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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Year Ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-4821
PITTWAY CORPORATION
(Exact Name of Registrant as specified in its Charter)
Delaware 13-5616408
(State of Incorporation) (I.R.S. Employer Identification
No.)
200 South Wacker Drive, Suite 700, Chicago, Illinois 60606-5802
(Address of Principal Executive Offices) (ZIP Code)
312/831-1070
(Registrant's Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock, $1.00 par value American Stock Exchange
Class A Stock, $1.00 par value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant (based on closing sales prices on March 18, 1996):
$647,436,000.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date (March 18, 1996):
Common Stock - 3,938,832 shares outstanding; Class A Stock - 16,973,313
shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1995 Annual Report to Stockholders are
incorporated by reference into Parts I and II of this report.
Portions of the Registrant's Proxy Statement for the annual meeting of
stockholders to be held on May 9, 1996 are incorporated by reference into
Part III of this report.
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PITTWAY CORPORATION
INDEX TO
ANNUAL REPORT ON FORM 10-K
For The Year Ended December 31, 1995
PART I Page
Item 1 Business 3-7
Item 2 Properties 7-8
Item 3 Legal Proceedings 9-10
Item 4 Submission of Matters to a Vote of Security Holders 10
PART II
Item 5 Market For Registrant's Common Equity and Related
Stockholder Matters 10
Item 6 Selected Financial Data 10
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 8 Financial Statements and Supplementary Data 10
Item 9 Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 10
PART III
Item 10 Directors and Executive Officers of the Registrant 11
Item 11 Executive Compensation 11
Item 12 Security Ownership of Certain Beneficial
Owners and Management 11
Item 13 Certain Relationships and Related Transactions 11
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 11
SIGNATURES 12
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PART I
Item 1. Business
(a) General Development of Business
Pittway Corporation ("Pittway" or "Registrant"), formerly Standard Shares,
Inc. ("Standard"), was incorporated under Delaware law in 1925. Pittway and
its subsidiaries are referred to herein collectively as the "Company".
The Company operates in two reportable industry segments: alarm and other
security products, and publishing.
Acquisitions and dispositions of businesses by the Company, other than the
discontinued operations discussed below, in each of the three years ended
December 31, 1995 were not significant to the Company's sales or results of
operations.
During the first half of 1994, the Company sold its 16.67% ownership in First
Alert, Inc., a manufacturer of residential fire protection products, as part
of an initial public offering of that company's common stock. Financial
information relating to this transaction is set forth in Note 10 ("Fair Value
of Financial Instruments") to the Consolidated Financial Statements contained
in the 1995 Annual Report to Stockholders, pages 39-40, which Note is
incorporated herein by reference.
In April 1993, the Company distributed its investment in the AptarGroup, Inc.
(formerly known as the Seaquist Division packaging group) to stockholders in a
tax-free spinoff. AptarGroup, Inc. is a manufacturer of aerosol valves,
dispensing pumps and closures which are sold to packagers and marketers in the
personal care, fragrance/cosmetics, pharmaceutical, household products and
food industries. In October 1992, the Company sold its Barr Company, a
contract packager for marketers of aerosol and liquid fill (non-aerosol)
personal and household products, to a Canadian packaging company. In July
1992, the Company sold its First Alert/BRK Electronics business to a new
company formed by BRK management and an investment firm. Financial information
relating to these transactions is set forth in Note 1 ("Discontinued
Operations") to the Consolidated Financial Statements contained in the 1995
Annual Report to Stockholders, page 36, which Note is incorporated herein by
reference.
(b) Financial Information about Industry Segments
Financial information relating to industry segments for each of the three
years ended December 31, 1995 is set forth in Note 13 ("Segment Information")
to the Consolidated Financial Statements contained in the 1995 Annual Report
to Stockholders, pages 41-42, which Note is incorporated herein by reference.
(c) Narrative Description of Business
The principal operations, products and services rendered by the Company:
Alarm and Other Security Products Segment
This segment involves the design, manufacture and sale of an extensive line of
burglar alarm, commercial fire detection, closed circuit television,
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access control and other alarm components and systems as well as the
distribution of alarm and other security products manufactured by other
companies. By offering a broad line of alarm products needed for security
systems, the Company provides a full range of services to independent alarm
dealers and installers which range in size from one-person operations to the
largest national alarm service companies. In every major domestic market
area, quick delivery is provided through the Company's computerized regional
warehouses and convenience center outlets, authorized distributors and
dealers. Various products sold through the alarm system distribution group are
purchased from non-affiliated suppliers and manufacturers to offer a broad
range of products. Some of the products purchased are resold under the
Company's Ademco brand name, others are resold under brand names owned by its
suppliers. In the Canadian and overseas markets, alarm and other security
products are sold through the Company's distribution centers, authorized
distributors and sales agents. The Company also offers AlarmNet to alarm
companies in major U.S. markets. AlarmNet is a wireless cellular-like
communication network designed to transmit security alarm signals by radio
instead of over telephone lines.
Commercial fire detectors and fire controls are sold through the Company's
regional warehouses, electrical and building supply wholesalers and alarm and
fire safety distributors.
Raw materials essential to the Company's businesses are purchased worldwide in
the ordinary course of business from numerous suppliers. The vast majority of
these materials are generally available from more than one supplier and no
serious shortages or delays have been encountered. Certain raw materials used
in producing some of the Company's products can be obtained only from one or
two suppliers, the shortage of which could adversely impact production of
alarm equipment and commercial fire detectors by the Company. The Company
believes that the loss of any other single source of supply would not have a
material adverse effect on its overall business.
Through its NESCO subsidiary the Company offers a wide variety of services to
independent distributors of its fire alarm systems products, including
assistance with system design, bonding, technical help, training, marketing
and administrative support. The Company also offers a brand name marketing
program to independent burglar alarm dealers.
Sales and marketing methods common to this industry segment include
communications through the circulation of catalogs and merchandising
bulletins, direct mail campaigns, and national and local advertising in trade
publications. The Company's principal advantages in marketing are its
reputation, broad product line, high quality products, extensive integrated
distribution network, efficient customer service, competitive prices and brand
names.
Within the industry there is competition from large and small manufacturers in
both the domestic and foreign markets. While competitors will continue to
introduce new products similar to those sold by the Company, the Company
believes that its research and development efforts and the breadth and quality
of its distribution network will permit it to remain competitive.
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Publishing Segment
This segment is a publisher of 33 national business and trade publications. A
variety of magazine-related products are also offered including directories,
readership lists, CD-ROMs, on-line computer services, and custom publishing.
The Company's publications serve both specific industries and broad functional
markets which include specialized manufacturing, service industries, technical
and professional fields and general management. Most publications are
distributed on a monthly basis with several others distributed on a biweekly,
annual or biennial frequency. The publications are generally distributed free
through controlled circulation. The principal source of revenue is from the
sale of advertising space within the magazines. Other facets of the business
include: the operation of a printing plant for the printing and production of
most of the Company's publications and those of other publishers; a national
direct mail-marketing organization serving the pharmaceutical, health care and
business services markets; a printer which provides mailing service
capabilities to the Company's direct mail-marketing organization and to
outside customers; research and telemarketing services; direct-response card
mailer service; trade shows and special publications.
Within the publishing and marketing communications fields, competition exists
in the form of other publications and media communication businesses.
Reductions in advertising schedules by domestic industrial companies due to
economic and other competitive pressures directly impacts the display
advertising levels of the Company's publishing segment. The Company competes
with one or more other magazines for advertising revenue in each of its
magazine titles. The Company's principal sales advantages include relevant
editorial content and innovative marketing complemented by specialized
multi-magazine supplements. The Company believes that its competitive
position also benefits from improvements in productivity and from cost control
programs. The Company places great emphasis on providing quality products and
services to its customers.
Real Estate and Other Ventures
The Company is involved in the marketing, sale and development of land near
Tampa, Florida for residential and commercial use. Saddlebrook Village, a
2,000 acre parcel of land nearby, is approved for development as a master
planned community. Saddlebrook Corporate Center, a nearby 450 acre parcel,
was originally planned as a business park for mixed use development, although
the partial conversion to a residential community is being considered due to
the demand for residential housing. Principal competition comes from other
residential and commercial developments in Florida.
The Company owns 8,606,085 shares of Cylink Corporation (Cylink) a leading
supplier of network information security products that enable the secure
transmission of data over private local area networks and wide area networks
and public packet switched networks, such as the Internet. Cylink further
offers a line of spread spectrum radio products that are used for wireless
voice and data communications. The Company also owns 4,157,375 shares of
United States Satellite Broadcasting Company Inc. (USSB), a company which
provides subscription television programming via high-power direct broadcast
satellite to households throughout the Continental U.S. Both of these
companies made initial public offerings of their respective stocks in February
of 1996. Additionally, the Company has approximately an
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11% interest in a joint venture that develops wireless signaling equipment for
communication between fixed points.
The Company has a limited partnership interest in a real estate developer with
major commercial and residential high rise properties in Chicago, Dallas, Los
Angeles and Boston. See Item 7 of this Form 10-K. The Company also has
invested, as a 5% limited partner, in four rental apartment complexes located
in Chicago, Indianapolis and Washington, D.C. which provide certain tax
advantages.
Other Information
Patents and Trademarks -
While the Company owns or is licensed under a number of patents which are
cumulatively important to each of its business units, the loss of any single
patent or group of patents would not have a material adverse effect on the
Company's overall business.
Products manufactured by the Company are sold primarily under its own
trademarks and tradenames. Some products purchased and resold by the
Company's alarm and security products business are sold under the Company's
tradenames while others are sold under tradenames owned by its suppliers.
Customers -
Neither of the Company's industry segments is dependent upon a single customer
or a few customers. The loss of any one or more of these customers would not
have a material adverse effect on the Company's results of operations.
Research and Development -
The Company is engaged in programs to develop and improve products as well as
develop new and improved manufacturing methods. Expenditures for Company
sponsored research and development activities in the alarm and other security
products segment were $16.6 million in 1995, $11.8 million in 1994 and $10.8
million in 1993. These costs, which are expensed in the Company's
consolidated income statement, were associated with a number of products in
varying stages of development, none of which represents a significant item of
cost or is projected to be a significant addition to the Company's line of
products.
Product Liability -
Due to the nature of the alarm security business, the Company has been, and
continues to be, subjected to numerous claims and lawsuits alleging defects in
its products. This exposure has been lessened by the sale of First Alert/BRK
Electronics. It is likely, due to the present litigious atmosphere in the
United States, that additional claims and lawsuits will be filed in future
years. The Company believes that it maintains sufficient insurance to cover
this exposure.
While it believes that resolution of existing claims and lawsuits will not
have a material adverse effect on the Company's financial statements,
management is unable to estimate the financial impact of claims and lawsuits
which may be filed in the future.
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Environmental Matters -
The Company anticipates that compliance with various laws and regulations
relating to protection of the environment will not have a material effect on
its capital expenditures, earnings or competitive position.
Employees -
At December 31, 1995, there were approximately 6,000 persons employed by the
Company, including 4,800 employed in the United States. Approximately 1,200
of the employees working in the United States were represented by labor
unions. The Company considers its relations with its employees and the unions
representing its employees to be good.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
Financial information concerning foreign and domestic operations and export
sales is set forth in Note 13 ("Segment Information") to the Consolidated
Financial Statements contained in the 1995 Annual Report to Stockholders,
pages 41-42, which Note is incorporated herein by reference.
Item 2. Properties
The Company's principal properties and their general characteristics are as
follows:
Principal Lease Approximate
Location Use Expiration Square Feet
Alarm and Other Security
Products Segment-
Syosset, New York (1) N/A 340,000
Syosset, New York (3) 1997 14,000
Syosset, New York (1) 1997 6,000
Syosset, New York (1) 2000 17,000
Syosset, New York (1) 2014 10,000
Torrance, California (1) 1998 48,000
Miami, Florida (2) 2000 14,000
El Paso, Texas (2) 2001 19,000
Louisville, Kentucky (3) 2001 4,000
Raleigh, North Carolina (1) 1998 8,000
Northford, Connecticut (1) N/A 179,000
St. Charles, Illinois (1) 2003 158,000
St. Charles, Illinois (1) 2004 50,000
West Chicago, Illinois (1) 1998 21,000
Norcross, Georgia (3) 1998 6,000
Melbourne, Australia (2) 1998 5,000
Sydney, Australia (2) 1998 25,000
Alleur, Belgium (2) 1997 5,000
Toronto, Canada (2) 1998 7,000
Concord, Ontario, Canada (2) 1997 7,000
Brighton, England (1) 1997 24,000
Lichfield Staffs, England (4) 2014 20,000
East Kilbride, Scotland (1) N/A 15,000
Hilden, Germany (2) 1999 8,000
Tsuen Wan, TN, Hong Kong (2) 1997 5,000
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Principal Lease Approximate
Location Use Expiration Square Feet
Alarm and Other Security
Products Segment- (continued)
Milan, Italy (1) N/A 14,000
Milan, Italy (2) 2001 8,000
Trieste, Italy (1) N/A 40,000
Juarez, Mexico (4) 1999 68,000
Madrid, Spain (2) 2000 8,000
Barcelona, Spain (2) 2005 6,000
Distribution Centers
Hub Locations:
Atlanta, Georgia (2) 2005 29,000
Boston, Massachusetts (2) 1999 14,000
Los Angeles, California (2) 1999 30,000
Chicago, Illinois (2) 2005 40,000
Clearwater, Florida (2) 2004 27,000
Memphis, Tennessee (2) 2006 15,000
Fairfield, New Jersey (2) 1996 16,000
Richmond, Virginia (2) 2004 14,000
Louisville, Kentucky (2) 1999 60,000
Phoenix, Arizona (2) 2004 15,000
Toronto, Canada (2) 1997 11,000
Publishing Segment-
Cleveland, Ohio (3) 2000 179,000
Cleveland, Ohio (2) 1996 30,000
Berea, Ohio (5) N/A 100,000
New York, New York (3) 2000 10,000
Dunedin, Florida (3) 2000 8,000
Safety Harbor, Florida (1) 1997 19,000
Tampa, Florida (5) 1999 30,000
General Corporate-
Chicago, Illinois (3) 2001 12,000
Other properties in the alarm and other security products segment include 82
full-line convenience centers in addition to those hub locations listed above
which function as retail-like sales distribution outlets to serve the North
American market. These 82 centers are under leases expiring through 2002 and
range in size from 1,500 to 11,500 square feet. Other properties in the
publishing segment include 12 sales and/or editorial offices under leases
expiring through 2003 located in major cities throughout the United States.
The Company believes the above facilities are adequate for its present needs.
(1) Offices, Manufacturing and Warehousing
(2) Warehousing
(3) General Offices
(4) Manufacturing
(5) Printing
N/A Not applicable - facilities are owned by the Company
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Item 3. Legal Proceedings
On May 10, 1989, the Circuit Court of the Sixth Judicial Circuit in and for
Pasco County, Florida, entered a judgment against Saddlebrook Resorts, Inc.
("Saddlebrook"), a former subsidiary of the Company, in a lawsuit which arose
out of the development of Saddlebrook's resort and a portion of the adjoining
residential properties owned and currently under development by the Company.
The lawsuit (James H. Porter and Martha Porter, Trustees, et al. vs.
Saddlebrook Resorts, Inc. and The County of Pasco, Florida; Case No. CA83-
1860), alleges damage to plaintiffs' adjoining property caused by surface
water effects from improvements to the properties. Damages of approximately
$8 million were awarded to the plaintiffs and an injunction was entered
requiring, among other things, that Saddlebrook work with local regulatory
authorities to take corrective actions. Saddlebrook made two motions for a
new trial, based on separate grounds. One such motion was granted on December
18, 1990. Such grant was appealed by the plaintiffs. The other such motion
was denied on February 28, 1991. Saddlebrook appealed such denial. The
appeals were consolidated, fully briefed and heard in February 1992.
Saddlebrook received a favorable ruling on March 18, 1992, dismissing the
judgment and remanding the case to the Circuit Court for a new trial. An
agreed order has been entered by the Court preserving the substance of the
injunction pending final disposition of this matter. As part of its plan to
comply with the agreed order, Saddlebrook filed applications with the
regulatory agency to undertake various remediation efforts. Plaintiffs,
however, filed petitions for administrative review of the applications, which
administrative hearing was concluded in February 1992. On March 31, 1992, the
hearing officer issued a recommended order accepting Saddlebrook's expert's
testimony. The agency's governing board was scheduled to consider this
recommended order on April 28, 1992, however, shortly before the hearing, the
plaintiffs voluntarily dismissed their petitions and withdrew their challenges
to the staff's proposal to issue a permit.
At the April 28, 1992 hearing the governing board closed its file on the
matter and issued the permits. Saddlebrook appealed the board's refusal to
issue a final order. On July 9, 1993 a decision was rendered for Saddlebrook
remanding jurisdiction to the governing board for further proceedings,
including entry of a final order which was issued on October 25, 1993. The
plaintiffs appealed the Appellate Court decision to the Florida Supreme Court
and appealed the issuance of the final order to the Second District Court of
Appeals. The Florida Supreme Court heard the appeal on May 3, 1994 and denied
plaintiffs' appeal. The other appeal was voluntarily dismissed by the
plaintiffs on June 17, 1994. On remand to the trial court, Saddlebrook's
motion for summary judgment, based on collateral estoppel on the ground that
plaintiffs' claims were fully retried and rejected in a related administrative
proceeding was granted on December 7, 1994. Plaintiffs filed for a rehearing
which was denied. Plaintiffs have appealed the trial court's decision
granting summary judgment.
Until October 14, 1989, Saddlebrook disputed responsibility for ultimate
liability and costs (including costs of corrective action). On that date, the
Company and Saddlebrook entered into an agreement with regard to such matters.
The agreement, as amended and restated on July 16, 1993, provides for the
Company and Saddlebrook to split equally the costs of the defense of the
litigation and the costs of certain related litigation and proceedings, the
costs of the ultimate judgment, if any, and the costs of any mandated remedial
work. Subject to certain conditions, the agreement
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permits Saddlebrook to obtain subordinated loans from the Company to enable
Saddlebrook to pay its one-half of the costs of the latter two items. No
loans have been made to date.
The Company believes that the ultimate outcome of the aforementioned lawsuit
will not have a material adverse effect on its financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market For Registrant's Common Equity and Related Stock-
holder Matters
The information set forth under the heading "Market Prices, Security Holders
and Dividend Information" appearing on page 45 of the Company's 1995 Annual
Report to Stockholders is incorporated herein by reference.
Item 6. Selected Financial Data
The information set forth under the heading "Supplemental Information -Five
Year Summary of Selected Financial Data" appearing on page 44 of the Company's
1995 Annual Report to Stockholders is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The information set forth under the heading "Management's Discussion and
Analysis" appearing on pages 46-47 of the Company's 1995 Annual Report to
Stockholders is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Company's Consolidated Financial Statements and Summary of Accounting
Policies and Notes thereto, together with the report thereon of Price
Waterhouse LLP dated February 21, 1996, appearing on pages 29-43 of the
Company's 1995 Annual Report to Stockholders are incorporated herein by
reference.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
None.
PART III
Information required to be furnished in this part of the Form 10-K has been
omitted because the Registrant will file with the Securities and Exchange
Commission a definitive proxy statement pursuant to Regulation 14A under the
Securities Exchange Act of 1934 not later than April 30, 1996.
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Item 10. Directors and Executive Officers of the Registrant
The information set forth under the headings "Nominees for Election by the
Holders of Class A Stock", "Nominees for Election by the Holders of Common
Stock", "Executive Officers" and "Section 16(a) Reports" in the Registrant's
Proxy Statement for the annual meeting of stockholders to be held on May 9,
1996 is incorporated herein by reference.
Item 11. Executive Compensation
The information set forth under the headings "Compensation Committee
Interlocks and Insider Participation", "Compensation", "Compensation Committee
Report on Executive Compensation" and "Performance Graph" in the Registrant's
Proxy Statement for the annual meeting of stockholders to be held on May 9,
1996 is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information set forth under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the Registrant's Proxy Statement for the
annual meeting of stockholders to be held on May 9, 1996 is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
The information set forth under the headings "Certain Transactions" (and the
information set forth under the heading "Compensation Committee Interlocks and
Insider Participation" which is cross-referenced under the heading "Certain
Transactions") in the Registrant's Proxy Statement for the annual meeting of
stockholders to be held on May 9, 1996 is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial statements and financial statement schedule filed as
a part of this report are listed in the Index to Consolidated
Financial Statements and Financial Statement Schedules on page
13 of this Form 10-K and are incorporated herein by reference.
Exhibits required by Item 601 of Regulation S-K are listed in
the Index to Exhibits on pages 16-17 of this Form 10-K, which is
incorporated herein by reference. Each management contract or
compensatory plan or arrangement required to be filed as an
Exhibit to this report pursuant to Item 14 (c) of Form 10-K is
so identified on the Index to Exhibits.
(b) Reports on Form 8-K:
The registrant announced a potential significant increase in
the value of its investments in United States Satellite
Broadcasting, Inc. and Cylink Corporation in a filing on
Form 8-K dated December 21, 1995.
The registrant announced a three for two stock split in its
Common and Class A stock in a filing on Form 8-K dated
January 23, 1996.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PITTWAY CORPORATION
(Registrant)
BY /s/ Paul R. Gauvreau
Paul R. Gauvreau
Financial Vice President and Treasurer
Date: March 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on March 27, 1996.
/s/ Neison Harris /s/ Anthony Downs
Neison Harris, Director and Anthony Downs, Director
Chairman of the Board
/s/ King Harris /s/ Leo A. Guthart
King Harris, Director, President Leo A. Guthart, Director
and Chief Executive Officer
/s/ Paul R. Gauvreau /s/ Irving B. Harris
Paul R. Gauvreau, Principal Irving B. Harris, Director
Financial and Accounting Officer
/s/ Eugene L. Barnett /s/ William W. Harris
Eugene L. Barnett, Director William W. Harris, Director
/s/ Sidney Barrows /s/ Jerome Kahn, Jr
Sidney Barrows, Director Jerome Kahn, Jr., Director
/s/ Fred Conforti /s/Leo F. Mullin
Fred Conforti, Director Leo F. Mullin, Director
/s/ E. David Coolidge III
E. David Coolidge III, Director
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PITTWAY CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
The following documents are filed as a part of this report:
Page reference in
Annual Report to
Stockholders
Financial Statements required by Item 8 of this Form:
Consolidated Balance Sheet at December 31,
1995 and 1994........................................ 30-31
For each of the three years ended December 31, 1995 -
Consolidated Statement of Income................... 29
Consolidated Statement of Cash Flows............... 32
Consolidated Statement of Stockholders' Equity..... 33
Summary of Accounting Policies and Notes to
Consolidated Financial Statements.................... 34-42
Report of Independent Accountants...................... 43
Page reference in
Form 10-K
Financial Statement Schedule required by
Article 12 of Regulation S-X:
Report of Independent Accountants on Financial
Statement Schedule................................... 14
Consolidated Financial Statement Schedule -
II. Valuation and Qualifying Accounts............... 15
The consolidated financial statements of Pittway Corporation, listed in the
above index together with the Report of Independent Accountants, which are
included in the Company's 1995 Annual Report to Stockholders, are incorporated
herein by reference.
All other schedules have been omitted because the required information is not
present, or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or notes thereto. Summarized financial information for
the limited real estate partnerships and other ventures is omitted because,
when considered in the aggregate, they do not constitute a significant
subsidiary.
With the exception of the aforementioned information and information
incorporated by reference in Part I (in Item 1) and Part II (in Items 5, 6, 7
and 8) of this Form 10-K, the Company's 1995 Annual Report to Stockholders is
not deemed to be filed as part of this report.
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Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors
of Pittway Corporation
Our audits of the consolidated financial statements referred to
in our report dated February 21, 1996 appearing on page 43 of the 1995
Annual Report to Stockholders of Pittway Corporation (which report and
consolidated financial statements are incorporated by reference in this
Annual Report on Form 10-K) also included an audit of the Financial
Statement Schedule listed in the index on page 13 of this Form 10-K. In
our opinion, the Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
As discussed in Notes 5 and 7 to the consolidated financial
statements, in 1993 the Company changed its method of accounting for
income taxes and for postretirement benefits other than pensions.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Chicago, Illinois
February 21, 1996
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PITTWAY CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
<CAPTION>
Balance at Charges to Deductions Balance
beginning costs and from at end
of period expenses reserve (A) of period
<S> <C> <C> <C> <C>
1995
Allowance for doubtful accounts $6,348 $4,901 $2,756 $8,493
Inventory obsolescence reserve 6,526 1,464 1,377 6,613
1994
Allowance for doubtful accounts $5,521 $3,167 $2,340 $6,348
Inventory obsolescence reserve 5,222 1,925 621 6,526
1993
Allowance for doubtful accounts $5,867 $2,938 $3,284 $5,521
Inventory obsolescence reserve 4,583 2,641 2,002 5,222
(A) Write-off of accounts considered uncollectible, net of recoveries, or write-off of
obsolete inventory. Also includes valuation accounts of acquired or divested
companies and foreign currency translation adjustments, net.
15
</TABLE>
<PAGE>
INDEX TO EXHIBITS
Sequential
Number and Description of Exhibit Page Number***
3.1 Restated Certificate of Incorporation of
Registrant (incorporated by reference to
Exhibit 3.1 of the Registrant's Annual Report
on Form 10-K for the year ended February 29, 1988).
3.2 Certificate of Amendment to Restated Certificate
of Incorporation of Registrant (incorporated by
reference to Exhibit 4.2 of the Registrant's
Form S-8 Registration Statement No. 33 - 33312
filed with the Commission on February 2, 1990).
3.3 Bylaws of Registrant, as amended (incorporated by
reference to Exhibit 3.3 of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995).
4. Composite Conformed Copy of separate Note Purchase
Agreements Dated as of December 15, 1995, each,
between the Registrant and one of Metropolitan Life
Insurance Company, Metropolitan Property and
Casualty Insurance Company, Nationwide Life Insurance
Company, Employers Life Insurance Company of Wausau,
and West Coast Life Insurance Company without exhibits.
10.1 Pittway Corporation 1990 Stock Awards Plan,
as amended, (incorporated by reference to
Exhibit 4.4 to the Registrant's Form S-8
Registration Statement No. 33 - 54753 filed with
the Commission on July 27, 1994).
10.2 Agreement of employment dated as of July 1,
1990 with Sal F. Marino, as amended
(incorporated by reference to Exhibit 10.5
of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992.)**
10.3 Second Extension and Amendment of Agreement of
Employment with Sal F. Marino dated
December 31, 1993 (incorporated by reference
to Exhibit 10.4 of the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1993.)**
10.4 Third Extension and Amendment of Agreement of
Employment with Sal F. Marino dated
December 31, 1994 (incorporated by reference
to Exhibit 10.5 of the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1994.)**
16
<PAGE>
INDEX TO EXHIBITS - cont'd.
Sequential
Number and Description of Exhibit Page Number***
10.5 Fourth Extension and Amendment of Agreement of
Employment with Sal F. Marino dated
December 31, 1995.**
10.6 Employment Agreement with King Harris dated as of
January 1, 1996.**
10.7 Employment Agreement with Leo A. Guthart dated as
of January 1, 1996.**
13. 1995 Annual Report to Stockholders.*
21. Subsidiaries of the Registrant.
23. Consent of Independent Accountants.
27. Financial Data Schedule (submitted only in
electronic format).
* Such report, except to the extent incorporated herein by
reference, is being furnished for the information of the Securities
and Exchange Commission only and is not to be deemed filed as
a part of this Form 10-K.
** This document is a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this report
pursuant to Item 14 (c) of Form 10-K.
*** This information appears only in the manually signed original of
this Form 10-K.
17
<PAGE>
Composite Conformed Copy
of
Note Purchase Agreement
Dated as of December 15, 1995
Re:
$40,000,000 6.81% Senior Notes, Series A,
Due December 15, 2005
and
$35,000,000 6.70% Senior Notes, Series B,
Due December 15, 2005
of
PITTWAY CORPORATION
Separate Note Purchase Agreements, each dated as of December 15, 1995, in the
form attached hereto, were entered into among Pittway Corporation and the
institutions named below. Each of said Note Purchase Agreements was executed
on behalf of Pittway Corporation by Paul R. Gauvreau, its Financial Vice
President and Treasurer. The separate Note Purchase Agreements were addressed
to the institutions as shown on Schedule A attached to said Note Purchase
Agreements and were accepted by the officers of the respective institutions as
shown below:
METROPOLITAN LIFE INSURANCE COMPANY
By /s/ John R. Endres
Its Assistant Vice-President
METROPOLITAN PROPERTY AND CASUALTY INSURANCE COMPANY
By /s/ Anthony J. Williamson
Its Vice President and Assistant Treasurer
NATIONWIDE LIFE INSURANCE COMPANY
By /s/ Jeffrey G. Milburn
Its Vice President
Corporate Fixed-Income Securities
EMPLOYERS LIFE INSURANCE COMPANY OF WAUSAU
By /s/ Jeffrey G. Milburn
Its Attorney-in-Fact
WEST COAST LIFE INSURANCE COMPANY
By /s/ Jeffrey G. Milburn
Its Attorney-in-Fact
<PAGE>
Pittway Corporation
$40,000,000
6.81% SENIOR NOTES, SERIES A, DUE DECEMBER 15, 2005
AND
$35,000,000
6.70% SENIOR NOTES, SERIES B, DUE DECEMBER 15, 2005
_____________
Note Purchase Agreement
_____________
DATED AS OF DECEMBER 15, 1995
<PAGE>
Table of Contents
(Not a part of the Agreement)
SECTION HEADING PAGE
SECTION 1. Authorization of Notes......................................1
SECTION 2. Sale and Purchase of Notes..................................1
SECTION 3. Closing.....................................................2
SECTION 4. Conditions to Closing.......................................2
Section 4.1. Representations and Warranties............................2
Section 4.2. Performance; No Default...................................2
Section 4.3. Compliance Certificates...................................3
Section 4.4. Opinions of Counsel.......................................3
Section 4.5. Purchase Permitted By Applicable Law, Etc.................3
Section 4.6. Sale of Other Notes.......................................3
Section 4.7. Payment of Special Counsel Fees...........................3
Section 4.8. Private Placement Number..................................3
Section 4.9. Changes in Corporate Structure............................4
Section 4.10. Proceedings and Documents.................................4
SECTION 5. Representations and Warranties of the Company...............4
Section 5.1. Organization; Power and Authority.........................4
Section 5.2. Authorization, Etc........................................4
Section 5.3. Disclosure................................................4
Section 5.4. Organization and Ownership of Shares of Subsidiaries;
Affiliates................................................5
Section 5.5. Financial Statements......................................5
Section 5.6. Compliance with Laws, Other Instruments, Etc..............6
Section 5.7. Governmental Authorizations, Etc..........................6
Section 5.8. Litigation; Observance of Agreements, Statutes and Orders.6
Section 5.9. Taxes.....................................................7
Section 5.10. Title to Property; Leases.................................7
Section 5.11. Licenses, Permits, Etc....................................7
Section 5.12. Compliance with ERISA.....................................7
Section 5.13. Private Offering by the Company...........................8
Section 5.14. Use of Proceeds; Margin Regulations.......................9
Section 5.15. Existing Debt and Indebtedness; Future Liens..............9
Section 5.16. Status under Certain Statutes.............................9
Section 5.17. Environmental Matters.....................................9
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<PAGE>
SECTION 6. Representations of the Purchaser............................10
Section 6.1. Purchase for Investment..................................10
Section 6.2. Source of Funds..........................................10
SECTION 7. Information as to Company...................................12
Section 7.1. Financial and Business Information.......................12
Section 7.2. Officer's Certificate....................................15
Section 7.3. Inspection...............................................16
SECTION 8. Prepayment of the Notes.....................................16
Section 8.1. Required Prepayments.....................................16
Section 8.2. Optional Prepayments with Make-Whole Amount..............16
Section 8.3. Optional Prepayment of Series B Notes Without Premium....17
Section 8.4. Allocation of Partial Prepayments........................17
Section 8.5. Maturity; Surrender, Etc.................................17
Section 8.6. Purchase of Notes........................................18
Section 8.7. Make-Whole Amount........................................18
SECTION 9. Affirmative Covenants.......................................19
Section 9.1. Compliance with Law......................................19
Section 9.2. Insurance................................................20
Section 9.3. Maintenance of Properties................................20
Section 9.4. Payment of Taxes and Claims..............................20
Section 9.5. Corporate Existence, Etc.................................20
SECTION 10. Negative Covenants Applicable to Series A Notes.............21
Section 10.1. Limitation on Debt of Restricted Subsidiaries............21
Section 10.2. Maintenance of Financial Condition.......................21
Section 10.3. Limitation on Liens......................................21
Section 10.4. Sales of Assets..........................................23
Section 10.5. Limitation on Designation of Unrestricted Subsidiaries...24
Section 10.6. Amendments of Series B Notes.............................24
Section 10.7. Loans to Officers, Etc...................................24
SECTION 11. Negative Covenants Applicable to Series B Notes.............24
Section 11.1. Limitation on Indebtedness of Restricted Subsidiaries....24
Section 11.2. Maintenance of Financial Condition.......................24
Section 11.3. Limitation on Liens......................................25
Section 11.4. Sales of Assets..........................................26
SECTION 12. Negative Covenants Applicable to All Notes..................27
Section 12.1. Sale and Leaseback.......................................27
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<PAGE>
Section 12.2. Restricted Payments......................................27
Section 12.3. Permitted Investments....................................28
Section 12.4. Transactions with Affiliates.............................28
Section 12.5. Merger, Consolidation, Etc...............................28
Section 12.6. Designation of Restricted and Unrestricted Subsidiaries..29
SECTION 13. Events of Default...........................................30
SECTION 14. Remedies on Default, Etc....................................32
Section 14.1. Acceleration.............................................32
Section 14.2. Other Remedies...........................................33
Section 14.3. Rescission...............................................34
Section 14.4. No Waivers or Election of Remedies, Expenses, Etc........34
SECTION 15. Registration; Exchange; Substitution of Notess..............34
Section 15.1. Registration of Notes....................................34
Section 15.2. Transfer and Exchange of Notes...........................35
Section 15.3. Replacement of Notes.....................................35
SECTION 16. Payments on Notes...........................................36
Section 16.1. Place of Payment.........................................36
Section 16.2. Home Office Payment......................................36
SECTION 17. Expenses, Etc...............................................36
Section 17.1. Transaction Expenses.....................................36
Section 17.2. Survival.................................................37
SECTION 18. Survival of Representations and Warranties;
Entire Agreement............................................37
SECTION 19. Amendment and Waiver........................................37
Section 19.1. Requirements.............................................37
Section 19.2. Solicitation of Holders of Notes.........................37
Section 19.3. Binding Effect, Etc......................................38
Section 19.4. Notes Held by Company, etc...............................38
SECTION 20. Notices.....................................................38
SECTION 21. Reproduction of Documents...................................39
SECTION 22. Confidential Information....................................39
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<PAGE>
SECTION 23. Miscellaneous...............................................40
Section 23.1. Successors and Assigns...................................40
Section 23.2. Payments Due on Non-Business Days........................40
Section 23.3. Severability.............................................41
Section 23.4. Construction.............................................41
Section 23.5. Counterparts.............................................41
Section 23.6. Governing Law............................................41
Signature..................................................................41
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<PAGE>
SCHEDULE A - INFORMATION RELATING TO PURCHASERS
SCHEDULE B - DEFINED TERMS
SCHEDULE 5.3 - Disclosure Materials
SCHEDULE 5.4 - Subsidiaries of the Company and Ownership of
Subsidiary Stock
SCHEDULE 5.5 - Financial Statements
SCHEDULE 5.8 - Certain Litigation
SCHEDULE 5.11 - Patents, etc.
SCHEDULE 5.12 - Plans
SCHEDULE 5.14 - Use of Proceeds
SCHEDULE 5.15 - Debt and Indebtedness as of September 30, 1995
SCHEDULE 10.3(f) - Existing Liens
SCHEDULE 12.3 - Certain Existing Investments
EXHIBIT 1-A - Form of 6.81% Senior Note, Series A, due
December 15, 2005
EXHIBIT 1-B - Form of 6.70% Senior Note, Series B, due
December 15, 2005
EXHIBIT 4.4(a) - Form of Opinion of Special Counsel for the Company
EXHIBIT 4.4(b) - Form of Opinion of Special Counsel for the Purchasers
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<PAGE>
Pittway Corporation
200 SOUTH WACKER DRIVE, SUITE 700
CHICAGO, ILLINOIS 60606-5802
6.81% SENIOR NOTES, SERIES A, DUE DECEMBER 15, 2005
AND
6.70% SENIOR NOTES, SERIES B, DUE DECEMBER 15, 2005
Dated as of December 15, 1995
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
PITTWAY CORPORATION, a Delaware corporation (the "Company"), agrees with
you as follows:
SECTION 1. Authorization of Notes.
The Company will authorize the issue and sale of (a) $40,000,000
aggregate principal amount of its 6.81% Senior Notes, Series A, due December
15, 2005(the "Series A Notes"), and (b) $35,000,000 aggregate principal amount
of its 6.70% Senior Notes, Series B, due December 15, 2005 (the "Series B
Notes" and collectively with the Series A Notes, the "Notes", such term to
include any such notes issued in substitution therefor pursuant to Sec. 15 of
this
Agreement or the Other Agreements (as hereinafter defined)). The Series A
Notes shall be substantially in the form set out in Exhibit 1-A and the Series
B Notes shall be substantially in the form set out in Exhibit 1-B, in each
case with such changes therefrom, if any, as may be approved by you and the
Company. Certain capitalized terms used in this Agreement are defined in
Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise
specified, to a Schedule or an Exhibit attached to this Agreement, and
references to a "Series" or "Series of Notes" shall mean separately the
Series A Notes and the Series B Notes.
SECTION 2. Sale and Purchase of Notes.
Subject to the terms and conditions of this Agreement, the Company will
issue and sell to you and you will purchase from the Company, at the Closing
provided for in Sec. 3, Notes of the Series and in the principal amount
specified opposite your name in Schedule A at the purchase price of 100% of
the principal amount thereof. Contemporaneously with entering into this
Agreement, the Company is entering into separate Note Purchase Agreements
(the "Other Agreements") identical with this Agreement with the other
purchasers named in Schedule A (the "Other Purchasers"), providing for the
sale at such Closing to the Other Purchasers of Notes of the Series and in the
principal amounts specified opposite their respective names in Schedule A.
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<PAGE>
Your obligation hereunder, and the obligations of the Other Purchasers under
the Other Agreements, are several and not joint obligations, and you
shall have no obligation under the Other Agreements and no liability to any
Person for the performance or nonperformance by the Other Purchasers
thereunder.
SECTION 3. Closing.
The sale and purchase of the Notes to be purchased by you and the Other
Purchasers shall occur at the offices of Chapman and Cutler, 111 West Monroe
Street, Chicago, Illinois 60603, at 10:00 A.M. Chicago time, at a closing (the
"Closing") on December 15, 1995 or on such other Business Day thereafter as
may be agreed upon by the Company and you and the Other Purchasers. At the
Closing the Company will deliver to you the Notes to be purchased by you in
the form of a single Note (or such greater number of Notes in denominations of
at least $1,000,000 as you may request) dated the date of the Closing and
registered in your name (or in the name of your nominee), against delivery by
you to the Company or its order of immediately available funds in the amount
of the purchase price therefor by wire transfer of immediately available funds
for the account of the Company to account number 76-30751 at Bank of America
Illinois (ABA No. 071000039). If at the Closing the Company shall fail to
tender such Notes to you as provided above in this Sec. 3, or any of the
conditions specified in Sec. 4 shall not have been fulfilled to your
satisfaction, you shall, at your election, be relieved of all further
obligations under this Agreement, without thereby waiving any rights you may
have by reason of such failure or such nonfulfillment.
SECTION 4. Conditions to Closing.
Your obligation to purchase and pay for the Notes to be sold to you at
the Closing is subject to the fulfillment to your satisfaction, prior to or at
the Closing, of the following conditions:
Section 4.1. Representations and Warranties. The representations and
warranties of the Company in this Agreement shall be correct when made and at
the time of the Closing.
Section 4.2. Performance; No Default. The Company shall have
performed and complied with all agreements and conditions contained in this
Agreement required to be performed or complied with by it prior to or at the
Closing, and after giving effect to the issue and sale of the Notes (and the
application of the proceeds thereof as contemplated by Schedule 5.14), no
Default or Event of Default shall have occurred and be continuing. Neither
the Company nor any Restricted Subsidiary (nor, in the case of Sec. 12.2, any
Subsidiary) shall have entered into any transaction since September 30, 1995
that would have been prohibited by Sec. 10, 11 or 12 had such Sections applied
since such date.
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<PAGE>
Section 4.3. Compliance Certificates.
(a) Officer's Certificate. The Company shall have delivered to you
an Officer's Certificate, dated the date of the Closing, certifying that the
conditions specified in Sec. 4.1, 4.2 and 4.9 have been fulfilled.
(b) Secretary's Certificate. The Company shall have delivered to you
a certificate certifying as to the resolutions attached thereto and other
corporate proceedings relating to the authorization, execution and delivery of
the Notes, this Agreement and the Other Agreements.
Section 4.4. Opinions of Counsel. You shall have received opinions
in form and substance satisfactory to you, dated the date of the Closing (a)
from Kirkland & Ellis, counsel for the Company, covering the matters set forth
in Exhibit 4.4(a) and covering such other matters incident to the transactions
contemplated hereby as you or your counsel may reasonably request (and the
Company hereby instructs its counsel to deliver such opinion to you) and (b)
from Chapman and Cutler, your special counsel in connection with such
transactions, substantially in the form set forth in Exhibit 4.4(b) and
covering such other matters incident to such transactions as you may
reasonably request.
