SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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, Chicago, Illinois 60606-5802
(Address of Principal Executive Offices) (Zip Code)
312/831-1070
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date (April 21,
1997).
Common Stock 3,938,832
Class A Stock 17,042,444
PITTWAY CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
INDEX
PART I. FINANCIAL INFORMATION Page
ITEM 1. Financial Statements
Consolidated Statement of Income -
Three Months Ended March 31, 1997 and 1996 3
Consolidated Balance Sheet -
March 31, 1997 and December 31, 1996 4 - 5
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7 - 9
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 12 - 14
ITEM 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 14
2
PITTWAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited; Dollars in Thousands, Except Per Share Data)
1997 1996
NET SALES.................................. $301,158 $257,477
OPERATING EXPENSES:
Cost of sales............................ 184,091 157,637
Selling, general and administrative...... 87,698 75,609
Depreciation and amortization............ 8,416 6,810
280,205 240,056
OPERATING INCOME........................... 20,953 17,421
OTHER INCOME (EXPENSE):
Gain on sale of investment............... 13,162
Gain from Cylink stock offering.......... 23,432
Income from marketable securities,
investments and other interest......... 1,515 833
Interest expense......................... (2,614) (1,990)
Miscellaneous, net....................... (78) 187
(1,177) 35,624
INCOME BEFORE INCOME TAXES................. 19,776 53,045
INCOME TAXES............................... 7,480 19,757
NET INCOME................................. $ 12,296 $ 33,288
NET INCOME PER SHARE OF COMMON
AND CLASS A STOCK ....................... $ .59 $ 1.59
CASH DIVIDENDS DECLARED PER SHARE:
Common................................... $ .067 $ .067
Class A.................................. $ .083 $ .083
AVERAGE NUMBER OF SHARES OUTSTANDING
(in thousands) .......................... 20,959 20,912
See accompanying notes.
3
PITTWAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997 AND DECEMBER 31, 1996
(Unaudited; Dollars in Thousands)
March 31, December 31,
1997 1996
ASSETS
CURRENT ASSETS:
Cash and equivalents................... $ 9,282 $ 32,409
Marketable securities.................. 24,033 26,026
Accounts and notes receivable, less
allowance for doubtful accounts of
$10,654 and $9,670................... 212,618 208,182
Inventories............................ 230,052 203,254
Future income tax benefits............. 18,260 19,358
Prepayments, deposits and other........ 12,104 10,287
506,349 499,516
PROPERTY, PLANT AND EQUIPMENT, at cost:
Buildings.............................. 43,843 43,413
Machinery and equipment................ 238,190 224,268
282,033 267,681
Less: Accumulated depreciation......... (140,835) (132,867)
141,198 134,814
Land................................... 2,739 2,787
143,937 137,601
INVESTMENTS:
Marketable securities.................. 40,650 37,814
Investment in affiliate................ 31,797 31,183
Real estate and other ventures......... 39,467 39,242
Leveraged leases....................... 19,380 19,515
131,294 127,754
OTHER ASSETS:
Goodwill, less accumulated
amortization of $10,266 and $9,707... 84,444 54,068
Other intangibles, less accumulated
amortization of $10,748 and $10,668.. 4,881 5,022
Notes receivable....................... 7,570 8,070
Miscellaneous.......................... 7,009 7,062
103,904 74,222
$885,484 $839,093
See accompanying notes.
4
PITTWAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997 AND DECEMBER 31, 1996
(Unaudited; Dollars in Thousands)
March 31, December 31,
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable........................... $ 84,853 $ 46,525
Long-term debt due within one year...... 5,041 3,933
Dividends payable....................... 1,728 1,724
Accounts payable........................ 100,534 102,077
Accrued expenses........................ 49,878 53,937
Income taxes payable.................... 10,136 5,685
Retirement and deferred
compensation plans.................... 6,625 6,782
Unearned income......................... 4,476 3,538
263,271 224,201
LONG-TERM DEBT, less current maturities... 84,499 87,916
DEFERRED LIABILITIES:
Income taxes............................ 66,715 65,738
Other................................... 13,242 14,366
79,957 80,104
STOCKHOLDERS' EQUITY:
Preferred stock, none issued............
Common capital stock, $1 par value-
Common stock.......................... 3,939 3,939
Class A stock......................... 17,042 16,987
Capital in excess of par value.......... 24,231 21,714
Retained earnings....................... 402,366 391,753
Cumulative marketable securities
valuation adjustment.................. 14,958 12,453
Cumulative foreign currency translation
adjustment............................ (4,779) 26
457,757 446,872
$885,484 $839,093
See accompanying notes.
