#) COMPENSATION
- --------------------------------------------- --------- --------- ---------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
King Harris, President and Chief Executive 1993 $ 500,000 $ 300,000 19,512 $ 5,133(4)
Officer
1992 450,000 450,000(2) 3,268
1991 400,000 $ 199,996
Fred Conforti, President of Pittway Systems 1993 340,000 220,003 13,268 5,133(4)
Technology Group (division of the Company) 1992 325,000 2,675,000(3) 5,014
1991 310,000 210,013
Leo A. Guthart, Chairman and Chief Executive 1993 330,000 220,000 12,878 3,757(5)
Officer of Ademco Security Group (division of 1992 321,732 135,000 3,778
the
Company) 1991 300,000 100,011
Sal F. Marino, Chairman and Chief Executive 1993 305,000 95,000 76,361(6)
Officer of Penton Publishing, Inc. 1992 300,000 90,000 70,233
(subsidiary of the
Company) 1991 275,000 59,996
Daniel J. Ramella, President and Chief 1993 275,000 75,000 10,732 2,435(7)
Operating
Officer of Penton Publishing, Inc. 1992 225,000 75,000 2,382
(subsidiary of the
Company) 1991 200,000 25,000 24,990
<FN>
- ------------
(1) The only named executive officer who held an outstanding restricted stock
award at the end of 1993 was Mr. Conforti. At the end of 1993, 7,303 shares
of Class A Stock were subject to his outstanding restricted stock award and
the value of such shares was $235,522. Mr. Conforti's restricted stock
award, a Performance Shares Award granted for 1993, is scheduled to vest in
equal pro rata installments over three years. Under the terms of the award,
no shares are distributable until vesting of such award in full or earlier
termination of employment, and at the time shares are distributed an amount
is payable equal to the normal quarterly dividends which would have been
paid on such shares had such shares been issued on the date such award was
granted. Each of the restricted stock awards for 1991, when granted, had
terms (other than the number of shares subject thereto) identical to the
terms of the award for 1993. During 1992, in anticipation of the spinoff
(the "Spinoff") by the Company of its Seaquist Group through the
distribution to the Company's stockholders of the stock of AptarGroup,
Inc., vesting of all then outstanding restricted stock awards was
accelerated and the shares subject thereto ceased being restricted.
(2) This larger than normal amount was based on the significant increase in the
Company's earnings of continuing operations and total earnings for 1992,
which included a substantial gain on the sale of businesses during the
Company's restructuring that began in 1992.
(3) Includes a special one-time bonus of $2,500,000 paid at the time of the
sale of the First Alert/BRK Electronics divisions for the instrumental role
that Mr. Conforti played in the growth of those businesses and because the
sale resulted in a substantial gain to the Company.
(4) Consists of $4,497 annual matching Company contributions during the year to
the Company's salary reduction plan and $636 for term life insurance
provided by the Company during the year.
(5) Consists of $3,598 annual matching Company contributions during the year to
the Company's salary reduction plan and $159 for term life insurance
provided by the Company during the year.
(6) Consists of $1,799 annual matching Company contributions during the year to
the Company's salary reduction plan and $74,562 required minimum
distributions paid during the year from the Company's salary reduction plan
and a Company retirement plan.
(7) Consists of $1,799 annual matching Company contributions during the year to
the Company's salary reduction plan and $636 for term life insurance
provided by the Company during the year.
</TABLE>
10
<PAGE>
OPTION/SAR GRANTS DURING YEAR
The following table sets forth information with respect to options and stock
appreciation rights ("SARs") granted during 1993 to executive officers named in
the Summary Compensation Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1) POTENTIAL REALIZABLE
-------------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(2)
OPTIONS/SARS EMPLOYEES IN FISCAL EXERCISE OR BASE EXPIRATION ----------------------
NAME GRANTED(#) YEAR PRICE($/SH) DATE 5%($) 10%($)
- ---------------------------- --------------- ------------------- ----------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
King Harris 19,512 9.4 $ 25.625 7/27/03 $ 314,436 $ 796,870
Fred Conforti 13,268 6.4 25.625 7/27/03 213,814 541,865
Leo A. Guthart 12,878 6.2 25.625 7/27/03 207,529 525,938
Daniel J. Ramella 10,732 5.2 25.625 7/27/03 172,946 438,295
<FN>
- ---------
(1) Each grant was of a non-qualified option to purchase Class A Stock under
the Company's 1990 Stock Awards Plan at an exercise price equal to the
market price on the date of grant. Each option becomes exercisable on the
third anniversary of the date of grant, subject to acceleration in the
event of earlier termination of employment (full acceleration if earlier
termination is on account of death, permanent disability or retirement upon
or after reaching age sixty-five; partial acceleration in increments of
33 1/3% each year commencing one year after the date of grant if
termination is for any other reason other than for "cause").
(2) The assumed annual rates of appreciation in the price of Class A Stock are
in accordance with rules of the Securities and Exchange Commission and are
not predictions of future market prices of the Class A Stock nor of the
actual values the named executive officers will realize. In order for such
annual rates of appreciation to be realized over the 10-year term of the
options, the market price of Class A Stock would have to increase to
$41.74/share (5%) or $66.47/share (10%). In such event, and assuming
corresponding annual rates of increase for the market price of Common
Stock, the market value of all currently outstanding shares of Common Stock
and Class A Stock would have increased by approximately $229,000,000 (5%)
or $580,000,000 (10%).
</TABLE>
YEAR-END OPTION/SAR VALUES
The following table sets forth information with respect to the value of
unexercised options and SARs held by executive officers named in the Summary
Compensation Table as of December 31, 1993.
YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY OPTIONS/ SARS
YEAR-END(#) AT YEAR-END($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------------------------------------------- -------------------------- --------------------------
<S> <C> <C>
King Harris 0/48,827 $0/$676,956
Fred Conforti 0/13,268 0/87,900
Leo A. Guthart 0/12,878 0/85,317
Daniel J. Ramella 0/34,512 0/612,530
</TABLE>
11
<PAGE>
EMPLOYMENT AGREEMENTS
The Company's employment agreement with Mr. Guthart provides for a minimum
annual salary of $330,000.
The employment agreement between a subsidiary of the Company and Sal F. Marino,
which provided for a minimum annual salary of $305,000 during 1993, plus payment
to him or his estate of $500,000 over a period of 60 months after termination of
employment (or a present value equivalent thereof at the time of termination),
was extended and amended during 1993 to provide for a minimum annual salary of
$315,000 after December 31, 1993 during the term of employment (i.e., until
December 31, 1994 or such later date as the Company and he may agree upon).
PLANS AND ARRANGEMENTS
In the descriptions of plans and arrangements which follow, references are made
to shares of Class A Stock. If the Change of Control Date (as defined in the
Company's Restated Certificate of Incorporation, as amended) should occur, the
Class A Stock will change into Common Stock on a share-for-share basis. In the
event of any such change, references to Class A Stock in such descriptions
should be understood to refer to Common Stock.
Salary Reduction Plan
Under the Company's salary reduction plan (which was originated by
Pennsylvania Pittway and assumed by the Company in connection with the Merger),
eligible covered employees of the Company and its subsidiaries may elect to have
a portion of their "earnings" (total cash compensation less certain items)
contributed to the plan by their employers, and their employers match such
contributions with specified percentages thereof. The percentages vary as
between separate groups of covered employees and are determined from time to
time by their employers. For 1993, such percentages ranged from .6% to 3.0% of
eligible covered employees' "earnings." Contributions and matches are invested
in one or more investment funds selected by the employees from among those
available under the plan. Such funds include a fund which invests solely in
Class A Stock. Salary reduction contributions vest immediately. Subject to
acceleration in the event of termination of employment upon retirement after age
65 or on account of death or disability, employer matching contributions vest on
a cumulative basis of 20% per year of credited service under the plan. Vested
contributions (after any earnings or losses from the investment thereof) are
distributed in a lump sum or installments following termination of employment,
but account balances may under certain circumstances and subject to certain
conditions be withdrawn or borrowed earlier.
Retirement Plans
The Company and its subsidiaries have tax-qualified retirement plans
covering all domestic salaried employees, and certain domestic hourly employees,
after three months of service. The plans are fully paid for by the Company, and
employees become fully vested after five years of service. The annual benefit
payable to an employee under the plans upon retirement, computed as a straight
life annuity amount, equals the sum of the separate amounts the employee accrues
for each of his years of service under the plans. Such separate amounts are
determined as follows: for each year through 1988, 1.2% of such year's
compensation up to the Social Security wage base for such year and 1.8% (2.0%
for years after 1986) of such year's compensation above such wage base, plus
certain increases put into effect prior to 1987; for each year after 1988
through the year in which the employee reaches thirty-five years of service,
1.2% of such year's "covered compensation" and 1.85% of such year's compensation
above such "covered compensation"; and for each year thereafter, 1.2% of such
year's compensation. The employee's
12
<PAGE>
compensation under the plans for any year includes all salary (before any
election under the Company's salary reduction plan), commissions and overtime
pay and, beginning in 1989, bonuses (in the case of each executive officer named
in the Summary Compensation Table, the equivalent of the sum of the amounts set
forth for such executive officer for such year in the Annual Compensation
columns of such Table and the value of any shares of Class A Stock distributed
to such executive officer during such year pursuant to Performance Shares
Awards); subject to such year's limit applicable to tax-qualified retirement
plans ($235,840 for 1993; $150,000 for 1994 and, currently, for each year
thereafter). The employee's "covered compensation" under the plans for any year
is generally the average, computed such year, of the Social Security wage bases
for each of the thirty-five years preceding the employee's Social Security
retirement age, assuming that such year's Social Security wage base will not
change in the future. Normal retirement age under the plans is age 65, and
reduced benefits are available as early as age 55. Benefits are not subject to
reduction for Social Security benefits or other offset amounts. Estimated annual
benefits payable under the plans upon retirement at normal retirement age for
the following persons (assuming 1994 and future compensation at the $150,000
limit currently applicable and that covered compensation remains constant) are:
K. Harris, $102,984; F. Conforti, $92,496; L. Guthart, $108,960; and D. Ramella,
$77,412. S. Marino has reached normal retirement age, but has continued as an
active employee. The annual pension which would have been payable if he had
retired on December 31, 1993 is $70,440.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") makes
salary, bonus and long-term incentive plan decisions with respect to all of the
Company's executive officers.