Section 4.5. Purchase Permitted By Applicable Law, Etc. On the date
of the Closing your purchase of Notes shall (i) be permitted by the laws and
regulations of each jurisdiction to which you are subject, without recourse to
provisions (such as Section 1405(a)(8) of the New York Insurance Law)
permitting limited investments by insurance companies without restriction as
to the character of the particular investment, (ii) not violate any applicable
law or regulation (including, without limitation, Regulation G, T or X of the
Board of Governors of the Federal Reserve System) and (iii) not subject you to
any tax, penalty or liability under or pursuant to any applicable law or
regulation, which law or regulation was not in effect on the date hereof. If
requested by you, you shall have received an Officer's Certificate certifying
as to such matters of fact as you may reasonably specify to enable you to
determine whether such purchase is so permitted.
Section 4.6. Sale of Other Notes. Contemporaneously with the
Closing, the Company shall sell to the Other Purchasers, and each Other
Purchaser shall purchase, the Notes to be purchased by it at the Closing as
specified in Schedule A.
Section 4.7. Payment of Special Counsel Fees. Without limiting the
provisions of Sec. 17.1, the Company shall have paid on or before the Closing
the fees, charges and disbursements of your special counsel referred to in
Sec. 4.4 to the extent reflected in a statement of such counsel rendered to
the Company at least one Business Day prior to the Closing.
Section 4.8. Private Placement Number. A Private Placement number
issued by Standard & Poor's CUSIP Service Bureau shall have been obtained for
each Series of Notes.
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<PAGE>
Section 4.9. Changes in Corporate Structure. Except for the merger
of Pittway Real Estate, Inc. into the Company, the Company shall not have
changed its jurisdiction of incorporation or been a party to any merger or
consolidation and shall not have succeeded to all or any substantial part of
the liabilities of any other entity, at any time following the date of the
most recent financial statements referred to in Schedule 5.5.
Section 4.10. Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
and all documents and instruments incident to such transactions shall be
satisfactory to you and your special counsel, and you and your special counsel
shall have received all such counterpart originals or certified or other
copies of such documents as you or they may reasonably request.
SECTION 5. Representations and Warranties of the Company.
The Company represents and warrants to you that:
Section 5.1. Organization; Power and Authority. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, and is duly qualified as a foreign
corporation and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to which
the failure to be so qualified or in good standing could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
The Company has the corporate power and authority to own or hold under lease
the properties it purports to own or hold under lease, to transact the
business it transacts and proposes to transact, to execute and deliver this
Agreement and the Other Agreements and the Notes and to perform the provisions
hereof and thereof.
Section 5.2. Authorization, Etc. This Agreement, the Other
Agreements and the Notes have been duly authorized by all necessary corporate
action on the part of the Company, and this Agreement constitutes, and upon
execution and delivery thereof each Note will constitute, a legal, valid and
binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
(i) applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and (ii)
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
Section 5.3. Disclosure. The Company has delivered or caused to be
delivered to you and the Other Purchasers a copy of a Private Placement
Memorandum dated September 22, 1995 (the "Memorandum"), relating to the
transactions contemplated hereby. The Memorandum fairly describes, in all
material respects, the general nature of the business and principal properties
of the Company and its Subsidiaries. Except as disclosed in Schedule 5.3,
this Agreement, the Memorandum, the documents, certificates or other writings
delivered to you by or on behalf of the Company in connection with the
transactions contemplated hereby and the financial statements listed in
Schedule 5.5, taken as a whole, do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading in light of the circumstances under which
-4-
<PAGE>
they were made. Except as disclosed in the Memorandum or as expressly
described in Schedule 5.3, or in one of the documents, certificates or other
writings identified therein, or in the financial statements listed in Schedule
5.5, since December 31, 1994, there has been no change in the financial
condition, operations, business or properties of the Company or any Subsidiary
except changes that individually or in the aggregate could not reasonably be
expected to have a Material Adverse Effect. There is no fact known to the
Company that could reasonably be expected to have a Material Adverse Effect
that has not been set forth herein or in the Memorandum or in the other
documents, certificates and other writings delivered to you by or on behalf of
the Company specifically for use in connection with the transactions
contemplated hereby. You acknowledge that the Company intends to effect the
distribution described in clause (2) of the final sentence of Sec. 10.4,
without consideration.
Section 5.4. Organization and Ownership of Shares of Subsidiaries;
Affiliates.
(a) Schedule 5.4 contains (except as noted therein) complete and correct
lists (i) of the Company's Subsidiaries, showing, as to each Subsidiary, the
correct name thereof, the jurisdiction of its organization, the percentage of
shares of each class of its capital stock or similar equity interests
outstanding owned by the Company and each other Subsidiary and whether such
Subsidiary is a Restricted Subsidiary or an Unrestricted Subsidiary, (ii) of
the Company's Affiliates, other than Subsidiaries and officers and directors
of the Company, and (iii) of the Company's directors and executive officers.
(b) All of the outstanding shares of capital stock or similar equity
interests of each Restricted Subsidiary shown in Schedule 5.4 as being owned
by the Company and its Restricted Subsidiaries have been validly issued, are
fully paid and nonassessable and are owned by the Company or another
Restricted Subsidiary free and clear of any Lien (except as otherwise
disclosed in Schedule 5.4).
(c) Each Restricted Subsidiary identified in Schedule 5.4 is a
corporation or other legal entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, and is duly
qualified as a foreign corporation or other legal entity and is in good
standing in each jurisdiction in which such qualification is required by law,
other than those jurisdictions as to which the failure to be so qualified or
in good standing could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Each such Restricted Subsidiary
has the corporate or other power and authority to own or hold under lease the
properties it purports to own or hold under lease and to transact the business
it transacts and proposes to transact.
(d) No Restricted Subsidiary is a party to, or otherwise subject to
any legal restriction or any agreement (other than the agreements listed on
Schedule 5.4 and customary limitations imposed by corporate law statutes)
restricting the ability of such Restricted Subsidiary to pay dividends out of
profits or make any other similar distributions of profits to the Company or
any of its Restricted Subsidiaries that owns outstanding shares of capital
stock or similar equity interests of such Restricted Subsidiary.
Section 5.5. Financial Statements. The Company has delivered to each
Purchaser copies of the financial statements of the Company and its
-5-
<PAGE>
Subsidiaries, and of the Company and its Restricted Subsidiaries, listed on
Schedule 5.5. All of said financial statements (including in each case the
related schedules and notes) fairly present in all material respects the
consolidated financial position of the Company and its Subsidiaries, or of the
Company and its Restricted Subsidiaries, as of the respective dates specified
in such Schedule and the consolidated results of their operations and cash
flows for the respective periods so specified and have been prepared in
accordance with GAAP consistently applied throughout the periods involved
except as set forth in the notes thereto (subject, in the case of any interim
financial statements, to normal year-end adjustments).
Section 5.6. Compliance with Laws, Other Instruments, Etc. The
execution, delivery and performance by the Company of this Agreement and the
Notes to be purchased by you will not (i) contravene, result in any breach of,
or constitute a default under, or result in the creation of any Lien in
respect of any property of the Company or any Subsidiary under, any indenture,
mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate
charter or by-laws, or any other agreement or instrument to which the Company
or any Subsidiary is bound or by which the Company or any Subsidiary or any of
their respective properties may be bound or affected, (ii) conflict with or
result in a breach of any of the terms, conditions or provisions of any order,
judgment, decree, or ruling of any court, arbitrator or Governmental Authority
applicable to the Company or any Subsidiary or (iii) other than a violation
caused by you, violate any provision of any statute or other rule or
regulation of any Governmental Authority applicable to the Company or any
Subsidiary. The representations of the Company in clauses (ii) and (iii)
above are made in reliance upon and subject to the accuracy of your
representations in Sec. 6 of this Agreement, to the extent applicable.
Section 5.7. Governmental Authorizations, Etc. No consent, approval
or authorization of, or registration, filing or declaration with, any
Governmental Authority is required to be made or obtained by the Company in
connection with the execution, delivery or performance by the Company of this
Agreement or the Notes.
Section 5.8. Litigation; Observance of Agreements, Statutes and
Orders. (a) Except as disclosed in Schedule 5.8, there are no actions, suits
or proceedings pending or, to the knowledge of the Company, threatened against
or affecting the Company or any Subsidiary or any property of the Company or
any Subsidiary in any court or before any arbitrator of any kind or before or
by any Governmental Authority that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
(b) Neither the Company nor any Subsidiary is in default under any
term of any agreement or instrument to which it is a party or by which it is
bound, or any order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority or is in violation of any applicable law, ordinance,
rule or regulation (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
-6-
<PAGE>
Section 5.9. Taxes. The Company and its Subsidiaries have filed all
tax returns that are required to have been filed in any jurisdiction, and have
paid all taxes shown to be due and payable on such returns and all other taxes
and assessments levied upon them or their properties, assets, income or
franchises, to the extent such taxes and assessments have become due and
payable and before they have become delinquent, except for any taxes and
assessments (i) the amount of which is not individually or in the aggregate
Material or (ii) the amount, applicability or validity of which is currently
being contested in good faith by appropriate actions and with respect to which
the Company or a Subsidiary, as the case may be, has established reserves to
the extent and in such amounts as are in accordance with GAAP. The Company
knows of no basis for any other tax or assessment that could reasonably be
expected to have a Material Adverse Effect. The charges, accruals and
reserves on the books of the Company and its Subsidiaries in respect of
Federal, state or other taxes for all fiscal periods are adequate. The
Federal income tax liabilities of the Company and its consolidated
Subsidiaries have been determined by the Internal Revenue Service and paid for
all fiscal years up to and including the fiscal year ended December 31, 1990.
Section 5.10. Title to Property; Leases. The Company and its
Subsidiaries have good and sufficient title to their respective properties
that individually or in the aggregate are Material, including all such
properties reflected in the most recent audited balance sheet referred to in
Sec. 5.5 or purported to have been acquired by the Company or any Subsidiary
after said date (except as sold or otherwise disposed of in the ordinary
course of business), in each case free and clear of Liens prohibited by this
Agreement. All leases that individually or in the aggregate are Material are
valid and subsisting and are in full force and effect in all material
respects.
Section 5.11. Licenses, Permits, Etc. Except as disclosed in
Schedule 5.11,
(a) the Company and its Subsidiaries own or possess all licenses,
permits, franchises, authorizations, patents, copyrights, service marks,
trademarks and trade names, or rights thereto, that individually or in the
aggregate are Material, without known Material conflict with the rights of
others;
(b) to the best knowledge of the Company, no product of the Company
or its Subsidiaries infringes in any Material respect any license, permit,
franchise, authorization, patent, copyright, service mark, trademark, trade
name or other right owned by any other Person and the Company has not received
notice from any Person of a claimed Material infringement which remains
unresolved; and
(c) to the best knowledge of the Company, there is no Material
violation by any Person of any right of the Company or any of its Subsidiaries
with respect to any patent, copyright, service mark, trademark, trade name or
other right owned or used by the Company or any of its Subsidiaries.
Section 5.12. Compliance with ERISA. (a) The Company and each ERISA
Affiliate has operated and administered each Plan in compliance with all
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applicable laws except for such instances of noncompliance as have not
resulted in and could not reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any
liability pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to any Plans, and no event, transaction or
condition has occurred or exists that could reasonably be expected to result
in the incurrence of any such liability by the Company or any ERISA Affiliate,
or in the imposition of any Lien on any of the assets of the Company or any
ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such
penalty or excise tax provisions or to Section 401(a)(29) or 412 of the Code,
other than such liabilities or Liens as would not be individually or in the
aggregate Material.
(b) The present value of the aggregate benefit liabilities under each
Plan that is subject to the minimum funding requirements of Section 302 of
ERISA or Section 412 of the Code, determined as of the end of such Plan's most
recently ended plan year on the basis of the actuarial assumptions specified
for funding purposes in such Plan's most recent actuarial valuation report,
did not exceed the aggregate current value of the assets of such Plan
allocable to such benefit liabilities. The term "benefit liabilities" has
the meaning specified in section 4001 of ERISA and the terms "current value"
and "present value" have the meanings specified in section 3 of ERISA.
(c) The Company and its ERISA Affiliates have not incurred withdrawal
liabilities (and are not subject to contingent withdrawal liabilities) under
section 4201 or 4204 of ERISA in respect of Multiemployer Plans that
individually or in the aggregate are Material.
(d) The expected post-retirement benefit obligation (determined as of
the last day of the Company's most recently ended fiscal year in accordance
with Financial Accounting Standards Board Statement No. 106, without regard to
liabilities attributable to continuation coverage mandated by section 4980B
of the Code or applicable state continuation coverage laws) of the Company and
its Restricted Subsidiaries is not Material.
(e) Schedule 5.12 contains a complete and correct list of all Plans.
(f) The execution and delivery of this Agreement and the issuance and
sale of Notes to you hereunder will not result in a non-exempt prohibited
transaction under section 406 of ERISA or section 4975(c)(1)(A)-(D) of the
Code. The representation by the Company in the first sentence of this
Sec. 5.12(f) is made in reliance upon and subject to the accuracy of your
representation in Sec. 6.2 as to the sources of the funds used to pay the
purchase price of the Notes to be purchased by you.
Section 5.13. Private Offering by the Company. Neither the Company
nor anyone acting on its behalf has offered the Notes or any similar
securities for sale to, or solicited any offer to buy any of the same from, or
otherwise approached or negotiated in respect thereof with, any person other
than you, the Other Purchasers and not more than 45 other insurance companies
or pension funds, each of which has substantial assets and extensive
experience in investments in securities similar to the Notes and each of which
has been offered the Notes at a private sale for investment. Neither the
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Company nor anyone acting on its behalf has taken, or will take, any action
that would subject the issuance or sale of the Notes to the registration
requirements of Section 5 of the Securities Act.
Section 5.14. Use of Proceeds; Margin Regulations. The Company will
apply the proceeds of the sale of the Notes as set forth in Schedule 5.14. No
part of the proceeds from the sale of the Notes hereunder will be used,
directly or indirectly, for the purpose of buying or carrying any margin stock
within the meaning of Regulation G of the Board of Governors of the Federal
Reserve System (12 CFR 207) under such circumstances as to involve a violation
of such Regulation, or for the purpose of buying or carrying or trading in any
securities under such circumstances as to involve the Company in a violation
of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer
in a violation of Regulation T of said Board (12 CFR 220). Margin stock does
not constitute more than 10% of the value of the consolidated assets of the
Company and its Subsidiaries and the Company does not have any present
intention that margin stock will constitute more than 10% of the value of such
assets. As used in this Section, the terms "margin stock" and "purpose of
buying or carrying" shall have the meanings assigned to them in said
Regulation G.
Section 5.15. Existing Debt and Indebtedness; Future Liens. (a)
Except as described therein, Schedule 5.15 sets forth a complete and correct
list of all outstanding Debt and Indebtedness of the Company and its
Restricted Subsidiaries as of September 30, 1995, since which date there has
been no Material change in the amounts, interest rates, sinking funds,
installment payments or maturities of the Debt or Indebtedness of the Company
or its Restricted Subsidiaries. Neither the Company nor any Subsidiary is in
default and no waiver of default is currently in effect, in the payment of any
principal or interest on any Debt or Indebtedness of the Company or such
Subsidiary and no event or condition exists with respect to any Debt or
Indebtedness of the Company or any Subsidiary that would permit (or that with
notice or the lapse of time, or both, would permit) one or more Persons to
cause such Debt or Indebtedness to become due and payable before its stated
maturity or before its regularly scheduled dates of payment.
(b) Except as disclosed in Schedule 5.15, neither the Company nor any
Restricted Subsidiary has agreed or consented to cause or permit in the future
(upon the happening of a contingency or otherwise) any of its property,
whether now owned or hereafter acquired, to be subject to a Lien not permitted
by Sec. 10.3 and 11.3.
Section 5.16. Status under Certain Statutes. Neither the Company nor
any Subsidiary is subject to regulation under the Investment Company Act of
1940, as amended, the Public Utility Holding Company Act of 1935, as amended,
the Interstate Commerce Act, as amended, or the Federal Power Act, as amended.
Section 5.17. Environmental Matters. Except as otherwise disclosed
to you in writing:
(a) neither the Company nor any Subsidiary has knowledge of any claim
or has received any notice of any claim, and no proceeding has been instituted
raising any claim, against the Company or any of its Subsidiaries or any of
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their respective real properties now or formerly owned, leased or operated by
any of them or other assets, alleging any damage to the environment or
violation of any Environmental Laws, except, in each case, such as could not
reasonably be expected to result in a Material Adverse Effect;
(b) neither the Company nor any Subsidiary has knowledge of any facts
which could reasonably be expected to give rise to any claim, public or
private, against any of them of violation of Environmental Laws or damage to
the environment emanating from, occurring on or in any way related to real
properties now or formerly owned, leased or operated by any of them or to
other assets or their use, except, in each case, such as could not reasonably
be expected to result in a Material Adverse Effect;
(c) neither the Company nor any of its Subsidiaries has stored any
Hazardous Materials on real properties now or formerly owned, leased or
operated by any of them, or disposed of any Hazardous Materials, in a manner
contrary to any Environmental Laws in each case in any manner that could
reasonably be expected to result in a Material Adverse Effect; and
(d) all buildings on all real properties now owned, leased or
operated by the Company or any of its Subsidiaries are in compliance with
applicable Environmental Laws, except where failure to comply could not
reasonably be expected to result in a Material Adverse Effect.This Sec. 5.17,
together with the representation set forth in Sec. 5.8(b), sets forth the sole
and exclusive representations and warranties of the Company with respect to
environmental matters.
SECTION 6. Representations of the Purchaser.
Section 6.1. Purchase for Investment. You represent that you are
purchasing the Notes for your own account or for one or more separate accounts
maintained by you or for the account of one or more pension or trust funds and
not with a view to the distribution thereof, provided that the disposition of
your or their property shall at all times be within your or their control.
You understand that the Notes have not been registered under the Securities
Act and may be resold only if registered pursuant to the provisions of the
Securities Act or if an exemption from registration is available, except under
circumstances where neither such registration nor such an exemption is
required by law, and that the Company is not required to register the Notes.
Section 6.2. Source of Funds. You represent that at least one of the
following statements is an accurate representation as to each source of funds
(a "Source") to be used by you to pay the purchase price of the Notes to be
purchased by you hereunder:
(a) if you are an insurance company, the Source is an "insurance
company general account" within the meaning of PTE 95-60 and the purchase and
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holding of Notes by you is eligible for and satisfies the requirements of PTE
95-60, it being understood and agreed that in making such representation, such
insurance company is relying on the truth and accuracy of the representation
of the Company set forth in Sec. 5.12(e); or
(b) the Source is either (i) an insurance company pooled separate
account, within the meaning of PTE 90-1 (issued January 29, 1990), or (ii) a
bank collective investment fund, within the meaning of the PTE 91-38 (issued
June 12, 1991) and, except as you have disclosed to the Company in writing
pursuant to this paragraph (b), no employee benefit plan or group of plans
maintained by the same employer or employee organization beneficially owns
more than 10% of all assets allocated to such pooled separate account or
collective investment fund and all other requirements for an exemption under
PTE 90-1 or 91-38, as applicable, are met; or
(c) the Source constitutes assets of an "investment fund" (within the
meaning of Part V of the QPAM Exemption) managed by a "qualified professional
asset manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption),
no employee benefit plan's assets that are included in such investment fund,
when combined with the assets of all other employee benefit plans established
or maintained by the same employer or by an affiliate (within the meaning of
Section V(c)(1) of the QPAM Exemption) of such employer or by the same
employee organization and managed by such QPAM, exceed 20% of the total client
assets managed by such QPAM, the conditions of the QPAM Exemption are
satisfied, neither the QPAM nor a person controlling or controlled by the QPAM
(applying the definition of "control" in Section V(e) of the QPAM Exemption)
owns a 5% or more interest in the Company and (i) the identity of such QPAM
and (ii) the names of all employee benefit plans whose assets are included in
such investment fund have been disclosed to the Company in writing pursuant to
this paragraph (c); or
(d) the Source is one or more employee benefit plans, or a separate
account or trust fund comprised of one or more employee benefit plans, each of
which has been identified to the Company in writing pursuant to this paragraph
(d); or
(e) the Source does not include assets of any employee benefit plan,
other than a plan exempt from the coverage of ERISA, and does not include
assets of any individual retirement account or individual retirement annuity
as described in Section 408 of the Code.
If you or any subsequent transferee of the Notes issued to you indicates
to the Company in writing prior to acquiring such Notes that you or such
transferee is relying on any representation contained in paragraph (b), (c) or
(d) above, the Company shall deliver a certificate on the date of the Closing,
with respect to you, and on or prior to the date of the transfer of such
Notes, with respect to any such transferee, which certificate shall state
whether (i) with respect to any plan identified pursuant to paragraph (b) or
(d) above, the Company is a "party in interest" (as defined in Title I,
Section 3(14) of ERISA) or a "disqualified person" (as defined in Section
4975(e)(2) of the Code), or (ii) with respect to any plan identified pursuant
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to paragraph (c) above, the Company or any "affiliate" (as defined in Section
V(c) of the QPAM Exemption) has at such time, and during the immediately
preceding one year, exercised the authority to appoint or terminate said QPAM
as manager of the assets of any plan identified in writing pursuant to
paragraph (c) above or to negotiate the terms of said QPAM's management
agreement on behalf of any such identified plans.
As used in this Sec. 6.2, the terms "employee benefit plan", "party in
interest" and "separate account" shall have the respective meanings assigned
to such terms in section 3 of ERISA.
SECTION 7. Information as to Company.
Section 7.1. Financial and Business Information. The Company shall
deliver to each holder of Notes that is an Institutional Investor:
(a) Quarterly Statements - within 60 days after the end of each
quarterly fiscal period in each fiscal year of the Company (other than the
last quarterly fiscal period of each such fiscal year), duplicate copies of:
(i) a consolidated balance sheet of the Company and its Restricted
Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, changes in shareholders'
equity and cash flows of the Company and its Restricted Subsidiaries for
such quarter and (in the case of the second and third quarters) for the
portion of the fiscal year ending with such quarter, and
(iii) unless identical to the matters required under clause (i)
above, a consolidated balance sheet of the Company and its Subsidiaries
as at the end of such quarter, and
(iv) unless identical to the matters required under clause (ii)
above, consolidated statements of income, changes in shareholders' equity
and cash flows of the Company and its Subsidiaries for such quarter and
(in the case of the second and third quarters) for the portion of the
fiscal year ending with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable detail,
prepared in accordance with GAAP applicable to quarterly financial statements
generally, and certified by a Senior Financial Officer as fairly presenting,
in all material respects, the financial position of the companies being
reported on and their results of operations and cash flows, subject to changes
resulting from year-end adjustments, provided that delivery within the time
period specified above of copies of the Company's Quarterly Report on Form
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10-Q prepared in compliance with the requirements therefor and filed with the
Securities and Exchange Commission shall be deemed to satisfy the requirements
of Sec. 7.1(a)(iii) and (iv);
(b) Annual Statements - within 105 days after the end of each fiscal
year of the Company, duplicate copies of:
(i) a consolidated balance sheet of the Company and its
Restricted Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its Restricted
Subsidiaries, for such year, and
(iii) unless identical to the matters required under clause (i)
above, a consolidated balance sheet of the Company and its Subsidiaries,
as at the end of such year, and
(iv) unless identical to the matters required under clause (ii)
above, consolidated statements of income, changes in shareholders' equity
and cash flows of the Company and its Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP, and,
in the case of the items referred to in Sec. 7.1(b)(i) and (ii), unless such
items are identical to the items referred to in Sec. 7.1(b)(iii) and (iv),
certified by a Senior Financial Officer in the same manner as required for
items delivered under Sec. 7.1(a), and in the case of the items referred to in
Sec. 7.1(b)(iii) and (iv), or in Sec. 7.1(b)(i) and (ii) if identical to the
items referred to in Sec. 7.1(b)(iii) and (iv), accompanied
(A) by an opinion thereon of independent certified public
accountants of recognized national standing, which opinion shall state
that such financial statements present fairly, in all material respects,
the financial position of the companies being reported upon and their
results of operations and cash flows and have been prepared in conformity
with GAAP, and that the examination of such accountants in connection
with such financial statements has been made in accordance with generally
accepted auditing standards, and that such audit provides a reasonable
basis for such opinion in the circumstances, and
(B) by a certificate of such accountants stating that they have
reviewed this Agreement and stating further whether, in making their
audit, they have become aware of any condition or event that then
constitutes a Default or an Event of Default, and, if they are aware that
any such condition or event then exists, specifying the nature and period
of the existence thereof (it being understood that such accountants shall
not be liable, directly or indirectly, for any failure to obtain
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knowledge of any Default or Event of Default unless such accountants
should have obtained knowledge thereof in making an audit in accordance
with generally accepted auditing standards or did not make such an
audit),
provided that the delivery within the time period specified above of the
Company's Annual Report on Form 10-K for such fiscal year prepared in
accordance with the requirements therefor and filed with the Securities and
Exchange Commission, together with the Company's annual report to
shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act
and the accountant's certificate described in clause (B) above, shall be
deemed to satisfy the requirements of Sec. 7.1(b)(iii) and (iv);
(c) SEC and Other Reports - promptly upon their becoming available,
one copy of (i) each financial statement, report, notice or proxy statement
sent by the Company or any Subsidiary to public securities holders generally,
and (ii) each regular or periodic report, each registration statement (without
exhibits except as expressly requested by such holder), and each prospectus
and all amendments thereto, filed by the Company or any Subsidiary with the
Securities and Exchange Commission or with any national securities exchange
(other than any registration statement on Form S-8 or any successor thereto or
any related prospectus or amendment) and of all press releases and other
statements made available generally by the Company or any Subsidiary to the
public concerning developments that are Material;
(d) Notice of Default or Event of Default - promptly, and in any
event within five Business Days after a Responsible Officer becoming aware of
the existence of any Default or Event of Default, a written notice specifying
the nature and period of existence thereof and what action the Company is
taking or proposes to take with respect thereto;
(e) ERISA Matters - promptly, and in any event within 10 Business
Days after a Responsible Officer becoming aware of any of the following, a
written notice setting forth the nature thereof and the action, if any, that
the Company or an ERISA Affiliate proposes to take with respect thereto:
(i) with respect to any Plan, any reportable event, as defined
in section 4043(b) of ERISA and the regulations thereunder, for which
notice thereof has not been waived pursuant to such regulations as in
effect as of the date such reportable event occurred; or
(ii) the taking by the PBGC of steps to institute, or the
threatening by the PBGC of the institution of, proceedings under section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by the Company or any ERISA
Affiliate of a written notice from a Multiemployer Plan that such action
has been taken by the PBGC with respect to such Multiemployer Plan;
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(iii) any incurrence of any liability by the Company or any
ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or
excise tax provisions of the Code relating to employee benefit plans, or
imposition of any Lien on any of the assets of the Company or any ERISA
Affiliate pursuant to Title I or IV of ERISA or such penalty or excise
tax provisions, if such liability or Lien, taken together with any other
such liabilities or Liens then existing, could reasonably be expected to
have a Material Adverse Effect; or
(iv) any change in the facts with regard to the status of Plans
as identified in Schedule 5.12;
(f) Notices from Governmental Authority - promptly, and in any event
within 30 days of receipt thereof, copies of any written notice to the Company
or any Subsidiary from any Federal or state Governmental Authority relating to
any order, ruling, statute or other law or regulation that could reasonably be
expected to have a Material Adverse Effect; and
(g) Requested Information - with reasonable promptness, such other
data and information relating to the business, operations, affairs, financial
condition, assets or properties of the Company or any of its Subsidiaries or
relating to the ability of the Company to perform its obligations hereunder
and under the Notes as from time to time may be reasonably requested by any
such holder of Notes.
Section 7.2. Officer's Certificate;. Each set of financial
statements delivered to a holder of Notes pursuant to Sec. 7.1(a) or Sec.
7.1(b) hereof shall be accompanied by a certificate of a Senior Financial
Officer setting forth:
(a) Covenant Compliance - the information (including detailed
calculations as of the end of such quarterly or annual period) required in
order to establish whether the Company was in compliance with the requirements
of Sec. 10, 11, 12.1, 12.2, 12.3 and 12.5 during and as of the end of the
quarterly or annual period covered by the statements then being furnished
(including with respect to each such Section, where applicable, the
calculations as of the end of such quarterly or annual period of the maximum
or minimum amount, ratio or percentage, as the case may be, permissible under
the terms of such Sections, and the calculation as of the end of such
quarterly or annual period of the amount, ratio or percentage then in
existence); and
(b) Event of Default - a statement that such officer has reviewed the
relevant terms hereof and has made, or caused to be made, under his or her
supervision, a review of the transactions and conditions of the Company and
its Restricted Subsidiaries from the beginning of the quarterly or annual
period covered by the statements then being furnished to the date of the
certificate and that such review shall not have disclosed the existence during
such period of any condition or event that constitutes a Default or an Event
of Default or, if any such condition or event existed or exists (including,
without limitation, any such event or condition resulting from the failure of
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the Company or any Subsidiary to comply with any Environmental Law),
specifying the nature and period of existence thereof and what action the
Company shall have taken or proposes to take with respect thereto.
Section 7.3. Inspection. The Company shall permit the
representatives of each holder of Notes of a Series that is an Institutional
Investor:
(a) No Default - if no Default or Event of Default then exists with
respect to such Series, at the expense of such holder and upon reasonable
prior notice to the Company, to visit the principal executive office of the
Company, to discuss the affairs, finances and accounts of the Company and its
Subsidiaries with the Company's officers, and (with the consent of the
Company, which consent will not be unreasonably withheld) its independent
public accountants, and (with the consent of the Company, which consent will
not be unreasonably withheld) to visit the other offices and properties of the
Company and each Subsidiary, all at such reasonable times and as often as may
be reasonably requested in writing; and
(b) Default - if a Default or Event of Default then exists with
respect to such Series, at the expense of the Company, to visit and inspect
any of the offices or properties of the Company or any Subsidiary, to examine
all their respective books of account, records, reports and other papers, to
make copies and extracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective officers and independent public
accountants (and by this provision the Company authorizes said accountants to
discuss the affairs, finances and accounts of the Company and its
Subsidiaries), all at such times and as often as may be requested.
SECTION 8. PREPAYMENT OF THE NOTES.
Section 8.1. Required Prepayments.
(a) Series A Notes. No prepayments are required to be made with
respect to the Series A Notes prior to their expressed maturity date other
than prepayments which may be required in connection with an acceleration of
the Series A Notes pursuant to the provisions of Sec. 14.1.
(b) Series B Notes. On December 15, 1999 and on each December 15
thereafter to and including December 15, 2004, the Company will prepay
$5,000,000 principal amount (or such lesser principal amount as shall then be
outstanding) of the Series B Notes at par and without payment of the Make-
Whole Amount or any premium, provided that upon any partial prepayment of the
Series B Notes pursuant to Sec. 8.2 or Sec. 8.3 the principal amount of each
required prepayment of the Series B Notes becoming due under this Sec. 8.1 on
and after the date of such prepayment shall be reduced in the same proportion
as the aggregate unpaid principal amount of the Series B Notes is reduced as a
result of such prepayment.
Section 8.2. Optional Prepayments with Make-Whole Amount. The
Company may, at its option, upon notice as provided below, prepay at any time
all, or from time to time any part of, the Notes of either Series, in an
amount not less than $1,000,000 of the aggregate principal amount of the Notes
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of such Series then outstanding in the case of a partial prepayment, at 100%
of the principal amount so prepaid, and accrued interest thereon to the date
of prepayment plus the applicable Make-Whole Amount determined for the
prepayment date with respect to such principal amount. The Company will give
each holder of Notes of the Series to be prepaid written notice of each
optional prepayment under this Sec. 8.2 not less than 30 days and not more
than 60 days prior to the date fixed for such prepayment. Each such notice
shall specify such date, the aggregate principal amount of the Notes of such
Series to be prepaid on such date, the principal amount of such Notes held by
such holder to be prepaid (determined in accordance with Sec. 8.4), and the
interest to be paid on the prepayment date with respect to such principal
amount being prepaid, and shall be accompanied by a certificate of a Senior
Financial Officer as to the estimated Make-Whole Amount due in connection with
such prepayment (calculated as if the date of such notice were the date of the
prepayment), setting forth the details of such computation. Two Business Days
prior to such prepayment, the Company shall deliver to each holder of such
Notes a certificate of a Senior Financial Officer specifying the calculation
of such Make-Whole Amount as of the specified prepayment date. No incorrect
determination by the Company of the Make-Whole Amount payable in connection
with any Note to be prepaid pursuant to this Sec. 8.2 or that has become or is
declared to be immediately due and payable pursuant to Sec. 14.1 shall be
binding, and the Required Holders shall be entitled to object to any such
computation of the Company and to resolve with the Company the correct
computation of such Make-Whole Amount.
Section 8.3. Optional Prepayment of Series B Notes Without Premium.
In the event the Company shall, on or after December 15, 1997, issue and sell
shares of its capital stock of any class or any warrants, rights or options to
purchase or acquire any shares of its capital stock, it may within 30 days
after such transaction, at its option and upon notice as provided below, apply
all or any portion of the net cash proceeds of such transaction to the
prepayment of up to 50% of the then outstanding principal amount of the Series
B Notes by payment of 100% of the principal amount so prepaid, and accrued
interest thereon to the date of prepayment, and without payment of the Make-
Whole Amount or any premium. The Company will give each holder of the Series
B Notes written notice of each optional prepayment under this Sec. 8.3 not
less than 30 days and not more than 60 days prior to the date fixed for such
prepayment. Each such notice shall specify such date, the aggregate principal
amount of the Series B Notes to be prepaid on such date, the principal amount
of such Series B Notes held by such holder to be prepaid (determined in
accordance with Sec. 8.4), and the interest to be paid.
Section 8.4. Allocation of Partial Prepayments. In the case of each
partial prepayment of the Notes of either Series, the principal amount of the
Notes to be prepaid shall be allocated among all of the Notes of such Series
at the time outstanding in proportion, as nearly as practicable, to the
respective unpaid principal amounts thereof not theretofore called for
prepayment.
Section 8.5. Maturity; Surrender, Etc. In the case of each pre-
payment of Notes pursuant to this Sec. 8, the principal amount of each Note to
be prepaid shall mature and become due and payable on the date fixed for such
prepayment, together with interest on such principal amount accrued to such
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date and the applicable Make-Whole Amount, if any. From and after such date,
unless the Company shall fail to pay such principal amount when so due and
payable, together with the interest and Make-Whole Amount, if any, as
aforesaid, interest on such principal amount shall cease to accrue. Any Note
paid or prepaid in full shall be surrendered to the Company and cancelled and
shall not be reissued, and no Note shall be issued in lieu of any prepaid
principal amount of any Note.
Section 8.6. Purchase of Notes. The Company will not and will not
permit any Affiliate which it controls or any Restricted Subsidiary to
purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of
the outstanding Notes except upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement and the Notes. The Company will
promptly cancel all Notes acquired by it pursuant to any payment or prepayment
of Notes pursuant to any provision of this Agreement and no Notes may be
issued in substitution or exchange for any such Notes.
Section 8.7. Make-Whole Amount. The term "Make-Whole Amount" means,
with respect to any Note, an amount equal to the excess, if any, of the
Discounted Value of the Remaining Scheduled Payments with respect to the
Called Principal of such Note over the amount of such Called Principal,
provided that the Make-Whole Amount may in no event be less than zero. For
the purposes of determining the Make-Whole Amount, the following terms have
the following meanings:
"Applicable Spread" means (a) with respect to the Series A Notes,
.50%; and (b) with respect to the Series B Notes, .73%.
"Called Principal" means, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to Sec. 8.2 or has become or is
declared to be immediately due and payable pursuant to Sec. 14.1, as the
context requires.
"Discounted Value" means, with respect to the Called Principal of
any Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a
discount factor (applied on the same periodic basis as that on which
interest on the Notes is payable) equal to the Reinvestment Yield with
respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called Principal of
any Note, the Applicable Spread plus the yield to maturity implied by (i)
the yields reported, as of 10:00 A.M. (New York City time) on the second
Business Day preceding the Settlement Date with respect to such Called
Principal, on the display designated as "Page 678" on the Telerate Access
Service (or such other display as may replace Page 678 on Telerate Access
Service) for actively traded U.S. Treasury securities having a maturity
equal to the Remaining Average Life of such Called Principal as of such
Settlement Date, or (ii) if such yields are not reported as of such time
or the yields reported as of such time are not ascertainable, the
Treasury Constant Maturity Series Yields reported, for the latest day for
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which such yields have been so reported as of the second Business Day
preceding the Settlement Date with respect to such Called Principal, in
Federal Reserve Statistical Release H. 15 (519) (or any comparable
successor publication) for actively traded U.S. Treasury securities
having a constant maturity equal to the Remaining Average Life of such
Called Principal as of such Settlement Date. Such implied yield will be
determined, if necessary, by (a) converting U.S. Treasury bill quotations
to bond-equivalent yields in accordance with accepted financial practice
and (b) interpolating linearly between (1) the actively traded U.S.
Treasury security with the duration closest to and greater than the
Remaining Average Life and (2) the actively traded U.S. Treasury security
with the duration closest to and less than the Remaining Average Life.
"Remaining Average Life" means, with respect to any Called
Principal, the number of years (calculated to the nearest one decimal
point) obtained by dividing (i) such Called Principal into (ii) the sum
of the products obtained by multiplying (a) the principal component of
each Remaining Scheduled Payment with respect to such Called Principal by
(b) the number of years (calculated to the nearest one decimal point)
that will elapse between the Settlement Date with respect to such Called
Principal and the scheduled due date of such Remaining Scheduled Payment.
"Remaining Scheduled Payments" means, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior
to its scheduled due date, provided that if such Settlement Date is not a
date on which interest payments are due to be made under the terms of the
Notes, then the amount of the next succeeding scheduled interest payment
will be reduced by the amount of interest accrued to such Settlement Date
and required to be paid on such Settlement Date pursuant to Sec. 8.2 or
Sec. 14.1.
"Settlement Date" means, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant
to Sec. 8.2 or has become or is declared to be immediately due and
payable pursuant to Sec. 14.1, as the context requires.
SECTION 9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
Section 9.1. Compliance with Law. The Company will and will cause
each of its Restricted Subsidiaries to comply with all laws, ordinances or
governmental rules or regulations to which each of them is subject, including,
without limitation, Environmental Laws, and will obtain and maintain in effect
all licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of their respective properties or to
the conduct of their respective businesses, in each case to the extent
necessary to ensure that non-compliance with such laws, ordinances or
governmental rules or regulations or failures to obtain or maintain in effect
such licenses, certificates, permits, franchises and other governmental
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authorizations could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
Section 9.2. Insurance. The Company will and will cause each of its
Restricted Subsidiaries to maintain, with financially sound and reputable
insurers, insurance with respect to their respective properties and businesses
against such casualties and contingencies, of such types, on such terms and in
such amounts (including deductibles, co-insurance and self-insurance, if the
Company or such Restricted Subsidiary has established reserves therefor to the
extent and in such amounts as are in accordance with GAAP) as is customary in
the case of entities of established reputations engaged in the same or a
similar business and similarly situated, unless failure to maintain such
insurance could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
Section 9.3. Maintenance of Properties. The Company will and will
cause each of its Restricted Subsidiaries to maintain and keep, or cause to be
maintained and kept, their respective properties in good repair, working order
and condition (other than ordinary wear and tear), so that the business
carried on in connection therewith may be properly conducted at all times,
provided that this Section shall not prevent the Company or any Restricted
Subsidiary from discontinuing the operation and the maintenance of any of its
properties if such discontinuance is desirable in the conduct of its business.
Section 9.4. Payment of Taxes and Claims. The Company will and will
cause each of its Restricted Subsidiaries to file all tax returns required to
be filed in any jurisdiction and to pay and discharge all taxes shown to be
due and payable on such returns and all other taxes, assessments, governmental
charges, or levies imposed on them or any of their properties, assets, income
or franchises, to the extent such taxes and assessments have become due and
payable and before they have become delinquent and all claims for which sums
have become due and payable that have or might become a Lien on properties or
assets of the Company or any Restricted Subsidiary, provided that neither the
Company nor any Restricted Subsidiary need pay any such tax or assessment or
claim if (i) the amount, applicability or validity thereof is contested by the
Company or such Restricted Subsidiary on a timely basis in good faith and by
appropriate actions which will prevent the forfeiture or sale of any property
of the Company or such Restricted Subsidiary, and the Company or such
Restricted Subsidiary has established reserves therefor to the extent and in
such amounts as are in accordance with GAAP on the books of the Company or
such Restricted Subsidiary or (ii) the nonpayment of all such taxes and
assessments and claims in the aggregate could not reasonably be expected to
have a Material Adverse Effect.
Section 9.5. Corporate Existence, Etc. Subject to Sec. 12.5, the
Company will at all times preserve and keep in full force and effect its
corporate existence. Subject to Sec. 10.4, 11.4 and 12.5 the Company will at
all times preserve and keep in full force and effect the corporate existence
of each of its Restricted Subsidiaries (unless merged into the Company or a
Restricted Subsidiary) and all rights and franchises of the Company and its
Restricted Subsidiaries unless, in the good faith judgment of the Company, the
termination of or failure to preserve and keep in full force and effect such
corporate existence, right or franchise could not, individually or in the
aggregate, have a Material Adverse Effect.
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SECTION 10. NEGATIVE COVENANTS APPLICABLE TO SERIES A NOTES.
The Company covenants with the holders of the Series A Notes that so long
as any of the Series A Notes are outstanding:
Section 10.1. Limitation on Debt of Restricted Subsidiaries. The
Company will not permit any Restricted Subsidiary to create, assume, incur or
in any manner become liable in respect of any Debt (other than Debt owing to
the Company or to a Restricted Subsidiary) unless (x) immediately after giving
effect thereto, the sum of (without duplication) (A) the aggregate principal
amount of such Debt of Restricted Subsidiaries then outstanding, and (B) the
aggregate principal amount of Debt of the Company and the Restricted
Subsidiaries secured by Liens pursuant to clause (h) of Sec. 10.3 then
outstanding shall not exceed 10% of Consolidated Total Assets, and (y) the
Company shall then be in compliance with the provisions of Sec. 10.2.