5
PITTWAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited; Dollars in Thousands)
1997 1996
Cash Flows From Operating Activities:
Net Income....................................... $ 12,296 $ 33,288
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................. 8,416 6,810
Gain on sale of investment, net of taxes....... (8,149)
Gain from Cylink stock offering, net of taxes.. (14,507)
Deferred income taxes.......................... 781 (1,354)
Retirement and deferred compensation plans..... 165 2,159
Income/loss from investments adjusted
for cash distributions received............... (732) 102
Provision for losses on accounts receivable.... 1,191 1,168
Change in assets and liabilities, excluding
effects from acquisitions, dispositions
and foreign currency adjustments:
Increase in accounts and notes receivable.... (3,422) (7,113)
Increase in inventories...................... (25,843) (9,217)
Increase in prepayments and deposits......... (1,626) (1,574)
(Decrease) increase in accounts payable
and accrued expenses....................... (5,388) 2,063
Increase in income taxes payable............. 4,558 13,586
Other changes, net............................. (609) (955)
Net cash (used) provided by operating activities. (10,213) 16,307
Cash Flows From Investing Activities:
Capital expenditures............................. (15,073) (6,962)
Proceeds from sale of investment, net of taxes... 10,748
Proceeds from the sale of marketable securities.. 8,308 4,186
Purchases of marketable securities............... (5,081) (2,500)
Disposition of property and equipment............ 127 141
Additions to investments......................... (558)
(Increase) decrease in notes receivable.......... (1,685) 145
Net assets of businesses acquired, net of cash... (33,421) (2,682)
Net cash (used) provided by investing activities. (46,825) 2,518
Cash Flows From Financing Activities:
Net increase (decrease) in notes payable......... 39,000 (1,093)
Proceeds of long-term debt....................... 492 75
Repayments of long-term debt..................... (4,574) (507)
Stock options exercised.......................... 878
Dividends paid................................... (1,679) (1,711)
Net cash provided (used) by financing activities. 34,117 (3,236)
Effect of Exchange Rate Changes on Cash............ (206) 6
Net (Decrease) Increase in Cash and Equivalents.... (23,127) 15,595
Cash and Equivalents at Beginning of Period........ 32,409 31,407
Cash and Equivalents at End of Period.............. $ 9,282 $ 47,002
See accompanying notes.
6
PITTWAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; Dollars in Thousands)
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Pittway Corporation and its majority-owned subsidiaries (the
"Company" or "Registrant"). Summarized financial information for the
limited real estate partnership ventures and other affiliates is
omitted because, when considered in the aggregate, they do not
constitute a significant subsidiary.
The accompanying consolidated financial statements are unaudited but
reflect all adjustments of a normal recurring nature which are, in the
opinion of management, necessary for a fair presentation of the
financial statements contained herein. However, the financial
statements and related notes do not include all disclosures normally
provided in the Company's Annual Report on Form 10-K. Accordingly,
these financial statements and related notes should be read in
conjunction with the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
NOTE 2. ACQUISITIONS
In the first quarter of 1997, the Company acquired the assets and
businesses of a domestic manufacturer and distributor of fire controls
and a producer of trade shows and conferences. The total purchase
price for these businesses was $33,421 cash and $2,453 in notes. These
acquisitions were accounted for as purchase transactions in the
consolidated financial statements from their respective dates of
acquisition. The impact on consolidated results of operations was not
significant.
NOTE 3. INVENTORIES
The recorded value of inventories at March 31, 1997 and December 31,
1996 approximate current cost and consist of the following:
1997 1996
Raw materials $ 49,428 $ 41,568
Work in process 19,737 19,560
Finished goods -
Manufactured by the Company 76,528 69,020
Manufactured by others 84,361 73,106
$230,054 $203,254
7
NOTE 4. MARKETABLE SECURITIES
Information about the Company's marketable securities at March 31, 1997
and December 31, 1996 is as follows:
1997 1996
Current - Adjustable Rate Preferred Stocks -
Aggregate cost $ 24,734 $ 27,937
Net unrealized holding loss (701) (1,911)
Aggregate fair value $ 24,033 $ 26,026
Non-Current - USSB Common Stock -
Aggregate cost $ 15,789 $ 15,789
Unrealized holding gain 24,861 22,025
Aggregate fair value $ 40,650 $ 37,814
In February 1996, the Company sold 13% of its investment in United
States Satellite Broadcasting Company, Inc. (USSB) as part of an
initial public offering of USSB's common stock. The sale of the shares
resulted in an after-tax gain of $8,149, or $.39 per share.
The net unrealized gain on the preferred stock and USSB common stock
held at March 31, 1997 is included, net of $9,202 deferred taxes, in
stockholders' equity under the caption "cumulative marketable
securities valuation adjustment".
Realized gains and losses are based upon the specific identification
method. Such gains and losses on the adjustable rate preferred stock,
for the quarters ended March 31, 1997 and 1996 were not significant.
NOTE 5. INVESTMENT IN AFFILIATE
The investment in affiliate consists of the Company's interest in
Cylink Corporation (Cylink), which is carried at equity. The carrying
value of this investment was increased by $23,432 in the first quarter
of 1996 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 after-tax gain recorded on the increase in Cylink's equity was
$14,507, or $.69 per share. The quoted market value of the Company's
investment in Cylink was $71,000 at March 31, 1997.