In making such decisions, a primary goal, subject to the Company's performance
being adequate to support it, is that the compensation paid to the Company's
executive officers remain competitive. While the Committee is mindful of Section
162(m) of the Internal Revenue Code of 1986, as amended, and the loss of
deductibility for federal income tax purposes of certain remuneration of a
covered executive officer in excess of $1,000,000 during 1994 or any subsequent
year, the Committee does not base decisions primarily on preserving such
deductibility.
The Committee's policies applicable to compensation of the Company's executive
officers other than its chief executive officer for 1993 were as follows:
SALARY
The Committee obtained from an outside compensation specialist a detailed report
regarding salaries being paid to top level executives in companies of roughly
the same size and in the same type of business as that of the Company executive.
In the case of Mr. Conforti and Mr. Guthart, salary information from companies
in the electronic/electrical equipment field was used to generate comparative
information. In the case of Mr. Marino and Mr. Ramella, companies in the trade
publishing industry were used as sources of data. In the case of Corporate
Office executives, salary information from both electronic/electrical equipment
companies and durable goods manufacturers was used.
The companies included in the report were not identified by the outside
compensation specialist, so the Committee was unable to determine whether the
performance of those companies (or at least of those companies which are
free-standing companies) was reflected in the indices used in the Performance
Graph which follows this Report. However, because nearly all of the Company's
major direct competitors are either divisions of larger diversified companies or
privately held, the Committee believes that those competitors generally are not
included in either the outside compensation specialist's report or such
13
<PAGE>
indices. The Committee believes that the electronic/electrical equipment
companies included in the outside compensation specialist's report are, as a
group, as comparable to the companies included in the Value Line Electronics
Industry Index used in the Performance Graph as any other group of companies for
which compensation information was available to the Committee.
The report specifically identified salaries at the 50th, 75th and 90th
percentiles of the ranges of salaries surveyed. It also showed pay differentials
between presidents and chief executive officers (CEOs) of free-standing
companies and presidents and CEOs of division-based companies. The Committee
tended to focus on salaries paid in free-standing companies for two reasons.
First, Company divisions are given a high degree of autonomy and effectively run
as free-standing companies. Second, Company executives are likely targets of
management recruiters from free-standing competitors of the Company.
The Committee also reviewed published compensation information from three
publicly held companies in the alarm equipment business. While these companies
are smaller than the Company's major alarm divisions, they still are indicative
of what competitive firms are paying in the alarm industry. Similar information
regarding compensation in the trade publishing industry was not readily
available.
As for salary policy in general, the Committee aimed at setting salaries
somewhere between the 50th and 75th percentile of the salary ranges reported by
the outside compensation specialist.
BONUS
The Committee used the same outside compensation consultant to determine the
ranges of bonuses being offered by "comparable" companies in the
electronic/electrical equipment, trade publishing, and durable goods
manufacturing industries. As was the case with salary information supplied by
the consultant, the Committee focused on bonuses being given in the 50th to 75th
percentile range because it felt that this range was appropriate for an
executive doing a good job in a division performing well. Using the ranges as a
guide, the Committee awarded bonuses which were related to:
1. The accomplishment of yearly goals and objectives.
2. Growth in pre-tax profit.
3. The overall level of pre-tax profit compared to other Company divisions.
4. Return on equity.
5. General management performance.
No set formula was used to determine bonuses because the Committee believes that
annual formulas are too rigid and lead to pay distortions on a year-to-year
basis. The Committee did give the greatest weight, however, to growth in pre-tax
profit and return on equity.
For 1993, bonuses for executive officers ranged from 27% to 67% of their base
salaries.
LONG-TERM INCENTIVE PLANS
In 1992 the Committee established three-year incentive plans for Messrs.
Guthart, Marino and Ramella. Each plan calls for the payment of a bonus in the
first quarter of 1995 which is to be based on improvement of profitability and
return on equity between 1992 and 1994 for the executive's division. No
long-term incentive plan was established for Mr. Conforti because of the 1992
sale of the Company's First Alert/BRK Electronics divisions.
Under the plans, Mr. Guthart can earn between 8% and 56% of his current base
salary; Mr. Marino between 9% and 60% of his current base salary; and Mr.
Ramella between 8% and 53% of his current base salary.
14
<PAGE>
STOCK OPTION AND STOCK APPRECIATION RIGHT (SAR) PROGRAM
The Committee established a Stock Option and Stock Appreciation Right (SAR)
Program in 1993 to more closely tie the financial interests of managers with
those of stockholders. In 1993, 111,448 stock options and 96,000 SARs were
granted to 72 top and middle managers, including all five executive officers
named in the Summary Compensation Table. The exercise price of the options and
the base price for the SARs was the market price of the Company's Class A Stock
on the date of the grant.
The Program was designed by the Company's outside compensation specialist, who
patterned it after programs used by many other companies of the Company's size.
Under the program the Committee intends, subject to continuing improvement in
the Company's profits, to award stock options and SARs over a ten year period
equivalent to approximately 10% of the Company's outstanding shares. According
to the outside compensation specialist, the 10% target represents the median for
companies of the Company's size.
The combined total of stock options and SARs granted in 1993 -- 207,448 --
represents approximately 1.5% of the Company's outstanding Common and Class A
Stock. The Committee intended that the initial option and SAR grants be somewhat
larger than normal as a way of giving added incentive to the executives
participating.
As for the specific stock option and SAR grants given in 1993, the Committee,
based on advice regarding competitive practice given by the outside compensation
specialist, allocated them to executives on the basis of their positions and
levels of responsibility.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee obtained from an outside compensation specialist a detailed report
regarding compensation being paid to Presidents and CEOs of a broad range of
electronic/electrical equipment and durable goods manufacturers of roughly the
same size as the Company. The report specifically identified base salary, yearly
cash bonus, and total compensation (including stock options and other
considerations) being paid to executives at the 50th, 75th and 90th percentiles
in the data base of salaries, cash bonuses and total compensation surveyed. In
general, the Committee set the President/CEO's compensation somewhere between
the 50th and 75th percentiles of the reported ranges.
Mr. Harris's 1993 base salary was in the upper middle part of this range. His
total cash compensation (salary plus a cash bonus equal to 60% of his base
salary) was at the top of the range, reflecting Pittway's outstanding results
for the year. His total compensation, including stock options he received, was
in the upper middle part to top part of the range. The Committee felt such total
compensation was appropriate given the Company's recent performance.
Compensation Committee
Neison Harris, Chairman
Irving B. Harris
James H. Lorie
15
<PAGE>
PERFORMANCE GRAPH
The following line graph compares the yearly percentage change in cumulative
total shareholder return, assuming reinvestment of dividends into additional
shares of the stock on which paid, for the Company's Common Stock and Class A
Stock with a broad stock market index (Wilshire 5000 Index), the industry index
used in the Company's Proxy Statement for its 1993 Annual Meeting (Value Line
Diversified Industry Index) and a newly selected industry index (Value Line
Electronics Industry Index). The Company believes that the newly selected
industry index represents a better comparison for periods since the Spinoff
because the majority of the Company's sales, earnings and assets now come from
the electronics-related Alarms and Other Security Products segment of its
business.
Comparison of Five Year Cumulative Total Return
Pittway Corporation Common Stock and Class A Stock, Wilshire 5000 Index,
Value Line Diversified Industry Index and Value Line Electronics Industry Index
[Performance Graph Filed Under Cover Form SE]
- ---------
(1) For periods subsequent to the Spinoff on April 22, 1993, (A) total return on
the Common Stock was computed assuming that the share of AptarGroup, Inc.
common stock distributed for each share of Common Stock was reinvested in
Common Stock on that date, and (B) total return on Class A Stock was
computed assuming that the share of AptarGroup, Inc. common stock
distributed for each share of Class A Stock was reinvested in Class A Stock
on that date.
(2) For periods subsequent to the Merger on December 28, 1989, total return on
the Common Stock was computed assuming that the stock dividend paid on
January 4, 1990 of 1.63 shares of Class A Stock for each share of Common
Stock was reinvested in Common Stock on that date.
(3) For periods prior to the Merger on December 28, 1989, total return on the
Class A Stock (which did not exist prior to the Merger) was computed as the
total return on one-third share of Pennsylvania Pittway common stock, based
on the conversion ratio in the Merger.
16
<PAGE>
CERTAIN TRANSACTIONS
During 1993, the Company agreed to sell a National Pride car care center to a
limited partnership in which Irving B. Harris and William W. Harris have
interests. See "Compensation Committee Interlocks and Insider Participation."