Section 10.2. Maintenance of Financial Condition. The Company will
not at any time permit Consolidated Total Debt to exceed 50% of Series A Total
Capitalization, after deducting from Series A Total Capitalization the amount
of all assets which are then included as Permitted Investments under clause
(l) of the definition thereof (other than any such Permitted Investments under
clause (l) which are Investments in Unrestricted Subsidiaries made after the
date of the Closing).
Section 10.3. Limitation on Liens. The Company will not, and will not
permit any Restricted Subsidiary to, create or incur, or suffer to be incurred
or to exist, any Lien on its or their property or assets, whether now owned or
hereafter acquired, or upon any income or profits therefrom, or transfer any
property for the purpose of subjecting the same to the payment of obligations
in priority to the payment of its or their general creditors, or acquire or
agree to acquire any property or assets upon conditional sales agreements or
other title retention devices, except:
(a) Liens for taxes and assessments or governmental charges or
levies and Liens securing claims or demands of mechanics and materialmen,
provided payment thereof is not at the time required by Sec. 9.4;
(b) Liens of or resulting from any judgment or award, the time
for the appeal or petition for rehearing of which shall not have expired,
or in respect of which the Company or a Restricted Subsidiary shall at
any time in good faith be prosecuting an appeal or proceeding for a
review and in respect of which a stay of execution pending such appeal or
proceeding for review shall have been secured; provided that reserves
therefor have been established to the extent and in such amounts as are
in accordance with GAAP;
(c) Liens incidental to the conduct of business or the ownership
of properties and assets (including without limitation Liens in
connection with workers' compensation, unemployment insurance and other
like laws, warehousemen's and attorneys' liens and statutory landlords'
liens) and Liens to secure the performance of bids, tenders or trade
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contracts, or to secure statutory obligations, surety or appeal bonds or
other Liens of like general nature incurred in the ordinary course of
business and not in connection with the borrowing of money; provided in
each case, the obligation secured is not overdue or, if overdue, is being
contested in good faith by appropriate actions; provided that reserves
therefor have been established to the extent and in such amounts as are
in accordance with GAAP;
(d) minor encumbrances, easements or reservations, or rights of
others for rights-of-way, utilities and other similar purposes, or zoning
or other restrictions as to the use of real properties, which are
necessary for the conduct of the activities of the Company and its
Restricted Subsidiaries or which customarily exist on properties of
corporations engaged in similar activities and similarly situated and
which do not in any event materially impair their use in the operation of
the business of the Company and its Restricted Subsidiaries;
(e) Liens securing Debt of a Restricted Subsidiary to the
Company or to another Restricted Subsidiary;
(f) Liens existing on the date of the Closing and reflected in
Schedule 10.3(f);
(g) Liens, including Capital Leases, incurred after the Closing
given to secure the payment of the purchase price incurred in connection
with the acquisition or construction of fixed assets useful and intended
to be used in carrying on the business of the Company or a Restricted
Subsidiary, including Liens existing on such fixed assets at the time of
acquisition thereof or at the time of acquisition by the Company or a
Restricted Subsidiary of any business entity then owning such fixed
assets, whether or not such existing Liens were originally given to
secure the payment of the purchase price of the fixed assets to which
they attach so long as they were not incurred, extended or renewed in
contemplation of such acquisition (such existing Liens being herein
called the "Existing Liens"), provided that (i) the Lien shall attach
solely to the fixed assets acquired, constructed or purchased, or any
accessions or attachments thereto, (ii) at the time of acquisition or
construction of such fixed assets, the aggregate amount remaining unpaid
on all Debt secured by Liens (other than Existing Liens) on such fixed
assets whether or not assumed by the Company or a Restricted Subsidiary
shall not exceed an amount equal to 100% of the lesser of the total
purchase price or fair market value at the time of acquisition or
construction of such fixed assets (as determined in good faith by the
chief financial officer of the Company), and (iii) all such Debt shall
have been incurred within the limitations provided in Sec. 10.1 and Sec.
10.2;and
(h) Liens, which would otherwise not be permitted by clauses (a)
through (g) above, securing Debt of the Company or a Restricted
Subsidiary; provided that (x) immediately after giving effect thereto,
the sum of (without duplication) (A) the aggregate principal amount of
Debt of the Company and the Restricted Subsidiaries secured by Liens
pursuant to this clause (h) then outstanding, and (B) the aggregate
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principal amount of Debt of Restricted Subsidiaries (other than to the
Company or a Restricted Subsidiary) then outstanding, shall not exceed
10% of Consolidated Total Assets, and (y) the Company shall then be in
compliance with the provisions of Sec. 10.2.
Section 10.4. Sales of Assets. The Company will not, and will not
permit any Restricted Subsidiary to sell, lease or otherwise dispose of any
substantial part of the assets of the Company and its Restricted Subsidiaries.
As used in this Sec. 10.4, a sale, lease or other disposition of assets shall
be deemed to be a "substantial part" of the assets of the Company and its
Restricted Subsidiaries only if the net proceeds received therefor, when added
to the net proceeds received for all other assets sold, leased or otherwise
disposed of by the Company and its Restricted Subsidiaries subsequent to the
Closing and during the 365 day period immediately preceding such sale, lease
or other disposition, exceeds 10% of Consolidated Total Assets (determined as
at the end of the fiscal quarter of the Company immediately preceding such 365
day period) and a merger by a Restricted Subsidiary into another Person
without such Restricted Subsidiary being the survivor of such merger and in
which such Person is not the Company or a Restricted Subsidiary or a Person
which thereupon becomes a Restricted Subsidiary shall be deemed a disposition
by such Restricted Subsidiary of all of its assets; provided that in all such
sales, leases or other dispositions, the Company and the Restricted
Subsidiaries shall have received no less than fair market value or fair rental
value therefor. Computations under this Sec. 10.4 shall include all issues or
sales of any shares of any class (including as "shares" for the purposes of
this Sec. 10.4, any warrants, rights or options to purchase or otherwise
acquire shares or other Securities exchangeable for or convertible into
shares) of any Restricted Subsidiary to any Person other than the Company or a
Restricted Subsidiary over which the Company shall have at least the same
degree of ownership and control as it did with respect to the Restricted
Subsidiary issuing or selling such shares, except shares issued or sold for
the purpose of qualifying directors, or except shares issued or sold in
satisfaction of the validly pre-existing preemptive rights of minority
shareholders in connection with the simultaneous issuance of stock to the
Company and/or Restricted Subsidiaries whereby the Company and/or such
Restricted Subsidiaries maintain their same proportionate interest in such
Restricted Subsidiary. Computations under this Sec. 10.4 shall not include:
(1) sales, leases or other dispositions in the ordinary course
of business of the Company or any Restricted Subsidiary;
(2) a one-time sale or other distribution of the stock and/or
assets of Penton Publishing, Inc. and Curtin & Pease/Peneco, Inc.,
provided that, on the date thereof, such stock and/or assets do not
comprise more than 20% of Consolidated Total Assets; or
(3) sales, leases or other dispositions (i) by the Company to
any Wholly-Owned Restricted Subsidiary, or (ii) by any Restricted
Subsidiary to the Company or to any Wholly-Owned Restricted Subsidiary,
or (iii) by the Company to a Restricted Subsidiary or by a Restricted
Subsidiary to another Restricted Subsidiary, provided that (x) in the
case of any sale, lease or other disposition pursuant to clause (iii),
the same is made for fair market value or fair rental value, and (y)
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immediately after the consummation of any sale, lease or other
disposition pursuant to clause (i), (ii) or (iii) and after giving effect
thereto, no Default or Event of Default exists or would exist.
Section 10.5. Limitation on Designation of Unrestricted Subsidiaries.
The provisions of Sec. 12.6 to the contrary notwithstanding:
(a) the Company will not designate any Subsidiary which has been
a Restricted Subsidiary but has subsequently been designated as an
Unrestricted Subsidiary to be a Restricted Subsidiary; and
(b) the Company will not designate any Restricted Subsidiary to
be an Unrestricted Subsidiary in order to cure or avoid a Default or an
Event of Default.
Section 10.6. Amendments of Series B Notes. The Company will not
amend this Agreement or the Series B Notes or in any other manner provide for
or permit the holders of the Series B Notes (a) to be prepaid with a Make-
Whole Amount, or similar premium, computed using an Applicable Spread of less
than .73%; or (b) to have applicable thereto an Event of Default which is of
the nature of the Event of Default provided for in Sec. 13(h) which is more
favorable to the holders of the Series B Notes than that set forth in Sec.
13(h) on the date of Closing.
Section 10.7. Loans to Officers, Etc. The Company will not at any
time permit the aggregate unpaid principal amount of all loans or advances by
the Company or a Restricted Subsidiary to officers, directors or employees of
the Company or a Restricted Subsidiary to exceed $5,000,000.
SECTION 11. NEGATIVE COVENANTS APPLICABLE TO SERIES B NOTES.
The Company covenants with the holders of the Series B Notes that so long as
any of the Series B Notes are outstanding:
Section 11.1. Limitation on Indebtedness of Restricted Subsidiaries.
The Company will not permit any Restricted Subsidiary to create, assume, incur
or in any manner become liable in respect of any Indebtedness (other than
Indebtedness owing to the Company or to a Restricted Subsidiary) unless (x)
immediately after giving effect thereto, the sum of (without duplication) (A)
the aggregate principal amount of such Indebtedness of Restricted Subsidiaries
then outstanding, and (B) the aggregate principal amount of Indebtedness of
the Company and the Restricted Subsidiaries secured by Liens pursuant to
clause (h) of Sec. 11.3 then outstanding shall not exceed 10% of Consolidated
Total Assets, and (y) the Company shall then be in compliance with the
provisions of Sec. 11.2.
Section 11.2. Maintenance of Financial Condition. The Company will
not at any time permit Consolidated Total Indebtedness to exceed 50% of Series
B Total Capitalization, after deducting from Series B Total Capitalization the
amount of all assets which are then included as Permitted Investments under
clause (l) of the definition thereof (other than any such Permitted
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Investments under clause (l) which are Investments in Unrestricted
Subsidiaries made after the date of the Closing).
Section 11.3. Limitation on Liens. The Company will not, and will
not permit any Restricted Subsidiary to, create or incur, or suffer to be
incurred or to exist, any Lien on its or their property or assets, whether now
owned or hereafter acquired, or upon any income or profits therefrom, or
transfer any property for the purpose of subjecting the same to the payment of
obligations in priority to the payment of its or their general creditors, or
acquire or agree to acquire any property or assets upon conditional sales
agreements or other title retention devices, except:
(a) Liens for taxes and assessments or governmental charges or
levies and Liens securing claims or demands of mechanics and materialmen,
provided payment thereof is not at the time required by Sec. 9.4;
(b) Liens of or resulting from any judgment or award, the time
for the appeal or petition for rehearing of which shall not have expired,
or in respect of which the Company or a Restricted Subsidiary shall at
any time in good faith be prosecuting an appeal or proceeding for a
review and in respect of which a stay of execution pending such appeal or
proceeding for review shall have been secured; provided that reserves
therefor have been established to the extent and in such amounts as are
in accordance with GAAP;
(c) Liens incidental to the conduct of business or the ownership
of properties and assets (including without limitation Liens in
connection with workers' compensation, unemployment insurance and other
like laws, warehousemen's and attorneys' liens and statutory landlords'
liens) and Liens to secure the performance of bids, tenders or trade
contracts, or to secure statutory obligations, surety or appeal bonds or
other Liens of like general nature incurred in the ordinary course of
business and not in connection with the borrowing of money; provided in
each case, the obligation secured is not overdue or, if overdue, is being
contested in good faith by appropriate actions; provided that reserves
therefor have been established to the extent and in such amounts as are
in accordance with GAAP;
(d) minor encumbrances, easements or reservations, or rights of
others for rights-of-way, utilities and other similar purposes, or zoning
or other restrictions as to the use of real properties, which are
necessary for the conduct of the activities of the Company and its
Restricted Subsidiaries or which customarily exist on properties of
corporations engaged in similar activities and similarly situated and
which do not in any event materially impair their use in the operation of
the business of the Company and its Restricted Subsidiaries;
(e) Liens securing Indebtedness of a Restricted Subsidiary to
the Company or to another Restricted Subsidiary;
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(f) Liens existing on the date of the Closing and reflected in
Schedule 10.3(f);
(g) Liens, including Capital Leases, incurred after the Closing
given to secure the payment of the purchase price incurred in connection
with the acquisition or construction of fixed assets useful and intended
to be used in carrying on the business of the Company or a Restricted
Subsidiary, including Existing Liens (as defined in Sec. 10.3(g)),
provided that (i) the Lien shall attach solely to the fixed assets
acquired, constructed or purchased, or any accessions or attachments
thereto, (ii) at the time of acquisition or construction of such fixed
assets, the aggregate amount remaining unpaid on all Indebtedness secured
by Liens (other than Existing Liens) on such fixed assets whether or not
assumed by the Company or a Restricted Subsidiary shall not exceed an
amount equal to 100% of the lesser of the total purchase price or fair
market value at the time of acquisition or construction of such fixed
assets (as determined in good faith by the chief financial officer of the
Company), and (iii) all such Indebtedness shall have been incurred within
the limitations provided in Sec. 11.1 and Sec. 11.2; and
(h) Liens, which would otherwise not be permitted by clauses (a)
through (g) above, securing Indebtedness of the Company or a Restricted
Subsidiary; provided that (x) immediately after giving effect thereto,
the sum of (without duplication) (A) the aggregate principal amount of
Indebtedness of the Company and the Restricted Subsidiaries secured by
Liens pursuant to this clause (h) then outstanding, and (B) the aggregate
principal amount of Indebtedness of Restricted Subsidiaries (other than
to the Company or a Restricted Subsidiary) then outstanding, shall not
exceed 10% of Consolidated Total Assets, and (y) the Company shall then
be in compliance with the provisions of Sec. 11.2.
Section 11.4. Sales of Assets. The Company will not, and will not
permit any Restricted Subsidiary to sell, lease or otherwise dispose of any
substantial part of the assets of the Company and its Restricted Subsidiaries.
As used in this Sec. 11.4, a sale, lease or other disposition of assets shall
be deemed to be a "substantial part" of the assets of the Company and its
Restricted Subsidiaries only if the net proceeds received therefor, when added
to the net proceeds received for all other assets sold, leased or otherwise
disposed of by the Company and its Restricted Subsidiaries subsequent to the
Closing and during the 365 day period immediately preceding such sale, lease
or other disposition, exceeds 10% of Consolidated Total Assets (determined as
at the end of the fiscal quarter of the Company immediately preceding such 365
day period) and a merger by a Restricted Subsidiary into another Person
without such Restricted Subsidiary being the survivor of such merger and in
which such Person is not the Company or a Restricted Subsidiary or a Person
which thereupon becomes a Restricted Subsidiary shall be deemed a disposition
by such Restricted Subsidiary of all of its assets; provided that in all such
sales, leases or other dispositions, the Company and the Restricted
Subsidiaries shall have received no less than fair market value or fair rental
value therefor. Computations under this Sec. 11.4 shall include all issues or
sales of any shares of any class (including as "shares" for the purposes of
this Sec. 11.4, any warrants, rights or options to purchase or otherwise
acquire
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shares or other Securities exchangeable for or convertible into shares) of any
Restricted Subsidiary to any Person other than the Company or a Restricted
Subsidiary over which the Company shall have at least the same degree of
ownership and control as it did with respect to the Restricted Subsidiary
issuing or selling such shares, except shares issued or sold for the purpose
of qualifying directors, or except shares issued or sold in satisfaction of
the validly pre-existing preemptive rights of minority shareholders in
connection with the simultaneous issuance of stock to the Company and/or
Restricted Subsidiaries whereby the Company and/or such Restricted
Subsidiaries maintain their same proportionate interest in such Restricted
Subsidiary. Computations under this Sec. 11.4 shall not include:
(1) sales, leases or other dispositions in the ordinary course
of business of the Company or any Restricted Subsidiary;
(2) a one-time sale or other distribution of stock and/or
assets, provided that, on the date of such transaction, such stock and/or
assets do not comprise more than 20% of Consolidated Total Assets; or
(3) sales, leases or other dispositions (i) by the Company to
any Wholly-Owned Restricted Subsidiary, or (ii) by any Restricted
Subsidiary to the Company or to any Wholly-Owned Restricted Subsidiary,
or (iii) by the Company to a Restricted Subsidiary or by a Restricted
Subsidiary to another Restricted Subsidiary, provided that (x) in the
case of any sale, lease or other disposition pursuant to clause (iii),
the same is made for fair market value or fair rental value, and (y)
immediately after the consummation of any sale, lease or other
disposition pursuant to clause (i), (ii) or (iii) and after giving effect
thereto, no Default or Event of Default exists or would exist.
SECTION 12. NEGATIVE COVENANTS APPLICABLE TO ALL NOTES
The Company covenants with the holders of the Notes that so long as any
of the Notes are outstanding:
Section 12.1. Sale and Leaseback. The Company will not, and will not
permit any Restricted Subsidiary to, sell or transfer any property (other than
real property) to any Person other than the Company or a Restricted Subsidiary
and thereupon lease, as lessee, the same property unless such lease
constitutes a Capital Lease and, after giving effect thereto, the Company
would be in compliance with the provisions of Sec. 10.2, 11.2, 10.3 and 11.3.
Section 12.2. Restricted Payments. The Company will not except as
hereinafter provided:
(a) Declare or pay any dividends, either in cash or property, on
any shares of its capital stock of any class (except dividends or other
distributions payable solely in shares of capital stock of the Company);
(b) Directly or indirectly, or through any Subsidiary, purchase,
redeem or retire any shares of its capital stock of any class or any
warrants, rights or options to purchase or acquire any shares of its
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capital stock (other than in exchange for or out of the net cash proceeds
to the Company from the substantially concurrent issue or sale of other
shares of capital stock of the Company or warrants, rights or options to
purchase or acquire any shares of its capital stock); or
(c) Make any other payment or distribution, either directly or
indirectly or through any Subsidiary, in respect of its capital stock;
if after giving effect thereto any Event of Default shall have occurred and be
continuing.
Notwithstanding the foregoing, the Company may (i) pay any dividend which
it has declared, provided that such declaration did not violate this Sec. 12.2
and such dividend is paid within 60 days after such declaration, and (ii) make
the distribution referred to in clause (2) of the final sentence of Sec. 10.4,
without consideration.
Section 12.3. Permitted Investments. The Company will not, and will
not permit any of its Restricted Subsidiaries to, make or suffer to exist any
Investments other than Permitted Investments.
Section 12.4. Transactions with Affiliates. The Company will not and
will not permit any Restricted Subsidiary to enter into directly or indirectly
any transaction or group of related transactions (including without limitation
the purchase, lease, sale or exchange of properties of any kind or the
rendering of any service) with any Affiliate, unless such transaction or
transactions (i) are in the ordinary course and pursuant to the reasonable
requirements of the Company's or such Restricted Subsidiary's business and
upon fair and reasonable terms no less favorable to the Company or such
Restricted Subsidiary than would be obtainable in a comparable arm's-length
transaction with a Person not an Affiliate, or (ii) could not, individually or
in the aggregate, be reasonably expected to have a Material Adverse Effect.
Section 12.5. Merger, Consolidation, Etc. The Company will not and
will not permit any of its Restricted Subsidiaries to, consolidate with or
merge with any other corporation or convey, transfer or lease all or
substantially all of its assets in a single transaction or series of related
transactions to any Person (except that a Restricted Subsidiary may (x) merge
with another Person as long as the Restricted Subsidiary is the survivor of
such merger, (y) consolidate with or merge with, or convey, transfer or lease
all or substantially all of its assets in a single transaction or a series of
related transactions, to (i) another Restricted Subsidiary, (ii) a Person
which upon consummation of such action becomes a Restricted Subsidiary, or
(iii) the Company; provided that in a merger with the Company, the Company
shall be the survivor of such merger, and (z) convey, transfer or lease all or
substantially all of its assets, or merge with another Person without the
Restricted Subsidiary being the survivor of such merger, in compliance with
the provisions of Sec. 10.4 and Sec. 11.4, if immediately after giving effect
to any such transaction no Default or Event of Default would exist); provided
that the foregoing restriction does not apply to the consolidation or merger
of the Company with, or the conveyance, transfer or lease of all or
substantially all of the assets of the Company to, any Person so long as:
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(a) the successor formed by such consolidation or the survivor
of such merger or the Person that acquires by conveyance, transfer or
lease all or substantially all of the assets of the Company, as the case
may be, shall be a solvent corporation organized and existing under the
laws of the United States or any State thereof (including the District of
Columbia), and, if the Company is not such corporation, such corporation
(i) shall have executed and delivered to each holder of any Notes its
assumption of the due and punctual performance and observance of each
covenant and condition of this Agreement, the Other Agreements and the
Notes and (ii) shall have caused to be delivered to each holder of any
Notes an opinion of nationally recognized independent counsel, or other
independent counsel reasonably satisfactory to the Required Holders, to
the effect that all agreements or instruments effecting such assumption
are enforceable in accordance with their terms and comply with the terms
hereof;
(b) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing.
No such conveyance, transfer or lease of all or substantially all of the
assets of the Company shall have the effect of releasing the Company or any
successor corporation that shall theretofore have become such in the manner
prescribed in this Sec. 12.5 from its liability under this Agreement or the
Notes.
Section 12.6. Designation of Restricted and Unrestricted
Subsidiaries. (a) Subject to Sec. 10.5(b) so long as any of the Series A
Notes are outstanding, the Company, pursuant to a determination by its chief
financial officer, may at any time and from time to time, upon not less than
30 days' prior written notice given to each holder of the Notes, designate any
Restricted Subsidiary as an Unrestricted Subsidiary, provided that (i) at the
time of such designation the Subsidiary so designated does not own, directly
or indirectly, any capital stock or Debt of any other Restricted Subsidiary,
and (ii) immediately after such designation and after giving effect thereto,
no Default or Event of Default shall have occurred and be continuing.
(b) Any notice of designation pursuant to Sec. 12.6(a) shall be
accompanied by a certificate of a Responsible Officer of the Company (i)
stating that the provisions of Sec. 12.6(a) will be complied with in
connection with such designation, (ii) setting forth the name of each
Subsidiary which will become an Unrestricted Subsidiary as a result of such
designation, and (iii) setting forth reasonably detailed pro forma
computations demonstrating compliance with clause (ii) of Sec. 12.6(a).
(c) Subject to Sec. 10.5(a) so long as any of the Series A Notes are
outstanding, the Company may at any time and from time to time, pursuant to a
determination by its chief financial officer, upon not less than 30 days'
prior written notice given to each holder of the Notes, designate any
Unrestricted Subsidiary as a Restricted Subsidiary, provided that immediately
after such designation and after giving effect thereto, no Default or Event of
Default shall have occurred and be continuing.
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(d) Any notice of designation pursuant to Sec. 12.6(c) shall be
accompanied by a certificate of a Responsible Officer of the Company (i)
stating that the requirement contained in the proviso to Sec. 12.6(c) will be
complied with and setting forth reasonably detailed pro forma computations
demonstrating such compliance, (ii) setting forth the name of each
Unrestricted Subsidiary which will become a Restricted Subsidiary as a result
of such designation, and (iii) setting forth, as to each such Unrestricted
Subsidiary which will become a Restricted Subsidiary, each of the
representations set forth in Sec. 5.4(b), (c) and (d).
SECTION 13. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following conditions or
events shall occur and be continuing:
(a) in the case of Notes of either Series, the Company defaults
in the payment of any principal on any Note of such Series when the same
becomes due and payable, whether at maturity or at a date fixed for
prepayment or by declaration or otherwise; or
(b) in the case of Notes of either Series, the Company defaults
in the payment of any interest or Make-Whole Amount, if any, on any Note
of such Series for more than five Business Days after the same becomes
due and payable; or
(c) in the case of the Series A Notes, the Company defaults in
the performance of or compliance with any term contained in Sec. 10.1,
Sec. 10.2, Sec. 10.3, Sec. 10.4, or Sec. 10.7 or in Sec. 12.1 through
12.5, both inclusive, and such default is not remedied within ten
Business Days; or
(d) in the case of the Series A Notes, the Company defaults in
the performance of or compliance with any term contained herein (other
than those referred to in Sec. 11 or in paragraphs (a), (b) or (c) of
this Sec. 13) and such default is not remedied within 30 days after the
earlier of (i) a Responsible Officer obtaining actual knowledge of such
default and (ii) the Company receiving written notice of such default
from any holder of a Series A Note (any such written notice to be
identified as a "notice of default" and to refer specifically to this
paragraph (d) of Sec. 13); or
(e) in the case of the Series B Notes, the Company defaults in
the performance of or compliance with any term contained herein (other
than those referred to in Sec. 10 or in paragraphs (a) and (b) of this
Sec. 13) and such default is not remedied within 30 days after written
notice thereof to the holders of the Series B Notes shall have been given
by the Company; or
(f) any representation or warranty made in writing by or on
behalf of the Company or by any officer of the Company in this Agreement
or in any writing furnished in connection with the transactions
contemplated hereby proves to have been false or incorrect in any
material respect on the date as of which made; or
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(g) in the case of the Series A Notes, (i) the Company or any
Restricted Subsidiary is in default (as principal or as guarantor or
other surety) in the payment of any principal of or premium or make-whole
amount or interest on any Debt (including, without limitation, the Series
B Notes) that is outstanding in an aggregate principal amount of at least
$10,000,000 beyond any period of grace provided with respect thereto, or
(ii) the Company or any Restricted Subsidiary is in default in the
performance of or compliance with any term of any evidence of any Debt in
an aggregate outstanding principal amount of at least $10,000,000 or of
any mortgage, indenture or other agreement relating thereto or any other
condition exists, and as a consequence of such default or condition such
Debt has become, or has been declared (or one or more Persons are
entitled to declare such Debt to be), due and payable before its stated
maturity or before its regularly scheduled dates of payment, or (iii) as
a consequence of the occurrence or continuation of any event or condition
(other than the passage of time or the right of the holder of Debt to
convert such Debt into equity interests), (x) the Company or any
Restricted Subsidiary has become obligated to purchase or repay Debt
before its regular maturity or before its regularly scheduled dates of
payment in an aggregate outstanding principal amount of at least
$10,000,000, or (y) one or more Persons have the right to require the
Company or any Restricted Subsidiary so to purchase or repay such Debt;
provided, however, that the provisions of this paragraph (g) of Sec. 13
shall not apply to any Debt which is payable solely out of the property
or assets of a partnership, joint venture or similar entity of which the
Company or any Restricted Subsidiary is a participant without further
recourse to or liability of the Company or any Restricted Subsidiary; or
(h) in the case of the Series B Notes, the Company or any
Restricted Subsidiary is in default (as principal or as guarantor or
other surety) in the payment of any principal of or premium or make-whole
amount or interest on any Indebtedness (including, without limitation,
the Series A Notes) that is outstanding in an aggregate principal amount
of at least $10,000,000 beyond any period of grace provided with respect
thereto; provided, however, that the provisions of this paragraph (h) of
Sec. 13 shall not apply to any Indebtedness which is payable solely out of
the property or assets of a partnership, joint venture or similar entity
of which the Company or any Restricted Subsidiary is a participant
without further recourse to or liability of the Company or any Restricted
Subsidiary; or
(i) the Company or any Restricted Subsidiary (i) is generally
not paying, or admits in writing its inability to pay, its debts as they
become due, (ii) files, or consents by answer or otherwise to the filing
against it of, a petition for relief or reorganization or arrangement or
any other petition in bankruptcy, for liquidation or to take advantage of
any bankruptcy, insolvency, reorganization, moratorium or other similar
law of any jurisdiction, (iii) makes an assignment for the benefit of its
creditors, (iv) consents to the appointment of a custodian, receiver,
trustee or other officer with similar powers with respect to it or with
respect to any substantial part of its property, (v) is adjudicated as
insolvent or to be liquidated, or (vi) takes corporate action for the
purpose of any of the foregoing; or
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(j) a court or governmental authority of competent jurisdiction
enters an order appointing, without consent by the Company or any of its
Restricted Subsidiaries, a custodian, receiver, trustee or other officer
with similar powers with respect to it or with respect to any substantial
part of its property, or constituting an order for relief or approving a
petition for relief or reorganization or any other petition in bankruptcy
or for liquidation or to take advantage of any bankruptcy or insolvency
law of any jurisdiction, or ordering the dissolution, winding-up or
liquidation of the Company or any of its Restricted Subsidiaries, or any
such petition shall be filed against the Company or any of its Restricted
Subsidiaries and such petition shall not be dismissed within 60 days; or
(k) a final judgment or judgments for the payment of money
aggregating in excess of $25,000,000 are rendered against one or more of
the Company and its Restricted Subsidiaries and an amount thereof
aggregating in excess of $25,000,000 is not, within 60 days after entry
thereof, bonded, discharged or stayed pending appeal, or is not
discharged within 60 days after the expiration of such stay; or
(l) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is
sought or granted under section 412 of the Code, (ii) a written notice of
intent to terminate any Plan shall have been filed with the PBGC or the
PBGC shall have instituted proceedings under ERISA section 4042 to
terminate or appoint a trustee to administer any Plan or the PBGC shall
have notified the Company or any ERISA Affiliate in writing that a Plan
will become a subject of any such proceedings, (iii) as of the then most
recent dates as of which actuarial evaluations were prepared, the
aggregate "amount of unfunded benefit liabilities" (within the meaning of
section 4001(a)(18) of ERISA) under all Plans, determined in accordance
with Title IV of ERISA, shall exceed $10,000,000, (iv) the Company or any
ERISA Affiliate shall have incurred any liability pursuant to Title I or
IV of ERISA or the penalty or excise tax provisions of the Code relating
to employee benefit plans, (v) the Company or any ERISA Affiliate
withdraws from any Multiemployer Plan, or (vi) the Company or any
Restricted Subsidiary establishes or amends any employee welfare benefit
plan that provides post-employment welfare benefits in a manner that
would increase the liability of the Company or any Restricted Subsidiary
thereunder; and any such event or events described in clauses (i) through
(vi) above, either individually or together with any other such event or
events, could reasonably be expected to have a Material Adverse Effect.
As used in Sec. 13(l), the terms "employee benefit plan" and "employee welfare
benefit plan" shall have the respective meanings assigned to such terms in
section 3 of ERISA.
SECTION 14. REMEDIES ON DEFAULT, ETC.
Section 14.1. Acceleration. (a) If an Event of Default with respect
to the Company described in paragraph (i) or (j) of Sec. 13 (other than an
Event of Default described in clause (i) of paragraph (i) or described in
clause (vi) of paragraph (i) by virtue of the fact that such clause
encompasses
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clause (i) of paragraph (i)) has occurred, all the Notes then outstanding
shall automatically become immediately due and payable.
(b) If any Event of Default described in paragraph (c), (d) or (g) of
Sec. 13 has occurred and is continuing, any holder or holders of 51% or more
in principal amount of the Series A Notes at the time outstanding may at any
time at its or their option, by notice or notices to the Company, declare all
the Series A Notes then outstanding to be immediately due and payable.
(c) If any Event of Default described in paragraph (e) or (h) of Sec.
13 has occurred and is continuing, any holder or holders of 51% or more in
principal amount of the Series B Notes at the time outstanding may at any time
at its or their option, by notice or notices to the Company, declare all the
Series B Notes than outstanding to be immediately due and payable.
(d) If any other Event of Default other than those described in
clauses (a), (b) or (c) of this Sec. 14.1 has occurred and is continuing, any
holder or holders of 51% or more in principal amount of the Notes of either
Series at the time outstanding may at any time at its or their option, by
notice or notices to the Company, declare all the Notes of such Series then
outstanding to be immediately due and payable.
(e) If any Event of Default described in paragraph (a) or (b) of Sec.
13 has occurred and is continuing, any holder or holders of Notes at the time
outstanding affected by such Event of Default may at any time, at its or their
option, by notice or notices to the Company, declare all the Notes held by it
or them to be immediately due and payable.
Upon any Note's becoming due and payable under this Sec. 14.1, whether
automatically or by declaration, such Note will forthwith mature and the
entire unpaid principal amount of such Note, plus (x) all accrued and unpaid
interest thereon and (y) the applicable Make-Whole Amount determined in
respect of such principal amount (to the full extent permitted by applicable
law), shall all be immediately due and payable, in each and every case without
presentment, demand, protest or further notice, all of which are hereby
waived. The Company acknowledges, and the parties hereto agree, that each
holder of a Note has the right to maintain its investment in the Notes free
from repayment by the Company (except as herein specifically provided for),
and that the provision for payment of a Make-Whole Amount by the Company in
the event that the Notes are prepaid or are accelerated as a result of an
Event of Default, is intended to provide compensation for the deprivation of
such right under such circumstances.
Section 14.2. Other Remedies. If any Default or Event of Default has
occurred and is continuing with respect to any Series of Notes, and
irrespective of whether any Notes of such Series have become or have been
declared immediately due and payable under Sec. 14.1, the holder of any Note
of such Series at the time outstanding may proceed to protect and enforce the
rights of such holder by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein or in any Note of such Series, or for an injunction against a violation
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of any of the terms hereof or thereof, or in aid of the exercise of any power
granted hereby or thereby or by law or otherwise.
Section 14.3. Rescission. At any time after any Notes of any Series
have been declared due and payable pursuant to clause (b), (c) (d) or (e) of
Sec. 14.1, the holders of not less than 66-2/3% in principal amount of the
Notes of such Series then outstanding, by written notice to the Company, may
rescind and annul any such declaration and its consequences with respect to
such Series if (a) the Company has paid all overdue interest on the Notes of
such Series, all principal of and Make-Whole Amount, if any, on any Notes of
such Series that are due and payable and are unpaid other than by reason of
such declaration, and all interest on such overdue principal and Make-Whole
Amount, if any, and (to the extent permitted by applicable law) any overdue
interest in respect of the Notes of such Series, at the applicable Default
Rate, (b) all Events of Default and Defaults with respect to such Series,
other than non-payment of amounts that have become due solely by reason of
such declaration, have been cured or have been waived pursuant to Sec. 19, and
(c) no judgment or decree has been entered for the payment of any monies due
pursuant hereto or to the Notes of such Series. No rescission and annulment
under this Sec. 14.3 will extend to or affect any subsequent Event of Default
or Default or impair any right consequent thereon.
Section 14.4. No Waivers or Election of Remedies, Expenses, Etc. No
course of dealing and no delay on the part of any holder of any Note in
exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power
or remedy conferred by this Agreement or by any Note upon any holder thereof
shall be exclusive of any other right, power or remedy referred to herein or
therein or now or hereafter available at law, in equity, by statute or
otherwise. Without limiting the obligations of the Company under Sec. 17, the
Company will pay to the holder of each Note on demand such further amount as
shall be sufficient to cover all reasonable costs and expenses of such holder
incurred in any enforcement or collection under this Sec. 14, including,
without limitation, reasonable attorneys' fees, expenses and disbursements.
SECTION 15. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
Section 15.1. Registration of Notes. The Company shall keep at its
principal executive office a register for the registration and registration of
transfers of Notes. The name and address of each holder of one or more Notes,
each transfer thereof and the name and address of each transferee of one or
more Notes shall be registered in such register. Prior to due presentment for
registration of transfer, the Person in whose name any Note shall be
registered shall be deemed and treated as the owner and holder thereof for all
purposes hereof, and the Company shall not be affected by any notice or
knowledge to the contrary. The Company shall give to any holder of a Note
that is an Institutional Investor promptly upon request therefor, a complete
and correct copy of the names and addresses of all registered holders of
Notes.
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Section 15.2. Transfer and Exchange of Notes.
(a) Subject to Sec. 6.1, upon surrender of any Note at the principal
executive office of the Company for registration of transfer or exchange (and
in the case of a surrender for registration of transfer, duly endorsed or
accompanied by a written instrument of transfer duly executed by the
registered holder of such Note or its attorney duly authorized in writing and
accompanied by the address for notices of each transferee of such Note or part
thereof), the Company shall execute and deliver, at the Company's expense
(except as provided below), one or more new Notes (as requested by the holder
thereof) in exchange therefor, in an aggregate principal amount equal to the
unpaid principal amount of the surrendered Note. Each such new Note shall be
of the same Series as the surrendered Note, shall (subject to Sec. 6.1) be
payable to such Person as such holder may request and shall be substantially
in the form of Exhibit 1-A or Exhibit 1-B, as appropriate. Each such new Note
shall be dated and bear interest from the date to which interest shall have
been paid on the surrendered Note or dated the date of the surrendered Note if
no interest shall have been paid thereon. The Company may require payment of
a sum sufficient to cover any stamp tax or governmental charge imposed in
respect of any such transfer of Notes.
(b) Notes shall not be transferred in denominations of less than
$1,000,000, provided that if necessary to enable the registration of transfer
by a holder of its entire holding of Notes of either Series, one Note of such
Series may be in a denomination of less than $1,000,000. Any transferee, by
its acceptance of a Note registered in its name (or the name of its nominee),
shall be deemed to have made the representation set forth in Sec. 6.2 and that
it is not a Competitor.
Section 15.3. Replacement of Notes. Upon receipt by the Company of
evidence reasonably satisfactory to it of the ownership of and the loss,
theft, destruction or mutilation of any Note (which evidence shall be, in the
case of an Institutional Investor, notice from such Institutional Investor of
such ownership and such loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such Note
is, or is a nominee for, you or an Other Purchaser or another holder of a
Note with a minimum net worth of at least $1,000,000, such Person's own
unsecured agreement of indemnity shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a
new Note of such Series, dated and bearing interest from the date to which
interest shall have been paid on such lost, stolen, destroyed or mutilated
Note or dated the date of such lost, stolen, destroyed or mutilated Note if no
interest shall have been paid thereon.
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SECTION 16. PAYMENTS ON NOTES.
Section 16.1. Place of Payment. Subject to Sec. 16.2, payments of
principal, Make-Whole Amount, if any, and interest becoming due and payable on
the Notes shall be made in Chicago, Illinois at the principal executive office
of the Company in such jurisdiction. The Company may at any time, by notice
to each holder of a Note, change the place of payment of the Notes so long as
such place of payment shall be either the principal office of the Company in
the United States or the principal office of a bank or trust company in the
United States.
Section 16.2. Home Office Payment. So long as you or your nominee
shall be the holder of any Note, and notwithstanding anything contained in
Sec. 16.1 or in such Note to the contrary, the Company will pay all sums
becoming due on such Note for principal, Make-Whole Amount, if any, and
interest by the method and at the address specified for such purpose below
your name in Schedule A, or by such other method or at such other address as
you shall have from time to time specified to the Company in writing for such
purpose, without the presentation or surrender of such Note or the making of
any notation thereon, except that upon written request of the Company made
concurrently with or reasonably promptly after payment or prepayment in full
of any Note, you shall surrender such Note for cancellation, reasonably
promptly after any such request, to the Company at its principal executive
office or at the place of payment most recently designated by the Company
pursuant to Sec. 16.1. Prior to any sale or other disposition of any Note
held by you or your nominee you will, at your election, either endorse thereon
the amount of principal paid thereon and the last date to which interest has
been paid thereon or surrender such Note to the Company in exchange for a new
Note or Notes pursuant to Sec. 15.2. The Company will afford the benefits of
this Sec. 16.2 to any Institutional Investor that is the direct or indirect
transferee of any Note purchased by you under this Agreement and that has made
the same agreement relating to such Note as you have made in this Sec. 16.2.
SECTION 17. EXPENSES, ETC.
Section 17.1. Transaction Expenses. Whether or not the transactions
contemplated hereby are consummated, the Company will pay all reasonable costs
and expenses (including reasonable attorneys' fees of a special counsel and,
if reasonably required, local or other counsel) incurred by you and the Other
Purchasers or holders of Notes in connection with such transactions and in
connection with any amendments, waivers or consents under or in respect of
this Agreement or the Notes (whether or not such amendment, waiver or consent
becomes effective), including, without limitation: (a) the reasonable costs
and expenses incurred in enforcing or defending (or determining whether or how
to enforce or defend) any rights under this Agreement or the Notes or in
responding to any subpoena or other legal process or informal investigative
demand issued in connection with this Agreement or the Notes, or by reason of
being a holder of any Note, and (b) the reasonable costs and expenses,
including financial advisors' fees, incurred in connection with the insolvency
or bankruptcy of the Company or any Subsidiary or in connection with any work-
out or restructuring of the transactions contemplated hereby and by the Notes.
The Company will pay, and will save you and each other holder of a Note
harmless from, all claims in respect of any fees, costs or expenses, if any,
of brokers and finders (other than those retained by you).
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Section 17.2. Survival. The obligations of the Company under this
Sec. 17 will survive the payment or transfer of any Note, the enforcement,
amendment or waiver of any provision of this Agreement or the Notes, and the
termination of this Agreement.
SECTION 18. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
AGREEMENT.
All representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Notes, the purchase or
transfer by you of any Note or portion thereof or interest therein and the
payment of any Note, and may be relied upon by any subsequent holder of a
Note, regardless of any investigation made at any time by or on behalf of you
or any other holder of a Note. All statements contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant to this
Agreement shall be deemed representations and warranties of the Company under
this Agreement. Subject to the preceding sentence, this Agreement and the
Notes embody the entire agreement and understanding between you and the
Company and supersede all prior agreements and understandings relating to the
subject matter hereof.
SECTION 19. AMENDMENT AND WAIVER.
Section 19.1. Requirements. This Agreement, insofar as it relates to
Notes of a particular Series, and the Notes of a particular Series may be
amended, and the observance of any term hereof, insofar as it relates to such
Notes, or of such Notes may be waived (either retroactively or prospectively),
with (and only with) the written consent of the Company and the holder or
holders of at least 51% in unpaid principal amount of the Notes of such
Series, except that (a) no amendment or waiver of any of the provisions of
Sec. 1, 2, 3, 4, 5 or 6 hereof, or any defined term (as it is used therein),
will be effective as to you unless consented to by you in writing, and (b) no
such amendment or waiver may, without the written consent of the holder of
each Note of such Series at the time outstanding, (i) subject to the
provisions of Sec. 14 relating to acceleration or rescission, change the
amount or time of any prepayment or payment of principal of, or reduce the
rate or change the time of payment or method of computation of interest or of
the Make-Whole Amount on, the Notes of such Series, (ii) change the percentage
of the principal amount of the Notes of such Series the holders of which are
required to consent to any such amendment or waiver, or (iii) amend any of
Sec. 8, 13(a), 13(b), 14, 19 or 22.
Section 19.2. Solicitation of Holders of Notes.
(a) Solicitation. The Company will provide each holder of the Notes
of the Series with respect to which an amendment, waiver or consent is being
sought (irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required,
to enable such holder to make an informed and considered decision with respect
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to any proposed amendment, waiver or consent in respect of any of the
provisions hereof or of such Notes. The Company will deliver executed or true
and correct copies of each amendment, waiver or consent effected pursuant to
the provisions of this Sec. 19 to each holder of outstanding Notes, without
regard to Series, promptly following the date on which it is executed and
delivered by, or receives the consent or approval of, the requisite holders of
Notes of the Series affected.
(b) Payment. The Company will not directly or indirectly pay or
cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to any holder of
Notes of any Series as consideration for or as an inducement to the entering
into by such holder of any waiver or amendment of any of the terms and
provisions hereof related to such Series unless such remuneration is
concurrently paid, or security is concurrently granted, on the same terms,
ratably to each holder of Notes of such Series then outstanding even if such
holder did not consent to such waiver or amendment.
Section 19.3. Binding Effect, Etc. Any amendment or waiver consented
to as provided in this Sec. 19 applies equally to all holders of Notes of the
Series affected and is binding upon them and upon each future holder of any
such Note and upon the Company without regard to whether such Note has been
marked to indicate such amendment or waiver. No such amendment or waiver will
extend to or affect any obligation, covenant, agreement, Default or Event of
Default not expressly amended or waived or impair any right consequent
thereon. No course of dealing between the Company and the holder of any Note
nor any delay in exercising any rights hereunder or under any Note shall
operate as a waiver of any rights of any holder of such Note. As used herein,
the term "this Agreement" and references thereto shall mean this Agreement as
it may from time to time be amended or supplemented.
Section 19.4. Notes Held by Company, etc. Solely for the purpose of
determining whether the holders of the requisite percentage of the aggregate
principal amount of Notes of either Series then outstanding approved or
consented to any amendment, waiver or consent to be given under this Agreement
or the Notes of such Series, or have directed the taking of any action
provided herein or in such Notes to be taken upon the direction of the holders
of a specified percentage of the aggregate principal amount of such Notes then
outstanding, Notes of such Series directly or indirectly owned by the Company
or any of its Restricted Subsidiaries or Affiliates shall be deemed not to be
outstanding.
SECTION 20. NOTICES.
All notices and communications provided for hereunder shall be in writing
and sent (a) by telefacsimile if the sender on the same day sends a confirming
copy of such notice by a recognized overnight delivery service (charges
prepaid), or (b) by registered or certified mail with return receipt requested
(postage prepaid), or (c) by a recognized overnight delivery service (with
charges prepaid). Any such notice must be sent:
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<PAGE>
(i) if to you or your nominee, to you or it at the address
specified for such communications in Schedule A, or at such other address
as you or it shall have specified to the Company in writing,
(ii) if to any other holder of any Note, to such holder at such
address as such other holder shall have specified to the Company in
writing, or
(iii) if to the Company, to the Company at its address set forth
at the beginning hereof to the attention of Financial Vice President, or
at such other address as the Company shall have specified to the holder
of each Note in writing.
Notices under this Sec. 20 will be deemed given only when actually received.
SECTION 21. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or
other similar process and you may destroy any original document so reproduced.
The Company agrees and stipulates that, to the extent permitted by applicable
law, any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by you
in the regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
This Sec. 21 shall not prohibit the Company or any other holder of Notes from
contesting any such reproduction to the same extent that it could contest the
original, or from introducing evidence to demonstrate the inaccuracy of any
such reproduction.
SECTION 22. CONFIDENTIAL INFORMATION.
For the purposes of this Sec. 22, "Confidential Information" means
information delivered to you by or on behalf of the Company or any Subsidiary
in connection with the transactions contemplated by or otherwise pursuant to
this Agreement that is proprietary in nature and that was clearly marked or
labeled or otherwise adequately identified when received by you as being
confidential information of the Company or such Subsidiary, provided that such
term does not include information that (a) was publicly known or otherwise
known to you prior to the time of such disclosure, (b) subsequently becomes
publicly known through no act or omission by you or any person acting on your
behalf, (c) otherwise becomes known to you other than through disclosure by
the Company or any Subsidiary or by another Person known to you to be under an
obligation of confidentiality or (d) constitutes financial statements
delivered to you under Sec. 7.1 that are otherwise publicly available. You
will maintain the confidentiality of such Confidential Information in
accordance
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<PAGE>
with procedures adopted by you in good faith to protect confidential
information of third parties delivered to you, provided that you may deliver
or disclose Confidential Information to (i) your directors, officers and
employees (to the extent such disclosure reasonably relates to the
administration of the investment represented by your Notes), (ii) your
affiliates, financial advisors and other professional advisors who agree to
hold confidential the Confidential Information substantially in accordance
with the terms of this Sec. 22, (iii) any other holder of any Note, (iv) any
Institutional Investor to which you sell or offer to sell such Note or any
part thereof or any participation therein (if such Person has agreed in
writing prior to its receipt of such Confidential Information to be bound by
the provisions of this Sec. 22), (v) any Person from which you offer to
purchase any security of the Company (if such Person has agreed in writing
prior to its receipt of such Confidential Information to be bound by the
provisions of this Sec. 22), (vi) any federal or state regulatory authority
having jurisdiction over you to the extent such delivery or disclosure is
required by it or is reasonably deemed necessary by you, (vii) the National
Association of Insurance Commissioners or any similar organization, or any
nationally recognized rating agency that requires access to information about
your investment portfolio to the extent such delivery or disclosure is
required by it or is reasonably deemed necessary by you, or (viii) any other
Person to which such delivery or disclosure may be necessary or appropriate
(w) to effect compliance with any law, rule, regulation or order applicable to
you, (x) in response to any subpoena or other legal process, (y) in connection
with any litigation to which you are a party or (z) if an Event of Default has
occurred and is continuing, to the extent you may reasonably determine such
delivery and disclosure to be necessary or appropriate in the enforcement or
for the protection of the rights and remedies under your Notes and this
Agreement; provided, however, that in the case of clauses (viii)(x) or (y),
prompt notice of such subpoena, other legal process or potential use of such
Confidential Information in such litigation is given to the Company in order
to permit the Company to seek appropriate protective orders. Each holder of a
Note, by its acceptance of a Note, will be deemed to have agreed to be bound
by and to be entitled to the benefits of this Sec. 22 as though it were a
party to this Agreement. On reasonable request by the Company in connection
with the delivery to any holder of a Note of information required to be
delivered to such holder under this Agreement or requested by such holder
(other than a holder that is a party to this Agreement or its nominee), such
holder will enter into an agreement with the Company embodying the provisions
of this Sec. 22.
SECTION 23. MISCELLANEOUS.
Section 23.1. Successors and Assigns. All covenants and other
agreements contained in this Agreement by or on behalf of any of the parties
hereto bind and inure to the benefit of their respective successors and
assigns (including, without limitation, any subsequent holder of a Note)
whether so expressed or not.
Section 23.2. Payments Due on Non-Business Days. Anything in this
Agreement or the Notes to the contrary notwithstanding, any payment of
principal of or Make-Whole Amount or interest on any Note that is due on a
date other than a Business Day shall be made on the next succeeding Business
Day without including the additional days elapsed in the computation of the
interest payable on such next succeeding Business Day.
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<PAGE>
Section 23.3. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall (to the full
extent permitted by law) not invalidate or render unenforceable such provision
in any other jurisdiction.
Section 23.4. Construction. Each covenant contained herein shall be
construed (absent express provision to the contrary) as being independent of
each other covenant contained herein, so that compliance with any one covenant
shall not (absent such an express contrary provision) be deemed to excuse
compliance with any other covenant. Where any provision herein refers to
action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken
directly or indirectly by such Person.
Section 23.5. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies hereof, each signed by less than all, but together signed by
all, of the parties hereto.
Section 23.6. Governing Law. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed
by, the law of the State of New York excluding choice-of-law principles of the
law of such State that would require the application of the laws of a
jurisdiction other than such State.
* * * * *
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<PAGE>
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to
the Company, whereupon the foregoing shall become a binding agreement between
you and the Company.
Very truly yours,
PITTWAY CORPORATION
By: /s/Paul R. Gauvreau
Financial Vice President and Treasurer
The foregoing is hereby agreed
to as of the date thereof.
METROPOLITAN LIFE INSURANCE COMPANY
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<PAGE>
Information Relating to Purchasers
NAME AND ADDRESS PRINCIPAL AMOUNT AND SERIES
OF PURCHASER OF NOTES TO BE PURCHASED
Metropolitan Life Insurance Company $30,000,000
One Madison Avenue Series A Notes
New York, New York 10010
Attention: Treasurer
Telecopier Number: (212) 578-3910
Payments
All payments on or in respect of the Series A
Notes to be by bank wire transfer of Federal
or other immediately available funds not later
than 12:00 noon, New York time, on any date
such payment is due (identifying each payment
as Pittway Corporation, 6.81% Senior Notes,
Series A, due December 15, 2005, PPN 725790 A* 0,
principal or interest) to:
The Chase Manhattan Bank, N.A.
(ABA #021000021)
Metropolitan Branch
33 East 23rd Street
New York, New York 10010
for credit to: Metropolitan Life Insurance Company
Account Number 002-2-410591
Notices
All notices and communications, including notices
with respect to payments and written confirmation
of each such payment, to be addressed as first
provided above with duplicate notice to:
Metropolitan Life Insurance Company
Suite 800
One Lincoln Centre
Oak Brook Terrace, Illinois 60181
Attention: Assistant Vice President
Telephone Number: (708) 916-2565
Telecopier Number: (708) 916-2575
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 13-5581829
SCHEDULE A
(to Note Purchase Agreement)
<PAGE>
Information Relating to Purchasers
NAME AND ADDRESS PRINCIPAL AMOUNT AND SERIES
OF PURCHASER OF NOTES TO BE PURCHASED
Metropolitan Property and Casualty
Insurance Company $10,000,000
700 Quaker Lane Series A Notes
Warwick, Rhode Island 02886
Attention: Treasurer
Payments
All payments on or in respect of the Series
A Notes to be by bank wire transfer of Federal
or other immediately available funds not later
than 12:00 noon, New York time, on any date such
payment is due (identifying each payment as
Pittway Corporation, 6.81% Senior Notes, Series A,
due December 15, 2005, PPN 725790 A* 0, principal
or interest) to:
The Chase Manhattan Bank, N.A.
(ABA #021000021)
Metropolitan Branch
33 East 23rd Street
New York, New York 10010
for credit to: Metropolitan Property
and Casualty Insurance Company
Account Number 002-1-025432
Notices
All notices and communications, including notices
with respect to payments and written confirmation
of each such payment, to be addressed as first
provided above with duplicate notices to:
Metropolitan Life Insurance Company
Suite 800
One Lincoln Centre
Oak Brook Terrace, Illinois 60181
Attention: Assistant Vice President
Telephone Number: (708) 916-2565
Telecopier Number: (708) 916-2575
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 13-2725441
A-2
<PAGE>
NAME AND ADDRESS PRINCIPAL AMOUNT AND SERIES
OF PURCHASER OF NOTES TO BE PURCHASED
Nationwide Life Insurance Company $30,000,000
One Nationwide Plaza Series B Notes
Columbus, Ohio 43215-2220
Telecopier Number: (614) 249-4698
Payments
All payments on or in respect of the Notes
to be by bank wire transfer of Federal or
other immediately available funds (identifying
each payment as Pittway Corporation, 6.70%
Senior Notes, Series B, due December 15, 2005,
PPN 725790 A@ 8, principal or interest) to:
Morgan Guaranty Trust Company of New York
(ABA #021-000-238)
JOURNAL #999-99-024
For the account of Nationwide Life
Insurance Company Custody
Account #71615
Attention: Custody Service Department
Notices
All notices of payment on or in respect of
the Notes and written confirmation of each
such payment to:
Nationwide Life Insurance Company
One Nationwide Plaza-1-32-09
Columbus, Ohio 43215-2220
Attention: Corporate Money Management
All notices and communications other than those
in respect to payments to be addressed:
Nationwide Life Insurance Company
One Nationwide Plaza-1-33-07
Columbus, Ohio 43215-2220
Attention: Corporate Fixed-Income Securities
Telecopier Number: (614) 249-4553
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 31-4156830
A-3
<PAGE>
NAME AND ADDRESS PRINCIPAL AMOUNT AND SERIES
OF PURCHASER OF NOTES TO BE PURCHASED
Employers Life Insurance Company $3,000,000
of Wausau SERIES B NOTES
2000 Westwood Drive
Wausau, Wisconsin 54401
Payments
All payments on or in respect of the Notes to
be by bank wire transfer of Federal or other
immediately available funds (identifying each
payment as Pittway Corporation, 6.70% Senior
Notes, Series B, due December 15, 2005, PPN
725790 A@ 8, principal or interest) to:
Morgan Guaranty Trust Company of New York
(ABA #021-000-238)
JOURNAL #999-99-024
For the account of Employers Life Insurance
Company of Wausau Custody Account #50135
Attention: Custody Service Department
Notices
All notices of payment on or in respect of the
Notes and written confirmation of each such
payment to:
Employers Life Insurance Company of Wausau
2000 Westwood Drive
Wausau, Wisconsin 54401
All notices and communications other than those
in respect to payments to be addressed:
Nationwide Life Insurance Company
2000 Westwood Drive
Wausau, Wisconsin 54401
Attention: Corporate Fixed-Income Securities
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number:
A-4
<PAGE>
NAME AND ADDRESS PRINCIPAL AMOUNT AND SERIES
OF PURCHASER OF NOTES TO BE PURCHASED
West Coast Life Insurance Company $2,000,000
343 Sansome Street Series B Notes
San Francisco, CA 94104
Payments
All payments on or in respect of the Notes
to be by bank wire transfer of Federal or
other immediately available funds (identifying
each payment as Pittway Corporation, 6.70%
Senior Notes, Series B, due December 15, 2005,
PPN 725790 A@ 8, principal or interest) to:
Morgan Guaranty Trust Company of New York
(ABA #021-000-238)
JOURNAL #999-99-024
For the account of Nationwide Life Insurance
Company Custody Account #73290
Attention: Custody Service Department
Notices
All notices of payment on or in respect of the
Notes and written confirmation of each such
payment to:
Nationwide Life Insurance Company
343 Sansome Street
San Francisco, CA 94104
Attention: Karl Snover
All notices and communications other than those
in respect to payments to be addressed:
Nationwide Life Insurance Company
343 Sansome Street
San Francisco, CA 94104
Attention: Corporate Fixed-Income Securities
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number:
A-5
<PAGE>
Defined Terms
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
"Affiliate" means, at any time, (a) any Person that at such time directly
or indirectly through one or more intermediaries Controls, or is Controlled
by, the Company or a Restricted Subsidiary, (b) any Person beneficially owning
or holding, directly or indirectly, 20% or more of any class of voting
interests of the Company or a Restricted Subsidiary, and (c) any Person that
at such time is an officer of the Company (as opposed to an officer of a
division of the Company) or a director of the Company or a Restricted
Subsidiary; provided that neither the Company nor a Restricted Subsidiary is
an Affiliate. As used in this definition, "Control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"Business Day" means (a) for the purposes of Sec. 8.2 and Sec. 8.7 only,
any day other than a Saturday, a Sunday or a day on which commercial banks in
New York City are required or authorized to be closed, and (b) for the
purposes of any other provision of this Agreement, any day other than a
Saturday, a Sunday or a day on which commercial banks in New York City or
Chicago, Illinois are required or authorized to be closed.
"Capital Lease" means, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and
the incurrence of a liability in accordance with GAAP.
"Closing" is defined in Sec. 3.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.
"Company" means Pittway Corporation, a Delaware corporation.
"Competitor" means an entity that (i) is directly engaged substantially
in the publishing business or the manufacture and distribution of security
equipment and systems, or (ii) controls, is controlled by or is under common
control with another entity that is directly engaged substantially in the
publishing business or the manufacture and distribution of security equipment
and systems unless, in the case of any such control relationship, the first
entity has established, or establishes, procedures satisfactory in the
Company's reasonable judgment which will prevent Confidential Information from
being transmitted or made available to such other entity or any officer,
director, employee or agent thereof; provided that in the event the Company or
a Subsidiary which would then constitute a "significant subsidiary" under
Regulation S-X of the Securities and Exchange Commission as in effect on the
date of the Closing shall become directly engaged substantially in the conduct
of a business other than the publishing business or the manufacture and
distribution of security equipment and systems and shall request the consent
of the holders of the Notes to an amendment to this definition to include such
SCHEDULE B
(to Note Purchase Agreement)
<PAGE>
business, the holders of the Notes shall not withhold such consent unless they
reasonably believe such inclusion of such business in this definition would
impair the ability to transfer the Notes to transferees of the type who would
normally invest in securities such as the Notes, which transferees would
include, without limitation, insurance companies, banks and trust companies,
finance and credit companies, investment banks, pension funds, mutual funds
and asset management organizations.
"Confidential Information" is defined in Sec. 22.
"Consolidated Net Worth" means, at any time,
(a) the sum of (i) the par value (or value stated on the books
of the corporation) of the capital stock (but excluding treasury stock
and capital stock subscribed and unissued) of the Company and its
Restricted Subsidiaries at such time plus (ii) the amount of the paid-in
capital and retained earnings of the Company and its Restricted
Subsidiaries at such time, in each case as such amounts would be shown on
a consolidated balance sheet of the Company and its Restricted
Subsidiaries as of such time prepared in accordance with GAAP, minus
(b) to the extent included in clause (a), all amounts properly
attributable to minority interests, if any, in the stock and surplus of
Restricted Subsidiaries.
"Consolidated Total Assets" means the consolidated total assets of the
Company and its Restricted Subsidiaries determined in accordance with GAAP.
"Consolidated Total Debt" means all Debt of the Company and its
Restricted Subsidiaries after eliminating inter-company items in accordance
with GAAP.
"Consolidated Total Indebtedness" means all Indebtedness of the Company
and its Restricted Subsidiaries after eliminating inter-company items in
accordance with GAAP.
"Debt" with respect to any Person means, at any time, without
duplication,
(a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the
ordinary course of business but including all liabilities created or
arising under any conditional sale or other title retention agreement
with respect to any such property);
(c) all liabilities appearing on its balance sheet in accordance
with GAAP in respect of Capital Leases;
B-2
<PAGE>
(d) all liabilities for borrowed money secured by any Lien with
respect to any property owned by such Person (whether or not it has
assumed or otherwise become liable for such liabilities);
(e) all its liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its account
by banks and other financial institutions (whether or not representing
obligations for borrowed money);
(f) Swaps of such Person; and
(g) any Guaranty of such Person with respect to liabilities of a
type described in any of clauses (a) through (f) hereof.
Debt of any Person shall include all obligations of such Person of the
character described in clauses (a) through (g) to the extent such Person
remains legally liable in respect thereof notwithstanding that any such
obligation is deemed to be extinguished under GAAP. Debt of the Company shall
not include any amount owed by it to any Restricted Subsidiary, and Debt of a
Restricted Subsidiary shall not include any amount owed by it to the Company,
pursuant to the Company's cash management program. Debt shall not in any
event include (i) any direct or indirect Guaranty of obligations (not
constituting Debt) of dealers under financing programs with third parties
sponsored by the Company or a Restricted Subsidiary, or (ii) any liability for
the deferred purchase price of a limited partnership interest or other
financial Investment.
"Default" means an event or condition the occurrence or existence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default.
"Default Rate" means that rate of interest that is the greater of (i) 2%
per annum above the rate of interest stated in clause (a) of the first
paragraph of the Notes of the Series with respect such rate is being
determined or (ii) the rate of interest publicly announced by The Chase
Manhattan Bank, National Association in New York, New York as its "base" or
"prime" rate.
"Environmental Laws" means any and all applicable Federal, state, local,
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including
but not limited to those related to hazardous substances or wastes, air
emissions and discharges to surface water or to public waste systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.
B-3
<PAGE>
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under sections 414(b), (c) or (m) of the Code.
"Event of Default" is defined in Sec. 13.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Liens" is defined in Sec. 10.3(g).
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.
"Governmental Authority" means
(a) the government of
(i) the United States of America or any State or other
political subdivision thereof, or
(ii) any jurisdiction in which the Company or any Subsidiary
conducts all or any part of its business, or which asserts
jurisdiction over any properties of the Company or any Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"Guaranty" means, with respect to any Person, any obligation (except the
endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing
any indebtedness, dividend or other obligation of any other Person in any
manner, whether directly or indirectly, including (without limitation)
obligations incurred through an agreement, contingent or otherwise, by such
Person:
(a) to purchase such indebtedness or obligation or any property
constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment
of such indebtedness or obligation, or (ii) to maintain any working
capital or other balance sheet condition or any income statement
condition of any other Person or otherwise to advance or make available
funds for the purchase or payment of such indebtedness or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such indebtedness or
obligation of the ability of any other Person to make payment of the
indebtedness or obligation; or
B-4
<PAGE>
(d) otherwise to assure the owner of such indebtedness or
obligation against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the
obligor under any Guaranty, the indebtedness or other obligations that are the
subject of such Guaranty shall be assumed to be direct obligations of such
obligor.
"Hazardous Material" means any and all pollutants, toxic or hazardous
wastes or hazardous substances or any other substances with respect to
which liability or standards of conduct are imposed pursuant to any
Environmental Law.
"holder" means, with respect to any Note, the Person in whose name such
Note is registered in the register maintained by the Company pursuant to
Sec. 15.1.
"Indebtedness" of any Person means (i) all indebtedness of such person
for borrowed money, (ii) all Capital Leases of such Person, and (iii) all
Guaranties by such Person of Indebtedness of others. Indebtedness of the
Company shall not include any amount owed by it to any Restricted Subsidiary,
and Indebtedness of a Restricted Subsidiary shall not include any amount owed
by it to the Company, pursuant to the Company's cash management program.
Indebtedness shall not in any event include (i) any direct or indirect
Guaranty of obligations (not constituting Indebtedness) of dealers under
financing programs with third parties sponsored by the Company or a Restricted
Subsidiary, or (ii) any liability for the deferred purchase price of a limited
partnership interest or other financial Investment.
"Institutional Investor" means (a) any original purchaser of a Note, (b)
any holder of a Note holding more than 5% of the aggregate principal amount of
the Notes of such Series then outstanding, and (c) any bank, trust company,
savings and loan association or other financial institution, any pension plan,
any investment company, any insurance company, any broker or dealer, or any
other similar financial institution or entity, regardless of legal form.
"Investment" means any investment, made in cash or by delivery of
property by the Company or any of its Restricted Subsidiaries (i) in any
Person, whether by acquisition of stock, indebtedness or other obligation or
Security, or by loan, Guaranty, advance, capital contribution or otherwise, or
(ii) in any property. In no event shall "Investment" include: (i) any
Guaranty that constitutes Debt or Indebtedness, (ii) any direct or indirect
Guaranty of obligations (not constituting Debt or Indebtedness) of dealers
under financing programs with third parties sponsored by the Company or a
Restricted Subsidiary (but any amount paid pursuant to such a direct or
indirect Guaranty shall, to the extent not reimbursed, constitute an
"Investment"), or (iii) any liability for the deferred purchase price of any
property other than a limited partnership interest or other financial
Investment (but any liability for the deferred purchase price of a limited
partnership interest or other financial Investment shall constitute an
"Investment").
"Lien" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of
any vendor, lessor, lender or other secured party to or of such Person under
B-5
<PAGE>
any conditional sale or other title retention agreement or Capital Lease, upon
or with respect to any property or asset of such Person (including in the case
of stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"Make-Whole Amount" is defined in Sec. 8.7.
"Material" means material in relation to the business, operations,
affairs, financial condition, assets or properties of the Company and its
Restricted Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of
the Company and its Restricted Subsidiaries taken as a whole, or (b) the
ability of the Company to perform its obligations under this Agreement and the
Notes, or (c) the validity or enforceability of this Agreement or the Notes.
"Memorandum" is defined in Sec. 5.3.
"Multiemployer Plan" means any Plan that is a "multiemployer plan" (as
such term is defined in section 4001(a)(3) of ERISA).
"Notes" is defined in Sec. 1.
"Officer's Certificate" means a certificate of a Senior Financial Officer
or of any other officer of the Company whose responsibilities extend to the
subject matter of such certificate.
"Other Agreements" is defined in Sec. 2.
"Other Purchasers" is defined in Sec. 2.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"Permitted Investment" means the following:
(a) property to be used in the ordinary course of business of
the Company and its Restricted Subsidiaries;
(b) current assets arising from the sale of goods and services
in the ordinary course of business of the Company and its Restricted
Subsidiaries;
(c) Investments in the ordinary course of business in one or
more Restricted Subsidiaries or any Person that concurrently with such
Investment becomes a Restricted Subsidiary and loans or advances, in the
B-6
<PAGE>
ordinary course of business, to the Company from a Restricted Subsidiary
at least 80% of the voting and equity interests of which are owned by one
or more of the Company and other such Restricted Subsidiaries;
(d) Investments existing on the date of the Closing in
Unrestricted Subsidiaries and in United States Satellite Broadcasting,
Inc., Cylink Corporation and DSC Enterprises, Inc. and disclosed in
Schedule 12.3, and any restructurings or extensions thereof which do not
increase the amount thereof;
(e) Investments in United States Governmental Securities,
provided that such obligations mature within 365 days from the date of
acquisition thereof;
(f) Investments in certificates of deposit, Eurodollar deposits,
or banker's acceptances issued by an Acceptable Bank at the time of
acquisition thereof, provided that such obligations mature within 365
days from the date of acquisition thereof;
(g) Investments in commercial paper given a rating of "A" or
better by S&P or "A" or better by Moody's at the time of acquisition
thereof, and maturing not more than 365 days from the date of creation
thereof;
(h) Investments in tax-exempt obligations of any state of the
United States of America, or any municipality of any such state, in each
case rated "A" or better by S&P or "A" or better by Moody's at the time
of acquisition thereof, provided that such obligations mature within 365
days from the date of acquisition thereof;
(i) Investments in adjustable rate preferred stock in which the
rate reset period is less than one year and which is rated "BBB" or
better by S&P or "baa" or better by Moody's at the time of acquisition
thereof;
(j) Loans and advances in the ordinary course of business, and
any restructurings or extensions thereof which do not increase the amount
thereof, to suppliers, officers, directors and employees of the Company
or a Restricted Subsidiary incidental to carrying on the business of the
Company or a Restricted Subsidiary (including, without limitation,
employee relocation loans);
(k) receivables, loans and advances from or to Unrestricted
Subsidiaries arising from activities conducted in the ordinary course of
business between the Company or its Restricted Subsidiaries on the one
hand and its Unrestricted Subsidiaries on the other hand;
(l) Investments in addition to those described in clauses (a)
through (k) provided that the aggregate amount of Investments permitted
pursuant to this clause (l) shall not at any time exceed 25% of
Consolidated Total Assets; and
(m) Investments in addition to those described in clauses (a)
through (l), provided that the aggregate amount of Investments permitted
pursuant to this clause (m) shall not at any time exceed $5,000,000 and
that no Investment in a leveraged lease or affordable housing transaction
is permitted under this clause (m).
B-7
<PAGE>
For purposes of this Agreement, an Investment shall be valued at the lesser of
(i) cost and (ii) the value at which such Investment is to be shown on the
books of the Company and its Restricted Subsidiaries in accordance with GAAP.
As used in this definition of "Permitted Investments":
"Acceptable Bank" means any bank or trust company (i) which is
organized under the laws of the United States of America or any State
thereof, and has capital, surplus and undivided profits aggregating at
least $250,000,000, or (ii) which is organized under the laws of any
jurisdiction outside the United States of America, has a branch office
within the United States of America and has capital, surplus and
undivided profits aggregating at least $1,000,000,000.
"Moody's" means Moody's Investors Service, Inc.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw
Hill, Inc.
"United States Governmental Security" means any direct obligation
of, or obligation guaranteed by, the United States of America, or any
agency controlled or supervised by or acting as an instrumentality of the
United States of America pursuant to authority granted by the Congress of
the United States of America, so long as such obligation or guarantee
shall have the benefit of the full faith and credit of the United States
of America which shall have been pledged pursuant to authority granted by
the Congress of the United States of America.
"Person" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization, or a government or
agency or political subdivision thereof.
"Plan" means an "employee benefit plan" (as defined in section 3(3) of
ERISA), other than a Multiemployer Plan, that is or, within the preceding five
years, has been established or maintained, or to which contributions are or,
within the preceding five years, have been made or required to be made, by the
Company or any ERISA Affiliate or with respect to which the Company or any
ERISA Affiliate has any liability.
"Preferred Stock" means any class of capital stock of a corporation that
is preferred over any other class of capital stock of such corporation as to
the payment of dividends or the payment of any amount upon liquidation or
dissolution of such corporation.
"property" or "properties" means, unless otherwise specifically limited,
real or personal property of any kind, tangible or intangible, choate or
inchoate.
B-8
<PAGE>
"PTE 95-60" means the Department of Labor Prohibited Transaction
Exemption 95-60 issued July 12, 1995.
"QPAM Exemption" means Prohibited Transaction Class Exemption 84-14
issued by the United States Department of Labor.
"Required Holders" means the holders of 66-2/3% or more in principal
amount of each Series of Notes acting separately, or in the case of a matter
involving only a separate Series of Notes, the holders of 66-2/3% or more in
principal amount of the Notes of such Series.
"Responsible Officer" means any Senior Financial Officer and any other
officer of the Company with responsibility for the administration of the
relevant portion of this Agreement.
"Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended from time
to time.
"Security" has the meaning set forth in Section 2(1) of the Securities
Act.
"Senior Financial Officer" means the chief financial officer, principal
accounting officer or treasurer of the Company.
"Series" or "Series of Notes" is defined in Sec. 1.
"Series A Notes" is defined in Sec. 1.
"Series B Notes" is defined in Sec. 1.
"Series A Total Capitalization" means the sum of (i) Consolidated Total
Debt, (ii) deferred income tax liability of the Company and its Restricted
Subsidiaries determined in accordance with GAAP, and (iii) Consolidated Net
Worth.
"Series B Total Capitalization" means the sum of (i) Consolidated Total
Indebtedness, (ii) deferred income tax liability of the Company and its
Restricted Subsidiaries determined in accordance with GAAP, and (iii)
Consolidated Net Worth.
"Source" is defined in Sec. 6.2.
B-9
<PAGE>
"Subsidiary" means, as to any Person, any corporation, association or
other business entity in which such Person or one or more of its Subsidiaries
or such Person and one or more of its Subsidiaries owns sufficient equity or
voting interests to enable it or them (as a group) ordinarily, in the absence
of contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if
more than a 50% interest in the profits or capital thereof is owned by such
Person or one or more of its Subsidiaries or such Person and one or more of
its Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of
its Subsidiaries). Unless the context otherwise clearly requires, any
reference to a "Subsidiary" is a reference to a Subsidiary of the Company.
"Swaps" means, with respect to any Person, payment obligations with
respect to interest rate swaps, currency swaps and similar obligations
obligating such Person to make payments, whether periodically or upon the
happening of a contingency. For the purposes of this Agreement, the amount of
the obligation under any Swap shall be the amount determined in respect t
hereof as of the end of the then most recently ended fiscal quarter of such
Person, based on the assumption that such Swap had terminated at the end of
such fiscal quarter, and in making such determination, if any agreement
relating to such Swap provides for the netting of amounts payable by and to
such Person thereunder or if any such agreement provides for the simultaneous
payment of amounts by and to such Person, then in each such case, the amount
of such obligation shall be the net amount so determined.
"Unrestricted Subsidiary" means any Subsidiary which has been designated
as such pursuant to the provisions of this Agreement.
"Wholly-Owned Restricted Subsidiary" means, at any time, any Restricted
Subsidiary one hundred percent (100%) of all of the equity interests (except
directors' qualifying shares) and voting interests (except directors'
qualifying shares) of which are owned by any one or more of the Company and
the Company's other Wholly-Owned Restricted Subsidiaries at such time.
B-10
<PAGE>
[Form of Series A Note]
Pittway Corporation
6.81% Senior Note, Series A, Due December 15, 2005
No. [_________] [Date]
$[____________] PPN[____________]
FOR VALUE RECEIVED, the undersigned, PITTWAY CORPORATION (herein called
the "Company"), a corporation organized and existing under the laws of the
State of Delaware, hereby promises to pay to [________________], or registered
assigns, the principal sum of [________________] DOLLARS on December 15, 2005,
with interest (computed on the basis of a 360-day year of twelve 30-day
months) (a) on the unpaid balance thereof at the rate of 6.81% per annum from
the date hereof, payable semi-annually, on the 15th day of June and December
in each year, commencing with the first of such dates next succeeding the date
hereof, until the principal hereof shall have become due and payable, and (b)
to the extent permitted by law on any overdue payment (including any overdue
prepayment) of principal, any overdue payment of interest and any overdue
payment of any Make-Whole Amount (as defined in the Note Purchase Agreements
referred to below), payable semi-annually as aforesaid (or, at the option of
the registered holder hereof, on demand), at a rate per annum from time to
time equal to the greater of (i) 8.81% or (ii) the rate of interest publicly
announced by The Chase Manhattan Bank, National Association from time to time
in New York, New York as its "base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at the principal executive office of the Company in Chicago, Illinois,
or at such other place as the Company shall have designated by written notice
to the holder of this Note as provided in the Note Purchase Agreements
referred to below.
This Note is one of a series of Senior Notes, Series A (herein called the
"Series A Notes"), issued pursuant to separate Note Purchase Agreements, dated
as of December 15, 1995 (as from time to time amended, the "Note Purchase
Agreements"), between the Company and the respective Purchasers named therein
and pursuant to which the Company is also issuing a series of Senior Notes,
Series B (herein called the "Series B Notes" and collectively with the Series
A Notes, the "Notes"). This Note is, together with such other Notes, entitled
to the benefits of said Note Purchase Agreements. Each holder of this Note
will be deemed, by its acceptance hereof, (i) to have agreed to the
confidentiality provisions set forth in Sec. 22 of the Note Purchase
Agreements and (ii) to have made the representation set forth in Sec. 6.2 of
the Note Purchase Agreements and that it is not a Competitor (as defined in
the Note Purchase Agreements).
EXHIBIT 1-A
(to Note Purchase Agreement)
<PAGE>
This Note is a registered Note and, as provided in and subject to Sec.
6.1 of the Note Purchase Agreements, upon surrender of this Note for
registration of transfer, duly endorsed, or accompanied by a written
instrument of transfer duly executed, by the registered holder hereof or such
holder's attorney duly authorized in writing, a new Series A Note for a like
principal amount will be issued to, and registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the
Company may treat the person in whose name this Note is registered as the
owner hereof for the purpose of receiving payment and for all other purposes,
and the Company will not be affected by any notice to the contrary.
This Note is subject to optional prepayment, in whole or from time to
time in part, at the times and on the terms specified in the Note Purchase
Agreements, but not otherwise.
If an Event of Default, as defined in the Note Purchase Agreements,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note
Purchase Agreements.
This Note shall be governed by the laws of the State of New York.
PITTWAY CORPORATION
By______________________________________
Financial Vice President and Treasurer
1-A-2
<PAGE>
[Form of Series B Note]
Pittway Corporation
6.70% Senior Note, Series B, due December 15, 2005
No. [_________] [Date]
$[____________] PPN[____________]
FOR VALUE RECEIVED, the undersigned, PITTWAY CORPORATION (herein called
the "Company"), a corporation organized and existing under the laws of the
State of Delaware, hereby promises to pay to [________________], or registered
assigns, the principal sum of [________________] DOLLARS on December 15, 2005,
with interest (computed on the basis of a 360-day year of twelve 30-day
months) (a) on the unpaid balance thereof at the rate of 6.70% per annum from
the date hereof, payable semi-annually, on the 15th day of June and December
in each year, commencing with the first of such dates next succeeding the date
hereof, until the principal hereof shall have become due and payable, and (b)
to the extent permitted by law on any overdue payment (including any overdue
prepayment) of principal, any overdue payment of interest and any overdue
payment of any Make-Whole Amount (as defined in the Note Purchase Agreements
referred to below), payable semi-annually as aforesaid (or, at the option of
the registered holder hereof, on demand), at a rate per annum from time to
time equal to the greater of (i) 8.70% or (ii) the rate of interest publicly
announced by The Chase Manhattan Bank, National Association from time to time
in New York, New York as its "base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at the principal executive office of the Company in Chicago, Illinois,
or at such other place as the Company shall have designated by written notice
to the holder of this Note as provided in the Note Purchase Agreements
referred to below.
This Note is one of a series of Senior Notes, Series B (herein called the
"Series B Notes"), issued pursuant to separate Note Purchase Agreements, dated
as of December 15, 1995 (as from time to time amended, the "Note Purchase
Agreements"), between the Company and the respective Purchasers named therein
and pursuant to which the Company is also issuing a series of Senior Notes,
Series A (herein called the "Series A Notes" and collectively with the Series
B Notes, the "Notes"). This Note is, together with such other Notes, entitled
to the benefits of said Note Purchase Agreements. Each holder of this Note
will be deemed, by its acceptance hereof, (i) to have agreed to the
confidentiality provisions set forth in Sec. 22 of the Note Purchase
Agreements and (ii) to have made the representation set forth in Sec. 6.2 of
the Note Purchase Agreements and that it is not a Competitor (as defined in
the Note Purchase Agreements).
EXHIBIT 1-B
(to Note Purchase Agreement)
<PAGE>
This Note is a registered Note and, as provided in and subject to Sec.
6.1 of the Note Purchase Agreements, upon surrender of this Note for
registration of transfer, duly endorsed, or accompanied by a written
instrument of transfer duly executed, by the registered holder hereof or such
holder's attorney duly authorized in writing, a new Series B Note for a like
principal amount will be issued to, and registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the
Company may treat the person in whose name this Note is registered as the
owner hereof for the purpose of receiving payment and for all other purposes,
and the Company will not be affected by any notice to the contrary.
The Company will make required prepayments of principal on the dates and
in the amounts specified in the Note Purchase Agreements. This Note is also
subject to optional prepayment, in whole or from time to time in part, at the
times and on the terms specified in the Note Purchase Agreements, but not
otherwise.
If an Event of Default, as defined in the Note Purchase Agreements,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note
Purchase Agreements.
This Note shall be governed by the laws of the State of New York.
PITTWAY CORPORATION
By____________________________________
Financial Vice President and Treasurer
1-B-2
<PAGE>
EXHIBIT 10.5
PITTWAY CORPORATION
DECEMBER 31, 1995
FORM 10-K
FOURTH EXTENSION AND AMENDMENT
Reference is made to the Agreement of Employment dated
July 1, 1990, as extended and amended by the Extension and
Amendment dated as of June 30, 1992, the Second Extension and
Amendment dated as of December 31, 1993 and the Third Extension
and Amendment dated as of December 31, 1994, by and between
Penton Publishing, Inc. (the "Corporation") and Sal F. Marino
("Marino") (as so extended and amended, the "Agreement").
The Agreement provides that the "term of employment"
thereunder expires on December 31, 1995 unless extended by the
Corporation and Marino.
The Corporation and Marino desire to extend such "term
of employment", and in connection therewith to make certain
amendments to the Agreement.
Accordingly, the Corporation and Marino hereby agree as
follows:
1. Paragraph 1 of the Agreement is amended in its
entirety to read as follows:
"1. This Agreement shall become effective at
12:01 a.m., EDT, on the date hereof and Marino's
employment by the Corporation shall continue until
December 31, 1996 (or such later date as the
Corporation and Marino may agree upon in writing during
the term of employment (as defined below)), unless
earlier terminated by Marino's death or pursuant to
Paragraph 6. The period from the date hereof to and
including the first to occur of December 31, 1996 (or
such later date), the date of Marino's death, or the
date of termination pursuant to Paragraph 6, is herein
referred to as the "term of employment"."
2. The first sentence of Paragraph 3 of the
Agreement is amended in its entirety to read
as follows:
"The Corporation agrees to pay Marino a salary during
the term of employment, which shall be payable in equal
monthly installments at a rate not less than TWO
HUNDRED SEVENTY FIVE THOUSAND DOLLARS ($275,000.00) per
year during that portion of the term of employment
occurring prior to December 31, 1992, at a rate not
less than THREE HUNDRED FIVE THOUSAND DOLLARS
($305,000.00) per year during that portion of the term
of employment occurring after December 31, 1992 and
prior to December 31, 1993, at a rate not less than
THREE HUNDRED FIFTEEN THOUSAND DOLLARS ($315,000.00)
per year during that portion of the term of employment
occurring after December 31, 1993 and prior to December
31, 1994, at a rate not less than THREE HUNDRED THIRTY
THOUSAND DOLLARS ($330,000.00) per year during that
portion of the term of employment occurring after
December 31, 1994 and prior to December 31, 1995, and
at a rate not less than THREE HUNDRED FIFTY THOUSAND
DOLLARS ($350,000.00) per year during any portion of
the term of employment occurring after December 31,
1995."
IN WITNESS WHEREOF, the undersigned have executed this
Fourth Extension and Amendment as of December 31, 1995.
PENTON PUBLISHNG, INC.
By: /s/King Harris
As Its: Vice President
/s/ Sal F. Marino
Sal F. Marino
EMPLOYMENT AGREEMENT
AGREEMENT made as of January 1, 1996, between Pittway Corporation, a
Delaware corporation (the "Company"), and King Harris ("Executive").