A former executive officer of the Company, who resigned as such effective upon
the Spinoff to become an executive officer of AptarGroup, Inc., was indebted to
a subsidiary of the Company prior to the Spinoff. The loan, which was used to
relocate his residence, was payable in Deutsche Marks through the year 2000 in
quarterly installments of principal and interest at the rate (.64% for 1993) of
7 percentage points below the long-term borrowing rate in Germany for the
preceding year. The outstanding balances of the loan as of January 1, 1993 and
April 21, 1993 (the date prior to the date of the Spinoff) were equivalent to
$130,469 and $118,347, respectively. This indebtedness became indebtedness to a
subsidiary of AptarGroup, Inc. in connection with the Spinoff.
PROPOSAL TO AMEND THE PITTWAY CORPORATION 1990 STOCK AWARDS PLAN
On March 17, 1994, the Board of Directors approved several amendments to the
Pittway Corporation 1990 Stock Awards Plan. In doing so, the Board provided that
the amendments would be submitted to the stockholders of the Company at the 1994
Annual Meeting, and that if not approved by the stockholders the amendments
would terminate and be of no force or effect. For purposes of the following
discussion, the 1990 Stock Awards Plan as it exists prior to the effectiveness
of such amendments is referred to as the "Existing Plan."
The amendments to the Existing Plan: (1) increase the maximum number of shares
which may be issued upon the exercise or payment of awards from 500,000 to
1,000,000 (in each case subject to adjustment as provided in the Existing Plan);
(2) make certain changes related to the recent addition to the Internal Revenue
Code of 1986, as amended (the "Code"), of a new Section 162(m) (as interpreted
by regulations proposed by the Department of the Treasury, "Code Section
162(m)") -- the addition of a limitation of 50,000 shares (subject to adjustment
in certain events) on the number of shares with respect to which options and/or
stock appreciation rights may be awarded during any calendar year to any
employee, the addition of a requirement that directors who are members of the
administrative committee be outside directors (as such term is used in Code
Section 162(m)) in addition to the current requirement that they be
disinterested persons (as such term is used in Rule 16b-3 under the Securities
Exchange Act of 1934, as amended ("Rule 16b-3")) and, with respect to certain
matters dealt with by Code Section 162(m), the addition of a limitation on the
power of such committee to delegate its authority; and (3) make certain other
changes -- the lowering of the minimum number of members of the administrative
committee from 3 to 2 (as permitted by both Code Section 162(m) and Rule 16b-3),
and, insofar as may be necessary to avoid disqualification under Rule 16b-3, the
addition of a restriction on the availability for subsequent awards of shares
subject to awards which expire unexercised or unpaid or are cancelled,
terminated or forfeited in any manner without the issuance of shares thereunder.
The action by the Board of Directors was prompted by a review of Code Section
162(m). That section, added to the Code in August of 1993, provides that for
1994 and subsequent years no deduction is allowed to a publicly held corporation
for employee remuneration with respect to any covered employee (generally, an
employee who as of the close of the year is the chief executive officer or one
of the other four highest compensated officers for the year) to the extent that
the amount of such covered employee's remuneration for the year exceeds
$1,000,000. Provided certain requirements are met (or if certain exceptions
apply under transition rules), Code Section 162(m) excludes from the
remuneration counted
17
<PAGE>
toward the $1,000,000 the appreciation in the value of stock options and stock
appreciation rights granted under a plan at not less than fair market value at
the date of grant. The Board concluded that all of these requirements but
one -- the requirement that the plan include a limitation on the number of
shares with respect to which options and/or stock appreciation rights may be
awarded during a specified period to any employee -- either are met or in the
case of particular grants can be met by the Existing Plan. The Board determined
that the Existing Plan should be amended so that the remaining requirement is
met independent of the transition rules, notwithstanding that the transition
rules appear to exclude from remuneration counted toward the $1,000,000 the
appreciation in the value of options and stock appreciation rights awarded under
the Existing Plan at not less than fair market value on the date of award prior
to the earlier of any material modification of the Existing Plan or the 1997
Annual Meeting. Recognizing that this amendment would require stockholder
approval, the Board also reviewed the number of shares which remained available
for delivery under the Existing Plan (any increase in which also requires
stockholder approval) and determined that this would be an appropriate time to
increase the number of shares available for delivery. The review also resulted
in approval of the other amendments referred to above, none of which requires
stockholder approval but all of which are also being submitted for such
approval.
The Existing Plan was adopted by the Board of Directors and approved by the
Company's stockholders in 1990. The purpose of the Existing Plan is to promote
the long-term financial interests of the Company and its Affiliates by (i)
attracting and retaining personnel, (ii) motivating personnel by means of
growth-related incentives, (iii) providing incentive compensation opportunities
that are competitive with those of other major corporations and (iv) furthering
the identity of interests of participants with those of the stockholders of the
Company. The Board believes that the Existing Plan has been successful to date
in accomplishing its purpose, and that its purpose will be further served by the
proposed amendments.
Approval of the proposed amendments will not necessarily result in the awarding
of options and/or stock appreciation rights which would not otherwise have been
awarded had sufficient shares been available, nor in assuring that the
deductibility of the remuneration of covered employees will not be affected by
Code Section 162(m). For a statement of the Compensation Committee's current
intention regarding the awarding of options and stock appreciation rights, and
for a statement of its current policy with respect to qualifying compensation
paid to the Company's executive officers for deductibility under Section 162(m),
see "Compensation Committee Report on Executive Compensation."
In the event the proposed amendments are not approved by the Company's
stockholders, there will be no immediate effect upon the Company's ability to
grant awards under the Existing Plan; the Existing Plan will continue in effect.
As of March 17, 1994, of the 500,000 shares originally made available for
issuance upon the exercise or payment of awards granted under the Existing Plan,
375,458 shares (149,543 of which were the subject of outstanding awards)
remained available for issuance.
The following is a brief summary of some of the terms of the Existing Plan as
amended by the proposed amendments (the "Plan") and is qualified in its entirety
by, and made subject to, the Plan set forth as Appendix A hereto.
SUMMARY
The Plan permits the granting of stock options, stock appreciation rights
("SARs"), restricted stock and other awards to full-time employees of the
Company and its Affiliates (i.e., its subsidiaries and other entities in which
the Company has a direct or indirect equity interest). Stock options may be
either "incentive stock options" ("ISOs") under Section 422 of the Code or other
options ("non-qualified options").
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<PAGE>
The Plan provides currently only for the issuance of Class A Stock. It
recognizes, however, that if the Change of Control Date (as defined in the
Company's Restated Certificate of Incorporation, as amended) should occur, the
Class A Stock will change into Common Stock on a share-for-share basis. In such
event, the Plan provides that Common Stock is to be substituted for Class A
Stock, both in terms of the maximum shares issuable and the annual limitation on
awards of stock options and SARs to an employee and for purposes of outstanding
awards. References to Class A Stock in the text which follows should be
understood to refer to Common Stock in the event of any such change.
ADMINISTRATION AND ELIGIBILITY. The Plan is administered by a committee of the
Board of Directors (the "Committee"), currently the Compensation Committee. The
Plan empowers the Committee, among other things, to interpret the Plan, to make
all determinations deemed necessary or advisable for its administration, to
choose the times at which and the employees to whom awards are to be made and to
award to such employees options (including ISOs), SARs, shares of restricted
stock and other awards. Although certain employees have heretofore been granted
awards as described below under "Awards Heretofore Granted under the Existing
Plan," the employees to receive future awards under the Plan have not yet been
selected. However, the Plan provides that neither Irving B. Harris nor Neison
Harris is eligible to receive awards under the Plan. The Company and its
subsidiaries currently employ approximately 4,800 persons.
SHARES SUBJECT TO THE PLAN; ADJUSTMENT. The maximum number of shares of Class A
Stock which may be issued pursuant to the Plan is 1,000,000. If awards expire
unexercised or unpaid or are cancelled, terminated or forfeited without the
issuance of shares, such shares are again available under the Plan unless such
availability would prevent the Plan from qualifying under Rule 16b-3. Shares
issued pursuant to the Plan may be authorized and unissued shares, treasury
shares or a combination thereof.
The maximum number of shares of Class A Stock with respect to which options
and/or SARs may be awarded during any calendar year to any eligible employee is
50,000.
The maximum number of shares subject to the Plan and the maximum number of
shares with respect to which options and/or SARs may be awarded during any
calendar year to any eligible employee, and the shares and option and reference
prices under outstanding awards, are subject to adjustment in the event of
certain Organic Changes (as defined in the Plan) and/or to prevent dilution or
enlargement of award rights. The Committee may provide in award agreements that
in the event of a change in control (or tender offer or accumulation of Class A
Stock or Common Stock), merger, consolidation, reorganization, recapitalization,
sale or exchange of substantially all of the assets or dissolution of the
Company, the benefits under such awards may be accelerated and/or cash payments
may be made in lieu of such benefits in order to prevent the dilution or
enlargement of rights thereunder.
OPTIONS. The Plan authorizes the Committee to award options to purchase Class A
Stock. Options may be either ISOs or non-qualified options, except that, as long
as required by Code Section 422, no ISO may be awarded after January 16, 2000 or
to any employee of an Affiliate which is not a subsidiary corporation (as such
term is used in Code Section 424(f)) of the Company. In the case of ISOs, the
option price may not be less than 100% of the fair market value of such stock at
the time the option is granted and not less than the par value of such stock. In
the case of non-qualified options, the option price may not be less than 85% of
the fair market value of such stock at the time the option is granted and not
less than the par value of such stock. The Plan allows optionees, to the extent
permitted by the Committee, to pay the exercise price of options in cash, Class
A Stock (valued at its fair market value on the date of exercise), Common Stock
(valued at its fair market value on the date of exercise), a combination thereof
or any other consideration.