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive
accepts continued employment with the Company, upon the terms and conditions
set forth in this Agreement for the period beginning on the date hereof and
ending as provided in paragraph 5 hereof (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the chief
executive officer of the Company, and shall have the normal duties,
responsibilities and authority of an executive serving in such position,
subject to the power of the Board of Directors of the Company (the "Board") to
expand or limit such duties, responsibilities and authority, either generally
or in specific instances. Executive shall have the title President and Chief
Executive Officer of the Company, subject to the power of the Board to change
such title from time to time. During the Employment Period, Executive shall
also serve as a director of the Company for so long as the Board nominates him
to that position and he is elected to it and as a director of any affiliate of
the Company designated by the Board for so long as the Board causes him to be
elected to such position.
(b) Executive shall report to the Board.
(c) During the Employment Period, Executive shall devote his best
efforts and his full business time and attention (except for permitted
vacation periods, reasonable periods of illness or other incapacity and,
provided such activities do not exceed those in which Executive has engaged in
the past, participation in charitable and civic endeavors and management of
Executive's personal investments and business interests) to the business and
affairs of the Company, its subsidiaries and affiliates. Executive shall
perform his duties and responsibilities to the best of his abilities in a
diligent, trustworthy, businesslike and efficient manner.
(d) Executive shall perform his duties and responsibilities
principally in the Chicago metropolitan area, and shall not be required to
travel outside that area any more extensively than he has done in the past in
the ordinary course of the business of the Company.
<PAGE>
3. Salary and Benefits.
(a) The Company agrees to pay Executive a salary during the
Employment Period, in monthly installments.
(b) Executive's initial salary shall be $550,000 per annum.
(c) Executive's salary may be increased by the Board from time to
time.
(d) The Board may, in its sole discretion, award a bonus to
Executive for any calendar year during the Employment Period.
(e) The Company shall reimburse Executive for all reasonable
expenses incurred by him in the course of performing his duties under this
Agreement which are consistent with the Company's policies in effect from time
to time with respect to travel, entertainment and other business expenses,
subject to the Company's requirements with respect to reporting and
documentation of such expenses.
(f) In addition to the salary and any bonus(es) payable to Executive
pursuant to this paragraph, Executive shall be entitled during the Employment
Period to participate, on the same basis as other executives of the Company
(but subject to variations among executives resulting from differences in the
levels of benefits made available to employees at particular business units
under the Company's 401(k) plan or any other plan of the Company), in the
Company's Standard Executive Benefits Package. The Company's "Standard
Executive Benefits Package" means those benefits (including insurance,
vacation, company car or car allowance and/or other benefits) for which
substantially all of the executives of the Company are from time to time
generally eligible, as determined from time to time by the Board.
(g) In addition to participation in the Company's Standard Executive
Benefits Package pursuant to this paragraph, Executive shall be entitled
during the Employment Period to:
(i) additional term life insurance coverage in an amount equal to
Executive's salary; but only if and so long as such additional
coverage is available at standard rates from the insurer providing
term life insurance coverage under the Standard Executive Benefits
Package or from a comparable insurer acceptable to the Company;
(ii) supplementary long-term disability coverage in an amount which
will increase maximum covered annual compensation to $330,000 and
the maximum monthly payments to $18,333; but only if and so long
as such supplementary coverage is available at standard rates from
the insurer providing long-term disability coverage under the
Standard Executive Benefits Package or a comparable insurer
acceptable to the Company; and
-2-
<PAGE>
(iii) participation in the Pittway Corporation Supplemental Executive
Retirement Plan (the "SERP"), a copy of which, as currently in
effect, is attached hereto as Exhibit A.
4. Adjustments. Notwithstanding any other provision of this
Agreement, it is expressly understood and agreed that if there is a
significant reduction in the level of the business to which Executive's duties
under this Agreement relate, or if all or any significant part of such
business is disposed of by the Company and/or its subsidiaries or affiliates
during the Employment Period but Executive thereafter remains an employee of
the Company, the Board may make adjustments in Executive's duties,
responsibility and authority, and in Executive's compensation, as the Board
deems appropriate to reflect such reduction or disposition.
5. Employment Period.
(a) Except as hereinafter provided, the Employment Period shall
continue until, and shall end upon, the third anniversary of the date hereof.
(b) On each anniversary of the date hereof which precedes
Executive's sixty-fifth birthday by more than two years, unless the Employment
Period shall have ended early pursuant to (c) below or either party shall have
given the other party written notice that the extension provision in this
sentence shall no longer apply, the Employment Period shall be extended for an
additional calendar year (unless Executive's sixty-fifth birthday occurs
during such additional calendar year, in which event the Employment Period
shall be extended only until such birthday). In no event shall the Employment
Period be extended beyond the Executive's sixty-fifth birthday except by
mutual written agreement of the Company and Executive.
(c) Notwithstanding (a) and (b) above, the Employment Period shall
end early upon the first to occur of any of the following events:
(i) Executive's death;
(ii) Executive's retirement upon or after reaching age 65
("Retirement");
(iii) the Company's termination of Executive's employment on account of
Executive's having become unable (as determined by the Board in
good faith) to regularly perform his duties hereunder by reason of
illness or incapacity for a period of more than six (6)
consecutive months ("Termination for Disability");
-3-
<PAGE>
(iv) the Company's termination of Executive's employment for Cause
("Termination for Cause");
(v) the Company's termination of Executive's employment other than a
Termination for Disability or a Termination for Cause
("Termination without Cause");
(vi) Executive's termination of Executive's employment for Good Reason,
by means of advance written notice to the Company at least thirty
(30) days prior to the effective date of such termination
identifying such termination as a Termination by Executive for
Good Reason ("Termination by Executive for Good Reason") (it being
expressly understood that Executive's giving notice that the
extension provision in the first sentence of paragraph 5 (b)
hereof shall no longer apply shall not constitute a "Termination
by Executive for Good Reason"); or
(vii) Executive's termination of Executive's employment for any reason
other than Good Reason, by means of advance written notice to the
Company at least one hundred eighty (180) days prior to the
effective date of such termination identifying such termination as
a Termination by Executive with Advance Notice ("Termination by
Executive with Advance Notice") (it being expressly understood
that Executive's giving notice that the extension provision in the
first sentence of paragraph 5 (b) hereof shall no longer apply
shall not constitute a "Termination by Executive with Advance
Notice").
(d) For purposes of this Agreement, "Cause" shall mean:
(i) the commission by Executive of a felony or a crime involving moral
turpitude;
(ii) the commission by Executive of a fraud;
(iii) the commission by Executive of any act involving dishonesty or
disloyalty with respect to the Company or any of its subsidiaries
or affiliates;
(iv) conduct by Executive tending to bring the Company or any of its
subsidiaries or affiliates into substantial public disgrace or
disrepute;
(v) gross negligence or willful misconduct by Executive with respect
to the Company or any of its subsidiaries or affiliates;
-4-
<PAGE>
(vi) repudiation of this Agreement by Executive or Executive's
abandonment of his employment with the Company (it being expressly
understood that a Termination by Executive for Good Reason or a
Termination by Executive with Advance Notice shall not constitute
such a repudiation or abandonment);
(vii) breach by Executive of any of the agreements in paragraph 10
hereof; or
(viii) any other breach by Executive of this Agreement which is material
and which is not cured within thirty (30) days after written
notice thereof to Executive from the Company.
(e) For purposes of this Agreement, "Good Reason" shall mean:
(i) a reduction by the Company in Executive's salary to an amount less
than "Executive's Reference Salary" (i.e., Executive's initial
salary or, in the event the Employment Period has been extended
pursuant to paragraph 5(b) hereof, Executive's salary on the date
on which the most recent such extension occurred); or
(ii) any breach by the Company of this Agreement which is material and
which is not cured within thirty (30) days after written notice
thereof to the Company from Executive.
6. Post-Employment Period Payments.
(a) If the Employment Period ends on the date on which (without any
extension thereof) it is then scheduled to end pursuant to paragraph 5 hereof,
or if the Employment Period ends early pursuant to paragraph 5 hereof for any
reason, Executive shall cease to have any rights to salary, bonus (if any) or
benefits other than: (i) any salary which has accrued but is unpaid, and any
expenses which have been incurred but are unpaid, as of the end of the
Employment Period, (ii) (but only to the extent provided in the SERP any other
benefit plan in which Executive has participated as an employee of the
Company) any plan benefits which by their terms extend beyond termination of
Executive's employment and (iii) any other amounts(s) payable pursuant to the
succeeding provisions of this paragraph 6.
(b) If the Employment Period ends pursuant to paragraph 5 hereof on
Executive's sixty-fifth birthday, or if the Employment Period ends early
pursuant to paragraph 5 hereof on account of Executive's death, Retirement or
Termination for Disability, the Company shall make no further payments to
Executive except as contemplated in (a) (i) and (ii) above.
-5-
<PAGE>
(c) If the Employment Period ends early pursuant to paragraph 5
hereof on account of Termination for Cause, the Company shall pay Executive an
amount equal to that Executive would have received as salary (based on
Executive's salary then in effect) had the Employment Period remained in
effect until the later of the effective date of the Company's termination of
Executive's employment or the date thirty days after the Company's notice to
Executive of such termination.
(d) If the Employment Period ends early pursuant to paragraph 5
hereof on account of a Termination without Cause or a Termination by Executive
for Good Reason, the Company shall pay to Executive amounts equal to the
amounts Executive would have received as salary (based on Executive's salary
then in effect or, if greater, Executive's Reference Salary) had the
Employment Period remained in effect until the date on which (without any
extension thereof) it was then scheduled to end, at the times such amounts
would have been paid (in the event Executive is entitled during the payment
period to any payments under any disability benefit plan or the like in which
Executive has participated as an employee of the Company, less such
payments); provided, however, that in the event of Executive's death during
the payment period, the Company shall not be obligated to pay any subsequent
such amounts, but the Company shall pay to Executive's estate (or such person
or persons as Executive may designate in a written instrument signed by him
and delivered to the Company prior to his death) either (i) amounts during the
remainder of the payment period equal to one-half of the amounts which would
have been paid to Executive but for his death or (ii) if so elected by the
payee(s) by written notice to the Company within the period of sixty (60) days
after the date of Executive's death, a lump sum amount equivalent to the
discounted present value of such reduced amounts, discounted at the publicly
announced reference rate for commercial lending of Bank of America Illinois in
effect at the date of notice to the Company of such election, with said amount
to be paid on a date no later than thirty (30) days following the date of
notice to the Company of such election. It is expressly understood that the
Company's payment obligations under this (d) shall cease in the event
Executive breaches any of his agreements in paragraph 7, 9 or 10 hereof.
(e) If the Employment Period ends early pursuant to paragraph 5
hereof on account of a Termination by Executive with Advance Notice, the
Company shall make no further payments to Executive except as contemplated in
(a) (i) and (ii) above.
7. Inventions and Other Intellectual Property. Executive agrees
that all inventions, innovations, improvements, developments, methods,
designs, analyses, drawings, reports, trademarks, slogans, product or other
designs, advertising or marketing programs, and all similar or related
information which relate to the Company's or any of its subsidiaries' or
affiliates' actual or anticipated business, research and development or
existing or future products or services and which are (or were prior to the
date of this Agreement) conceived, developed or made by Executive, whether
alone or jointly with others, while employed by the Company or any such
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subsidiary or affiliate or any predecessor thereof ("Work Product") belong to
the Company or such subsidiary or affiliate. Executive will promptly disclose
such Work Product to the Board and perform all actions reasonably requested by
the Board (whether during or after the Employment Period) to establish and
confirm such ownership (including, without limitation, assignments, consents,
powers of attorney and other instruments).
8. Limitation/Illinois Disclosure. Paragraph 7 of this Agreement
regarding the ownership of inventions and other intellectual property does not
apply to the extent application thereof is prohibited by any law the benefits
of which cannot be waived by Executive. Executive hereby waives the benefits
of any such law to the maximum extent permitted by law. In accordance with
Section 2872 of the Illinois Employee Patent Act, Ill. Rev. Stat. Chap. 140,
Sec. 301 et. seq. (1983), Executive is hereby advised that in the event and to
the extent such Act is applicable to Executive, paragraph 7 of this Agreement
regarding the ownership of inventions and other intellectual property does not
apply to any invention for which no equipment, supplies, facilities or trade
secret information of the Company or any of its subsidiaries or affiliates was
used and which was developed entirely on Executive's own time, unless (i) the
invention relates to the business of the Company or any of its subsidiaries or
affiliates or to the Company's or any of its subsidiaries' or affiliates'
actual or demonstrably anticipated research or development or (ii) the
invention results from any work performed by Executive for the Company or any
of its subsidiaries or affiliates.
9. Confidential Information. Executive acknowl-edges that the
information, observations and data obtained by him while employed by the
Company pursuant to this Agreement as well as those obtained by him while
employed by the Company or any of its subsidiaries or affiliates or any
predecessor thereof prior to the date of this Agreement, concerning the
business or affairs of the Company or any of its subsidiaries or affiliates or
any predecessor thereof (unless and except to the extent the foregoing become
generally known to and available for use by the public other than as a result
of Executive's acts or omissions to act, "Confidential Information") are the
property of the Company or such subsidiary or affiliate. Therefore, Executive
agrees that he shall not disclose any Confidential Information without the
prior written consent of the Board unless and except to the extent that such
disclosure is (i) made in the ordinary course of Executive's performance of
his duties under this Agreement or (ii) required by any subpoena or other
legal process (in which event Executive will give the Company prompt notice of
such subpoena or other legal process in order to permit the Company to seek
appropriate protective orders), and that he shall not use any Confidential
Information for his own account without the prior written consent of the
Board. Executive shall deliver to the Company at the termination of the
Employment Period, or at any other time the Company may request, all
memoranda, notes, plans, records, reports, computer tapes and software and
other documents and data (and copies thereof) relating to the Confiden-tial
Information, the Work Product or the business of the Company or any of its
subsidiaries or affiliates which he may then possess or have under his
control.
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10. Non-Compete, Non-Solicitation.
(a) Executive acknowledges that in the course of his employment with
the Company pursuant to this Agreement he will become familiar, and during the
course of his employment by the Company or any of its subsidiaries or
affiliates or any predecessor thereof prior to the date of this Agreement he
has become familiar, with trade secrets and customer lists of and other
confidential information concerning the Company and its subsidiaries and
affiliates and predecessors thereof and that his services have been and will
be of special, unique and extraordinary value to the Company.
(b) Executive agrees that during the Employment Period and for two
years thereafter he shall not in any manner, directly or indirectly, through
any person, firm or corporation, alone or as a member of a partnership or as
an officer, director, stockholder, investor or employee of or in any other
corporation or enterprise or otherwise, engage or be engaged in, or assist any
other person, firm, corporation or enterprise in engaging or being engaged in,
any business then actively being conducted by the Company or any of its
subsidiaries or affiliates, in any geographic area in which the Company or any
of its subsidiaries or affiliates is then conducting such business (whether
through manufacturing or production, calling on customers or prospective
customers, or otherwise). Notwithstanding the foregoing, subsequent to the
Employment Period Executive may engage or be engaged in, or assist any other
person, firm, corporation or enterprise in engaging or being engaged in, any
business activity which is not competitive with a business activity being
conducted by the Company or any of its subsidiaries or affiliates at the time
subsequent to the Employment Period Executive first engages or assists in such
business activity (a "Non-competitive Business Activity").
(c) Executive further agrees that during the Employment Period and
for two years thereafter he shall not in any manner, directly or indirectly,
(i) induce or attempt to induce any employee of the Company or of any of its
subsidiaries or affiliates to quit or abandon his employ, or any customer of
the Company or of any of its subsidiaries or affiliates to quit or abandon its
relationship, for any purpose whatsoever, or (ii) in connection with any
business to which the first sentence of (b) above applies, except where such
activity constitutes a Non-competitive Business Activity, call on, service,
solicit or otherwise do business with any then current or prospective customer
of the Company or of any of its subsidiaries or affiliates.
(d) Nothing in this paragraph 10 shall prohibit Executive from
being: (i) a stockholder in a mutual fund or a diversified investment company
or (ii) a passive owner of not more than 2% of the outstanding stock of any
class of a corporation which is publicly traded, so long as Executive has no
active participation in the business of such corporation.
(e) If, at the time of enforcement of this paragraph, a court holds
that the restrictions stated herein are unreasonable under circumstances then
existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be substituted for
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the stated period, scope or area and that the court shall be allowed to revise
the restrictions contained herein to cover the maximum period, scope and area
permitted by law.
11. Enforcement. Because Executive's services are unique and
because Executive has access to Confidential Information and Work Product, the
parties hereto agree that the Company would be damaged irreparably in the
event any of the provisions of paragraph 7, 9 or 10 hereof were not performed
in accordance with their specific terms or were otherwise breached and that
money damages would be an inadequate remedy for any such non-performance or
breach. Therefore, the Company or its successors or assigns shall be
entitled, in addition to other rights and remedies existing in their favor, to
an injunction or injunctions to prevent any breach or threatened breach of any
of such provisions and to enforce such provisions specifically (without
posting a bond or other security).
12. Executive Representations. Executive represents and warrants to
the Company that (i) the execution, delivery and performance of this Agreement
by Executive does not and will not conflict with, breach, violate or cause a
default under any contract, agreement, instrument, order, judgment or decree
to which Executive is a party or by which he is bound, (ii) Executive is not a
party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity and (iii) upon the
execution and delivery of this Agreement by the Company, this Agreement shall
be the valid and binding obligation of Executive, enforceable in accordance
with its terms.
13. Survival. Paragraphs 7, 9 and 10 hereof shall survive and
continue in full force in accordance with their terms notwithstanding any
termination of the Employment Period.
14. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed by first class
mail, return receipt requested, to the recipient at the address below
indicated:
Notices to Executive:
Mr. King Harris
209 E. Lake Shore Drive
Apt. 10W
Chicago, IL 60611
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Notices to the Company:
Mr. Neison Harris
Chairman of the Board
Pittway Corporation
200 South Wacker Drive, Suite 700
Chicago, IL 60606-5802
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or mailed.
15. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision or any other jurisdiction, but this
Agreement shall be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision had never been contained
herein.
16. Payment of Certain Costs and Expenses. In the event that there is
a Change of Control of the Company, if the Company thereafter wrongfully
withholds from Executive any amount payable to Executive pursuant to this
Agreement or the SERP and Executive obtains a final judgment against the
Company for such amount, the Company shall reimburse Executive for any costs
and expenses (including without limitation attorneys' fees) reasonably
incurred by Executive in obtaining such judgment and shall pay Executive
interest on the amount of each such cost or expense from the date of payment
thereof by Executive to the date of reimbursement by the Company at a floating
rate per annum equal to the publicly announced reference rate for commercial
lending of Bank of America Illinois in effect from time to time. For purposes
of the foregoing, a "Change of Control of the Company" will be deemed to have
occurred if but only if, for purposes of Section 13(d) of the Securities
Exchange Act of 1934, as amended, a person or group other than one or more
members of the Harris Group (as currently defined in the Company's Restated
Certificate of Incorporation, as amended) becomes the beneficial owner of
stock of the Company possessing a majority of the voting power under ordinary
circumstances with respect to the election of directors.
17. Complete Agreement. This Agreement embodies the complete
agreement and understanding between the parties with respect to the subject
matter hereof and effective as of its date supersedes and preempts any prior
understandings, agreements or representations by or between the parties,
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written or oral, which may have related to the subject matter hereof in any
way.
18. Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be deemed to be an original and both of
which taken together shall constitute one and the same agreement.
19. Successors and Assigns. This Agreement shall bind and inure to
the benefit of and be enforceable by Executive, the Company and their
respective heirs, executors, personal representatives, successors and assigns,
except that neither party may assign any of his or its rights or delegate any
of his or its obligations hereunder without the prior written consent of the
other party. Executive hereby consents to the assignment by the Company of
all of its rights and obligations hereunder to any successor to the Company by
merger or consolidation or purchase of all or substantially all of the
Company's assets; in each case provided such transferee or successor assumes
the liabilities of the Company hereunder.
20. Choice of Law. This Agreement shall be governed by the internal
law, and not the laws of conflicts, of the State of Illinois.
21. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
PITTWAY CORPORATION
By /s/ Paul R. Gauvreau
Its: Vice President
/s/ King Harris
KING HARRIS
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Exhibit A
(to Form 10K
Exhibit 10.6)
PITTWAY CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
SECTION 1
Introduction
1.1 The Plan and Its Effective Date. This Pittway Corporation
Supplemental Executive Retirement Plan (the "plan") has been established by
Pittway Corporation (the "company"), effective January 1, 1996.
1.2 Purpose. The company maintains the Pittway Corporation Retirement
Plan (As Amended and Restated Effective as of January 1, 1989) (as the same
may hereafter be amended, the "retirement plan"), which is intended to meet
the requirements of a "qualified plan" under the Internal Revenue Code of
1986, as amended (the "Code"). While the Code places limitations on the
maximum benefits which may be paid from a qualified plan and the maximum
amount of an employee's compensation that may be taken into account for
determining benefits payable under a qualified plan, the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), permits the payment under
an "unfunded plan" of benefits which may not be paid under a qualified plan
because of such limitations. The purpose of the plan is to provide certain
key employees of the company and its subsidiaries with certain benefits
which may not be provided under the retirement plan because of the maximum
compensation limitation of the Code.
SECTION 2
Eligibility and Benefits
2.1 Eligibility. Each key employee of the company or a subsidiary of the
company (a "participant") who participates in the retirement plan and who is a
party to an employment agreement with the company or a subsidiary of the
company substantially in the form attached hereto as Exhibit 1 (as the same
may hereafter be amended, his "Employment Agreement") that provides for his
participation in the plan shall participate in the plan, subject to the
conditions and limitations of the plan. It is expressly understood that
variations among the participants' Employment Agreements may result in
differences in the numbered paragraphs thereof in which corresponding
provisions appear (for example, the non-competition provisions which are in
paragraph 10 of Exhibit 1 attached hereto, or variations thereof, may be in
paragraph 10 of certain of the Employment Agreements but in paragraph 9 of
<PAGE>
others). Accordingly, each reference in the plan to a particular numbered
paragraph of a participant's Employment Agreement shall be deemed to be a
reference to the paragraph thereof, if any, which corresponds to the
identically numbered paragraph of Exhibit 1.
2.2 Accrued Benefit. For 1995 and for each full calendar year and any
final fraction of a calendar year of a participant's Employment Period (as
such term is defined in such participant's Employment Agreement), the
participant shall accrue a benefit under the plan equal to 1.85 percent of
that portion of his earnings (as defined in section 2.3 below) for such year
or fraction that is in excess of the "maximum dollar limitation" (as defined
below) for such year or fraction and is less than $300,000. For purposes of
the plan, "maximum dollar limitation" means, for any year or fraction of a
year, the greater of $150,000 or the dollar amount of any higher maximum
limitation on annual compensation taken into account under a qualified plan
for such year or fraction of a year determined by the Secretary of Treasury or
his delegate or by law under section 401(a)(17) of the Code; it being
understood that annual compensation for purposes of such limitation is
computed differently from "earnings" for purposes of the plan. A participant's
accrued benefits under the plan shall be referred to hereinafter as the
participant's "supplemental retirement benefits."
2.3 Earnings. For purposes of the plan, a participant's "earnings" for
any year or fraction means his total, regular cash compensation paid for such
year or fraction for services rendered to the Pittway Companies (as such term
is defined in the retirement plan) during such year or fraction, consisting
solely of his salary and his annual discretionary cash bonus, if any, for such
year. It is expressly understood that a participant's "earnings" do not
include any other compensation, including, without limitation, any of the
following:
(a) Long-term incentive compensation;
(b) Unused vacation pay;
(c) Special cash bonuses;
(d) Any income realized for Federal income tax purposes as a result of
the grant or exercise of an option or options to acquire shares of
stock of a Pittway Company, the receipt or exercise of any stock
appreciation right or payment, or the disposition of shares acquired
by the exercise of such an option or right;
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(e) Any noncash compensation, including any amounts contributed by the
participant's employer(s) for his benefit under the retirement plan
or any other retirement or benefit plan, arrangement, or policy
maintained by his employer(s);
(f) Any reimbursements for medical, dental or travel expenses, automobile
allowances, relocation allowances, educational assistance allowances,
awards and other special allowances;
(g) Any income realized for Federal income tax purposes as a result of
(i) group life insurance, (ii) the personal use of an employer-owned
automobile, or (iii) the transfer of restricted shares of stock or
restricted property of a Pittway Company, or the removal of any such
restrictions;
(h) Any severance pay paid as a result of the participant's termination
of employment (it being expressly understood that any amount(s) taken
into account pursuant to the final sentence of section 2.8 below
shall not be deemed severance pay for purposes hereof); or
(i) Any compensation paid or payable to the participant, or to any
governmental body or agency on account of the participant, under the
terms of any state, Federal or foreign law requiring the payment of
such compensation because of the participant's voluntary or
involuntary termination of employment with any Pittway Company.
Notwithstanding the foregoing, a participant's "earnings" do include (i) any
salary reduction amount elected by the participant and credited to a cafeteria
plan (as defined in section 125(c) of the Code) or a qualified cash or
deferred arrangement (as defined in section 401(k) of the Code) and (ii) the
initial value ascribed to any performance shares award the participant elects
to receive in lieu of a portion of his annual discretionary cash bonus.
2.4 Payment of Benefits. Each participant's Employment Agreement
provides that in no event shall his Employment Period be extended beyond his
65th birthday except by mutual agreement of the participant and his employer.
Subject to the conditions and limitations of the plan, upon a participant's
attainment of age 65 years, he shall be entitled to a monthly benefit payable
for his life commencing upon his attainment of age 65 years in an amount equal
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to one-twelfth (1/12) of the sum of the participant's accrued supplemental
retirement benefits. A participant's supplemental retirement benefits shall be
paid to him in the form described below that applies to the participant;
provided, however, that in lieu of payment in the normal form described below,
the participant may irrevocably elect, within thirty (30) days after his
commencement of participation in the plan, to receive his supplemental
retirement benefits in a single lump sum as soon as practicable after his
attainment of age 65 years. A participant's "supplemental retirement benefit
commencement date" means the date as of which the initial payment (or, in the
case of a single lump sum, full payment) of the supplemental retirement
benefits to which the participant is entitled is payable. Subject to the
conditions and limitations of the plan, a participant's supplemental
retirement benefit commencement date shall normally be the first day of the
calendar month coincident with or next following the participant's attainment
of age 65 years. Notwithstanding the immediately preceding sentence, if a
participant's Employment Period under his Employment Agreement terminates
prior to his attainment of age 65 years and he is eligible, and elects, to
receive early retirement benefits under the retirement plan, and if the
participant requests a supplemental retirement benefit commencement date prior
to his attainment of age 65 years, then with (but only with) the consent of
the committee (as defined in section 3.1 below), the participant's
supplemental retirement benefit commencement date shall be such earlier date,
if any, selected by the committee. Supplemental retirement benefits that
are paid in a lump sum, or commence, before the participant's attainment of
age 65 years, if any, shall be subject to actuarial reduction in accordance
with section 2.5 below.
(a) Life Annuity. If a participant does not have a spouse (as defined in
section 2.7 below) on his supplemental retirement benefit
commencement date, and if he has not elected pursuant to the
preceding provisions of this section 2.4 to receive his supplemental
retirement benefits in a single lump sum, payment of his supplemental
retirement benefits shall be during his lifetime on a life annuity
basis.
(b) Joint and Survivor Annuity. If a participant has a spouse (as defined
in section 2.7 below) on his supplemental retirement benefit
commencement date, payment of his supplemental retirement benefits
shall be in the form of a joint and 50 percent survivor annuity
unless the participant has theretofore elected pursuant to the
preceding provisions of this section 2.4 to have his benefits
provided in a single lump sum. Such joint and 50 percent survivor
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annuity shall consist of a reduced monthly benefit continuing during
the participant's lifetime, and if such spouse is living at the time
of the participant's death, payment of 50 percent of such monthly
benefit shall be made to such spouse until such spouse's death
occurs. The amount of the participant's and such spouse's benefits
under this subsection shall be calculated so that it is the actuarial
equivalent of the supplemental retirement benefits to which the
participant would otherwise be entitled under the plan. If such
spouse predeceases the participant, or if the participant and such
spouse cease to be married after the participant's supplemental
retirement benefit commencement date, there shall be no adjustment
to the participant's monthly payments and no supplemental retirement
benefits shall be payable to any person after the participant's
death.
2.5 Actuarial Equivalent. A benefit shall be actuarially equivalent to
another benefit if the actuarial reserve required to provide such benefit is
equal to the actuarial reserve required to provide such other benefit,
computed on the basis of the same actuarial assumptions, interest rates,
tables, methods and procedures, including reduction factors for commencement
of payments prior to attainment of age 65 years, that are used for purposes of
the retirement plan as in effect on the applicable date that a benefit payment
amount is determined.
2.6 Pre-Retirement Surviving Spouse Benefit. If a participant
dies prior to his supplemental retirement benefit commencement date, no
supplemental retirement benefits under the plan shall be paid or payable with
respect to the participant; provided, however, that if the participant has a
spouse (as defined in section 2.7 below) at the time of his death, such spouse
shall be entitled to receive a monthly benefit for such spouse's lifetime
equal to 50 percent of the amount of monthly benefit that would have been
payable to the participant in the form of a joint and 50 percent survivor
annuity if he had terminated employment as of the date of his death with
entitlement to supplemental retirement benefits under the plan and the
committee (as defined in section 3.1 below) had permitted his supplemental
retirement benefit commencement date to occur on the first day of the calendar
month coincident with or next following the date of his death, taking
into account actuarial reduction for commencement prior to the participant's
attainment of age 65 years. The first payment to the spouse shall be made as
of the first day of the calendar month coincident with or next following the
date of the participant's death and the final payment shall be made as of the
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first day of the calendar month during which the spouse's death occurs. If,
prior to the participant's death, the participant had elected pursuant to
section 2.4 above to receive his supplemental retirement benefits in a single
lump sum, in lieu of the monthly payments described above, such spouse shall
be entitled to receive a single lump sum equal to 50 percent of the lump sum
value of the participant's supplemental retirement benefits as of the date of
his death, taking into account actuarial factors for payment prior to the
participant's attainment of age 65 years. Such lump sum payment shall be made
to such spouse as soon as practicable following the participant's death.
2.7 Spouse. For purposes of the plan, a person will be considered the
"spouse" of a participant as of any date if and only if such person and the
participant have been married in a religious or civil ceremony recognized
under the laws of the state where the marriage was contracted and the marriage
remains legally effective. Any person who is not, or who has ceased to
be, a participant's "spouse" on the participant's supplemental retirement
benefit commencement date (or, in the event of the participant's death prior
to his supplemental retirement benefit commencement date, the date of his
death) shall not be considered the participant's "spouse" for purposes of the
plan.
2.8 Forfeiture; Early Termination of Employment Period. If the
participant's Employment Period ends early pursuant to paragraph 5 of his
Employment Agreement on account of a Termination for Cause or a Termination by
Executive with Advance Notice (as such terms are defined, respectively, in his
Employment Agreement), or if after the participant's Employment Period ends
(whether or not early and regardless of the reason) the participant breaches
any of his agreements in paragraph 7, 9 or 10 of his Employment Agreement, the
participant shall forfeit all of his supplemental retirement benefits, if any,
under the plan, no benefit under the plan shall thereafter be payable to or
with respect to the participant or his spouse, and any benefit under the plan
theretofore paid to or with respect to the participant or his spouse must be
repaid to the company by the participant or his spouse promptly upon demand.
If the participant's Employment Period ends early pursuant to paragraph 5 of
his Employment Agreement on account of a Termination without Cause or a
Termination by Executive for Good Reason (as such terms are defined,
respectively, in his Employment Agreement), the participant's supplemental
retirement benefits under the plan shall be the supplemental retirement
benefits the participant would have been entitled to under the plan had his
Employment Period remained in effect until the earlier of the date on which
(without any extension thereof) such Employment Period was then scheduled to
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end pursuant to his Employment Agreement or the date of his death and had the
participant's salary in effect as of the last day of his Employment Period
(or, if greater, his Executive's Reference Salary (as such term is defined in
his Employment Agreement)) continued until the earlier of such dates and been
paid at the times such salary would have been paid, and had the participant
received no further annual cash bonus.
2.9 Funding. The plan is intended to be non-qualified for purposes of
the Code and unfunded for purposes of the Code and ERISA. Benefits payable
under the plan to a participant and/or his spouse, as the case may be, shall
be paid directly by the company. The company shall not be required to
segregate on its books or otherwise any amount to be used for payment of
supplemental retirement benefits under the plan. Each participant and spouse
is solely an unsecured creditor of the company with respect to any benefit
payable with respect to a participant hereunder.
SECTION 3
General Provisions
3.1 Committee. The plan shall be administered by the plan administrative
committee of the retirement plan (the "committee"). The committee shall have,
to the extent appropriate, the same powers, rights, duties and obligations
with respect to the plan as it has with respect to the retirement plan. Each
determination provided for in the plan shall be made by the committee under
such procedure as may from time to time be prescribed by the committee and
shall be made in the absolute discretion of the committee. Any determination
so made shall be conclusive.
3.2 Employment Rights. Neither the establishment of, nor participation
in, the plan shall be construed to give any participant the right to be
retained in the service of the Pittway Companies or to any benefits not
specifically provided by the plan.
3.3 Taxes and Withholding. Each participant (or his spouse, as
applicable) shall be responsible for any taxes imposed on him (or his spouse)
("taxes") by reason of the establishment of, or his participation in, the
plan, including, without limitation, any Federal, state and/or local income or
employment taxes imposed on benefits or potential benefits under the plan (or
on the value thereof) in advance of the participant's receipt of such benefits
or potential benefits. The company or a subsidiary of the company may deduct
any taxes from payroll or other payments due the participant or his spouse.
The committee shall deduct from all payments under the plan any taxes required
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to be withheld, including, without limitation, any Federal, state and/or local
income or employment taxes. In the event that such deductions and/or
withholdings are not sufficient to pay the taxes, the participant (or his
spouse) shall promptly remit the deficit to the company upon its request.
3.4 Interests Not Transferable. Except as to withholding of any tax
under the laws of the United States or any state, the interests of
participants and their spouses under the plan are not subject to the claims of
their creditors and may not be voluntarily or involuntarily transferred,
assigned, alienated or encumbered. No participant shall have any right to any
benefit payments hereunder prior to his termination of employment with the
Pittway Companies.
3.5 Payment with Respect to Incapacitated Participants or Beneficiaries.
If any person entitled to benefits under the plan is under a legal disability
or in the committee's opinion is incapacitated in any way so as to be unable
to manage his financial affairs, the committee may direct the payment of such
benefit to such person's legal representative or to a relative or friend of
such person for such person's benefit, or the committee may direct the
application of such benefits for the benefit of such person in any manner
which the committee may select that is consistent with the plan. Any payments
made in accordance with the foregoing provisions of this section shall be a
full and complete discharge of any liability for such payments.
3.6 Limitation of Liability. To the extent permitted by law, no person
(including the company, any subsidiary of the company, the Board of Directors
of the company (the "Board"), the board of directors of any subsidiary of the
company, the committee, any present or former member of the Board or of the
board of directors of any subsidiary of the company or of the committee,
and any present or former officer of the company or of any subsidiary of the
company) shall be personally liable for any act done or omitted to be done in
good faith in the administration of the plan.
3.7 Controlling Law. The plan shall be construed in accordance with the
provisions of ERISA and other Federal laws, to the extent such provisions are
applicable to the plan. To the extent not inconsistent therewith, the plan
shall be construed in accordance with the laws of the State of Illinois.
3.8 Gender and Number. Where the context admits, words in the
masculine gender shall include the feminine and neuter genders, the plural
shall include the singular and the singular shall include the plural.
3.9 Action
by the Company. Any action required of or permitted by the company under the
plan, including action by the company to amend the plan, shall be by
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<PAGE>
resolution of the Board or by a duly authorized committee of the Board or by a
person or persons authorized by resolution of the Board or such committee.
The procedure for amending the plan is that the plan shall be amended by the
company's taking appropriate corporate action to effectuate any amendment
considered by it to be advisable to be made. Appropriate corporate action
includes action by resolution of the Board, by a committee authorized by the
Board, or by a person or persons authorized by the Board or such committee, as
provided above.
3.10 Successor to the Company. The term "company" as used in the plan
shall include any successor to the company by reason of merger, consolidation,
the purchase of all or substantially all of the company's assets or otherwise.
3.11 Miscellaneous. The plan shall be binding upon and inure to the
benefit of the parties, their legal representatives, successors and assigns,
and all persons entitled to benefits hereunder. Any notice given in
connection with the plan shall be in writing and shall be delivered in person
or by registered mail, return receipt requested. Any notice given by
registered mail shall be deemed to have been given upon the date of delivery
indicated on the registered mail return receipt, if correctly addressed.
SECTION 4
Amendment and Termination
While the company expects to continue the plan, it must necessarily
reserve, and hereby does reserve, the right, either in general or as to one or
more particular participants, to amend the plan from time to time or to
terminate the plan at any time; provided (i) that no amendment of the plan
with respect to a participant that reduces or eliminates any benefits such
participant has accrued as of the effective date of such amendment shall be
effective unless such participant consents to such amendment; and (ii) no
amendment of the plan with respect to a participant whose Employment Period
under his Employment Agreement has not yet ended that adversely affects such
participant, or termination of the plan with respect to such a participant, by
the company on any date shall be effective prior to the date on which (without
any extension thereof) such participant's Employment Period is then scheduled
to end pursuant to his Employment Agreement unless the participant consents to
such amendment or termination.
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<PAGE> IN WITNESS WHEREOF, this plan has been executed on behalf of the
company by its duly authorized officers as of the day and year first above
written.
PITTWAY CORPORATION
By ________________________________
Its ____________________________
Date ___________________________
ATTEST
By _________________________________
Its _____________________________
Date_____________________________
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<PAGE>
Exhibit 1
(to Form 10K
Exhibit 10.6)
EMPLOYMENT AGREEMENT
AGREEMENT made as of January 1, 1996, between Pittway Corporation, a
Delaware corporation (the "Company"), and
___________ ("Executive").
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive
accepts continued employment with the Company, upon the terms and conditions
set forth in this Agreement for the period beginning on the date hereof and
ending as provided in paragraph 5 hereof (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the
____________of the ___________________ Group of the Company or any successor
to such Group, in each case as constituted from time to time (the "Group"),
and shall have the normal duties, responsibilities and authority of an
executive serving in such position, subject to the power of the Board of
Directors of the Company (the "Board") or the President of the Company to
expand or limit such duties, responsibilities and authority, either generally
or in specific instances. Executive shall have the title ____________________
of the Group, subject to the power of the Board to change such title from time
to time. During the Employment Period, Executive shall also serve as a
director of the Company for so long as the Board nominates him to that
position and he is elected to it, as a ____________ of the Company for so long
as the Board elects or appoints him to that position and as a director of any
affiliate of the Company designated by the Board for so long as the Board
causes him to be elected to such position.
(b) Executive shall report to the President of the Company.
(c) During the Employment Period, Executive shall devote his best
efforts and his full business time and attention (except for permitted
vacation periods, reasonable periods of illness or other incapacity and,
provided such activities do not exceed those in which Executive has engaged in
the past, participation in charitable and civic endeavors and management of
Executive's personal investments and business interests) to the business and
affairs of the Group and the business and affairs of any other group of the
Company, any division of the Company, or any subsidiary or affiliate of the
Company (or any group or division thereof), engaged in the security, alarm or
monitoring products business or any other business the same as or similar to
<PAGE>
or related to that then engaged in by the Group. Executive shall perform his
duties and responsibilities to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner.
(d) Executive shall perform his duties and responsibilities
principally in the __________________ area, and shall not be required to
travel outside that area any more extensively than he has done in the past in
the ordinary course of the business of the Company.
3. Salary and Benefits.
(a) The Company agrees to pay Executive a salary during the
Employment Period, in monthly installments.
(b) Executive's initial salary shall be $_______ per annum.
(c) Executive's salary may be increased by the Board from time to time.
(d) The Board may, in its sole discretion, award a bonus to Executive
for any calendar year during the Employment Period.
(e) The Company shall reimburse Executive for all reasonable
expenses incurred by him in the course of performing his duties under this
Agreement which are consistent with the Company's policies in effect from time
to time with respect to travel, entertainment and other business expenses,
subject to the Company's requirements with respect to reporting and
documentation of such expenses.
(f) In addition to the salary and any bonus(es) payable to Executive
pursuant to this paragraph, Executive shall be entitled during the Employment
Period to participate, on the same basis as other executives of the Company
(but subject to variations among executives resulting from differences in the
levels of benefits made available to employees at particular business units
under the Company's 401(k) plan or any other plan of the Company), in the
Company's Standard Executive Benefits Package. The Company's "Standard
Executive Benefits Package" means those benefits (including insurance,
vacation, company car or car allowance and/or other benefits) for which
substantially all of the executives of the Company are from time to time
generally eligible, as determined from time to time by the Board.
(g) In addition to participation in the Company's Standard Executive
Benefits Package pursuant to this paragraph, Executive shall be entitled
during the Employment Period to a supplemental executive retirement program,
the principal terms of which are set forth in Exhibit A attached hereto:
(i) additional term life insurance coverage in an amount equal
to Executive's salary; but only if and so long as such additional
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<PAGE>
coverage is available at standard rates from the insurer providing
term life insurance coverage under the Standard Executive Benefits
Package or from a comparable insurer acceptable to the Company;
(ii) supplementary long-term disability coverage in an amount which
will increase maximum covered annual compensation to $330,000 and
the maximum monthly payments to $18,333; but only if and so long
as such supplementary coverage is available at standard rates from
the insurer providing long-term disability coverage under the
Standard Executive Benefits Package or a comparable insurer
acceptable to the Company; and
(iii) participation in the Pittway Corporation Supplemental Executive
Retirement Plan (the "SERP"), a copy of which, as currently in
effect, is attached hereto as Exhibit A.