19
<PAGE>
SARS. The Plan authorizes the Committee to grant SARs. A SAR entitles the
holder to receive upon exercise the excess of the fair market value of a
specified number of shares of Class A Stock at the time of exercise over a
specified price. The Company will pay such amount to the holder in Class A Stock
(valued at its fair market value on the date of exercise), cash or a combination
thereof, as the Committee may determine (which determination may take into
account any preference expressed by the holder). SARs granted as an alternative
to a previously or contemporaneously granted option entitle the optionee, in
lieu of exercising the option, to receive the excess of the fair market value of
a share of Class A Stock on the date of exercise over the option price
multiplied by the number of shares as to which he or she is exercising the SAR.
If a SAR is alternative to an option, the option is cancelled to the extent the
appreciation right is exercised and the SAR is cancelled to the extent the
option is exercised.
RESTRICTED STOCK. The Plan authorizes the Committee to grant restricted Class A
Stock with such restriction periods as the Committee may designate. During the
restriction period, stock certificates evidencing restricted shares are held by
the Company and restricted shares may not be sold, assigned, transferred,
pledged or otherwise encumbered. Other than these restrictions on transfer and
any other restrictions the Committee may impose, the participant has all the
rights of a holder of Class A Stock as to shares of restricted stock. The
Committee may permit or require the payment of cash dividends to be deferred
and, if the Committee so determines, reinvested in additional restricted stock
or otherwise invested or accruing a yield. Restricted stock may be awarded
without any consideration other than services rendered and/or (to the extent
permitted by applicable corporate law on the date of award) services to be
rendered. Except as otherwise provided by the Committee at or subsequent to the
time of grant, upon termination of the participant's employment during the
restriction period all shares still subject to restriction are forfeited by the
participant.
PERFORMANCE SHARES AWARDS. Among the other awards which the Plan authorizes the
Committee to grant are Performance Shares Awards. A Performance Shares Award
grants the holder rights to receive Class A Stock which vest in one or more
installments over a period determined by the Committee, subject to acceleration
in the event of termination of employment on account of retirement upon or after
reaching a specified age, death or permanent disability. The shares subject to a
Performance Shares Award are distributable, to the extent vested, after vesting
in full or earlier termination of employment. A Performance Shares Award may
provide that, at such time, if any, as shares of stock are issued thereunder,
the holder of such award will receive an amount equal to the quarterly dividends
which would have been paid on such shares had such shares been issued on the
date the award was granted plus interest on the amounts of such dividends based
on an interest rate designated by the Committee. No recipient of a Performance
Shares Award has or acquires any rights as a holder of the Class A Stock subject
to such award, including without limitation voting and dividend rights, unless
and until the certificates representing the shares subject to such award are
issued to the recipient.
OTHER AWARDS. Other awards, either alone or in addition to options, SARs,
restricted stock and Performance Shares Awards, may be granted under the Plan.
These may include, without limitation, Class A Stock, convertible securities,
performance shares, and other forms of award measured in whole or in part by the
value of shares, the performance of the participant or the performance of the
Company, any Affiliate or any operating unit thereof. Such awards may be payable
in Class A Stock, cash or a combination thereof. Subject to the provisions of
the Plan, the Committee has the sole and complete authority to determine the
numbers of shares to be awarded pursuant to such awards and all other conditions
of the awards. A participant may defer all or a portion of any such award in
accordance with procedures established by the Committee. In the case of awards
involving the right to purchase Class A Stock, the purchase price may not be
less than 85% of the fair market value of such stock at the time the
20
<PAGE>
award is granted and not less than the par value of such stock. Other awards may
be awarded without any consideration other than services rendered and/or (to the
extent permitted by applicable corporate law on the date of award) services to
be rendered.
SUPPLEMENTAL CASH PAYMENTS. Subject to the Committee's discretion, a
non-qualified option or SAR agreement may require the Company to make a cash
payment to the holder thereof upon exercise based on a formula designed to
reimburse the holder for any income tax liability resulting from such exercise
and the receipt of such payment.
FAIR MARKET VALUE. Fair market value for purposes of the Plan is determined in
accordance with procedures established by the Committee. The closing price of
Class A Stock on April 4, 1994 was $33.75.
SURRENDER. If so provided by the Committee, an award may be surrendered to the
Company on such terms and conditions, and for such consideration, as the
Committee determines.
FOREIGN ALTERNATIVES. Without amending and notwithstanding the other provisions
of the Plan, in the case of any award to be held by any participant who is
employed outside the U.S. or is a foreign national, the Committee may specify
that such award shall be made on such terms and conditions different from those
specified in the Plan as may, in the judgment of the Committee, be necessary or
desirable to further the purposes of the Plan.
TERM AND EXERCISABILITY OF AWARDS. Awards may be granted for such terms, and
are exercisable, as the Committee determines. Awards are not transferable,
except by will and the laws of descent and distribution, and during a
participant's lifetime are exercisable or receivable only by the participant or
his or her legal representative.
WITHHOLDING. The Committee has the power to withhold, or require a participant
to remit to the Company, an amount sufficient to cover withholding taxes with
respect to shares issuable and/or amounts payable pursuant to the Plan. If so
permitted by the Committee, a participant may elect to satisfy such taxes by
having shares issuable under the Plan withheld or by delivering other shares to
the Company.
AMENDMENT AND TERMINATION. The Plan may be suspended, terminated or amended by
the Board of Directors or the Committee at any time, but no suspension,
termination or amendment shall impair the rights of the holder of any award
theretofore granted without his or her consent. Subject to the same limitation
on impairment of rights, the Committee may amend or modify an outstanding award
to the extent it would have had the authority to initially grant the award as so
amended or modified. Notwithstanding the general rights of the Board of
Directors and the Committee to amend the Plan, the Plan may not be amended
without stockholder approval to the extent such approval is required by law,
agreement or the rules of any exchange upon which the Class A Stock is listed.
AWARDS HERETOFORE GRANTED UNDER THE EXISTING PLAN
As of March 17, 1994, awards under the Existing Plan had been made as follows
(for purposes of which, in the interests of comparability, the numbers of shares
and exercise or specified prices related to options
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<PAGE>
and SARs which were exercised or terminated prior to the Spinoff have been
adjusted on a basis equivalent to the anti-dilution adjustments made under the
Existing Plan to options and SARs which were outstanding at the time of the
Spinoff):
<TABLE>
<CAPTION>
SARs(2)
Options(1) ---------------------------- Performance
----------------------------- Specified Price Shares Awards(3)
Exercise Price Underlying or -----------------
Underlying or Range Shares Range Shares
Name Shares (#) ($/share) (#) ($/share) (#)
- ------------------------------------ ----------- ---------------- ----------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
King Harris 1994 19,512 34.50
1993 19,512 25.63
In Total 49,274 13.57 to 34.50 19,065 13.57 13,833
Fred Conforti 1994 13,268 34.50
1993 13,268 25.63 7,303
In Total 26,536 25.63 to 34.50 None -- 15,228
Leo A. Guthart 1994 12,878 34.50
1993 12,878 25.63
In Total 25,756 25.63 to 34.50 None -- 3,774
Sal F. Marino 1994
1993
In Total None -- None -- 2,264
Daniel J. Ramella 1994
1993 10,732 25.63
In Total 18,932 9.48 to 25.63 15,580 9.48 943
All Current Executive Officers of
the Company as a group 1994 52,916 34.50
1993 63,648 25.63 2,000 25.63 11,951
In Total 137,064 9.48 to 34.50 47,597 9.48 to 25.63 48,275
All Recipients 1994 90,184 34.50 57,500 34.50
1993 111,448 25.63 96,000 25.63 17,595
In Total 222,132 9.48 to 34.50 203,175 9.48 to 34.50 142,137
<FN>
- ---------
(1) Non-qualified options with terms of ten years, awarded at exercise prices
equal to fair market values of Class A Stock on dates of grant, scheduled
to become exercisable after three to five years, without a cash payment
feature.
(2) SARs exercisable solely for cash with terms of five or ten years, awarded
at specified prices equal to fair market values of Class A Stock on dates
of grant, scheduled to mature in or to become exercisable after three or
five years, respectively, not in tandem with options.
(3) With terms of three years, scheduled to vest in equal annual installments,
with a provision for the payment of dividend equivalents and interest
thereon when Class A Stock is distributed.
</TABLE>
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended only as a brief summary of the federal
income tax consequences of stock options, SARs, restricted stock, Performance
Shares Awards, other awards and supplemental cash
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<PAGE>
payments. The laws governing the tax aspects of awards are highly technical and
such laws are subject to change in the future, and any such change could be
retroactive and affect the validity of the following discussion.
The discussion which follows assumes that, to the extent relevant at the time a
non-qualified option is exercised as to any shares, the optionee will make a
timely election under Section 83(b) of the Code (a "Section 83(b) election") to
have the excess of the fair market value of the shares at the time of exercise
over their option price included in his or her taxable income for the year of
exercise. It is anticipated that, to the extent relevant, optionees will be
required to make such elections.
NON-QUALIFIED OPTIONS. The holder of a non-qualified option does not recognize
taxable income upon the grant thereof, nor is the Company entitled to a
deduction in respect of such grant. Upon the exercise of a non-qualified option
as to any shares, the excess of the fair market value of such shares on the date
of exercise over their option price (the "spread") constitutes compensation
taxable to the optionee as ordinary income. Provided it complies with applicable
withholding requirements, the Company should be entitled to a deduction, in the
year of exercise, in an amount equal to such compensation taxable to the
optionee as ordinary income.
Upon an optionee's sale of shares acquired pursuant to the exercise of a
non-qualified option, the difference between the selling price and the tax basis
of the shares (generally the fair market value of such shares on the date of
exercise) is a capital gain or loss (long-or short-term, depending on the
optionee's holding period for the shares). The Company is not entitled to a
deduction as a result of such a sale.
ISOS. The holder of an ISO does not recognize taxable income upon the grant or
exercise thereof, nor is the Company entitled to a deduction in respect of such
grant or exercise. However, the spread at exercise constitutes an item
includible in alternative minimum taxable income and may subject the optionee
to, or increase the optionee's liability for, alternative minimum tax. Such
alternative minimum tax or increase therein may be payable even though the
optionee receives no cash upon the exercise of his or her ISO with which to pay
such tax or increase.
Upon an optionee's disposition of shares acquired pursuant to the exercise of an
ISO, if the shares have been held for at least one year and if at least two
years have elapsed since the date of grant (i.e., if the "ISO Holding Period"
has expired), the difference between the selling price and the tax basis of such
shares (such basis generally being the option price of such shares) is a
long-term capital gain or loss to the optionee. The Company is not entitled to a
deduction as a result of such a sale.
If option shares are disposed of before the expiration of the ISO Holding Period
(a "disqualifying disposition"), then (i) if the selling price exceeds the fair
market value of the shares on the date of exercise, the excess of such fair
market value over the tax basis of the shares is taxable to the optionee as
ordinary income, and the excess of the selling price over such fair market value
is taxable to the optionee as a capital gain (long-or short-term, depending on
the optionee's holding period), (ii) if the selling price exceeds the tax basis
of the shares but does not exceed the fair market value of the shares on the
date of exercise, the excess of the selling price over the tax basis of the
shares is taxable to the optionee as ordinary income, and (iii) if the selling
price is less than the tax basis of the shares, the difference is a capital loss
to the optionee (long-or short-term, depending on the optionee's holding
period). If, however, the disposition is a sale to a related party (as defined
in Section 267(b) of the Code to include, for example, a member of the
optionee's family or a corporation of which the optionee owns a majority of the
equity interest) or a gift, then the excess of the fair market value of the
shares on the date of exercise over the tax basis of the shares is taxable to
the optionee as ordinary income.
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<PAGE>
An exception to the foregoing treatment may occur in the event a person who is
subject to "six month short-swing profit" liability under Section 16(b) of the
Securities Exchange Act of 1934 ("Section 16(b)") (generally directors and
officers of the Company) disposes of shares in a disqualifying disposition. In
certain circumstances, the fair market value of the shares used in calculating
gain or loss may be determined, and the optionee's holding period may commence,
on a date other than the date of exercise.
The Company should be entitled to a deduction for the year of disposition in an
amount equal to any amount taxable to the optionee as ordinary income upon a
disqualifying disposition.
SARS. The holder of a SAR does not recognize taxable income upon the grant
thereof, nor is the Company entitled to a deduction in respect of such grant.
Upon the exercise of a SAR, the holder generally recognizes ordinary income
equal to the amount of any cash and the fair market value (measured on the date
of exercise) of any Class A Stock received. Provided it complies with applicable
withholding requirements, the Company should be entitled to a deduction in an
amount equal to the amount of ordinary income recognized by the holder.
Upon a holder's sale of any shares received pursuant to the exercise of a SAR,
the difference between the selling price and the tax basis of the shares
(generally the fair market value of such shares on the date of exercise) is a
capital gain or loss (long-or short-term, depending on the holder's holding
period for the shares).
An exception to the foregoing treatment may occur in the event a holder who is
subject to Section 16(b) receives Class A Stock upon the exercise of a SAR. In
certain circumstances, the fair market value of the shares received may be
determined, and the holder's holding period may commence, on a date other than
the date of exercise.
USE OF STOCK TO PAY OPTION PRICE. The general statements as to tax basis in the
previous paragraphs relating to the disposition of stock received on the
exercise of options apply in the event the optionee pays cash for the option
shares. If, however, the optionee pays for the option shares in whole or in part
by delivering already-owned Class A Stock or Common Stock ("old" shares), the
tax basis for the option shares, and thus the consequences of a disposition,
differs.
If an optionee delivers old shares, however acquired, in payment of all or part
of the exercise price of a non-qualified option, the optionee does not recognize
a gain or loss as a result of such delivery (but the exercise continues to give
rise to taxable compensation and to a Company deduction as described above). The
optionee's tax basis in, and holding period for, the option shares is determined
as follows: as to option shares equal in number to the old shares delivered, the
basis in and holding period for the old shares carry over on a share-for-share
basis; as to each remaining share, its basis is the fair market value on the
date of exercise and its holding period begins on that date. Any capital gain or
loss on the sale of a particular option share is measured based on the
difference between the selling price and the optionee's actual tax basis for
such share.
If an optionee delivers old shares (other than old shares acquired upon exercise
of an ISO which were not held for the ISO Holding Period) in payment of all or
part of the exercise price of an ISO, generally the optionee does not recognize
a gain or loss as a result of such delivery. The optionee's tax basis in and
holding period for the option shares is determined as follows: as to option
shares equal in number to the old shares delivered, the basis in and the holding
period for the old shares carries over on a share-for-share basis; as to each
remaining share, its basis equals the exercise price paid in cash (if any). Any
capital gain or loss on the sale of a particular option share is measured based
on the difference between
24
<PAGE>
the selling price and the optionee's actual tax basis for such share. Pursuant
to proposed regulations, if an ISO is exercised using old shares, a later
disqualifying disposition of the shares received is deemed to have been a
disposition of the shares having the lowest tax basis first.
If an optionee pays the exercise price of an option in whole or in part with old
shares that were acquired upon the exercise of an ISO and that have not been
held for the ISO Holding Period, the optionee generally recognizes ordinary
income under the rules applicable to disqualifying dispositions. The Company
should be entitled to a corresponding deduction. The optionee's tax basis in the
option shares which reflect a carry-over basis from the old shares surrendered
is increased by the amount of ordinary income the optionee recognizes.
RESTRICTED STOCK. A participant who is granted restricted stock may, if the
restrictions constitute a "substantial risk of forfeiture" as defined in Section
83 of the Code, make a Section 83(b) election to have the grant taxed as
compensation income at the date of grant in an amount equal to the fair market
value on the date of grant of the shares subject to such award. If the
participant does not make a timely Section 83(b) election, the grant is
generally taxed to him or her as compensation income at the date(s) that the
restrictions imposed on the shares expire, in an amount on each such date equal
to the fair market value on such date of the shares as to which the restrictions
expire. Unless a participant makes a timely Section 83(b) election, any
dividends paid on the shares subject to the award while such shares remain
subject to the restrictions are compensation income to the participant. The
Company is generally entitled to a deduction for any compensation income taxed
to the participant.
Upon a participant's sale of shares received pursuant to a grant of Restricted
Stock, the difference between the selling price and the tax basis of the shares
(generally, if a timely Section 83(b) election is made, the fair market value of
the shares on the date of grant or, if a timely Section 83(b) election is not
made, the fair market value of the shares on the date(s) on which the
restrictions on the shares expire) is a capital gain or loss (long-or
short-term, depending on the participant's holding period for the shares). A
participant's holding period begins on the date of grant if a timely Section
83(b) election is made or on the date(s) on which the restrictions on the shares
expire if no timely Section 83(b) election is made.
An exception to the foregoing treatment may occur in the event that the
participant is subject to Section 16(b). In certain circumstances, the fair
market value of particular shares may be determined, and the participant's
holding period for such shares may commence, on a date other than the date of
grant or the date on which the restrictions on such shares lapse.
PERFORMANCE SHARES AWARDS. The recipient of a Performance Shares Award does not
recognize taxable income upon the grant thereof, nor is the Company entitled to
a deduction in respect of such grant. Upon the issuance of shares pursuant to
the Award, the recipient recognizes compensation in an amount equal to the fair
market value of the issued shares on the date of issuance. Such compensation is
taxed to the recipient as ordinary income for the year of issuance. Any amounts
paid as dividend equivalents or interest thereon at the time of issuance also
constitute compensation taxable to the recipient as ordinary income. The Company
is generally entitled to a deduction for any compensation income taxed to the
recipient. The recipient's holding period begins on the date the shares are
issued.
Upon a recipient's sale of shares received pursuant to a Performance Shares
Award, the difference between the selling price and the tax basis of the shares
(generally the fair market value of the shares on the date such shares were
issued) is a capital gain or loss (long-or short-term, depending on the
recipient's holding period for the shares).
25
<PAGE>
An exception to the foregoing treatment may occur in the event a recipient who
is subject to Section 16(b) receives shares pursuant to a Performance Shares
Award. In certain circumstances, the fair market value of the shares received
may be determined, and the recipient's holding period may commence, on a date
other than the date the shares are issued.
SUPPLEMENTAL CASH PAYMENTS. The amount of any supplemental cash payment to a
participant who exercises a non-qualified option or SAR constitutes compensation
taxable to the participant as ordinary income, and the Company should be
entitled to a deduction for the year of payment in an amount equal to such
compensation.
The supplemental cash payment to the participant is intended to provide the
participant with sufficient funds to pay the federal income tax arising both
from the exercise of the option or SAR and the receipt of such payment. The
Company's cash outlay to the participant should be offset to some extent by the
Company's tax savings arising from the deductions to which the Company is
entitled because of the exercise of the option or SAR and the making of such
payment. The extent of offset depends on the relative income tax rates
applicable to corporations and individuals at the time of exercise.