4. Adjustments. Notwithstanding any other provision of this
Agreement, it is expressly understood and agreed that if there is a
significant reduction in the level of the business to which Executive's duties
under this Agreement relate, or if all or any significant part of such
business is disposed of by the Company and/or its subsidiaries or affiliates
during the Employment Period but Executive thereafter remains an employee of
the Company, the Board may make adjustments in Executive's duties,
responsibility and authority, and in Executive's compensation, as the Board
deems appropriate to reflect such reduction or disposition.
5. Employment Period.
(a) Except as hereinafter provided, the Employment Period shall
continue until, and shall end upon, the third anniversary of the date hereof.
(b) On each anniversary of the date hereof which precedes
Executive's sixty-fifth birthday by more than two years, unless the Employment
Period shall have ended early pursuant to (c) below or either party shall have
given the other party written notice that the extension provision in this
sentence shall no longer apply, the Employment Period shall be extended for an
additional calendar year (unless Executive's sixty-fifth birthday occurs
during such additional calendar year, in which event the Employment Period
shall be extended only until such birthday). In no event shall the Employment
Period be extended beyond the Executive's sixty-fifth birthday except by
mutual written agreement of the Company and Executive.
(c) Notwithstanding (a) and (b) above, the Employment Period shall
end early upon the first to occur of any of the following events:
(i) Executive's death;
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<PAGE>
(ii) Executive's retirement upon or after reaching age 65
("Retirement");
(iii) the Company's termination of Executive's employment on account of
Executive's having become unable (as determined by the Board in
good faith) to regularly perform his duties hereunder by reason of
illness or incapacity for a period of more than six (6)
consecutive months ("Termination for Disability");
(iv) the Company's termination of Executive's employment for Cause
("Termination for Cause");
(v) the Company's termination of Executive's employment other than a
Termination for Disability or a Termination for Cause
("Termination without Cause");
(vi) Executive's termination of Executive's employment for Good Reason,
by means of advance written notice to the Company at least thirty
(30) days prior to the effective date of such termination
identifying such termination as a Termination by Executive for
Good Reason ("Termination by Executive for Good Reason") (it being
expressly understood that Executive's giving notice that the
extension provision in the first sentence of paragraph 5 (b)
hereof shall no longer apply shall not constitute a "Termination
by Executive for Good Reason"); or
(vii) Executive's termination of Executive's employment for any reason
other than Good Reason, by means of advance written notice to the
Company at least one hundred eighty (180) days prior to the
effective date of such termination identifying such termination as
a Termination by Executive with Advance Notice ("Termination by
Executive with Advance Notice") (it being expressly understood
that Executive's giving notice that the extension provision in the
first sentence of paragraph 5 (b) hereof shall no longer apply
shall not constitute a "Termination by Executive with Advance
Notice").
(d) For purposes of this Agreement, "Cause" shall mean:
(i) the commission by Executive of a felony or a crime involving moral
turpitude,
(ii) the commission by Executive of a fraud;
(iii) the commission by Executive of any act involving dishonesty or
disloyalty with respect to the Company or any of its subsidiaries
or affiliates;
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<PAGE>
(iv) conduct by Executive tending to bring the Company or any of its
subsidiaries or affiliates into substantial public disgrace or
disrepute;
(v) gross negligence or willful misconduct by Executive with respect
to the Company or any of its subsidiaries or affiliates;
(vi) repudiation of this Agreement by Executive or Executive's
abandonment of his employment with the Company (it being expressly
understood that a Termination by Executive for Good Reason or a
Termination by Executive with Advance Notice shall not constitute
such a repudiation or abandonment);
(vii) breach by Executive of any of the agreements in paragraph 10
hereof; or
(viii) any other breach by Executive of this Agreement which is material
and which is not cured within thirty (30) days after written
notice thereof to Executive from the Company.
(e) For purposes of this Agreement, "Good Reason" shall mean:
(i) a reduction by the Company in Executive's salary to an amount less
than "Executive's Reference Salary" (i.e., Executive's initial
salary or, in the event the Employment Period has been extended
pursuant to paragraph 5(b) hereof, Executive's salary on the date
on which the most recent such extension occurred); or
(ii) any breach by the Company of this Agreement which is material and
which is not cured within thirty (30) days after written notice
thereof to the Company from Executive.
6. Post-Employment Period Payments.
(a) If the Employment Period ends on the date on which (without any
extension thereof) it is then scheduled to end pursuant to paragraph 5 hereof,
or if the Employment Period ends early pursuant to paragraph 5 hereof for any
reason, Executive shall cease to have any rights to salary, bonus (if any) or
benefits other than: (i) any salary which has accrued but is unpaid, and any
expenses which have been incurred but are unpaid, as of the end of the
Employment Period, (ii) (but only to the extent provided in the SERP or any
other benefit plan in which Executive has participated as an employee of the
Company) any plan benefits which by their terms extend beyond termination of
Executive's employment and (iii) any other amount(s) payable pursuant to the
succeeding provisions of this paragraph 6.
(b) If the Employment Period ends pursuant to paragraph 5 hereof on
Executive's sixty-fifth birthday, or if the Employment Period ends early
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<PAGE>
pursuant to paragraph 5 hereof on account of Executive's death Retirement or
Termination for Disability, the Company shall make no further payments to
Executive except as contemplated in (a) (i) and (ii) above.
(c) If the Employment Period ends early pursuant to paragraph 5
hereof on account of Termination for Cause, the Company shall pay Executive an
amount equal to that Executive would have received as salary (based on
Executive's salary then in effect) had the Employment Period remained in
effect until the later of the effective date of the Company's termination of
Executive's employment or the date thirty days after the Company's notice to
Executive of such termination.
(d) If the Employment Period ends early pursuant to paragraph 5
hereof on account of a Termination without Cause or a Termination by Executive
for Good Reason, the Company shall pay to Executive amounts equal to the
amounts Executive would have received as salary (based on Executive's salary
then in effect or, if greater, Executive's Reference Salary) had the
Employment Period remained in effect until the date on which (without any
extension thereof) it was then scheduled to end, at the times such amounts
would have been paid (in the event Executive is entitled during the payment
period to any payments under any disability benefit plan or the like in which
Executive has participated as an employee of the Company, less such
payments); provided, however, that in the event of Executive's death during
the payment period, the Company shall not be obligated to pay any subsequent
such amounts, but the Company shall pay to Executive's estate (or such person
or persons as Executive may designate in a written instrument signed by him
and delivered to the Company prior to his death) either (i) amounts during the
remainder of the payment period equal to one-half of the amounts which would
have been paid to Executive but for his death or (ii) if so elected by the
payee(s) by written notice to the Company within the period of sixty (60) days
after the date of Executive's death, a lump sum amount equivalent to the
discounted present value of such reduced amounts, discounted at the publicly
announced reference rate for commercial lending of Bank of America Illinois in
effect at the date of notice to the Company of such election, with said amount
to be paid on a date no later than thirty (30) days following the date of
notice to the Company of such election. It is expressly understood that the
Company's payment obligations under this (d) shall cease in the event
Executive breaches any of his agreements in paragraph 7, 9 or 10 hereof.
(e) If the Employment Period ends early pursuant to paragraph 5
hereof on account of a Termination by Executive with Advance Notice, the
Company shall make no further payments to Executive except as contemplated in
(a) (i) and (ii) above.
7. Inventions and Other Intellectual Property. Executive agrees
that all inventions, innovations, improvements, developments, methods,
designs, analyses, drawings, reports, trademarks, slogans, product or other
designs, advertising or marketing programs, and all similar or related
information which relate to the Company's or any of its subsidiaries' or
affiliates' actual or anticipated business, research and development or
existing or future products or services and which are (or were prior to the
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<PAGE>
date of this Agreement) conceived, developed or made by Executive, whether
alone or jointly with others, while employed by the Company or any such
subsidiary or affiliate or any predecessor thereof ("Work Product") belong to
the Company or such subsidiary or affiliate. Executive will promptly disclose
such Work Product to the President of the Company and perform all actions
reasonably requested by the President of the Company (whether during or after
the Employment Period) to establish and confirm such ownership (including,
without limitation, assignments, consents, powers of attorney and other
instruments).
8. Limitation/Illinois Disclosure. Paragraph 7 of this Agreement
regarding the ownership of inventions and other intellectual property does not
apply to the extent application thereof is prohibited by any law the benefits
of which cannot be waived by Executive. Executive hereby waives the benefits
of any such law to the maximum extent permitted by law. In accordance with
Section 2872 of the Illinois Employee Patent Act, Ill. Rev. Stat. Chap. 140,
Sec. 301 et. seq. (1983), Executive is hereby advised that in the event and to
the extent such Act is applicable to Executive, paragraph 7 of this Agreement
regarding the ownership of inventions and other intellectual property does not
apply to any invention for which no equipment, supplies, facilities or trade
secret information of the Company or any of its subsidiaries or affiliates was
used and which was developed entirely on Executive's own time, unless (i) the
invention relates to the business of the Company or any of its subsidiaries or
affiliates or to the Company's or any of its subsidiaries' or affiliates'
actual or demonstrably anticipated research or development or (ii) the
invention results from any work performed by Executive for the Company or any
of its subsidiaries or affiliates.
9. Confidential Information. Executive acknowl-edges that the
information, observations and data obtained by him while employed by the
Company pursuant to this Agreement, as well as those obtained by him while
employed by the Company or any of its subsidiaries or affiliates or any
predecessor thereof prior to the date of this Agreement, concerning the
business or affairs of the Company or any of its subsidiaries or affiliates or
any predecessor thereof (unless and except to the extent the foregoing become
generally known to and available for use by the public other than as a result
of Executive's acts or omissions to act, "Confidential Information") are the
property of the Company or such subsidiary or affiliate. Therefore, Executive
agrees that he shall not disclose any Confidential Information without the
prior written consent of the President of the Company unless and except to the
extent that such disclosure is (i) made in the ordinary course of Executive's
performance of his duties under this Agreement or (ii) required by any
subpoena or other legal process (in which event Executive will give the
Company prompt notice of such subpoena or other legal process in order to
permit the Company to seek appropriate protective orders), and that he shall
not use any Confidential Information for his own account without the prior
written consent of the President of the Company. Executive shall deliver to
the Company at the termination of the Employment Period, or at any other time
the Company may request, all memoranda, notes, plans, records, reports,
computer tapes and software and other documents and data (and copies thereof)
relating to the Confidential Information, the Work Product or the business of
the Company or any of its subsidiaries or affiliates which he may then possess
or have under his control.
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<PAGE>
10. Non-Compete, Non-Solicitation.
(a) Executive acknowledges that in the course of his employment with
the Company pursuant to this Agreement he will become familiar, and during the
course of his employment by the Company or any of its subsidiaries or
affiliates or any predecessor thereof prior to the date of this Agreement he
has become familiar, with trade secrets and customer lists of and other
confidential information concerning the Company and its subsidiaries and
affiliates and predecessors thereof and that his services have been and will
be of special, unique and extraordinary value to the Company.
(b) Executive agrees that during the Employment Period and for two
years thereafter he shall not in any manner, directly or indirectly, through
any person, firm or corporation, alone or as a member of a partnership or as
an officer, director, stockholder, investor or employee of or in any other
corporation or enterprise or otherwise, engage or be engaged in, or assist any
other person, firm, corporation or enterprise in engaging or being engaged in,
the security, alarm or monitoring products business or any other business then
actively being conducted by the Group, in any geographic area in which the
Group is then conducting such business (whether through manufacturing or
production, calling on customers or prospective customers, or otherwise).
Notwithstanding the foregoing, subsequent to the Employment Period Executive
may engage or be engaged in, or assist any other person, firm, corporation or
enterprise in engaging or being engaged in, any business activity which is not
competitive with a business activity being conducted by the Group at the time
subsequent to the Employment Period Executive first engages or assists in such
business activity (a "Non-competitive Business Activity").
(c) Executive further agrees that during the Employment Period and
for two years thereafter he shall not in any manner, directly or indirectly,
(i) induce or attempt to induce any employee of the Company or of any of its
subsidiaries or affiliates to quit or abandon his employ, or any customer of
the Company or of any of its subsidiaries or affiliates to quit or abandon its
relationship, for any purpose whatsoever, or (ii) in connection with any
business to which the first sentence of (b) above applies, except where such
activity constitutes a Non-competitive Business Activity, call on, service,
solicit or otherwise do business with any then current or prospective customer
of the Company or of any of its subsidiaries or affiliates.
(d) Nothing in this paragraph 10 shall prohibit Executive from
being: (i) a stockholder in a mutual fund or a diversified investment company
or (ii) a passive owner of not more than 2% of the outstanding stock of any
class of a corporation which is publicly traded, so long as Executive has no
active participation in the business of such corporation.
(e) If, at the time of enforcement of this paragraph, a court holds
that the restrictions stated herein are unreasonable under circumstances then
existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area and that the court shall be allowed to revise
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<PAGE>
the restrictions contained herein to cover the maximum period, scope and area
permitted by law.
11. Enforcement. Because Executive's services are unique and
because Executive has access to Confidential Information and Work Product, the
parties hereto agree that the Company would be damaged irreparably in the
event any of the provisions of paragraph 7, 9 or 10 hereof were not performed
in accordance with their specific terms or were otherwise breached and that
money damages would be an inadequate remedy for any such non-performance or
breach. Therefore, the Company or its successors or assigns shall be
entitled, in addition to other rights and remedies existing in their favor, to
an injunction or injunctions to prevent any breach or threatened breach of any
of such provisions and to enforce such provisions specifically (without
posting a bond or other security).
12. Executive Representations. Executive represents and warrants
to the Company that (i) the execution, delivery and performance of this
Agreement by Executive does not and will not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (ii) Executive
is not a party to or bound by any employment agreement, noncompete agreement
or confidentiality agreement with any other person or entity and (iii) upon
the execution and delivery of this Agreement by the Company, this Agreement
shall be the valid and binding obligation of Executive, enforceable in
accordance with its terms.
13. Survival. Paragraphs 7, 9 and 10 hereof shall survive and
continue in full force in accordance with their terms notwithstanding any
termination of the Employment Period.
14. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed by first class
mail, return receipt requested, to the recipient at the address below
indicated:
Notices to Executive:
___________________
___________________
___________________
Notices to the Company:
Mr. King Harris
President
Pittway Corporation
200 South Wacker Drive, Suite 700
Chicago, IL 60606-5802
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<PAGE>
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or mailed.
15. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision or any other jurisdiction, but this
Agreement shall be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision had never been contained
herein.
16. Payment of Certain Costs and Expenses. In the event that there
is a Change of Control of the Company, if the Company thereafter wrongfully
withholds from Executive any amount payable to Executive pursuant to this
Agreement or the SERP and Executive obtains a final judgment against the
Company for such amount, the Company shall reimburse Executive for any costs
and expenses (including without limitation attorneys' fees) reasonably
incurred by Executive in obtaining such judgment and shall pay Executive
interest on the amount of each such cost or expense from the date of payment
thereof by Executive to the date of reimbursement by the Company at a floating
rate per annum equal to the publicly announced reference rate for commercial
lending of Bank of America Illinois in effect from time to time. For purposes
of the foregoing, a "Change of Control of the Company" will be deemed to have
occurred if but only if, for purposes of Section 13(d) of the Securities
Exchange Act of 1934, as amended, a person or group other than one or more
members of the Harris Group (as currently defined in the Company's Restated
Certificate of Incorporation, as amended) becomes the beneficial owner of
stock of the Company possessing a majority of the voting power under ordinary
circumstances with respect to the election of directors.
17. Complete Agreement. This Agreement embodies the complete
agreement and understanding between the parties with respect to the subject
matter hereof and effective as of its date supersedes and preempts any prior
understandings, agreements or representations by or between the parties,
written or oral, which may have related to the subject matter hereof in any
way.
18. Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be deemed to be an original and both of
which taken together shall constitute one and the same agreement.
19. Successors and Assigns. This Agreement shall bind and inure to
the benefit of and be enforceable by Executive, the Company and their
respective heirs, executors, personal representatives, successors and assigns,
except that neither party may assign any of his or its rights or delegate any
of his or its obligations hereunder without the prior written consent of the
other party. Executive hereby consents to the assignment by the Company of
all of its rights and obligations hereunder to: (i) any subsidiary or
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<PAGE>
affiliate of the Company in the event all or any substantial part of the
business to which Executive's duties under this Agreement relate are
transferred thereto and (ii) any successor to the Company by merger or
consolidation or purchase of all or substantially all of the Company's assets;
in each case provided such transferee or successor assumes the liabilities of
the Company hereunder.
20. Choice of Law. This Agreement shall be governed by the internal
law, and not the laws of conflicts, of the State of Illinois.
21. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first written above.
PITTWAY CORPORATION
By ___________________________
Its __________________________
______________________________
[EXECUTIVE]
-12-
EMPLOYMENT AGREEMENT
AGREEMENT made as of January 1, 1996, between Pittway Corporation, a
Delaware corporation (the "Company"), and Leo A. Guthart ("Executive").
In consideration of the mutual covenants contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive
accepts continued employment with the Company, upon the terms and conditions
set forth in this Agreement for the period beginning on the date hereof and
ending as provided in paragraph 5 hereof (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the chief
executive officer of the Ademco Security Group of the Company or any successor
to such Group, in each case as constituted from time to time (the "Group"),
and shall have the normal duties, responsibilities and authority of an
executive serving in such position, subject to the power of the Board of
Directors of the Company (the "Board") or the President of the Company to
expand or limit such duties, responsibilities and authority, either generally
or in specific instances. Executive shall have the title Chairman and Chief
Executive Officer of the Group, subject to the power of the Board to change
such title from time to time. During the Employment Period, Executive shall
also serve as a director of the Company for so long as the Board nominates
him to that position and he is elected to it, as a Vice-Chairman of the
Company for so long as the Board elects or appoints him to that position and
as a director of any affiliate of the Company designated by the Board for so
long as the Board causes him to be elected to such position.
(b) Executive shall report to the President of the Company.
(c) During the Employment Period, Executive shall devote his best
efforts and his full business time and attention (except for permitted
vacation periods, reasonable periods of illness or other incapacity, and,
provided such activities do not exceed those in which Executive has engaged
in the past, participation in charitable and civic endeavors and management of
Executive's personal investments and business interests) to the business and
affairs of the Group and the business and affairs of any other group of the
Company, any division of the Company, or any subsidiary or affiliate of the
Company (or any group or division thereof), engaged in the security, alarm or
monitoring products business or any other business the same as or similar to
or related to that then engaged in by the Group. Executive shall perform his
duties and responsibilities to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner.
<PAGE>
(d) Executive shall perform his duties and responsibilities
principally in the New York metropolitan area, and shall not be required to
travel outside that area any more extensively than he has done in the past in
the ordinary course of the business of the Group.
3. Salary and Benefits.
(a) The Company agrees to pay Executive a salary during the
Employment Period, in monthly installments.
(b) Executive's initial salary shall be $425,000 per annum.
(c) Executive's salary may be increased by the Board from time to
time.
(d) The Board may, in its sole discretion, award a bonus to
Executive for any calendar year during the Employment Period.
(e) The Company shall reimburse Executive for all reasonable
expenses incurred by him in the course of performing his duties under this
Agreement which are consistent with the Company's policies in effect from time
to time with respect to travel, entertainment and other business expenses,
subject to the Company's requirements with respect to reporting and
documentation of such expenses.
(f) In addition to the salary and any bonus(es) payable to Executive
pursuant to this paragraph, Executive shall be entitled during the Employment
Period to participate, on the same basis as other executives of the Company
(but subject to variations among executives resulting from differences in the
levels of benefits made available to employees at particular business units
under the Company's 401(k) plan or any other plan of the Company), in the
Company's Standard Executive Benefits Package. The Company's "Standard
Executive Benefits Package" means those benefits (including insurance,
vacation, company car or car allowance and/or other benefits) for which
substantially all of the executives of the Company are from time to time
generally eligible, as determined from time to time by the Board.
(g) In addition to participation in the Company's Standard Executive
Benefits Package pursuant to this paragraph, Executive shall be entitled
during the Employment Period to:
(i) additional term life insurance coverage in an amount equal
to Executive's salary; but only if and so long as such additional
coverage is available at standard rates from the insurer providing term
life insurance coverage under the Standard Executive Benefits Package or
a comparable insurer acceptable to the Company (If Executive is not
participating in term life insurance coverage under the Standard
Executive Benefits Package and if such additional coverage would be
available at standard rates from such insurer if Executive were so
participating, Executive shall instead be entitled to an amount each
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calendar year, payable monthly, equal to the amount the Company would
have been required to pay for such additional coverage for such year.);
(ii) supplementary long-term disability coverage in an amount
which will increase maximum covered annual compensation to $330,000 and
maximum monthly payments to $18,333; but only if and so long as such
supplementary coverage is available at standard rates from the insurer
providing long-term disability coverage under the Standard Executive
Benefits Package or a comparable insurer acceptable to the Company; and
(iii) participation in the Pittway Corporation Supplemental
Executive Retirement Plan (the "SERP"), a copy of which, as currently in
effect, is attached hereto as Exhibit A.
4. Adjustments. Notwithstanding any other provision of this
Agreement, it is expressly understood and agreed that if there is a
significant reduction in the level of the business to which Executive's duties
under this Agreement relate, or if all or any significant part of such
business is disposed of by the Company and/or its subsidiaries or affiliates
during the Employment Period but Executive thereafter remains an employee of
the Company, the Board may make adjustments in Executive's duties,
responsibility and authority, and in Executive's compensation, as the Board
deems appropriate to reflect such reduction or disposition.
5. Employment Period.
(a) Except as hereinafter provided, the Employment Period shall
continue until, and shall end upon, the fifth anniversary of the date hereof.
(b) On each anniversary of the date hereof which precedes
Executive's sixty-fifth birthday by more than four years, unless the
Employment Period shall have ended early pursuant to (c) below or either party
shall have given the other party written notice that the extension provision
in this sentence shall no longer apply, the Employment Period shall be
extended for an additional calendar year (unless Executive's sixty-fifth
birthday occurs during such additional calendar year, in which event the
Employment Period shall be extended only until such birthday). In no event
shall the Employment Period be extended beyond the Executive's sixty-fifth
birthday except by mutual written agreement of the Company and Executive.
(c) Notwithstanding (a) and (b) above, the Employment Period shall
end early upon the first to occur of any of the following events:
(i) Executive's death;
(ii) Executive's retirement upon or after reaching age 65
("Retirement");
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(iii) the Company's termination of Executive's employment on
account of Executive's having become unable (as determined by the Board
in good faith) to regularly perform his duties hereunder by reason of
illness or incapacity for a period of more than six (6) consecutive
months ("Termination for Disability");
(iv) the Company's termination of Executive's employment for
Cause ("Termination for Cause");
(v) the Company's termination of Executive's employment other
than a Termination for Disability or a Termination for Cause
("Termination without Cause");
(vi) Executive's termination of Executive's employment for Good
Reason, by means of advance written notice to the Company at least thirty
(30) days prior to the effective date of such termination identifying
such termination as a Termination by Executive for Good Reason
("Termination by Executive for Good Reason") (it being expressly
understood that Executive's giving notice that the extension provision in
the first sentence of paragraph 5 (b) hereof shall no longer apply shall
not constitute a "Termination by Executive for Good Reason"); or
(vii) Executive's termination of Executive's employment for any
reason other than Good Reason, by means of advance written notice to the
Company at least one hundred eighty (180) days prior to the effective
date of such termination identifying such termination as a Termination by
Executive with Advance Notice ("Termination by Executive with Advance
Notice") (it being expressly understood that Executive's giving notice
that the extension provision in the first sentence of paragraph 5 (b)
hereof shall no longer apply shall not constitute a "Termination by
Executive with Advance Notice").
(d) For purposes of this Agreement, "Cause" shall mean:
(i) the commission by Executive of a felony or a crime
involving moral turpitude;
(ii) the commission by Executive of a fraud;
(iii) the commission by Executive of any act involving dishonesty
or disloyalty with respect to the Company or any of its subsidiaries or
affiliates;
(iv) conduct by Executive tending to bring the Company or any
of its subsidiaries or affiliates into substantial public disgrace or
disrepute;
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(v) gross negligence or willful misconduct by Executive with
respect to the Company or any of its subsidiaries or affiliates;
(vi) repudiation of this Agreement by Executive or Executive's
abandonment of his employment with the Company (it being expressly
understood that a Termination by Executive for Good Reason or a
Termination by Executive with Advance Notice shall not constitute such a
repudiation or abandonment);
(vii) breach by Executive of any of the agreements in paragraph
10 hereof; or
(viii) any other breach by Executive of this Agreement which is
material and which is not cured within thirty (30) days after written
notice thereof to Executive from the Company.
(e) For purposes of this Agreement, "Good Reason" shall mean:
(i) a reduction by the Company in Executive's salary to an
amount less than "Executive's Reference Salary" (i.e., Executive's
initial salary or, in the event the Employment Period has been extended
pursuant to paragraph 5(b) hereof, Executive's salary on the date on
which the most recent such extension occurred); or
(ii) any breach by the Company of this Agreement which is
material and which is not cured within thirty (30) days after written
notice thereof to the Company from Executive.
6. Post-Employment Period Payments.
(a) If the Employment Period ends on the date on which (without any
extension thereof) it is then scheduled to end pursuant to paragraph 5 hereof,
or if the Employment Period ends early pursuant to paragraph 5 hereof for any
reason, Executive shall cease to have any rights to salary, bonus (if any) or
benefits other than: (i) any salary which has accrued but is unpaid, and any
expenses which have been incurred but are unpaid, as of the end of the
Employment Period, (ii) (but only to the extent provided in the SERP or any
other benefit plan in which Executive has participated as an employee of the
Company) any plan benefits which by their terms extend beyond termination of
Executive's employment and (iii) any other amount(s) payable pursuant to the
succeeding provisions of this paragraph 6.
(b) If the Employment Period ends pursuant to paragraph 5 hereof on
Executive's sixty-fifth birthday, or if the Employment Period ends early
pursuant to paragraph 5 hereof on account of Executive's death, Retirement or
Termination for Disability, the Company shall make no further payments to
Executive except as contemplated in (a) (i) and (ii) above.
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(c) If the Employment Period ends early pursuant to paragraph 5
hereof on account of Termination for Cause, the Company shall pay Executive an
amount equal to that Executive would have received as salary (based on
Executive's salary then in effect) had the Employment Period remained in
effect until the later of the effective date of the Company's termination of
Executive's employment or the date thirty days after the Company's notice to
Executive of such termination.
(d) If the Employment Period ends early pursuant to paragraph 5
hereof on account of a Termination without Cause or a Termination by Executive
for Good Reason, the Company shall pay to Executive amounts equal to the
amounts Executive would have received as salary (based on Executive's salary
then in effect or, if greater, Executive's Reference Salary) had the
Employment Period remained in effect until the date on which (without any
extension thereof) it was then scheduled to end, at the times such amounts
would have been paid (in the event Executive is entitled during the payment
period to any payments under any disability benefit plan or the like in which
Executive has participated as an employee of the Company, less such
payments); provided, however, that in the event of Executive's death during
the payment period, the Company shall not be obligated to pay any subsequent
such amounts, but the Company shall pay to Executive's estate (or such person
or persons as Executive may designate in a written instrument signed by him
and delivered to the Company prior to his death) either (i) amounts during the
remainder of the payment period equal to one-half of the amounts which would
have been paid to Executive but for his death or (ii) if so elected by the
payee(s) by written notice to the Company within the period of sixty (60) days
after the date of Executive's death, a lump sum amount equivalent to the
discounted present value of such reduced amounts, discounted at the publicly
announced reference rate for commercial lending of Bank of America Illinois in
effect at the date of notice to the Company of such election, with said amount
to be paid on a date no later than thirty (30) days following the date of
notice to the Company of such election. It is expressly understood that the
Company's payment obligations under this (d) shall cease in the event
Executive breaches any of his agreements in paragraph 7, 9 or 10 hereof.
(e) If the Employment Period ends early pursuant to paragraph 5
hereof on account of a Termination by Executive with Advance Notice, the
Company shall make no further payments to Executive except as contemplated in
(a) (i) and (ii) above.
7. Inventions and Other Intellectual Property. Executive agrees
that all inventions, innovations, improvements, developments, methods,
designs, analyses, drawings, reports, trademarks, slogans, product or other
designs, advertising or marketing programs, and all similar or related
information which relate to the Company's or any of its subsidiaries' or
affiliates' actual or anticipated business, research and development or
existing or future products or services and which are (or were prior to the
date of this Agreement) conceived, developed or made by Executive, whether
alone or jointly with others, while employed by the Company or any such
subsidiary or affiliate or any predecessor thereof ("Work Product") belong to
the Company or such subsidiary or affiliate. Executive will promptly disclose
such Work Product to the President of the Company and perform all actions
reasonably requested by the President of the Company (whether during or after
the Employment Period) to establish and confirm such ownership (including,
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without limitation, assignments, consents, powers of attorney and other
instruments).
8. Limitation. Paragraph 7 of this Agreement regarding the
ownership of inventions and other intellectual property does not apply to the
extent application thereof is prohibited by any law the benefits of which
cannot be waived by Executive. Executive hereby waives the benefits of any
such law to the maximum extent permitted by law.
9. Confidential Information. Executive acknowl-edges that the
information, observations and data obtained by him while employed by the
Company pursuant to this Agreement, as well as those obtained by him while
employed by the Company or any of its subsidiaries or affiliates or any
predecessor thereof prior to the date of this Agreement, concerning the
business or affairs of the Company or any of its subsidiaries or affiliates or
any predecessor thereof (unless and except to the extent the foregoing become
generally known to and available for use by the public other than as a result
of Executive's acts or omissions to act, "Confidential Information") are the
property of the Company or such subsidiary or affiliate. Therefore, Executive
agrees that he shall not disclose any Confidential Information without the
prior written consent of the President of the Company unless and except to the
extent that such disclosure is (i) made in the ordinary course of Executive's
performance of his duties under this Agreement or (ii) required by any
subpoena or other legal process (in which event Executive will give the
Company prompt notice of such subpoena or other legal process in order to
permit the Company to seek appropriate protective orders), and that he shall
not use any Confidential Information for his own account without the prior
written consent of the President of the Company. Executive shall deliver to
the Company at the termination of the Employment Period, or at any other time
the Company may request, all memoranda, notes, plans, records, reports,
computer tapes and software and other documents and data (and copies thereof)
relating to the Confidential Information, the Work Product or the business of
the Company or any of its subsidiaries or affiliates which he may then possess
or have under his control.
10. Non-Compete, Non-Solicitation.
(a) Executive acknowledges that in the course of his employment with
the Company pursuant to this Agreement he will become familiar, and during the
course of his employment by the Company or any of its subsidiaries or
affiliates or any predecessor thereof prior to the date of this Agreement he
has become familiar, with trade secrets and customer lists of and other
confidential information concerning the Company and its subsidiaries and
affiliates and predecessors thereof and that his services have been and will
be of special, unique and extraordinary value to the Company.
(b) Executive agrees that during the Employment Period and for two
years thereafter he shall not in any manner, directly or indirectly, through
any person, firm or corporation, alone or as a member of a partnership or as
an officer, director, stockholder, investor or employee of or in any other
corporation or enterprise or otherwise, engage or be engaged in, or assist any
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<PAGE>
other person, firm, corporation or enterprise in engaging or being engaged in,
the security, alarm or monitoring products business or any other business then
actively being conducted by the Group, in any geographic area in which the
Group is then conducting such business (whether through manufacturing or
production, calling on customers or prospective customers, or otherwise).
Notwithstanding the foregoing, subsequent to the Employment Period Executive
may engage or be engaged in, or assist any other person, firm, corporation or
enterprise in engaging or being engaged in, any business activity which is not
competitive with a business activity being conducted by the Group at the time
subsequent to the Employment Period Executive first engages or assists in such
business activity (a "Non-competitive Business Activity").
(c) Executive further agrees that during the Employment Period and
for two years thereafter he shall not in any manner, directly or indirectly,
(i) induce or attempt to induce any employee of the Company or of any of its
subsidiaries or affiliates to quit or abandon his employ, or any customer of
the Company or of any of its subsidiaries or affiliates to quit or abandon its
relationship, for any purpose whatsoever, or (ii) in connection with any
business to which the first sentence of (b) above applies, except where such
activity constitutes a Non-competitive Business Activity, call on, service,
solicit or otherwise do business with any then current or prospective customer
of the Company or of any of its subsidiaries or affiliates.
(d) Nothing in this paragraph 10 shall prohibit Executive from
being: (i) a stockholder in a mutual fund or a diversified investment company
or (ii) a passive owner of not more than 2% of the outstanding stock of any
class of a corporation which is publicly traded, so long as Executive has no
active participation in the business of such corporation.
(e) If, at the time of enforcement of this paragraph, a court holds
that the restrictions stated herein are unreasonable under circumstances then
existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area and that the court shall be allowed to revise
the restrictions contained herein to cover the maximum period, scope and area
permitted by law.
11. Enforcement. Because Executive's services are unique and
because Executive has access to Confidential Information and Work Product, the
parties hereto agree that the Company would be damaged irreparably in the
event any of the provisions of paragraph 7, 9 or 10 hereof were not performed
in accordance with their specific terms or were otherwise breached and that
money damages would be an inadequate remedy for any such non-performance or
breach. Therefore, the Company or its successors or assigns shall be
entitled, in addition to other rights and remedies existing in their favor, to
an injunction or injunctions to prevent any breach or threatened breach of any
of such provisions and to enforce such provisions specifically (without
posting a bond or other security).
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<PAGE>
12. Executive Representations. Executive repre-sents and warrants
to the Company that (i) the execution, delivery and performance of this
Agreement by Executive does not and will not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (ii) Executive is
not a party to or bound by any employment agreement, noncompete agreement
or confidentiality agreement with any other person or entity and (iii) upon
the execution and delivery of this Agreement by the Company, this Agreement
shall be the valid and binding obligation of Executive, enforceable in
accordance with its terms.
13. Survival. Paragraphs 7, 9 and 10 hereof shall survive and
continue in full force in accordance with their terms notwithstanding any
termination of the Employment Period.
14. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed by first class
mail, return receipt requested, to the recipient at the address below
indicated:
Notices to Executive:
Mr. Leo A. Guthart
96 Willets Road
Old Westbury, NY 11568
Notices to the Company:
Mr. King Harris
President
Pittway Corporation
200 South Wacker Drive, Suite 700
Chicago, IL 60606-5802
or such other address or to the attention of such other person as the
recipient party shall have specified by prior written notice to the sending
party. Any notice under this Agreement will be deemed to have been given when
so delivered or mailed.
15. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision or any other jurisdiction, but this
Agreement shall be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision had never been contained
herein.
16. Payment of Certain Costs and Expenses. In the event that there is a
Change of Control of the Company, if the Company thereafter wrongfully
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withholds from Executive any amount payable to Executive pursuant to this
Agreement or the SERP and Executive obtains a final judgment against the
Company for such amount, the Company shall reimburse Executive for any costs
and expenses (including without limitation attorneys' fees) reasonably
incurred by Executive in obtaining such judgment and shall pay Executive
interest on the amount of each such cost or expense from the date of payment
thereof by Executive to the date of reimbursement by the Company at a floating
rate per annum equal to the publicly announced reference rate for commercial
lending of Bank of America Illinois in effect from time to time. For purposes
of the foregoing, a "Change of Control of the Company" will be deemed to have
occurred if but only if, for purposes of Section 13(d) of the Securities
Exchange Act of 1934, as amended, a person or group other than one or more
members of the Harris Group (as currently defined in the Company's Restated
Certificate of Incorporation, as amended) becomes the beneficial owner of
stock of the Company possessing a majority of the voting power under ordinary
circumstances with respect to the election of directors.
17. Complete Agreement. This Agreement embodies the complete
agreement and understanding between the parties with respect to the subject
matter hereof and effective as of its date supersedes and preempts any prior
understandings, agreements or representations by or between the parties,
written or oral, which may have related to the subject matter hereof in any
way, including without limitation the Agreement of Employment dated July 2,
1973 between Pittway Corporation, a Pennsylvania corporation, and Executive,
as heretofore amended and otherwise modified.
18. Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be deemed to be an original and both of
which taken together shall constitute one and the same agreement.
19. Successors and Assigns. This Agreement shall bind and inure to
the benefit of and be enforceable by Executive, the Company and their
respective heirs, executors, personal representatives, successors and assigns,
except that neither party may assign any of his or its rights or delegate any
of his or its obligations hereunder without the prior written consent of the
other party. Executive hereby consents to the assignment by the Company of
all of its rights and obligations hereunder to: (i) any subsidiary or
affiliate of the Company in the event all or any substantial part of the
business to which Executive's duties under this Agreement relate are
transferred thereto and (ii) any successor to the Company by merger or
consolidation or purchase of all or substantially all of the Company's assets;
in each case provided such transferee or successor assumes the liabilities of
the Company hereunder.
20. Choice of Law. This Agreement shall be governed by the internal
law, and not the laws of conflicts, of the State of New York.
21. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
PITTWAY CORPORATION
By /s/King Harris
Its: President
/s/ Leo A. Guthart
LEO A. GUTHART
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Exhibit A
(to Form 10K
Exhibit 10.7)
PITTWAY CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
SECTION 1
Introduction
1.1 The Plan and Its Effective Date. This Pittway Corporation
Supplemental Executive Retirement Plan (the "plan") has been established by
Pittway Corporation (the "company"), effective January 1, 1996.
1.2 Purpose. The company maintains the Pittway Corporation Retirement
Plan (As Amended and Restated Effective as of January 1, 1989) (as the same
may hereafter be amended, the "retirement plan"), which is intended to meet
the requirements of a "qualified plan" under the Internal Revenue Code of
1986, as amended (the "Code"). While the Code places limitations on the
maximum benefits which may be paid from a qualified plan and the maximum
amount of an employee's compensation that may be taken into account for
determining benefits payable under a qualified plan, the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), permits the payment under
an "unfunded plan" of benefits which may not be paid under a qualified plan
because of such limitations. The purpose of the plan is to provide certain
key employees of the company and its subsidiaries with certain benefits
which may not be provided under the retirement plan because of the maximum
compensation limitation of the Code.
SECTION 2
Eligibility and Benefits
2.1 Eligibility. Each key employee of the company or a subsidiary of the
company (a "participant") who participates in the retirement plan and who is a
party to an employment agreement with the company or a subsidiary of the
company substantially in the form attached hereto as Exhibit 1 (as the same
may hereafter be amended, his "Employment Agreement") that provides for his
participation in the plan shall participate in the plan, subject to the
conditions and limitations of the plan. It is expressly understood that
variations among the participants' Employment Agreements may result in
differences in the numbered paragraphs thereof in which corresponding
provisions appear (for example, the non-competition provisions which are in
paragraph 10 of Exhibit 1 attached hereto, or variations thereof, may be in
paragraph 10 of certain of the Employment Agreements but in paragraph 9 of
<PAGE>
others). Accordingly, each reference in the plan to a particular numbered
paragraph of a participant's Employment Agreement shall be deemed to be a
reference to the paragraph thereof, if any, which corresponds to the
identically numbered paragraph of Exhibit 1.
2.2 Accrued Benefit. For 1995 and for each full calendar year and any
final fraction of a calendar year of a participant's Employment Period (as
such term is defined in such participant's Employment Agreement), the
participant shall accrue a benefit under the plan equal to 1.85 percent of
that portion of his earnings (as defined in section 2.3 below) for such year
or fraction that is in excess of the "maximum dollar limitation" (as defined
below) for such year or fraction and is less than $300,000. For purposes of
the plan, "maximum dollar limitation" means, for any year or fraction of a
year, the greater of $150,000 or the dollar amount of any higher maximum
limitation on annual compensation taken into account under a qualified plan
for such year or fraction of a year determined by the Secretary of Treasury or
his delegate or by law under section 401(a)(17) of the Code; it being
understood that annual compensation for purposes of such limitation is
computed differently from "earnings" for purposes of the plan. A participant's
accrued benefits under the plan shall be referred to hereinafter as the
participant's "supplemental retirement benefits."
2.3 Earnings. For purposes of the plan, a participant's "earnings" for
any year or fraction means his total, regular cash compensation paid for such
year or fraction for services rendered to the Pittway Companies (as such term
is defined in the retirement plan) during such year or fraction, consisting
solely of his salary and his annual discretionary cash bonus, if any, for such
year. It is expressly understood that a participant's "earnings" do not
include any other compensation, including, without limitation, any of the
following:
(a) Long-term incentive compensation;
(b) Unused vacation pay;
(c) Special cash bonuses;
(d) Any income realized for Federal income tax purposes as a result of
the grant or exercise of an option or options to acquire shares of
stock of a Pittway Company, the receipt or exercise of any stock
appreciation right or payment, or the disposition of shares acquired
by the exercise of such an option or right;
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(e) Any noncash compensation, including any amounts contributed by the
participant's employer(s) for his benefit under the retirement plan
or any other retirement or benefit plan, arrangement, or policy
maintained by his employer(s);
(f) Any reimbursements for medical, dental or travel expenses, automobile
allowances, relocation allowances, educational assistance allowances,
awards and other special allowances;
(g) Any income realized for Federal income tax purposes as a result of
(i) group life insurance, (ii) the personal use of an employer-owned
automobile, or (iii) the transfer of restricted shares of stock or
restricted property of a Pittway Company, or the removal of any such
restrictions;
(h) Any severance pay paid as a result of the participant's termination
of employment (it being expressly understood that any amount(s) taken
into account pursuant to the final sentence of section 2.8 below
shall not be deemed severance pay for purposes hereof); or
(i) Any compensation paid or payable to the participant, or to any
governmental body or agency on account of the participant, under the
terms of any state, Federal or foreign law requiring the payment of
such compensation because of the participant's voluntary or
involuntary termination of employment with any Pittway Company.
Notwithstanding the foregoing, a participant's "earnings" do include (i) any
salary reduction amount elected by the participant and credited to a cafeteria
plan (as defined in section 125(c) of the Code) or a qualified cash or
deferred arrangement (as defined in section 401(k) of the Code) and (ii) the
initial value ascribed to any performance shares award the participant elects
to receive in lieu of a portion of his annual discretionary cash bonus.
2.4 Payment of Benefits. Each participant's Employment Agreement
provides that in no event shall his Employment Period be extended beyond his
65th birthday except by mutual agreement of the participant and his employer.
Subject to the conditions and limitations of the plan, upon a participant's
attainment of age 65 years, he shall be entitled to a monthly benefit payable
for his life commencing upon his attainment of age 65 years in an amount equal
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to one-twelfth (1/12) of the sum of the participant's accrued supplemental
retirement benefits. A participant's supplemental retirement benefits shall be
paid to him in the form described below that applies to the participant;
provided, however, that in lieu of payment in the normal form described below,
the participant may irrevocably elect, within thirty (30) days after his
commencement of participation in the plan, to receive his supplemental
retirement benefits in a single lump sum as soon as practicable after his
attainment of age 65 years. A participant's "supplemental retirement benefit
commencement date" means the date as of which the initial payment (or, in the
case of a single lump sum, full payment) of the supplemental retirement
benefits to which the participant is entitled is payable. Subject to the
conditions and limitations of the plan, a participant's supplemental
retirement benefit commencement date shall normally be the first day of the
calendar month coincident with or next following the participant's attainment
of age 65 years. Notwithstanding the immediately preceding sentence, if a
participant's Employment Period under his Employment Agreement terminates
prior to his attainment of age 65 years and he is eligible, and elects, to
receive early retirement benefits under the retirement plan, and if the
participant requests a supplemental retirement benefit commencement date prior
to his attainment of age 65 years, then with (but only with) the consent of
the committee (as defined in section 3.1 below), the participant's
supplemental retirement benefit commencement date shall be such earlier date,
if any, selected by the committee. Supplemental retirement benefits that
are paid in a lump sum, or commence, before the participant's attainment of
age 65 years, if any, shall be subject to actuarial reduction in accordance
with section 2.5 below.
(a) Life Annuity. If a participant does not have a spouse (as defined in
section 2.7 below) on his supplemental retirement benefit
commencement date, and if he has not elected pursuant to the
preceding provisions of this section 2.4 to receive his supplemental
retirement benefits in a single lump sum, payment of his supplemental
retirement benefits shall be during his lifetime on a life annuity
basis.
(b) Joint and Survivor Annuity. If a participant has a spouse (as defined
in section 2.7 below) on his supplemental retirement benefit
commencement date, payment of his supplemental retirement benefits
shall be in the form of a joint and 50 percent survivor annuity
unless the participant has theretofore elected pursuant to the
preceding provisions of this section 2.4 to have his benefits
provided in a single lump sum. Such joint and 50 percent survivor
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<PAGE>
annuity shall consist of a reduced monthly benefit continuing during
the participant's lifetime, and if such spouse is living at the time
of the participant's death, payment of 50 percent of such monthly
benefit shall be made to such spouse until such spouse's death
occurs. The amount of the participant's and such spouse's benefits
under this subsection shall be calculated so that it is the actuarial
equivalent of the supplemental retirement benefits to which the
participant would otherwise be entitled under the plan. If such
spouse predeceases the participant, or if the participant and such
spouse cease to be married after the participant's supplemental
retirement benefit commencement date, there shall be no adjustment
to the participant's monthly payments and no supplemental retirement
benefits shall be payable to any person after the participant's
death.
2.5 Actuarial Equivalent. A benefit shall be actuarially equivalent to
another benefit if the actuarial reserve required to provide such benefit is
equal to the actuarial reserve required to provide such other benefit,
computed on the basis of the same actuarial assumptions, interest rates,
tables, methods and procedures, including reduction factors for commencement
of payments prior to attainment of age 65 years, that are used for purposes of
the retirement plan as in effect on the applicable date that a benefit payment
amount is determined.
2.6 Pre-Retirement Surviving Spouse Benefit. If a participant
dies prior to his supplemental retirement benefit commencement date, no
supplemental retirement benefits under the plan shall be paid or payable with
respect to the participant; provided, however, that if the participant has a
spouse (as defined in section 2.7 below) at the time of his death, such spouse
shall be entitled to receive a monthly benefit for such spouse's lifetime
equal to 50 percent of the amount of monthly benefit that would have been
payable to the participant in the form of a joint and 50 percent survivor
annuity if he had terminated employment as of the date of his death with
entitlement to supplemental retirement benefits under the plan and the
committee (as defined in section 3.1 below) had permitted his supplemental
retirement benefit commencement date to occur on the first day of the calendar
month coincident with or next following the date of his death, taking
into account actuarial reduction for commencement prior to the participant's
attainment of age 65 years. The first payment to the spouse shall be made as
of the first day of the calendar month coincident with or next following the
date of the participant's death and the final payment shall be made as of the
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first day of the calendar month during which the spouse's death occurs. If,
prior to the participant's death, the participant had elected pursuant to
section 2.4 above to receive his supplemental retirement benefits in a single
lump sum, in lieu of the monthly payments described above, such spouse shall
be entitled to receive a single lump sum equal to 50 percent of the lump sum
value of the participant's supplemental retirement benefits as of the date of
his death, taking into account actuarial factors for payment prior to the
participant's attainment of age 65 years. Such lump sum payment shall be made
to such spouse as soon as practicable following the participant's death.
2.7 Spouse. For purposes of the plan, a person will be considered the
"spouse" of a participant as of any date if and only if such person and the
participant have been married in a religious or civil ceremony recognized
under the laws of the state where the marriage was contracted and the marriage
remains legally effective. Any person who is not, or who has ceased to
be, a participant's "spouse" on the participant's supplemental retirement
benefit commencement date (or, in the event of the participant's death prior
to his supplemental retirement benefit commencement date, the date of his
death) shall not be considered the participant's "spouse" for purposes of the
plan.
2.8 Forfeiture; Early Termination of Employment Period. If the
participant's Employment Period ends early pursuant to paragraph 5 of his
Employment Agreement on account of a Termination for Cause or a Termination by
Executive with Advance Notice (as such terms are defined, respectively, in his
Employment Agreement), or if after the participant's Employment Period ends
(whether or not early and regardless of the reason) the participant breaches
any of his agreements in paragraph 7, 9 or 10 of his Employment Agreement, the
participant shall forfeit all of his supplemental retirement benefits, if any,
under the plan, no benefit under the plan shall thereafter be payable to or
with respect to the participant or his spouse, and any benefit under the plan
theretofore paid to or with respect to the participant or his spouse must be
repaid to the company by the participant or his spouse promptly upon demand.
If the participant's Employment Period ends early pursuant to paragraph 5 of
his Employment Agreement on account of a Termination without Cause or a
Termination by Executive for Good Reason (as such terms are defined,
respectively, in his Employment Agreement), the participant's supplemental
retirement benefits under the plan shall be the supplemental retirement
benefits the participant would have been entitled to under the plan had his
Employment Period remained in effect until the earlier of the date on which
(without any extension thereof) such Employment Period was then scheduled to
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end pursuant to his Employment Agreement or the date of his death and had the
participant's salary in effect as of the last day of his Employment Period
(or, if greater, his Executive's Reference Salary (as such term is defined in
his Employment Agreement)) continued until the earlier of such dates and been
paid at the times such salary would have been paid, and had the participant
received no further annual cash bonus.
2.9 Funding. The plan is intended to be non-qualified for purposes of
the Code and unfunded for purposes of the Code and ERISA. Benefits payable
under the plan to a participant and/or his spouse, as the case may be, shall
be paid directly by the company. The company shall not be required to
segregate on its books or otherwise any amount to be used for payment of
supplemental retirement benefits under the plan. Each participant and spouse
is solely an unsecured creditor of the company with respect to any benefit
payable with respect to a participant hereunder.
SECTION 3
General Provisions
3.1 Committee. The plan shall be administered by the plan administrative
committee of the retirement plan (the "committee"). The committee shall have,
to the extent appropriate, the same powers, rights, duties and obligations
with respect to the plan as it has with respect to the retirement plan. Each
determination provided for in the plan shall be made by the committee under
such procedure as may from time to time be prescribed by the committee and
shall be made in the absolute discretion of the committee. Any determination
so made shall be conclusive.
3.2 Employment Rights. Neither the establishment of, nor participation
in, the plan shall be construed to give any participant the right to be
retained in the service of the Pittway Companies or to any benefits not
specifically provided by the plan.
3.3 Taxes and Withholding. Each participant (or his spouse, as
applicable) shall be responsible for any taxes imposed on him (or his spouse)
("taxes") by reason of the establishment of, or his participation in, the
plan, including, without limitation, any Federal, state and/or local income or
employment taxes imposed on benefits or potential benefits under the plan (or
on the value thereof) in advance of the participant's receipt of such benefits
or potential benefits. The company or a subsidiary of the company may deduct
any taxes from payroll or other payments due the participant or his spouse.
The committee shall deduct from all payments under the plan any taxes required
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to be withheld, including, without limitation, any Federal, state and/or local
income or employment taxes. In the event that such deductions and/or
withholdings are not sufficient to pay the taxes, the participant (or his
spouse) shall promptly remit the deficit to the company upon its request.
3.4 Interests Not Transferable. Except as to withholding of any tax
under the laws of the United States or any state, the interests of
participants and their spouses under the plan are not subject to the claims of
their creditors and may not be voluntarily or involuntarily transferred,
assigned, alienated or encumbered. No participant shall have any right to any
benefit payments hereunder prior to his termination of employment with the
Pittway Companies.
3.5 Payment with Respect to Incapacitated Participants or Beneficiaries.
If any person entitled to benefits under the plan is under a legal disability
or in the committee's opinion is incapacitated in any way so as to be unable
to manage his financial affairs, the committee may direct the payment of such
benefit to such person's legal representative or to a relative or friend of
such person for such person's benefit, or the committee may direct the
application of such benefits for the benefit of such person in any manner
which the committee may select that is consistent with the plan. Any payments
made in accordance with the foregoing provisions of this section shall be a
full and complete discharge of any liability for such payments.
3.6 Limitation of Liability. To the extent permitted by law, no person
(including the company, any subsidiary of the company, the Board of Directors
of the company (the "Board"), the board of directors of any subsidiary of the
company, the committee, any present or former member of the Board or of the
board of directors of any subsidiary of the company or of the committee,
and any present or former officer of the company or of any subsidiary of the
company) shall be personally liable for any act done or omitted to be done in
good faith in the administration of the plan.
3.7 Controlling Law. The plan shall be construed in accordance with the
provisions of ERISA and other Federal laws, to the extent such provisions are
applicable to the plan. To the extent not inconsistent therewith, the plan
shall be construed in accordance with the laws of the State of Illinois.
3.8 Gender and Number. Where the context admits, words in the
masculine gender shall include the feminine and neuter genders, the plural
shall include the singular and the singular shall include the plural.
3.9 Action
by the Company. Any action required of or permitted by the company under the
plan, including action by the company to amend the plan, shall be by
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resolution of the Board or by a duly authorized committee of the Board or by a
person or persons authorized by resolution of the Board or such committee.
The procedure for amending the plan is that the plan shall be amended by the
company's taking appropriate corporate action to effectuate any amendment
considered by it to be advisable to be made. Appropriate corporate action
includes action by resolution of the Board, by a committee authorized by the
Board, or by a person or persons authorized by the Board or such committee, as
provided above.
3.10 Successor to the Company. The term "company" as used in the plan
shall include any successor to the company by reason of merger, consolidation,
the purchase of all or substantially all of the company's assets or otherwise.
3.11 Miscellaneous. The plan shall be binding upon and inure to the
benefit of the parties, their legal representatives, successors and assigns,
and all persons entitled to benefits hereunder. Any notice given in
connection with the plan shall be in writing and shall be delivered in person
or by registered mail, return receipt requested. Any notice given by
registered mail shall be deemed to have been given upon the date of delivery
indicated on the registered mail return receipt, if correctly addressed.
SECTION 4
Amendment and Termination
While the company expects to continue the plan, it must necessarily
reserve, and hereby does reserve, the right, either in general or as to one or
more particular participants, to amend the plan from time to time or to
terminate the plan at any time; provided (i) that no amendment of the plan
with respect to a participant that reduces or eliminates any benefits such
participant has accrued as of the effective date of such amendment shall be
effective unless such participant consents to such amendment; and (ii) no
amendment of the plan with respect to a participant whose Employment Period
under his Employment Agreement has not yet ended that adversely affects such
participant, or termination of the plan with respect to such a participant, by
the company on any date shall be effective prior to the date on which (without
any extension thereof) such participant's Employment Period is then scheduled
to end pursuant to his Employment Agreement unless the participant consents to
such amendment or termination.
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<PAGE> IN WITNESS WHEREOF, this plan has been executed on behalf of the
company by its duly authorized officers as of the day and year first above
written.
PITTWAY CORPORATION
By: /s/ King Harris
Its: President
Date: 2/16/96
ATTEST
By _________________________________
Its _____________________________
Date_____________________________
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Exhibit 1
(to Form 10K
Exhibit 10.7)
EMPLOYMENT AGREEMENT
AGREEMENT made as of January 1, 1996, between Pittway Corporation, a
Delaware corporation (the "Company"), and
___________ ("Executive").
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive
accepts continued employment with the Company, upon the terms and conditions
set forth in this Agreement for the period beginning on the date hereof and
ending as provided in paragraph 5 hereof (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the
____________of the ___________________ Group of the Company or any successor
to such Group, in each case as constituted from time to time (the "Group"),
and shall have the normal duties, responsibilities and authority of an
executive serving in such position, subject to the power of the Board of
Directors of the Company (the "Board") or the President of the Company to
expand or limit such duties, responsibilities and authority, either generally
or in specific instances. Executive shall have the title ____________________
of the Group, subject to the power of the Board to change such title from time
to time. During the Employment Period, Executive shall also serve as a
director of the Company for so long as the Board nominates him to that
position and he is elected to it, as a ____________ of the Company for so long
as the Board elects or appoints him to that position and as a director of any
affiliate of the Company designated by the Board for so long as the Board
causes him to be elected to such position.
(b) Executive shall report to the President of the Company.
(c) During the Employment Period, Executive shall devote his best
efforts and his full business time and attention (except for permitted
vacation periods, reasonable periods of illness or other incapacity and,
provided such activities do not exceed those in which Executive has engaged in
the past, participation in charitable and civic endeavors and management of
Executive's personal investments and business interests) to the business and
affairs of the Group and the business and affairs of any other group of the
Company, any division of the Company, or any subsidiary or affiliate of the
Company (or any group or division thereof), engaged in the security, alarm or
monitoring products business or any other business the same as or similar to
<PAGE>
or related to that then engaged in by the Group. Executive shall perform his
duties and responsibilities to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner.
(d) Executive shall perform his duties and responsibilities
principally in the __________________ area, and shall not be required to
travel outside that area any more extensively than he has done in the past in
the ordinary course of the business of the Company.
3. Salary and Benefits.
(a) The Company agrees to pay Executive a salary during the
Employment Period, in monthly installments.
(b) Executive's initial salary shall be $_______ per annum.
(c) Executive's salary may be increased by the Board from time to time.
(d) The Board may, in its sole discretion, award a bonus to Executive
for any calendar year during the Employment Period.
(e) The Company shall reimburse Executive for all reasonable
expenses incurred by him in the course of performing his duties under this
Agreement which are consistent with the Company's policies in effect from time
to time with respect to travel, entertainment and other business expenses,
subject to the Company's requirements with respect to reporting and
documentation of such expenses.
(f) In addition to the salary and any bonus(es) payable to Executive
pursuant to this paragraph, Executive shall be entitled during the Employment
Period to participate, on the same basis as other executives of the Company
(but subject to variations among executives resulting from differences in the
levels of benefits made available to employees at particular business units
under the Company's 401(k) plan or any other plan of the Company), in the
Company's Standard Executive Benefits Package. The Company's "Standard
Executive Benefits Package" means those benefits (including insurance,
vacation, company car or car allowance and/or other benefits) for which
substantially all of the executives of the Company are from time to time
generally eligible, as determined from time to time by the Board.
(g) In addition to participation in the Company's Standard Executive
Benefits Package pursuant to this paragraph, Executive shall be entitled
during the Employment Period to a supplemental executive retirement program,
the principal terms of which are set forth in Exhibit A attached hereto:
(i) additional term life insurance coverage in an amount equal
to Executive's salary; but only if and so long as such additional
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coverage is available at standard rates from the insurer providing
term life insurance coverage under the Standard Executive Benefits
Package or from a comparable insurer acceptable to the Company;
(ii) supplementary long-term disability coverage in an amount which
will increase maximum covered annual compensation to $330,000 and
the maximum monthly payments to $18,333; but only if and so long
as such supplementary coverage is available at standard rates from
the insurer providing long-term disability coverage under the
Standard Executive Benefits Package or a comparable insurer
acceptable to the Company; and
(iii) participation in the Pittway Corporation Supplemental Executive
Retirement Plan (the "SERP"), a copy of which, as currently in
effect, is attached hereto as Exhibit A.
4. Adjustments. Notwithstanding any other provision of this
Agreement, it is expressly understood and agreed that if there is a
significant reduction in the level of the business to which Executive's duties
under this Agreement relate, or if all or any significant part of such
business is disposed of by the Company and/or its subsidiaries or affiliates
during the Employment Period but Executive thereafter remains an employee of
the Company, the Board may make adjustments in Executive's duties,
responsibility and authority, and in Executive's compensation, as the Board
deems appropriate to reflect such reduction or disposition.
5. Employment Period.
(a) Except as hereinafter provided, the Employment Period shall
continue until, and shall end upon, the third anniversary of the date hereof.
(b) On each anniversary of the date hereof which precedes
Executive's sixty-fifth birthday by more than two years, unless the Employment
Period shall have ended early pursuant to (c) below or either party shall have
given the other party written notice that the extension provision in this
sentence shall no longer apply, the Employment Period shall be extended for an
additional calendar year (unless Executive's sixty-fifth birthday occurs
during such additional calendar year, in which event the Employment Period
shall be extended only until such birthday). In no event shall the Employment
Period be extended beyond the Executive's sixty-fifth birthday except by
mutual written agreement of the Company and Executive.
(c) Notwithstanding (a) and (b) above, the Employment Period shall
end early upon the first to occur of any of the following events:
(i) Executive's death;
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(ii) Executive's retirement upon or after reaching age 65
("Retirement");
(iii) the Company's termination of Executive's employment on account of
Executive's having become unable (as determined by the Board in
good faith) to regularly perform his duties hereunder by reason of
illness or incapacity for a period of more than six (6)
consecutive months ("Termination for Disability");
(iv) the Company's termination of Executive's employment for Cause
("Termination for Cause");
(v) the Company's termination of Executive's employment other than a
Termination for Disability or a Termination for Cause
("Termination without Cause");
(vi) Executive's termination of Executive's employment for Good Reason,
by means of advance written notice to the Company at least thirty
(30) days prior to the effective date of such termination
identifying such termination as a Termination by Executive for
Good Reason ("Termination by Executive for Good Reason") (it being
expressly understood that Executive's giving notice that the
extension provision in the first sentence of paragraph 5 (b)
hereof shall no longer apply shall not constitute a "Termination
by Executive for Good Reason"); or
(vii) Executive's termination of Executive's employment for any reason
other than Good Reason, by means of advance written notice to the
Company at least one hundred eighty (180) days prior to the
effective date of such termination identifying such termination as
a Termination by Executive with Advance Notice ("Termination by
Executive with Advance Notice") (it being expressly understood
that Executive's giving notice that the extension provision in the
first sentence of paragraph 5 (b) hereof shall no longer apply
shall not constitute a "Termination by Executive with Advance
Notice").
(d) For purposes of this Agreement, "Cause" shall mean:
(i) the commission by Executive of a felony or a crime involving moral
turpitude,
(ii) the commission by Executive of a fraud;
(iii) the commission by Executive of any act involving dishonesty or
disloyalty with respect to the Company or any of its subsidiaries
or affiliates;
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<PAGE>
(iv) conduct by Executive tending to bring the Company or any of its
subsidiaries or affiliates into substantial public disgrace or
disrepute;
(v) gross negligence or willful misconduct by Executive with respect
to the Company or any of its subsidiaries or affiliates;
(vi) repudiation of this Agreement by Executive or Executive's
abandonment of his employment with the Company (it being expressly
understood that a Termination by Executive for Good Reason or a
Termination by Executive with Advance Notice shall not constitute
such a repudiation or abandonment);
(vii) breach by Executive of any of the agreements in paragraph 10
hereof; or
(viii) any other breach by Executive of this Agreement which is material
and which is not cured within thirty (30) days after written
notice thereof to Executive from the Company.
(e) For purposes of this Agreement, "Good Reason" shall mean:
(i) a reduction by the Company in Executive's salary to an amount less
than "Executive's Reference Salary" (i.e., Executive's initial
salary or, in the event the Employment Period has been extended
pursuant to paragraph 5(b) hereof, Executive's salary on the date
on which the most recent such extension occurred); or
(ii) any breach by the Company of this Agreement which is material and
which is not cured within thirty (30) days after written notice
thereof to the Company from Executive.
6. Post-Employment Period Payments.
(a) If the Employment Period ends on the date on which (without any
extension thereof) it is then scheduled to end pursuant to paragraph 5 hereof,
or if the Employment Period ends early pursuant to paragraph 5 hereof for any
reason, Executive shall cease to have any rights to salary, bonus (if any) or
benefits other than: (i) any salary which has accrued but is unpaid, and any
expenses which have been incurred but are unpaid, as of the end of the
Employment Period, (ii) (but only to the extent provided in the SERP or any
other benefit plan in which Executive has participated as an employee of the
Company) any plan benefits which by their terms extend beyond termination of
Executive's employment and (iii) any other amount(s) payable pursuant to the
succeeding provisions of this paragraph 6.
(b) If the Employment Period ends pursuant to paragraph 5 hereof on
Executive's sixty-fifth birthday, or if the Employment Period ends early
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pursuant to paragraph 5 hereof on account of Executive's death Retirement or
Termination for Disability, the Company shall make no further payments to
Executive except as contemplated in (a) (i) and (ii) above.
(c) If the Employment Period ends early pursuant to paragraph 5
hereof on account of Termination for Cause, the Company shall pay Executive an
amount equal to that Executive would have received as salary (based on
Executive's salary then in effect) had the Employment Period remained in
effect until the later of the effective date of the Company's termination of
Executive's employment or the date thirty days after the Company's notice to
Executive of such termination.
(d) If the Employment Period ends early pursuant to paragraph 5
hereof on account of a Termination without Cause or a Termination by Executive
for Good Reason, the Company shall pay to Executive amounts equal to the
amounts Executive would have received as salary (based on Executive's salary
then in effect or, if greater, Executive's Reference Salary) had the
Employment Period remained in effect until the date on which (without any
extension thereof) it was then scheduled to end, at the times such amounts
would have been paid (in the event Executive is entitled during the payment
period to any payments under any disability benefit plan or the like in which
Executive has participated as an employee of the Company, less such
payments); provided, however, that in the event of Executive's death during
the payment period, the Company shall not be obligated to pay any subsequent
such amounts, but the Company shall pay to Executive's estate (or such person
or persons as Executive may designate in a written instrument signed by him
and delivered to the Company prior to his death) either (i) amounts during the
remainder of the payment period equal to one-half of the amounts which would
have been paid to Executive but for his death or (ii) if so elected by the
payee(s) by written notice to the Company within the period of sixty (60) days
after the date of Executive's death, a lump sum amount equivalent to the
discounted present value of such reduced amounts, discounted at the publicly
announced reference rate for commercial lending of Bank of America Illinois in
effect at the date of notice to the Company of such election, with said amount
to be paid on a date no later than thirty (30) days following the date of
notice to the Company of such election. It is expressly understood that the
Company's payment obligations under this (d) shall cease in the event
Executive breaches any of his agreements in paragraph 7, 9 or 10 hereof.
(e) If the Employment Period ends early pursuant to paragraph 5
hereof on account of a Termination by Executive with Advance Notice, the
Company shall make no further payments to Executive except as contemplated in
(a) (i) and (ii) above.
7. Inventions and Other Intellectual Property. Executive agrees
that all inventions, innovations, improvements, developments, methods,
designs, analyses, drawings, reports, trademarks, slogans, product or other
designs, advertising or marketing programs, and all similar or related
information which relate to the Company's or any of its subsidiaries' or
affiliates' actual or anticipated business, research and development or
existing or future products or services and which are (or were prior to the
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<PAGE>
date of this Agreement) conceived, developed or made by Executive, whether
alone or jointly with others, while employed by the Company or any such
subsidiary or affiliate or any predecessor thereof ("Work Product") belong to
the Company or such subsidiary or affiliate. Executive will promptly disclose
such Work Product to the President of the Company and perform all actions
reasonably requested by the President of the Company (whether during or after
the Employment Period) to establish and confirm such ownership (including,
without limitation, assignments, consents, powers of attorney and other
instruments).
8. Limitation/Illinois Disclosure. Paragraph 7 of this Agreement
regarding the ownership of inventions and other intellectual property does not
apply to the extent application thereof is prohibited by any law the benefits
of which cannot be waived by Executive. Executive hereby waives the benefits
of any such law to the maximum extent permitted by law. In accordance with
Section 2872 of the Illinois Employee Patent Act, Ill. Rev. Stat. Chap. 140,
Sec. 301 et. seq. (1983), Executive is hereby advised that in the event and to
the extent such Act is applicable to Executive, paragraph 7 of this Agreement
regarding the ownership of inventions and other intellectual property does not
apply to any invention for which no equipment, supplies, facilities or trade
secret information of the Company or any of its subsidiaries or affiliates was
used and which was developed entirely on Executive's own time, unless (i) the
invention relates to the business of the Company or any of its subsidiaries or
affiliates or to the Company's or any of its subsidiaries' or affiliates'
actual or demonstrably anticipated research or development or (ii) the
invention results from any work performed by Executive for the Company or any
of its subsidiaries or affiliates.
9. Confidential Information. Executive acknowl-edges that the
information, observations and data obtained by him while employed by the
Company pursuant to this Agreement, as well as those obtained by him while
employed by the Company or any of its subsidiaries or affiliates or any
predecessor thereof prior to the date of this Agreement, concerning the
business or affairs of the Company or any of its subsidiaries or affiliates or
any predecessor thereof (unless and except to the extent the foregoing become
generally known to and available for use by the public other than as a result
of Executive's acts or omissions to act, "Confidential Information") are the
property of the Company or such subsidiary or affiliate. Therefore, Executive
agrees that he shall not disclose any Confidential Information without the
prior written consent of the President of the Company unless and except to the
extent that such disclosure is (i) made in the ordinary course of Executive's
performance of his duties under this Agreement or (ii) required by any
subpoena or other legal process (in which event Executive will give the
Company prompt notice of such subpoena or other legal process in order to
permit the Company to seek appropriate protective orders), and that he shall
not use any Confidential Information for his own account without the prior
written consent of the President of the Company. Executive shall deliver to
the Company at the termination of the Employment Period, or at any other time
the Company may request, all memoranda, notes, plans, records, reports,
computer tapes and software and other documents and data (and copies thereof)
relating to the Confidential Information, the Work Product or the business of
the Company or any of its subsidiaries or affiliates which he may then possess
or have under his control.
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10. Non-Compete, Non-Solicitation.
(a) Executive acknowledges that in the course of his employment with
the Company pursuant to this Agreement he will become familiar, and during the
course of his employment by the Company or any of its subsidiaries or
affiliates or any predecessor thereof prior to the date of this Agreement he
has become familiar, with trade secrets and customer lists of and other
confidential information concerning the Company and its subsidiaries and
affiliates and predecessors thereof and that his services have been and will
be of special, unique and extraordinary value to the Company.
(b) Executive agrees that during the Employment Period and for two
years thereafter he shall not in any manner, directly or indirectly, through
any person, firm or corporation, alone or as a member of a partnership or as
an officer, director, stockholder, investor or employee of or in any other
corporation or enterprise or otherwise, engage or be engaged in, or assist any
other person, firm, corporation or enterprise in engaging or being engaged in,
the security, alarm or monitoring products business or any other business then
actively being conducted by the Group, in any geographic area in which the
Group is then conducting such business (whether through manufacturing or
production, calling on customers or prospective customers, or otherwise).
Notwithstanding the foregoing, subsequent to the Employment Period Executive
may engage or be engaged in, or assist any other person, firm, corporation or
enterprise in engaging or being engaged in, any business activity which is not
competitive with a business activity being conducted by the Group at the time
subsequent to the Employment Period Executive first engages or assists in such
business activity (a "Non-competitive Business Activity").
(c) Executive further agrees that during the Employment Period and
for two years thereafter he shall not in any manner, directly or indirectly,
(i) induce or attempt to induce any employee of the Company or of any of its
subsidiaries or affiliates to quit or abandon his employ, or any customer of
the Company or of any of its subsidiaries or affiliates to quit or abandon its
relationship, for any purpose whatsoever, or (ii) in connection with any
business to which the first sentence of (b) above applies, except where such
activity constitutes a Non-competitive Business Activity, call on, service,
solicit or otherwise do business with any then current or prospective customer
of the Company or of any of its subsidiaries or affiliates.
(d) Nothing in this paragraph 10 shall prohibit Executive from
being: (i) a stockholder in a mutual fund or a diversified investment company
or (ii) a passive owner of not more than 2% of the outstanding stock of any
class of a corporation which is publicly traded, so long as Executive has no
active participation in the business of such corporation.
(e) If, at the time of enforcement of this paragraph, a court holds
that the restrictions stated herein are unreasonable under circumstances then
existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area and that the court shall be allowed to revise
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<PAGE>
the restrictions contained herein to cover the maximum period, scope and area
permitted by law.
11. Enforcement. Because Executive's services are unique and
because Executive has access to Confidential Information and Work Product, the
parties hereto agree that the Company would be damaged irreparably in the
event any of the provisions of paragraph 7, 9 or 10 hereof were not performed
in accordance with their specific terms or were otherwise breached and that
money damages would be an inadequate remedy for any such non-performance or
breach. Therefore, the Company or its successors or assigns shall be
entitled, in addition to other rights and remedies existing in their favor, to
an injunction or injunctions to prevent any breach or threatened breach of any
of such provisions and to enforce such provisions specifically (without
posting a bond or other security).
12. Executive Representations. Executive represents and warrants
to the Company that (i) the execution, delivery and performance of this
Agreement by Executive does not and will not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (ii) Executive
is not a party to or bound by any employment agreement, noncompete agreement
or confidentiality agreement with any other person or entity and (iii) upon
the execution and delivery of this Agreement by the Company, this Agreement
shall be the valid and binding obligation of Executive, enforceable in
accordance with its terms.
13. Survival. Paragraphs 7, 9 and 10 hereof shall survive and
continue in full force in accordance with their terms notwithstanding any
termination of the Employment Period.
14. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed by first class
mail, return receipt requested, to the recipient at the address below
indicated:
Notices to Executive:
___________________
___________________
___________________
Notices to the Company:
Mr. King Harris
President
Pittway Corporation
200 South Wacker Drive, Suite 700
Chicago, IL 60606-5802
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<PAGE>
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so
delivered or mailed.
15. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision or any other jurisdiction, but this
Agreement shall be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision had never been contained
herein.
16. Payment of Certain Costs and Expenses. In the event that there
is a Change of Control of the Company, if the Company thereafter wrongfully
withholds from Executive any amount payable to Executive pursuant to this
Agreement or the SERP and Executive obtains a final judgment against the
Company for such amount, the Company shall reimburse Executive for any costs
and expenses (including without limitation attorneys' fees) reasonably
incurred by Executive in obtaining such judgment and shall pay Executive
interest on the amount of each such cost or expense from the date of payment
thereof by Executive to the date of reimbursement by the Company at a floating
rate per annum equal to the publicly announced reference rate for commercial
lending of Bank of America Illinois in effect from time to time. For purposes
of the foregoing, a "Change of Control of the Company" will be deemed to have
occurred if but only if, for purposes of Section 13(d) of the Securities
Exchange Act of 1934, as amended, a person or group other than one or more
members of the Harris Group (as currently defined in the Company's Restated
Certificate of Incorporation, as amended) becomes the beneficial owner of
stock of the Company possessing a majority of the voting power under ordinary
circumstances with respect to the election of directors.
17. Complete Agreement. This Agreement embodies the complete
agreement and understanding between the parties with respect to the subject
matter hereof and effective as of its date supersedes and preempts any prior
understandings, agreements or representations by or between the parties,
written or oral, which may have related to the subject matter hereof in any
way.
18. Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be deemed to be an original and both of
which taken together shall constitute one and the same agreement.
19. Successors and Assigns. This Agreement shall bind and inure to
the benefit of and be enforceable by Executive, the Company and their
respective heirs, executors, personal representatives, successors and assigns,
except that neither party may assign any of his or its rights or delegate any
of his or its obligations hereunder without the prior written consent of the
other party. Executive hereby consents to the assignment by the Company of
all of its rights and obligations hereunder to: (i) any subsidiary or
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<PAGE>
affiliate of the Company in the event all or any substantial part of the
business to which Executive's duties under this Agreement relate are
transferred thereto and (ii) any successor to the Company by merger or
consolidation or purchase of all or substantially all of the Company's assets;
in each case provided such transferee or successor assumes the liabilities of
the Company hereunder.
20. Choice of Law. This Agreement shall be governed by the internal
law, and not the laws of conflicts, of the State of Illinois.
21. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first written above.
PITTWAY CORPORATION
By ___________________________
Its __________________________
______________________________
[EXECUTIVE]
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<PAGE>
EXHIBIT 13
PITTWAY CORPORATION
DECEMBER 31, 1994
FORM 10-K
<TABLE>
Pittway Corporation and Subsidiaries
Consolidated Statement of Income
For The Years Ended December 31, 1995, 1994 and 1993
(Dollars in thousands, except per share)
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Continuing Operations:
Net Sales $945,669 $778,026 $650,105
Operating Expenses:
Cost of sales 581,694 475,420 398,756
Selling, general and
administrative 283,717 232,524 200,088
Depreciation and amortization 21,014 20,160 17,249
886,425 728,104 616,093
Operating Income 59,244 49,922 34,012
Other Income (Expense):
Gain on sale of investment 19,506
Income from marketable
securities and other interest 2,745 3,955 2,855
Interest expense (5,778) (3,250) (2,789)
Income from investments 3,828 2,506 2,573
Miscellaneous, net 4,039 1,206 (511)
4,834 23,923 2,128
Income From Continuing Operations
Before Income Taxes 64,078 73,845 36,140
Income Taxes (Note 5):
Current 30,634 27,301 8,436
Deferred (6,928) 1,708 6,464
23,706 29,009 14,900
Income From Continuing Operations 40,372 44,836 21,240
Income From Discontinued Operations,
net of income taxes of $3,560 and
including credit for cumulative
effect of change in accounting for
income taxes of $3,106 (Note 1): 10,046
Income Before Cumulative Effect of
Changes in Accounting Principles 40,372 44,836 31,286
Cumulative Effect of Changes in
Accounting For Income Taxes and
Postretirement Benefits 1,535
Net Income $ 40,372 $ 44,836 $ 32,821
Per Share of Common and Class A Stock
(Note 8):
Income from continuing operations $ 1.93 $ 2.15 $ 1.02
Income from discontinued operations .48
Cumulative effect of changes in
accounting principles .07
Net income $ 1.93 $ 2.15 $ 1.57
Average number of shares
outstanding (in thousands)(Note 8) 20,912 20,911 20,911
<FN>
See Summary of Accounting Policies and Notes to Consolidated Financial
Statements.
</TABLE>
Page 29
<PAGE>
<TABLE>
Pittway Corporation and Subsidiaries
Consolidated Balance Sheet
December 31, 1995 and 1994
(Dollars in thousands, except per share)
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
Current Assets:
Cash and equivalents $ 31,407 $ 10,359
Marketable securities 25,586 34,313
Accounts and notes receivable, less
allowance for doubtful accounts of
$8,493 in 1995 and $6,348 in 1994 175,432 137,747
Inventories (Note 3) 152,636 124,801
Future income tax benefits (Note 5) 16,996 17,879
Prepayments, deposits and other 11,929 11,805
413,986 336,904
Property, Plant and Equipment, at cost:
Buildings 25,797 24,769
Machinery and equipment 190,780 157,061
216,577 181,830
Less: Accumulated depreciation 109,021 94,426
107,556 87,404
Land 2,188 2,369
109,744 89,773
Investments:
Real estate and other ventures 61,563 56,261
Leveraged leases (Note 4) 21,046 22,752
82,609 79,013
Other Assets:
Goodwill, less accumulated amortization
of $8,432 in 1995 and $7,193 in 1994 48,714 40,935
Other intangibles, less accumulated
amortization of $10,360 in 1995 and
$9,597 in 1994 5,422 6,256
Notes receivable 5,892 4,370
Miscellaneous 6,607 6,036
66,635 57,597
$672,974 $563,287
<FN>
See Summary of Accounting Policies and Notes to Consolidated Financial
Statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
<S> <C> <C>
Current Liabilities:
Notes payable (Note 6) $ 32,212 $ 46,232
Long-term debt due within one year (Note 6) 3,788 5,184
Dividends payable 1,766 1,758
Accounts payable 68,700 58,246
Accrued expenses 46,310 41,391
Income taxes payable 5,644 10,093
Retirement and deferred compensation plans 6,503 1,148
Unearned income 3,185 5,797
168,108 169,849
Long-Term Debt, less current maturities (Note 6):
Notes payable, 6.70% and 6.81%, due in annual
installments of $5 million beginning 1999
with the balance due 2005 75,000
Capitalized leases, principally at 5%-6%, due
in monthly installments through 2002 6,186 2,519
Other 4,780 2,569
85,966 5,088
Deferred Liabilities:
Income taxes (Note 5) 46,920 54,158
Other 8,954 6,062
55,874 60,220
Stockholders' Equity:
Preferred stock, authorized 2,000,000 shares;
none issued
Common capital stock, $1 par value (Note 8) -
Common stock, authorized 30,000,000 shares;
3,938,832 and 2,626,024 shares issued
and outstanding in 1995 and 1994,
respectively 3,939 2,626
Class A stock, authorized 24,000,000 shares;
16,973,313 and 11,314,700 shares issued
and outstanding in 1995 and 1994,
respectively 16,973 11,315
Capital in excess of par value 21,423 28,348
Retained earnings 325,420 291,756
Cumulative marketable securities valuation
adjustment (2,019) (3,050)
Cumulative foreign currency translation
adjustment (2,710) (2,865)
363,026 328,130
$672,974 $563,287
</TABLE>
Page 31
<PAGE>
<TABLE>
Pittway Corporation and Subsidiaries
Consolidated Statement of Cash Flows
For The Years Ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash Flows From Continuing
Operating Activities:
Income from continuing operations $ 40,372 $ 44,836 $ 21,240
Adjustments to reconcile income from
continuing operations to net cash
provided by continuing operations:
Depreciation and amortization 21,014 20,160 17,249
Gain on sale of investment, net of taxes (11,776)
Deferred income taxes (6,928) 1,708 6,464
Retirement and deferred compensation
plans 9,275 2,010 1,231
Income/loss from investments adjusted
for cash distributions received 2,277 (931) 330
Provision for losses on accounts
receivable 4,901 3,167 2,938
Gain on sale of assets (2,575) (828) (4)
Change in assets and liabilities,
excluding effects from acquisitions,
dispositions and foreign currency
adjustments:
Increase in accounts and
notes receivable (34,229) (26,882) (23,340)
Increase in inventories (17,457) (23,669) (13,946)
Increase in prepayments and deposits (2,068) (3,422) (267)
Increase (decrease) in accounts
payable and accrued expenses 7,628 19,919 (930)
(Decrease) increase in income taxes
payable (4,480) 7,137 7,284
Other changes, net (3,904) 2,491 2,420
Net cash provided by continuing
operations 13,826 33,920 20,669
Cash Flows From Investing Activities:
Capital expenditures (42,056) (28,246) (29,478)
Proceeds from the sale of investment,
net of taxes of $9,730 14,776
Proceeds from the sale of marketable
securities 16,034 29,297 39,529
Purchases of marketable securities (5,846) (37,261) (37,914)
Dispositions of property and equipment 3,202 795 585
Additions to investments (5,984) (10,112) (12,317)
Dispositions of businesses 355 650
(Increase) decrease in notes receivable (1,194) 4,267 5,434
Net assets of businesses acquired,
net of cash (12,931) (5,921) (3,430)
Net cash used by investing activities (48,420) (31,755) (37,591)
Cash Flows From Financing Activities:
Net (decrease)increase in notes payable (14,090) 14,802 29,200
Proceeds of long-term debt 81,693 3,585 1,996
Repayments of long-term debt (5,307) (5,488) (5,405)
Dividends paid (6,699) (6,707) (5,722)
Net cash provided by financing activities 55,597 6,192 20,069
Effect of Exchange Rate Changes on Cash 45 94 (166)
Cash Flows From Discontinued Operations (4,711)
Net Increase (Decrease) in Cash and
Equivalents 21,048 8,451 (1,730)
Cash and Equivalents at Beginning of Period 10,359 1,908 3,638
Cash and Equivalents at End of Period $ 31,407 $ 10,359 $ 1,908
Supplemental Cash Flow Disclosure:
Interest Paid $ 5,720 $ 3,388 $ 2,804
Income Taxes Paid 35,329 22,173 8,939
<FN>
See Summary of Accounting Policies and Notes to Consolidated Financial
Statements.