SURRENDER. The amount paid to a participant upon surrender of an award is
compensation taxable to the participant as ordinary income. The Company should
be entitled to a deduction for the year of payment in an amount equal to such
compensation.
ACCELERATED BENEFITS. In the event that a participant's benefits with respect
to an award pursuant to the Plan are accelerated as the result of a change in
the ownership of the Company or a substantial portion of the Company's assets,
then pursuant to Section 280G of the Code (which deals with the treatment of
"excess parachute payments") the Company may not be entitled to a deduction for
some or all of the accelerated benefits (and potentially for certain other
amounts payable to the participant) and the participant may be subject, in
addition to the federal income taxes otherwise payable with respect to the
award, to a 20% excise tax on the non-deductible portion of the accelerated
benefits (or amounts).
OTHER AWARDS. Because other awards may take many other forms, as determined by
the Committee, it is not possible to describe generally what their tax treatment
will be.
ACCOUNTING TREATMENT
If a non-qualified option or other award involving the right to purchase Class A
Stock is granted at an exercise or purchase price less than fair market value on
the date of grant, the Company incurs compensation expense to the extent of the
difference, which is immediately chargeable against income. The Company incurs
similar compensation expense upon the grant of any award not involving the right
to purchase Class A Stock (which inherently is generally granted for nominal
consideration), but in the case of restricted stock such expense is generally
chargeable to income over the period during which the restrictions expire. The
award of a SAR, a right to a supplemental cash payment, a non-qualified option
which includes a right to a supplemental cash payment, or a Performance Shares
Award results in a charge by the Company against income as compensation expense
of an amount equal to (a) in the case of a Performance Shares Award, the fair
market value at the date of grant of the Class A Stock subject to such award and
(b) in all cases, any periodic increase in any supplemental cash payment and any
periodic increase in the aggregate fair market value of the Class A Stock
subject to such award, or to a credit by the Company to income (but only to the
extent of previous charges) of an amount equal to any periodic decrease in such
aggregate fair market value. Each charge against or credit to income resulting
26
<PAGE>
from an award under the Plan is adjusted for the tax effect attributable
thereto. ISOs and non-qualified options granted at fair market value without any
right to a supplemental cash payment do not affect the Company's income except
for the tax effects discussed in the preceding section.
VOTE REQUIRED FOR APPROVAL
Approval of the proposed amendments to the Plan requires the affirmative vote of
a majority of both (i) the votes present or represented by proxy at the meeting
and (ii) the total number of shares of the Company's Common Stock and Class A
Stock present or represented by proxy at the meeting.
BOARD OF DIRECTORS' RECOMMENDATION
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS AN AFFIRMATIVE VOTE FOR THE
APPROVAL OF THE PROPOSED AMENDMENTS TO THE PLAN.
SECTION 16(A) REPORTS
Based solely on a review of reports of ownership, reports of changes of
ownership and written representations under Section 16(a) of the Securities
Exchange Act of 1934 which were furnished to the Company during 1993 and with
respect to 1993 and prior years by persons who were, at any time during 1993,
directors or officers of the Company or beneficial owners of more than 10% of
the outstanding shares of Common Stock or Class A Stock: (a) each member of the
Harris Group that was required to file, other than the five members who are
directors of the Company (a total of seventy-eight), filed late the respective
Form 3 which became due in May of 1991 on account of changes at that time in the
definition of "beneficial ownership" under Section 16(a) for filing requirement
purposes; and (b) subsequent to such time, certain members of the Harris Group
filed one or more reports late, some of which included transactions that had not
been reported on a timely basis, as follows: Joan W. Harris (one report, one
transaction), Nancy Meyer (one report, two transactions), Benjamin Harris (three
reports, five transactions), David Harris (three reports, five transactions),
Mary Ann Barrows Wark (one report, one transaction), Patricia J. Rosbrow (three
reports, five transactions), Robert L. Barrows (one report, two transactions),
William H. Barrows (three reports, four transactions), Rosetta Harris (one
report, one transaction) and Toni H. Paul (four reports, nine transactions).
ANNUAL REPORT
The Company's annual report for the year ended December 31, 1993 has been mailed
separately to stockholders prior to the mailing of this proxy statement.
Stockholders are referred to the report for financial and other information
about the Company, but such report is not incorporated in this proxy statement
and is not to be deemed a part of the proxy soliciting material.
STOCKHOLDER PROPOSALS FOR THE 1995 ANNUAL MEETING
Any stockholder proposal to be considered for inclusion in proxy material for
the Company's annual meeting of stockholders in May 1995 must be received at the
principal executive offices of the Company no later than December 9, 1994.
27
<PAGE>
PROXY SOLICITATION
Proxies will be solicited by mail. Proxies may also be solicited by directors,
officers and a small number of regular employees of the Company personally or by
mail, telephone or telegraph, but such persons will not be specially compensated
for such services. Brokerage houses, custodians, nominees and fiduciaries will
be requested to forward the soliciting material to the beneficial owners of
stock held of record by such persons, and the Company will reimburse them for
their expenses in doing so.
The entire cost of solicitation will be borne by the Company.
OTHER MATTERS
Price Waterhouse, who served as auditors for the year ended December 31, 1993,
have been selected by the Board, upon recommendation of the Audit Committee, to
audit the consolidated financial statements of the Company for the year ending
December 31, 1994. It is expected that a representative of Price Waterhouse will
attend the annual meeting, with the opportunity to make a statement if he should
so desire, and will be available to respond to appropriate questions.
The management does not intend to present, and does not have any reason to
believe that others will present, any item of business at the annual meeting
other than those specifically set forth in the notice of the meeting. However,
if other matters are properly presented for a vote, the proxies will be voted
for such matters in accordance with the judgment of the persons acting under the
proxies.
By Order of the Board of Directors
NICHOLAS J. CACCAMO
SECRETARY
Chicago, Illinois
April 8, 1994
28
<PAGE>
APPENDIX A
PITTWAY CORPORATION
1990 STOCK AWARDS PLAN
(AS PROPOSED TO BE AMENDED EFFECTIVE MAY 19, 1994)
1. PURPOSE. The purpose of the Pittway Corporation 1990 Stock Awards Plan
(the "Plan") is to promote the long-term financial interests of the Company and
its Affiliates by (a) attracting and retaining personnel, (b) motivating
personnel by means of growth-related incentives, (c) providing incentive
compensation opportunities that are competitive with those of other major
corporations and (d) furthering the identity of interests of participants with
those of the stockholders of the Company.
2. DEFINITIONS. The following definitions are applicable to the Plan:
"AFFILIATE" means (a) any subsidiary and (b) any other entity in which
the Company has a direct or indirect equity interest which is designated an
"Affiliate" by the Committee.
"BOARD OF DIRECTORS" means the Board of Directors of the Company.
"CLASS A STOCK" means Class A Stock, of the par value of $1.00 per
share, of the Company (or, from and after any change of such Class A Stock
into Common Stock on a share-for-share basis pursuant to the Company's
Restated Certificate of Incorporation, as amended, Common Stock) or such
other securities as may be substituted therefor pursuant to paragraph 5(c).
"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor statute.
"COMMITTEE" means the Compensation Committee of the Board of Directors
or, if the Board of Directors so determines, another committee of two or
more directors of the Company who are "disinterested persons" as such term
is used in Rule 16b-3 and "outside directors" as such term is used in
Section 162(m).
"COMPANY" means Pittway Corporation, a Delaware corporation, and its
successors.
"COMMON STOCK" means Common Stock, of the par value of $1.00 per share,
of the Company.
"ELIGIBLE EMPLOYEE" means any full-time employee of the Company or an
Affiliate, other than Irving B. Harris and Neison Harris.
The "FAIR MARKET VALUE" of the Class A Stock shall be determined in
accordance with procedures established by the Committee.
"PARTICIPANT" means any employee of the Company or an Affiliate who has
been granted an award pursuant to the Plan.
"RULE 16B-3" means such rule adopted under the Securities Exchange Act
of 1934, as amended, or any successor rule.
"SECTION 162(M)" means Section 162(m) of the Code and any successor
section of the Code.
"SUBSIDIARY" means any corporation fifty percent or more of the voting
stock of which is owned, directly or indirectly, by the Company.
3. LIMITATION ON AGGREGATE SHARES/INDIVIDUAL ANNUAL LIMITATION ON OPTION
AND SAR AWARDS. Subject to adjustment as provided in paragraph 5(c), the number
of shares of Class A Stock which may be issued
A-1
<PAGE>
upon the exercise or payment of awards granted under the Plan shall not exceed,
in the aggregate, 1,000,000 shares; it being understood that to the extent any
awards expire unexercised or unpaid or are cancelled, terminated or forfeited in
any manner without the issuance of shares of Class A Stock thereunder, such
shares shall again be available under the Plan unless such availability would
prevent the Plan from complying with Rule 16b-3. Such 1,000,000 shares of Class
A Stock may be either authorized and unissued shares, treasury shares, or a
combination thereof, as the Committee shall determine. Subject to adjustment as
provided in paragraph 5(c), the number of shares of Class A Stock with respect
to which options and/or stock appreciation rights may be awarded during any
calendar year to any eligible employee may not exceed, in the aggregate, 50,000
shares.
4. AWARDS. The Committee may grant to eligible employees, in accordance
with this paragraph 4 and the other provisions of the Plan, stock options, stock
appreciation rights ("SARs"), restricted stock and other awards.
(a) OPTIONS.
(i) Options granted under the Plan may be incentive stock options
("ISOs") within the meaning of Section 422A of the Code or any successor
provision, or in such other form, consistent with the Plan, as the
Committee may determine; except that, so long as so provided in such
Section, no ISO may be granted under the Plan after January 16, 2000 or
to any employee of an Affiliate which is not a subsidiary corporation (as
such term is used in subsection (b) of such Section) of the Company.
(ii) The option price per share of Class A Stock shall be fixed by
the Committee at (a) in the case of ISOs, not less than 100% of the fair
market value of a share of Class A Stock on the date of grant and not
less than the par value of a share of Class A Stock and (b) in the case
of other options, not less than 85% of the fair market value of a share
of Class A Stock on the date of grant and not less than the par value of
a share of Class A Stock.
(iii) Options shall be exercisable at such time or times as the
Committee shall determine at or subsequent to grant.
(iv) An option shall be exercised in whole or in part by written
notice to the Company (to the attention of the Treasurer) at any time
prior to its stated expiration and payment in full of the option price
for the shares as to which the option is being exercised. Payment of the
option price may be made, at the discretion of the optionee, and to the
extent permitted by the Committee, (A) in cash (including check, bank
draft, or money order), (B) in Class A Stock already owned by the
optionee (valued at the fair market value thereof on the date of
exercise), (C) in Common Stock already owned by the optionee (valued at
the fair market value thereof on the date of exercise), (D) by a
combination of any or all of the foregoing, or (E) with any other
consideration.
(b) SARS.
(i) An SAR shall entitle its holder to receive from the Company, at
the time of exercise of such right, an amount equal to the excess of the
fair market value (at the date of exercise) of a share of Class A Stock
over a specified price fixed by the Committee multiplied by the number of
shares as to which the holder is exercising the SAR. SARs may be in
tandem with any previously or contemporaneously granted option or
independent of any option. The specified price of a tandem SAR shall be
the option price of the related option. The amount payable may be paid by
A-2
<PAGE>
the Company in Class A Stock (valued at its fair market value on the date
of exercise), cash or a combination thereof, as the Committee may
determine, which determination may take into consideration any preference
expressed by the holder.
(ii) An SAR shall be exercised by written notice to the Company (to
the attention of the Treasurer) at any time prior to its stated
expiration. To the extent a tandem SAR is exercised, the related option
will be cancelled and to the extent the related option is exercised, the
tandem SAR will be cancelled.
(c) RESTRICTED STOCK.
(i) The Committee may award to any eligible employee shares of Class
A Stock, subject to this paragraph 4(c) and such other terms and
conditions as the Committee may prescribe (such shares being called
"restricted stock"). Each certificate for restricted stock shall be
registered in the name of the participant and deposited, together with a
stock power endorsed in blank, with the Company.
(ii) Restricted Stock may be awarded without any consideration other
than services rendered and/or (to the extent permitted by applicable
corporate law on the date of award) services to be rendered.
(iii) There shall be established for each restricted stock award a
restriction period (the "restriction period") of such length as shall be
determined by the Committee. Shares of restricted stock may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as
hereinafter provided, during the restriction period. Except for such
restrictions on transfer and such other restrictions as the Committee may
impose, the participant shall have all the rights of a holder of Class A
Stock as to such restricted stock. The Committee, in its sole discretion,
may permit or require the payment of cash dividends to be deferred and,
if the Committee so determines, reinvested in additional restricted stock
or otherwise invested or accruing a yield. At the expiration of the
restriction period, the Company shall redeliver to the participant (or
the participant's legal representative or designated beneficiary) the
certificates deposited pursuant to this paragraph.
(iv) Except as otherwise provided by the Committee at or subsequent
to the time of grant, upon a termination of employment for any reason
during the restriction period all shares still subject to restriction
shall be forfeited by the participant.
(d) OTHER AWARDS.
(i) Other awards may be granted under the Plan, including, without
limitation, Class A Stock, convertible debentures, other convertible
securities, performance shares and other forms of award measured in whole
or in part by the value of shares of Class A Stock, the performance of
the participant, or the performance of the Company, any Affiliate or any
operating unit thereof. Such awards may be payable in Class A Stock, cash
or a combination thereof, and shall be subject to such restrictions and
conditions, as the Committee shall determine. At the time of such an
award, the Committee shall, if applicable, determine a performance period
and performance goals to be achieved during the performance period,
subject to such later revisions as the Committee shall deem appropriate
to reflect significant unforeseen events such as changes in laws,
regulations or accounting practices or unusual or non-recurring items or
occurrences. Following the conclusion of each performance period, the
Committee shall determine the extent to
A-3
<PAGE>
which performance goals have been attained or a degree of achievement
between maximum and minimum levels during the performance period in order
to evaluate the level of payment to be made, if any.
(ii) The purchase price per share of Class A Stock under other awards
involving the right to purchase Class A Stock (including for this purpose
the right to acquire Class A Stock upon the conversion of convertible
securities) shall be fixed by the Committee at not less than 85% of the
fair market value of a share of Class A Stock on the date of award and
not less than the par value of a share of Class A Stock. Other awards not
involving the right to purchase Class A Stock may be awarded without any
consideration other than services rendered and/or (to the extent
permitted by applicable corporate law on the date of award) services to
be rendered.
(iii) A participant may elect to defer all or a portion of any such
award in accordance with procedures established by the Committee.
Deferred amounts will be subject to such terms and conditions and shall
accrue such yield thereon (which may be measured by the fair market value
of the Class A Stock and dividends thereon) as the Committee may
determine. Payment of deferred amounts may be in cash, Class A Stock or a
combination thereof, as the Committee may determine. Deferred amounts
shall be considered an award under the Plan. The Committee may establish
a trust or trusts to hold deferred amounts or any portion thereof for the
benefit of the participants.
(e) CASH PAYMENTS. SARs and options which are not ISOs may, in the
Committee's discretion, provide that in connection with exercises
thereof the holders will receive cash payments based on formulas
designed to reimburse holders for their income tax liability resulting
from such exercise and the payment made pursuant to this paragraph 4(e).
(f) SURRENDER. If so provided by the Committee at or subsequent to the
time of grant, an award may be surrendered to the Company on such terms
and conditions, and for such consideration, as the Committee shall
determine.
(g) FOREIGN ALTERNATIVES. Without amending and notwithstanding the other
provisions of the Plan, in the case of any award to be held by any
participant who is employed outside the United States or who is a
foreign national, the Committee may specify that such award shall be
made on such terms and conditions different from those specified in the
Plan as may, in the judgment of the Committee, be necessary or desirable
to further the purposes of the Plan.
5. MISCELLANEOUS PROVISIONS.
(a) ADMINISTRATION. The Plan shall be administered by the Committee.
Subject to the limitations of the Plan, the Committee shall have the
sole and complete authority: (i) to select participants, (ii) to make
awards in such forms and amounts as it shall determine, (iii) to impose
such limitations, restrictions and conditions upon such awards as it
shall deem appropriate, (iv) to interpret the Plan and to adopt, amend
and rescind administrative guidelines and other rules and regulations
relating to the Plan, (v) to correct any defect or omission or to
reconcile any inconsistency in the Plan or in any award granted
hereunder and (vi) to make all other determinations and to take all
other actions necessary or advisable for the implementation and
administration of the Plan. The Committee's determinations on matters
within its authority shall be conclusive and binding upon the Company
and all other persons. All expenses associated with the Plan shall be
borne by the Company, subject to such allocation to its Affiliates and
operating units as it deems appropriate.
A-4
<PAGE>
The Committee may, to the extent that any such action will not prevent
the Plan from complying with Rule 16b-3 or Section 162(m), delegate any
of its authority hereunder to such persons as it deems appropriate.
(b) NON-TRANSFERABILITY. Subject to the provisions of paragraph 5(f), no
award under the Plan, and no interest therein, shall be transferable by
a participant otherwise than by will or the laws of descent and
distribution. All awards shall be exercisable or received during a
participant's lifetime only by the participant or the participant's
legal representative. Any purported transfer contrary to this provision
will nullify the award.
(c) ADJUSTMENTS UPON CERTAIN CHANGES. In the event of any
reorganization, recapitalization, reclassification, merger,
consolidation, or sale of all or substantially all of the Company's
assets followed by liquidation, which is effected in such a way that
holders of Class A Stock are entitled to receive securities or other
assets with respect to or in exchange for Class A Stock (an "Organic
Change"), the Committee shall make appropriate changes to insure that
each outstanding award involving the right to acquire Class A Stock
thereafter represents the right to acquire, in lieu of or in addition to
the shares of Class A Stock immediately theretofore acquirable upon
exercise or payment, such securities or assets as may be issued or
payable with respect to or in exchange for an equivalent number of
shares of Class A Stock, and appropriate changes in other outstanding
awards; and in the event of any stock dividend, stock split or
combination of shares, the Board of Directors shall make appropriate
changes in the number of shares authorized by the Plan to be delivered
thereafter and in the maximum number of shares with respect to which
options and/or SARs may be awarded during any calendar year to any
eligible employee, and the Committee shall make appropriate changes in
the numbers of shares covered by, or with respect to which payments are
measured under, outstanding awards and the exercise prices and reference
prices specified therein (and in the event of a spinoff, the Committee
may make similar changes), in order to prevent the dilution or
enlargement of award rights. However, no right to purchase or receive a
fraction of a share shall be created; and if, as a result of any such
change, a fractional share would result or the right to purchase or
receive the same would result, the number of shares in question shall be
decreased to the next lower whole number of shares. The Committee may
provide in the agreement evidencing any award for adjustments to such
award in order to prevent the dilution or enlargement of rights
thereunder or for acceleration of benefits thereunder and/or cash
payments in lieu of benefits thereunder in the event of a change in
control (or tender offer or accumulation of Class A Stock or Common
Stock), merger, consolidation, reorganization, recapitalization, sale or
exchange of all or substantially all of the assets or dissolution of the
Company.