</TABLE>
Page 32
<PAGE>
<TABLE>
Pittway Corporation and Subsidiaries
Consolidated Statement of Stockholders' Equity
For The Years Ended December 31, 1995, 1994 and 1993
(Dollars in thousands, except per share)
<CAPTION>
Cumulative Cumulative
Marketable Foreign
Capital In Securities Currency
Common Stock Class A Stock Excess of Retained Valuation Translation
Shares Par Value Shares Par Value Par Value Earnings Adjustment Adjustment
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1992 2,626,024 $2,626 11,314,700 $11,315 $28,348 $381,138 $(3,926)
Net income 32,821
Cash dividends declared:
Common stock - $.30 per share (1,183)
Class A stock - $.367 per share (6,222)
Distribution of AptarGroup, Inc.
common stock to stockholders (152,926) (90)
Currency translation adjustment 163
Balance - December 31, 1993 2,626,024 2,626 11,314,700 11,315 28,348 253,628 (3,853)
Cumulative effect of change in
accounting for marketable
securities $ 141
Net income 44,836
Cash dividends declared:
Common stock - $.267 per share (1,051)
Class A stock - $.333 per share (5,657)
Marketable securities
valuation adjustment (3,191)
Currency translation adjustment 988
Balance - December 31, 1994 2,626,024 2,626 11,314,700 11,315 28,348 291,756 (3,050) (2,865)
Net income 40,372
Cash dividends declared:
Common stock - $.267 per share (1,051)
Class A stock - $.333 per share (5,657)
Shares issued pursuant to
performance awards 996 1 52
Three-for-two stock split
(Including $7 payable for
fractional shares) 1,312,808 1,313 5,657,617 5,657 (6,977)
Marketable securities
valuation adjustment 1,031
Currency translation adjustment 155
Balance - December 31, 1995 3,938,832 $3,939 16,973,313 $16,973 $21,423 $325,420 $(2,019) $(2,710)
<FN>
See Summary of Accounting Policies and Notes to Consolidated Financial Statements.
</TABLE>
Page 33
<PAGE>
Summary of Accounting Policies
(Dollars in thousands)
STOCK SPLIT
In January 1996 the Board of Directors declared a 3-for-2 stock split in
the form of a 50% stock dividend on the Company's Common and Class A stock,
payable March 1, 1996 to stockholders of record February 14, 1996. All share
and per share data, as appropriate, reflect this split. The effect of the
split is presented retroactively within stockholders' equity at December 31,
1995 by transferring the par value for the additional shares issued from the
capital in excess of par value account to the common stock accounts.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Pittway
Corporation and its majority-owned subsidiaries (the "Company"). The Company
follows the equity method of accounting for its investments in greater than
20%-owned but less than majority-owned affiliates. All significant
intercompany accounts and transactions have been eliminated. Except where
otherwise indicated, the following notes relate to continuing operations
consisting principally of alarm systems businesses and trade publishing.
Certain prior year amounts in the consolidated statement of cash flows have
been reclassified to conform to the current year classification.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
Cash equivalents are generally comprised of highly liquid instruments
with original maturities of three months or less, such as treasury bills,
certificates of deposit, commercial paper and time deposits.
MARKETABLE SECURITIES
On January 1, 1994 the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", which requires the Company to
record its investments in certain debt and equity securities available-for-
sale at market value. Changes in market value for these securities are
reported, net of tax, in a separate component of stockholders' equity until
realized. Prior to the adoption of SFAS No. 115, these securities were
valued at the lower of aggregate cost or market. SFAS No. 115 does not apply
to investments accounted for using the equity method or for which readily
determinable market values are not available. As a result of adopting SFAS
No. 115, a $141 unrealized gain, net of tax, was recorded to stockholders'
equity at January 1, 1994. The adoption of this Statement had no impact on
net income and prior year financial statements are not restated.
INVENTORIES
Inventories are stated at cost, which is lower than market. Costs
included in inventories are raw materials, direct labor and manufacturing
overhead. Cost of substantially all domestic inventories is determined by
using the last-in, first-out (LIFO) method, while the remaining inventories
are valued primarily using the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and are depreciated
over the estimated useful lives of the assets using the straight-line method
for financial reporting purposes. Depreciation expense amounted to $21,100,
$17,492 and $14,664 in 1995, 1994 and 1993, respectively.
INVESTMENTS
Real estate and other ventures - These investments consist principally
of equity interests in limited real estate partnerships, an affiliate that
manufactures encryption and data communication devices ("Cylink"), a
residential security products company ("First Alert") sold in 1994, a
satellite broadcast company ("U.S.S.B. ") and land held for development. The
Company's adjusted basis
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<PAGE>
in certain of the limited real estate partnerships is carried at zero, Cylink
is carried at equity and investments in other partnerships and ventures are
carried on a cost basis. Cash distributions received from these partnerships
and ventures, other than Cylink, are recorded as income from investments.
Leveraged leases - The Company's investment in leveraged leases consists
of the rentals receivable net of the principal and interest on the related
nonrecourse debt, estimated residual value of the leased property and
unearned income. The unearned income is recognized as income from
investments over the lease term.
INTANGIBLE ASSETS
Management believes that goodwill, trademarks and tradenames acquired in
purchase transactions have continuing value. It is the Company's policy to
amortize such costs over periods of up to 40 years except for the costs of
such assets acquired prior to 1970. Intangible assets of approximately
$3,356 related to pre-1970 acquisitions are not being amortized because the
Company believes there has been no diminution of value.
Other intangibles acquired in purchase transactions or developed,
consisting of non-compete agreements, customer mailing lists, patents and
software development costs, are capitalized and amortized over their
estimated useful lives.
The carrying value of intangible assets is periodically reviewed by the
Company and impairment is recognized when the projected, undiscounted net
pretax cashflows derived from such intangible assets are less than their
carrying value.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are expensed as incurred. These costs
amounted to $16,599, $11,849 and $10,814 in 1995, 1994 and 1993,
respectively.
ADVERTISING AND PROMOTION EXPENSES
Advertising and promotion costs are expensed as incurred. These costs
amounted to $17,500, $15,440 and $13,707 in 1995, 1994 and 1993,
respectively.
INCOME TAXES
Provisions for income taxes recognize the tax effects of all
transactions entering into the determination of net income for financial
statement purposes, irrespective of when such transactions are reported for
income tax purposes. In general, depreciation is computed on a straight-line
method for financial reporting purposes and on accelerated methods for income
tax purposes. Deferred income taxes and future income tax benefits have been
recognized for all temporary differences.
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes," which requires the use of the liability method of
accounting for deferred income taxes (see Note 5).
PRODUCT LIABILITY AND WORKERS COMPENSATION CLAIMS
Provisions are made for estimated losses from product liability and
workers compensation claims which are not covered by insurance.
TRANSLATION OF FOREIGN CURRENCIES
The functional currency of the Company's foreign operations is the local
currency. Accordingly, assets and liabilities of foreign operations are
translated to U.S. dollars at the rates of exchange on the balance sheet
date; income and expense are translated at the average rates of exchange
prevailing during the year. Translation adjustments are accumulated in a
separate section of stockholders' equity. Transaction gains and losses are
reflected in miscellaneous income and amounted to (expense) income of $(72),
$373 and $(523) in 1995, 1994 and 1993, respectively.
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<PAGE>
Notes To Consolidated Financial Statements
(Dollars in thousands, except per share)
NOTE 1 - DISCONTINUED OPERATIONS
The Company distributed its investment, carried at $153,016, in the
Seaquist packaging group (now known as AptarGroup, Inc.) to stockholders in a
tax-free spin-off on April 22, 1993. Net sales of the Seaquist group prior
to its spin-off were $117,473 in 1993.
NOTE 2 - ACQUISITIONS AND DISPOSITIONS
During 1995, the Company acquired the assets and businesses of a
manufacturer of residential burglar/fire alarm controls, a distributor of
alarm and other security products and a foreign manufacturer of commercial
intrusion alarms and control panels. The total purchase price for these
businesses was $12,931 cash and $3,089 in notes. The Company also sold (a) a
publication for $1 million cash, received in January 1996, and the assumption
of related liabilities and (b) its 51% interest in a business offering
seminars to its minority stockholders for $354 cash. The Company retained a
note receivable in the amount of $1 million due from this former subsidiary.
During 1994, the Company acquired the assets and businesses of a direct
mail production company, a designer of wide area network building control
monitoring systems, a manufacturer of glass break sensors and a designer of
closed-circuit television, access control and alarm systems. The total
purchase price for these businesses was $5,921 cash. The Company also sold a
publication for $650 cash.
During 1993, the Company acquired the assets and business of a domestic
access control manufacturer and two publications for $3,430 cash.
All the aforementioned acquisitions were accounted for as purchase
transactions. The impact of these acquisitions on consolidated results of
operations was not significant. These companies have been included in the
consolidated financial statements from their respective dates of acquisition
or to the dates of disposition.
NOTE 3 - INVENTORIES
At December 31, 1995 and 1994 approximately 83% and 87%, respectively,
of the total inventories are accounted for by the LIFO method. At year end,
inventories consist of:
1995 1994
Raw materials $ 34,440 $ 32,520
Work-in-process 18,654 11,653
Finished goods -
Manufactured by the Company 55,523 43,096
Manufactured by others 45,007 37,794
Total 153,624 125,063
Less LIFO reserve (988) (262)
$152,636 $124,801
The LIFO reserve represents the excess of FIFO cost, which approximates
current cost, over the LIFO value of inventory.
NOTE 4 - LEVERAGED LEASES
The Company is an equity participant in leveraged leases of aircraft and
communication satellite transponders. As the Company has no general
liability for the nonrecourse debt attributable to the acquisition of such
assets, the debt has been offset against the related rentals receivable. The
net investment in leveraged leases consists of:
1995 1994
Rentals receivable (net of principal
and interest on nonrecourse debt) $13,179 $14,500
Estimated residual value 12,532 13,205
Unearned and deferred income (4,665) (4,953)
Investment in leveraged leases 21,046 22,752
Deferred income taxes (20,523) (20,290)
Net investment $ 523 $ 2,462
A summary of the components of income from leveraged leases follows:
1995 1994 1993
Income before income taxes $ 363 $ 1,142 $ 1,706
Current income tax benefit 106 3,201 3,711
Deferred income taxes (233) (3,601) (4,183)
Income from leveraged leases $ 236 $ 742 $ 1,234
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<PAGE>
Minimum annual rent receivable (net of principal and interest on
nonrecourse debt) under leveraged leases for the next five years beginning
with 1996 are $357, $926, $2,065, $1,751, $3,488 and an aggregate of $4,592
thereafter.
NOTE 5 - INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes". The cumulative effect of the change as of January 1, 1993
was a benefit of $1,965 ($.09 per share) for continuing operations and $3,106
($.15 per share) for discontinued operations. As a result of the 1993
increase in the U.S. federal income tax rate from 34% to 35%, the effect in
1993 was to increase the federal income tax provision by $1,202 consisting of
$400 ($.02 per share) related to 1993 income and $802 ($.04 per share) to
increase prior accumulated deferred taxes.
Income from continuing operations before income taxes consists of:
1995 1994 1993
Domestic income $60,148 $73,204 $39,985
Foreign income (loss) 3,930 641 (3,845)
$64,078 $73,845 $36,140
The provision for income taxes consists of:
1995 1994 1993
Current -
Federal $25,107 $22,819 $ 5,819
State and local 2,857 3,660 2,000
Foreign 2,670 822 617
30,634 27,301 8,436
Deferred -
Federal (6,696) 1,576 7,131
Foreign (232) 132 (667)
(6,928) 1,708 6,464
$23,706 $29,009 $14,900
The difference between the actual income tax provision and the tax
provision computed by applying the statutory federal income tax rate of 35%
to income from continuing operations before income taxes is as follows:
1995 1994 1993
Income tax at statutory rate $22,427 $25,846 $12,649
Tax effect of -
State income taxes, net of
federal benefit 1,857 2,379 1,300
U.S. income tax rate increase on
cumulative timing differences 802
Foreign operations 1,062 730 1,296
Reserves no longer required (800)
Other items, net (1,640) 54 (347)
Actual income tax provision $23,706 $29,009 $14,900
Effective income tax rate 37.0% 39.3% 41.2%
The components of the deferred tax liabilities (assets) at December 31,
1995 and 1994 are comprised of the following:
1995 1994
Leveraged leases $ 20,523 $ 20,290
Real estate ventures -
Affordable housing 10,816 6,809
Other 5,500 17,029
Purchased tax benefit leases 4,056 5,023
Depreciation 3,517 1,831
State income taxes, net of
federal benefit 5,925 6,007
Other 4,175 2,963
Total deferred tax liabilities 54,512 59,952
Inventory valuation (6,954) (6,254)
Tax loss carryforwards (4,275) (4,679)
State income taxes, net of
federal benefit (1,721) (2,519)
Deferred compensation (4,035) (1,288)
Bad debts (2,339) (2,041)
Workers compensation (2,685) (2,575)
Marketable securities valuation (1,354) (2,033)
Other (5,500) (6,963)
Total deferred tax assets (28,863) (28,352)
Valuation allowance 4,275 4,679
Net deferred tax liability $ 29,924 $ 36,279
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The valuation allowance relates to tax loss carryforwards of which
$1,141 as of December 31, 1995 will be credited to goodwill when and if
utilized.
The Company's federal income tax returns have been examined through 1990
without material adjustment of reported income.
NOTE 6 - DEBT
The average annual interest rate on short-term notes payable was
approximately 6.5% (5.9% domestic and 12.1% foreign) and 6.1% (5.8% domestic
and 10.1% foreign) at December 31, 1995 and 1994, respectively. There are no
compensating balance or commitment fee requirements associated with these
short-term borrowings. The Company has guaranteed indebtedness of $1,250
relating to real estate ventures in which it participates.
During 1995 the Company entered into a ten-year $75 million unsecured
debt agreement with institutional investors. Additionally, the Company has
capitalized lease obligations that are collateralized by certain equipment.
Aggregate long-term maturities due annually for the five years beginning in
1996 are $3,788, $3,552, $2,890, $6,846, $6,547 and $66,131 thereafter.
NOTE 7 - RETIREMENT PLANS
The Company has various noncontributory retirement plans covering
substantially all current and certain former domestic employees. Retirement
benefits for employees in foreign countries are generally provided by
national statutory programs. Benefits for domestic employees are based on
years of service and annual compensation as defined by each plan. The
Company's policy is to fund pension costs accrued.
The components of net pension (income) for the plans consist of:
1995 1994 1993
Service cost - benefits earned
during the year $ 4,005 $ 3,618 $ 3,154
Interest cost on projected benefit
obligation 4,042 3,851 3,410
Actual return on plan assets (27,286) 4,840 (12,563)
Net amortization and deferred gains
and losses 18,439 (13,071) 5,165
Net pension (income) $ (800) $ (762) $ (834)
In 1994 the Company increased accrued benefits for active non-union
employees for service prior to December 31, 1993 by 20%. The benefit
improvement increased the projected benefit obligation by $3,342 and reduced
the net pension income for the year by approximately $760.
The reconciliation of the funded status of the plans at year end
follows:
1995 1994
Actuarial present value of benefit
obligations -
Vested benefit obligation $(50,883) $(48,332)
Nonvested benefit obligation (3,044) (1,321)
Accumulated benefit obligation (53,927) (49,653)
Excess of projected benefit
obligation over accumulated
benefit obligation (7,892) (9,873)
Projected benefit obligation (61,819) (59,526)
Plan assets at fair value 101,548 78,885
Plan assets in excess of
projected benefit obligation 39,729 19,359
Unrecognized net gain (30,538) (10,101)
Unrecognized prior service cost 4,027 4,625
Unamortized transition net asset (7,325) (8,790)
Prepaid pension cost included
in the consolidated balance sheet $ 5,893 $ 5,093
Plan assets consist primarily of U.S. government obligations, investment
grade corporate bonds and common and preferred stocks. The projected benefit
obligation was determined using an assumed discount rate of 7% and an assumed
rate of increase in compensation of 5% for both years. The expected long-term
rate of return on plan assets was 7% for both years.
Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions", which requires
the accrual of the expected cost of retiree medical and life insurance
benefits over the period the employee provides services to the Company.
Prior to the change, costs were charged to expense as incurred. The
cumulative effect reported in the 1993 consolidated statement of income is an
after-tax charge of $430, or $(.02) per share. The annual expense for these
postretirement benefits was not significant in 1995, 1994 or 1993.
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NOTE 8 - CAPITAL STOCK AND EARNINGS PER SHARE
In January 1996 the Board of Directors declared a 3-for-2 stock split in
the form of a 50% stock dividend on the Company's Common and Class A stock,
payable March 1, 1996 to stockholders of record February 14, 1996. All share
and per share data, as appropriate, reflect this split. The effect of the
split is presented retroactively within stockholders' equity at December 31,
1995 by transferring the par value for the additional shares issued from the
capital in excess of par value account to the common stock accounts.
Except for voting and dividend rights, the two classes of common capital
stock are identical. Class A stockholders are entitled to one-tenth vote per
share and have the right to elect 25% of all directors, but not less than
two. Common stockholders are entitled to one vote per share and have the
right to elect the remaining number of directors. Upon a change of control
of the Company (as defined in the Company's certificate of incorporation),
the Class A stock will automatically be changed into Common stock.
Cash dividends declared on Class A stock are required to be 1 2/3 cents
per share more than dividends declared on Common stock (up to a maximum of
6 2/3 cents per share per year). Beginning with dividends declared in the
second quarter of 1993, the quarterly dividends on Common stock and Class A
stock were reduced by 3 1/3 cents as a result of the spinoff of AptarGroup,
Inc. on April 22, 1993.
Net income per share of common capital stock is based on the combined
weighted average number of Class A and Common shares outstanding which does
not include shares issuable upon exercise of outstanding non-qualified stock
options or shares distributable as performance share awards because the
dilutive effect is not significant.
NOTE 9 - STOCK OPTIONS AND AWARDS
The Company's 1990 stock awards plan (as amended in 1994) provides for
the issuance of up to 1,500,000 shares of Class A stock to employees pursuant
to options, performance and bonus share rights and other awards. Certain
awards are payable in the form of Class A stock or cash. Performance and
bonus share rights and non-qualified options vest ratably over terms of five
years or less. Options are exercisable up to ten years from date of grant.
Shares are issued or cash is paid pursuant to performance and bonus share
rights upon specified maturity dates.
Activity in options and performance and bonus share rights for Class A
stock, restated for the 3-for-2 stock split is summarized as follows (prices
shown are per share):
1995 1994
Outstanding at beginning of year 359,590 224,314
Shares issued for rights ($17.08 to $20.08) (1,494)
Options paid in cash (1,072)
Options cancelled (2,146)
Rights granted ($26.33 to $30.50) 72,600
Options granted ($29.83 and $23.00) 166,650 135,276
Outstanding at end of year ($6.32 to
$30.50 and $6.32 to $23.00) 594,128 359,590
Exercisable at end of year ($6.32 to $9.05) 30,750 0
Available for grant 716,154 953,258
In addition, the Company has granted other awards which provide
additional deferred compensation based on the increase in fair market value
of the Company's Class A stock. The cost of these compensation agreements is
provided currently as it relates to prior service and ratably over the
employees' future employment as it applies to future service. Awards of
performance and bonus share rights are expensed as compensation at the date
of grant. Expense under all of these arrangements amounted to $5,748, $1,065
and $1,180 in 1995, 1994 and 1993, respectively.
NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and equivalents, accounts receivable,
accounts payable, accrued expenses and notes payable approximates fair value
because of the short maturity of these instruments. The following table
presents the carrying amounts and estimated fair values of the Company's
other financial instruments at year end:
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1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial assets -
Marketable securities $ 25,585 $ 25,585 $ 34,313 $ 34,313
Investment in U.S.S.B 20,000 121,280 20,000 25,000
Affordable housing investments 17,325 17,325 11,525 11,525
Notes receivable 6,536 6,634 5,047 5,569
Financial liabilities -
Long-term debt (89,754) (89,138) (10,272) (10,071)
The estimated fair values of marketable securities (all available-for-
sale) are based on quoted market prices. At December 31, 1995 and 1994,
marketable securities consisted of adjustable rate preferred stocks, which
had gross unrealized holding losses of $3,366 and $5,083, respectively.
Realized gains and losses on sales of marketable securities are based upon
the specific identification method. Such gains totaled $198 and $330 in 1995
and 1994, respectively, and losses totaled $453 and $305 in 1995 and 1994,
respectively.
In February 1996 the Company sold 13% of its investment in U.S.S.B. as
part of an initial public offering of U.S.S.B. common stock. The sale
resulted in a pre-tax gain of $13,162.
In 1994 the Company sold its 16.67% ownership in First Alert, Inc. as
part of an initial public offering of First Alert, Inc. common stock. The
sale resulted in a pretax gain of $19,506.
The estimated fair values of the notes receivable and long-term debt
were calculated based upon the present value of estimated cash flows using
appropriate discount rates. The estimated fair values of the Company's
investments in affordable housing projects and, for 1994, in U.S.S.B., a
satellite broadcasting company, were based upon available financial and other
information. For 1995, the estimated fair value of U.S.S.B. was based on the
sale price of the above mentioned public offering. In addition, the Company
will increase the recorded value of its investment in Cylink Corporation from
$7.7 million at December 31, 1995 to $31.7 million to reflect the increase in
the Company's equity in Cylink's net book value as a result of an initial
public offering in February 1996. The Company's 8.6 million shares in Cylink
had a quoted market value in excess of $168 million as of February 20, 1996.
The use of different market assumptions and/or estimation methodologies
may have a material effect on the estimated fair value amounts and the
estimates presented above may not necessarily be indicative of the amounts
that the Company could realize in a current market exchange.
NOTE 11 - LEASE COMMITMENTS
The Company leases certain manufacturing facilities, warehouses, office
space and equipment under noncancelable operating leases expiring at various
dates through the year 2014. Most of the leases contain renewal options and
certain equipment leases include options to purchase during or at the end of
the lease term. Minimum annual rental commitments under all noncancelable
leases for the next five years beginning with 1996 are $16,031, $14,630,
$12,810, $11,420, $8,652 and an aggregate of $7,474 thereafter. Rental
commitments are stated net of minimum sublease rentals aggregating $4,236.
Total rent expense (including taxes, insurance and maintenance when included
in the rent) amounted to $17,714, $16,426 and $15,484 in 1995, 1994 and 1993,
respectively.
NOTE 12 - CONTINGENCIES AND COMMITMENTS
In 1989 a judgment was entered against Saddlebrook Resorts, Inc.
("Saddlebrook"), a former subsidiary of the Company, in a lawsuit which
arose out of the development of Saddlebrook's resort and a portion of the
adjoining residential properties owned and currently under development by
the Company. The lawsuit alleged damage to plaintiffs' adjoining property
caused by surface water effects from improvements to the properties.
Damages of approximately $8 million were awarded to the plaintiffs and an
injunction was entered requiring, among other things, that Saddlebrook work
with local regulatory authorities to take corrective actions. In 1990 the
trial court entered an order vacating the judgment and awarding a new
trial. In December 1994, Saddlebrook's motion for summary judgment based
on collateral estoppel was granted on the ground that Plaintiffs' claims
were fully retried and rejected in a related administrative proceeding.
Plaintiffs have
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appealed the trial court's decision granting summary judgment. The Company
believes that the ultimate outcome of the aforementioned lawsuit will not
have a material adverse effect on its financial statements.
The Company has committed to invest up to a total of $2.7 million in
certain affordable housing ventures through 1997.
The Company in the normal course of business is subject to a number of
lawsuits and claims both actual and potential in nature. While management
believes that resolution of existing claims and lawsuits will not have a
material adverse effect on the Company's financial statements, management is
unable to estimate the magnitude of financial impact of claims and lawsuits
which may be filed in the future.
NOTE 13 - SEGMENT INFORMATION
The Company operates principally in two industry segments.
The Alarm and Other Security Products segment involves the design,
manufacture and sale of an extensive line of burglar alarm and commercial
fire detection and alarm components and systems and the distribution of alarm
and other security products manufactured by other companies.
The Publishing segment is engaged in the publication of national
business magazines with other businesses in the marketing-communications
field.
Sales within and between segments and geographic areas are made at
approximate arm's-length prices. Operating income consists of sales less
operating expenses. Sales and expenses which were not related to or
identifiable with specific segments are included in General Corporate and
Other. Identifiable assets are those assets that are specifically identified
with the industry segments and geographic areas in which operations are
conducted. Eliminations include sales between segments and geographic areas
and related intercompany accounts. Export sales were not material and no
single customer accounted for ten percent of sales.
<TABLE>
<CAPTION> Depreciation
Operating Identifiable Capital and
Industry Segments Net Sales Income Assets Expenditures Amortization
<S> <C> <C> <C> <C> <C>
1995
Alarm and Other Security Products $754,003 $ 54,021 $420,738 $ 36,835 $ 15,008
Publishing 191,263 11,941 88,721 5,154 5,788
General Corporate and Other 403 (6,718) 163,515 67 218
Consolidated $945,669 $ 59,244 $672,974 $ 42,056 $ 21,014
1994
Alarm and Other Security Products $600,643 $ 45,173 $336,730 $ 20,381 $ 13,993
Publishing 176,729 11,002 87,007 7,755 5,656
General Corporate and Other 654 (6,253) 139,550 110 511
Consolidated $778,026 $ 49,922 $563,287 $ 28,246 $ 20,160
1993
Alarm and Other Security Products $482,787 $ 33,416 $268,151 $ 23,117 $ 11,464
Publishing 164,627 7,206 78,733 6,265 5,185
General Corporate and Other 2,691 (6,610) 135,093 96 600
Consolidated $650,105 $ 34,012 $481,977 $ 29,478 $ 17,249
</TABLE>
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<PAGE>
Operating Identifiable
Geographic Areas Net Sales Income Assets
1995
Domestic Operations $860,687 $ 53,032 $576,018
European Operations 70,302 4,041 77,328
Other Foreign Operations 40,943 2,199 20,445
Eliminations (26,263) (28) (817)
Consolidated $945,669 $ 59,244 $672,974
1994
Domestic Operations $721,956 $ 48,206 $503,853
European Operations 48,063 119 49,580
Other Foreign Operations 31,238 882 10,279
Eliminations (23,231) 715 (425)
Consolidated $778,026 $ 49,922 $563,287
1993
Domestic Operations $606,199 $ 35,919 $446,244
European Operations 38,024 (1,094) 34,598
Other Foreign Operations 27,243 9 10,618
Eliminations (21,361) (822) (9,483)
Consolidated $650,105 $ 34,012 $481,977
NOTE 14 - QUARTERLY RESULTS (UNAUDITED)
Quarterly results of operations for the years ended December 31, 1995
and 1994 are shown below:
1995 Quarters Total
First Second Third Fourth For Year
Net Sales $220,404 $235,320 $239,131 $250,814 $945,669
Gross Profit 80,785 85,384 83,847 92,945 342,961
Net Income 8,720 10,730 9,180 11,742 (a) 40,372
Per Share -
Net Income .42 .51 .44 .56 (a) 1.93
1994 Quarters Total
First Second Third Fourth For Year
Net Sales $176,543 $189,220 $202,026 $210,237 $778,026
Gross Profit 66,468 68,503 72,314 75,161 282,446
Income Before Gain
on Sale of Investment 7,707 7,882 8,296 9,175 33,060
Gain on Sale of
Investment 10,249 1,527 11,776
Net Income 17,956 9,409 8,296 9,175 44,836
Per Share -
Income Before Gain
on Sale of Investment .37 .37 .40 .44 1.58
Gain on Sale of
Investment .49 .08 .57
Net Income .86 .45 .40 .44 2.15
(a) Net income for the 1995 fourth quarter includes cash distributions
received from real estate limited partnerships, a gain on the sale of a
publication and insurance proceeds, less accruals related to certain
litigation. The net after-tax effect of these items increased net income by
$1,671, or $.08 per share.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Pittway Corporation
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income, of cash flows and of stockholders'
equity present fairly, in all material respects, the financial position of
Pittway Corporation and its subsidiaries at December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Pittway Corporation's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Notes 5 and 7 to the consolidated financial statements,
in 1993 the Company changed its method of accounting for income taxes and for
postretirement benefits other than pensions.
/s/ Price Waterhouse LLP
Chicago, Illinois
February 21, 1996
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The financial statements of Pittway Corporation and its consolidated
subsidiaries, and all other information presented in this Annual Report, are
the responsibility of the management of the Company. These statements have
been prepared in accordance with generally accepted accounting principles and
reflect in all material respects the substance of events and transactions
that should be included.
Management is responsible for the accuracy and objectivity of the
financial statements, including estimates and judgments reflected therein,
and fulfills this responsibility primarily by establishing and maintaining
accounting systems and practices adequately supported by internal accounting
controls. Management believes that the internal accounting controls in use
are satisfactory to provide reasonable assurance that the Company's assets
are safeguarded, that transactions are executed in accordance with
management's authorizations, and that the financial records are reliable for
the purpose of preparing financial statements.
Independent accountants were selected by the Board of Directors, upon
the recommendation of the Audit Committee, to audit the financial statements
in accordance with generally accepted auditing standards. Their audits, as
well as those of the Company's internal audit department, include a review of
internal accounting control policies and procedures and selective tests of
transactions.
The Audit Committee of the Board of Directors, which consists of three
directors who are not officers or employees of the Company, meets regularly
with management, the internal auditors and the independent accountants to
review matters relating to financial reporting, internal accounting controls,
and auditing. The independent accountants have unrestricted access to the
Audit Committee.
/s/ King Harris /s/ Paul R. Gauvreau
President and Chief Executive Officer Financial Vice President and Treasurer
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Supplemental Information
Five Year Summary of Selected Financial Data
(Dollars in thousands, except per share Data)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Operating Results
Net Sales of Continuing Operations $945,669 $778,026 $650,105 $568,301 $516,343
Operating Income from Continuing
Operations 59,244 49,922 34,012 22,069 11,621
Income from Continuing Operations 40,372 44,836(b) 21,240 12,460 4,371
Income from Discontinued Operations 10,046 34,938(c) 21,145
Cumulative Effect of Changes in
Accounting Principles 1,535
Net Income 40,372 44,836(b) 32,821 47,398(c) 25,516
Per Share (a):
Income from Continuing Operations 1.93 2.15(b) 1.02 .60 .21
Income from Discontinued Operations .48 1.68(c) 1.02
Cumulative Effect of Changes in
Accounting Principles .07
Net Income 1.93 2.15(b) 1.57 2.28(c) 1.23
Cash Dividends Declared Per Share (a):
Common .267 .267 .30 .40 .40
Class A .333 .333 .367 .733 .733
Capital Expenditures 42,056 28,246 29,478 17,187 13,872
Depreciation and Amortization 21,014 20,160 17,249 14,829 13,783
At Year End
Assets of Continuing Operations 672,974 563,287 481,977 436,358 371,375
Investment in Discontinued Operations 137,648 198,433
Total Assets 672,974 563,287 481,977 574,006 569,808
Long-Term Debt 85,966 5,088 6,083 9,601 21,584
Stockholders' Equity(d) 363,026 328,130 292,064 419,501 399,578
Per Share(a)(d) 17.36 15.69 13.97 20.06 19.27
Market Price Per Share (a)(d):
Common 44.25 26.00 22.67 25.33 22.08
Class A 45.17 26.83 21.50 23.00 19.58
(a) Per share data reflect the 3-for-2 stock split declared in January 1996.
(b) Includes net gain on sale of First Alert stock of $11,776, or $.57 per share.
(c) Includes net gain on disposal of discontinued operations of $16,558, or $.80 per share.
(d) Stockholders' equity and market prices after December 31, 1992 reflect the spin-off of AptarGroup,
Inc. in April 1993.
</TABLE>
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Market Prices, Security Holders and Dividend Information
The Company's Common stock (ticker symbol PRY) and Class A stock (ticker
symbol PRYA) are traded on the American Stock Exchange. As of December 31,
1995, stockholders of record totaled approximately 500 for Common and 1,000
for Class A.
The following table sets forth, on a quarterly basis, the high and low
prices for the Common and Class A stock on the American Stock Exchange, along
with the cash dividends declared, adjusted to reflect the three-for-two stock
split declared in January 1996.
Common Class A Dividends Declared
High Low High Low Common Class A
1995 Quarter:
First $30.67 $25.00 $31.00 $25.00 $.0667 $.0833
Second 31.17 28.00 30.75 28.25 .0667 .0833
Third 41.33 28.58 41.50 29.33 .0667 .0833
Fourth 44.92 38.17 46.00 37.58 .0667 .0833
1994 Quarter:
First $26.00 $21.00 $23.17 $20.92 $.0667 $.0833
Second 27.17 22.67 25.42 22.33 .0667 .0833
Third 26.33 23.50 25.58 22.50 .0667 .0833
Fourth 26.67 24.33 27.08 23.75 .0667 .0833
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF CONTINUING OPERATIONS
Sales grew 22% in 1995 and 20% in 1994 principally due to higher sales
levels in the Company's alarm systems segment. Domestic sales increased 19%
in both 1995 and 1994. International sales, representing 12% of total
consolidated sales in 1995 and 10% in 1994, relate to the alarm segment and
increased 40% in 1995 and 22% in 1994. The larger increase in 1995 is
primarily attributable to the expansion of European operations. Gross profit
increased 21% in both 1995 and 1994 principally due to the increased sales
levels. Selling, general and administrative expenses increased 22% in 1995
and 16% in 1994 primarily due to increased costs associated with the expanded
sales volume. General and administrative expenses also increased in 1995 due
to higher employee deferred compensation expense on accruals related to stock
appreciation rights resulting from the effect of a significant increase in
the price of the Company's stock.
ALARM product sales accounted for 80% of consolidated revenues in 1995
(77% in 1994) and increased 26% in 1995 and 24% in 1994. The increases were
due to a combination of overall market growth and, more significantly,
increased market share. The Company's distribution business made significant
gains capitalizing on the bankruptcy of a major competitor. Increases at the
Company's manufacturing units reflect continued acceptance of numerous new
product offerings.
Operating income for the segment increased 20% in 1995 and 35% in 1994
primarily because of the expanded sales volume. Research and development
expense amounted to $16.6 million and $11.8 million in 1995 and 1994,
respectively, reflecting continuing development and expansion of the
Company's burglar and fire alarm products and systems. Deferred compensation
expense in 1995 was significantly higher than in 1994.
PUBLISHING sales increased 8% in 1995 and 7% in 1994 primarily due to a
modest increase in advertising pages and page rates and to higher ancillary
product revenues. Operating income increased 9% in 1995 and 53% in 1994 due
to increased advertising revenues, higher profits from non-advertising-page
revenues and improved operating efficiencies. Operating income in 1995 was
adversely impacted by significantly higher paper costs, up 40%, postage
costs, up 10%, and the aforementioned deferred compensation costs.
DEPRECIATION AND AMORTIZATION expense increased both in 1995 and 1994 as
a result of capital additions, principally in the alarm segment.
OTHER INCOME (EXPENSE) was less favorable in 1995 compared to 1994 due
to the inclusion of a $19.5 million pretax gain on the sale of First Alert,
Inc. common stock in 1994. Excluding this gain, other income (expense) was
slightly more favorable due to increased cash distributions from real estate
ventures, a larger gain on the sale of publications and insurance proceeds
partially offset by higher interest expense, reduced income from marketable
securities and leveraged leases and a greater loss at an affiliate.
Excluding the First Alert gain, other income in 1994 increased over 1993
primarily due to higher yields on marketable securities, a $896,000 favorable
swing in foreign currency transaction effects, a gain on the sale of a
publication and higher miscellaneous income. These favorable comparisons
were partially offset by reduced income from leveraged leases and a loss from
an affiliate and higher interest expense. The effect of increased rates on a
higher level of short-term borrowings was partly offset by lower long-term
debt.
EFFECTIVE TAX RATES were 37.0% in 1995, 39.3% in 1994 and 41.2% in 1993.
An analysis of the Company's effective tax rate appears in Note 5 to the
Consolidated Financial Statements. The effect of the increase in the U.S.
federal income tax rate from 34% to 35% in 1993 was to increase the federal
income tax provision by $1.2 million ($.4 million related to 1993 income and
$.8 million to increase prior accumulated deferred taxes).
ACCOUNTING CHANGES
Effective January 1, 1993 the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions", and No. 109,
"Accounting for Income Taxes". The cumulative effect on prior years of the
changes in accounting principles as of January 1, 1993 was a $1.9 million
benefit for income taxes and a $.4 million after-tax charge for
postretirement benefits.
In October 1995 SFAS No. 123, "Accounting for Stock Based Compensation",
was issued. The statement becomes effective for the 1996
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fiscal year and establishes a fair value based method of accounting for
employee stock based compensation plans and encourages adoption of that
method. Companies may however continue to apply the method currently
prescribed under existing accounting rules, provided certain pro forma
disclosures are made. The Company plans to retain the accounting method
prescribed under the existing rules and will provide the necessary
disclosures in the notes to the consolidated financial statements in 1996.
DISCONTINUED OPERATIONS
Earnings from discontinued operations in 1993 include the results of
AptarGroup, Inc. until the spinoff in April of that year. Income from
discontinued operations in 1993 was favorably impacted by a $3.1 million
benefit from the adoption of SFAS No. 109.
FINANCIAL CONDITION
The Company's financial condition remained strong through 1995.
Management anticipates that operations, borrowings and marketable securities
will continue to be the primary source of funds needed to meet ongoing
programs for capital expenditures, to finance acquisitions and investments
and to pay dividends.
In 1995 the primary sources of the $13.8 million net cash provided by
continuing operations were operating profits before depreciation and
amortization. Such cash generated was partially used to finance the net
increase in working capital items. The remaining cash generated from
operations, along with a $75 million long-term borrowing and $10.2 million
net proceeds from the sale of marketable securities, were used principally to
make capital expenditures of $42.1 million, pay down short-term loans, make
additional investments of $6.0 million, principally in affordable housing,
pay dividends of $6.7 million and make business acquisitions totaling $12.9
million.
The Company continually investigates investment opportunities for growth
in related areas and is presently committed to invest approximately $2.7
million in certain affordable housing ventures through 1997.
The Company has real estate investments in various limited partnerships
with interests in commercial rental properties which may be sold or turned
over to lenders due to the present weak commercial real estate market. Such
events have no effect on net income although they do have a negative impact
on the Company's cash position because significant tax payments become due
when the properties are sold or returned to the lenders. After the tax
payments made in 1995 relating to these properties and additional tax losses
generated from holding them, the Company has approximately $5 million accrued
at December 31, 1995 to fully cover the remaining tax payments that would be
due if all the properties are sold or returned to the lenders.
Cash distributions received from limited real estate partnerships
amounted to $4 million in 1995. Distributions from these partnerships in
1996 are not expected to be as significant. In February 1996, the Company
sold 622,500 shares of its investment in United States Satellite Broadcasting
("U.S.S.B.") in connection with its initial public offering and realized net
cash proceeds of $15.8 million or $10.7 million after taxes. The Company
intends to classify its remaining 4,167,375 U.S.S.B. shares in 1996 as a non-
current investment in marketable equity securities. The Company also intends
to hold its existing investment in preferred stocks, although occasional
sales may be made selectively as conditions warrant.
The impact of inflation on the Company's results of operations has
lessened in recent years, although inflation does increase the Company's cost
of doing business. The Company attempts to offset the impact of inflation
through productivity and technological improvements, cost containment
programs and by increasing its selling prices over time as allowed by market
conditions. In addition, substantially all domestic inventories are valued
on the last-in, first-out (LIFO) method, which generally results in reporting
the cost of goods sold at approximately current costs.
Page 47
<PAGE>
EXHIBIT 21
PITTWAY CORPORATION
DECEMBER 31, 1995
FORM 10-K
Approximate
Percentage of
State or Voting Securities
Country of Owned by
Name of Company Incorporation Immediate Parent
Pittway Corporation
Ademco Distribution, Inc. Delaware 100
ADI-Lenox Club, Inc. Delaware 100
Ademconet, Inc. Delaware 100
Radscan, Inc. Delaware 100
Fire Burglary Instruments, Inc. New York 100
Ademco Security Group, Inc. California 100
Ademco Communications Partners, Inc. Delaware 100
Fire-Lite Alarms, Inc. Connecticut 100
Notifier Engineered Systems Company Delaware 100
MicroLite Corporation California 90
Penton Publishing, Inc. Delaware 100
Curtin & Pease/Peneco, Inc. Florida 100
Chilpub, Inc. Delaware 100
Final Frontier Pittway I, Inc. Illinois 100
Final Frontier Pittway II, Inc. Illinois 100
Pittway Corporation of Canada Canada 100
Pittway Fire Safety, Inc. Delaware 100
Ademco de Juarez, S.A. de C.V. Mexico 100
ADI of Puerto Rico, Inc. Puerto Rico 100
Ademco Italia S.p.A. Italy 100
Ademco (Hong Kong) Limited Hong Kong 100
Pittway Foreign Sales Corp. U.S. Virgin Islands 100
<PAGE>
EXHIBIT 21
PITTWAY CORPORATION
DECEMBER 31, 1995
FORM 10-K
Approximate
Percentage of
State or Voting Securities
Country of Owned by
Name of Company Incorporation Immediate Parent
Pittway Corporation (continued)
Pittway International, Ltd. Delaware 100
ADI de Mexico S.A. de C.V. Mexico 100
Notifier Espana S.A. Spain 100
Notifier (Benelux) S.A. Belgium 100
Notifier Deutschland GmbH Germany 100
Notifier, Ltd. (Singapore) Delaware 100
System Sensor, Ltd. (China) Delaware 100
Xi'an System Sensor Electronics, Ltd. China 55
Pittway UK Limited England 100
Notifier Limited (U.K.) England 100
System Sensor Limited (U.K.) England 100
Ademco-Sontrix Limited England 100
Microtech Security Ltd. Scotland 100
Pittway Australia Pty., Ltd. Australia 100
Ademco-Sontrix Espana, S.A. Spain 100
Notifier Italia S.r.l. Italy 100
Pittway Tecnologica S.p.A. Italy 100
Notes: All of the above subsidiaries are included in the Registrant's
consolidated financial statements. Parent-subsidiary or affiliate
relationships are shown by marginal indentation.
<PAGE>
EXHIBIT 23
PITTWAY CORPORATION
DECEMBER 31, 1995
FORM 10-K
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (Nos. 33-35168 and 33-54753)
of Pittway Corporation of our report dated February 21, 1996
appearing on page 43 of the Annual Report to Stockholders which is
incorporated in this Annual Report on Form 10-K. We also consent
to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page 15 of this Form 10-K.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Chicago, Illinois
March 27, 1996
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
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<SECURITIES> 25,586
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