(d) TAX WITHHOLDING. The Committee shall have the power to withhold, or
require a participant to remit to the Company, an amount sufficient to
satisfy any withholding or other tax due with respect to any amount
payable and/or shares issuable under the Plan, and the Committee may
defer such payment or issuance unless indemnified to its satisfaction.
Subject to the consent of the Committee, a participant may make an
irrevocable election to have shares of Class A Stock otherwise issuable
under an award withheld, tender back to the Company shares of Class A
Stock received pursuant to an award or deliver to the Company shares of
Class A Stock or Common Stock already owned by the participant having a
fair market value sufficient to satisfy all or part of the participant's
estimated tax obligations associated with the transaction. Such election
A-5
<PAGE>
must be made by a participant prior to the date on which the relevant
tax obligation arises. The Committee may disapprove of any election and
may limit, suspend or terminate the right to make such elections.
(e) LISTING AND LEGAL COMPLIANCE. The Committee may suspend the exercise
or payment of any award if it determines that securities exchange
listing or registration or qualification under any securities laws is
required in connection therewith and has not been completed on terms
acceptable to the Committee.
(f) BENEFICIARY DESIGNATION. To the extent permitted by the Committee,
participants may name, from time to time, beneficiaries (who may be
named contingently or successively) to whom benefits under the Plan are
to be paid in the event of their death before they receive any or all of
such benefits. Each designation will revoke all prior designations by
the same participant, shall be in a form prescribed by the Committee,
and will be effective only when filed by the participant in writing with
the Committee during the participant's lifetime. In the absence of any
such designation, benefits remaining unpaid at a participant's death
shall be paid to the participant's estate.
(g) RIGHTS OF PARTICIPANTS. Nothing in the Plan shall interfere with or
limit in any way the right of the Company or any Affiliate to terminate
any participant's employment at any time, nor confer upon any
participant any right to continue in the employ of the Company or any
Affiliate for any period of time or to continue his or her present or
any other rate of compensation. No employee shall have a right to be
selected as a participant, or, having been so selected, to be selected
again as a participant.
(h) AMENDMENT, SUSPENSION AND TERMINATION OF PLAN. The Board of
Directors or the Committee may suspend or terminate the Plan or any
portion thereof at any time and may amend it from time to time in such
respects as the Board of Directors or the Committee may deem advisable;
provided, however, that no such amendment shall be made without
stockholder approval to the extent such approval is required by law,
agreement or the rules of any exchange upon which the Class A Stock is
listed. No such amendment, suspension or termination shall impair the
rights of participants under outstanding awards without the consent of
the participants affected thereby or make any change that would
disqualify the Plan, or any other plan of the Company intended to be so
qualified, from the exemption provided by Rule 16b-3.
The Committee may amend or modify any award in any manner to the extent
that the Committee would have had the authority under the Plan to
initially grant the award as so amended or modified. No such amendment
or modification shall impair the rights of the participant under such
award without the consent of such participant.
6. EFFECTIVE DATE. The effective date of the Plan shall be January 17,
1990, the date of its adoption by the Board of Directors. Notwithstanding the
foregoing, the Plan shall be submitted to the stockholders of the Company for
consideration at the Company's 1990 Annual Meeting of Stockholders and shall
cease to be of any further force or effect if not approved at such Annual
Meeting by a vote sufficient to satisfy the requirements of the General
Corporation Law of the State of Delaware, the American Stock Exchange, Section
422A(b) of the Code, and paragraph (a) of Rule 16b-3 under the Securities
Exchange Act of 1934. No award granted under the Plan before the Company's 1990
Annual Meeting of Stockholders shall be exercisable or realizable unless the
Plan is so approved at such Annual Meeting.
A-6
<PAGE>
(LOT A&B--CLASS A PROXY)
<TABLE>
<C> <C> <S>
PITTWAY CORPORATION CLASS A PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
200 S. Wacker Drive STOCK Neison Harris, King Harris and Nicholas J. Caccamo (each
Chicago, IL 60606-5802 PROXY with full power of substitution) are hereby authorized to
- -------------------------- vote all the shares of Class A Stock which the undersigned
would be entitled to vote if personally present at the
annual meeting of stockholders of Pittway Corporation to be
held on May 19, 1994, and at any adjournment thereof as
follows:
</TABLE>
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS FOR all nominees listed below - - WITHHOLD AUTHORITY - -
(except as noted to the contrary to vote for all nominees listed below
below)
E. Barnett, E.D. Coolidge III and A. Downs
(INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee's name in the
space provided below.)
------------------------------------------------------------------------------------------------------
2. AMENDMENTS OF PITTWAY CORPORATION 1990 STOCK AWARDS PLAN PROPOSED BY BOARD OF DIRECTORS.
FOR -------- AGAINST-------- ABSTAIN--------
3. In their discretion upon such other business as may properly be brought before the meeting.
</TABLE>
(CONTINUED ON REVERSE SIDE)
<PAGE>
(BACK SIDE--COMMON TO ALL LOTS)
The shares represented by this proxy will be voted as herein directed,
but if no direction is given, the shares will be voted FOR the election of
directors and FOR the amendments of the Pittway Corporation 1990 Stock Awards
Plan.
<TABLE>
<S> <C>
Dated , 1994 ---------------------------------------
- - - ---------------------------------------
(Signature of Stockholder)
(Please fill in, sign and date this
proxy and mail it in the envelope
provided.)
IMPORTANT: Please sign exactly as your
name or names appear on the left. Joint
owners should each sign personally. If
you sign as agent or in any other
representative capacity, please state
the capacity in which you sign.
</TABLE>
<PAGE>
(LOT A&B--COMMON STOCK PROXY)
<TABLE>
<C> <C> <S>
PITTWAY CORPORATION COMMON PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
200 S. Wacker Drive STOCK Neison Harris, King Harris and Nicholas J. Caccamo (each
Chicago, IL 60606-5802 PROXY with full power of substitution) are hereby authorized to
- -------------------------- vote all the shares of Common Stock which the undersigned
would be entitled to vote if personally present at the
annual meeting of stockholders of Pittway Corporation to be
held on May 19, 1994, and at any adjournment thereof as
follows:
</TABLE>
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS FOR all nominees listed below - - WITHHOLD AUTHORITY - -
(except as noted to the contrary to vote for all nominees listed below
below)
S. Barrows, F. Conforti, L. Guthart, I. Harris, K. Harris, N. Harris, W. Harris and J. Kahn, Jr.
(INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee's name in the
space provided below.)
------------------------------------------------------------------------------------------------------
2. AMENDMENTS OF PITTWAY CORPORATION 1990 STOCK AWARDS PLAN PROPOSED BY BOARD OF DIRECTORS.
FOR -------- AGAINST-------- ABSTAIN--------
3. In their discretion upon such other business as may properly be brought before the meeting.
</TABLE>
(CONTINUED ON REVERSE SIDE)
<PAGE>
(BACK SIDE--COMMON TO ALL LOTS)
The shares represented by this proxy will be voted as herein directed,
but if no direction is given, the shares will be voted FOR the election of
directors and FOR the amendments of the Pittway Corporation 1990 Stock Awards
Plan.
<TABLE>
<S> <C>
Dated , 1994 ---------------------------------------
- - - ---------------------------------------
(Signature of Stockholder)
(Please fill in, sign and date this
proxy and mail it in the envelope
provided.)
IMPORTANT: Please sign exactly as your
name or names appear on the left. Joint
owners should each sign personally. If
you sign as agent or in any other
representative capacity, please state
the capacity in which you sign.
</TABLE>
<PAGE>
(LOT A&B--CLASS A PROXY)
<TABLE>
<C> <C> <S>
PITTWAY CORPORATION CLASS A PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
200 S. Wacker Drive STOCK Neison Harris, King Harris and Nicholas J. Caccamo (each
Chicago, IL 60606-5802 PROXY with full power of substitution) are hereby authorized to
- -------------------------- vote all the shares of Class A Stock which the undersigned
would be entitled to vote if personally present at the
annual meeting of stockholders of Pittway Corporation to be
held on May 19, 1994, and at any adjournment thereof as
follows:
</TABLE>
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS FOR all nominees listed below - - WITHHOLD AUTHORITY - -
(except as noted to the contrary to vote for all nominees listed below
below)
E. Barnett, E. Coolidge III and A. Downs
(INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee's name in the
space provided below.)
------------------------------------------------------------------------------------------------------
2. AMENDMENTS OF PITTWAY CORPORATION 1990 STOCK AWARDS PLAN PROPOSED BY BOARD OF DIRECTORS.
FOR -------- AGAINST-------- ABSTAIN--------
3. In their discretion upon such other business as may properly be brought before the meeting.
</TABLE>
(CONTINUED ON REVERSE SIDE)
<PAGE>
(BACK SIDE--COMMON TO ALL LOTS)
The shares represented by this proxy will be voted as herein directed,
but if no direction is given, the shares will be voted FOR the election of
directors and FOR the amendments of the Pittway Corporation 1990 Stock Awards
Plan.
<TABLE>
<S> <C>
Dated , 1994 ---------------------------------------
- - - ---------------------------------------
(Signature of Stockholder)
(Please fill in, sign and date this
proxy and mail it in the envelope
provided.)
IMPORTANT: Please sign exactly as your
name or names appear on the left. Joint
owners should each sign personally. If
you sign as agent or in any other
representative capacity, please state
the capacity in which you sign.
</TABLE>