NOTE 6. EARNINGS PER SHARE
Net income per share of common capital stock is based on the combined
weighted average number of Common and Class A shares outstanding during
each period and does not include Class A shares issuable upon exercise
of stock options or for other stock awards because the dilutive effect
is not significant.
8
NOTE 7. LEGAL PROCEEDINGS
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 developed 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 appealed the trial
court's decision granting summary judgment. In August 1996, the
appellate court affirmed all but three issues in the trial court's
summary judgment order in favor of Saddlebrook. A hearing is set for
May 15, 1997 to determine the scope of the three issues remaining for
retrial. The Company believes that the ultimate outcome of the
aforementioned lawsuit will not have a material adverse effect on its
financial statements.
The Company in the normal course of business is subject to a
number of lawsuits and claims both actual and potential in nature
including a lawsuit claiming patent infringement that is scheduled for
trial in 1997. While management believes that resolution of the patent
infringement suit and other 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.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company attained $301.2 million of sales in the first quarter of
1997, a 17% increase over the first quarter of 1996. The increase
principally reflects higher sales levels in the Company's alarm group
segment. For the quarter, domestic sales grew 16% while international
sales increased 18%. International business relates to the alarm group
segment and represents 15% and 14% of total consolidated sales for the
first quarter of 1997 and 1996, respectively. Approximately two-thirds
of the foreign sales growth in 1997 is from expansion of European
operations. Gross profit increased at about the same rate as sales.
Selling, general and administrative expenses increased 16% in the first
quarter of 1997 as a result of increased costs associated with the
higher sales volume.
Alarm Group sales of $252.5 million the first quarter of 1997 and $211.8
million for the first quarter of 1996 accounted for 84% and 82%,
respectively, of consolidated revenues, reflecting a 19% increase
between periods. This growth was due to continuing gains in market
share in key product areas and ongoing expansion in the worldwide alarm
systems market. Late in 1996, the Company received significant future
equipment and distribution commitments from two large installation
companies, which are expected to be reflected more fully in the
Company's second half results. Operating income for this segment
increased 14% for the quarter primarily because of the expanded sales
volume partially offset by higher operating costs.
Publishing sales grew 8% to $48.7 million for the first quarter of 1997
over $45.1 million in 1996. Operating income increased 48% to $4.9
million for the quarter. These favorable results were achieved through
a combination of increased revenues and stable operating costs. There
was also some benefit in 1997 from paper price reductions after sharp
price increases in the latter part of 1995 and the first half of 1996.
Depreciation and amortization expense increased 24% in 1997 mainly as a
result of capital additions in the alarm segment.
Other income (expense) in 1996 included a pretax gain of $13.2 million
on the sale of 622,500 shares of USSB stock in connection with its
initial public offering and a pretax gain of $23.3 million on the
increase in the book value of the Company's investment in Cylink
resulting from its initial public offering. Excluding these gains,
other income (expense) remained fairly consistent between periods as
increased interest expense from higher borrowing levels was offset by
increased earnings recorded on the Company's investments.
10
Effective tax rates were 37.8% and 37.2% in the first quarter of 1997
and 1996, respectively.
ACCOUNTING CHANGE
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share" ("EPS"). The statement replaces primary
EPS with basic EPS, which excludes dilution, and requires presentation
of both basic and diluted EPS on the face of the income statement.
Diluted EPS is computed similarly to the current fully diluted EPS. The
statement is effective for financial statements issued for periods
ending after December 15, 1997, and requires restatement of all prior-
period EPS data presented. The adoption of this statement is not
expected to materially affect either current or prior-period EPS.
FINANCIAL CONDITION
The Company's financial condition remained strong during the first
quarter of 1997. 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 the first quarter of 1997, income before depreciation and
amortization provided $20.7 million of net cash which was used, in
addition to $10.2 million of cash, to finance the net increase in
working capital items including a $25.8 million increase in inventory
balances. Two acquisitions were completed in the quarter which were
financed through $33.4 million of short term borrowings. Additional net
short term borrowings of $5.6 million, $3.2 million of net proceeds from
the sale of marketable securities, $0.9 million of proceeds from the
exercise of stock options and $12.9 million of cash were used to fund
$15.1 million in capital expenditures, $1.7 million of dividends paid to
stockholders, a net increase of $1.7 million in notes receivable and the
net repayment of $4.1 million of long-term debt.
The Company continually investigates investment opportunities for growth
in related areas and is presently committed to invest up to $11.1
million in certain affordable housing ventures through 2003.
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 weak commercial real estate market of
the past several years. Such events have no effect on net income
although they do have a negative impact on the Company's cash position
because tax payments become due when the properties are sold or returned
11
to the lenders. The Company has approximately $4.3 million accrued at
March 31, 1997 to fully cover the remaining tax payments that would be
due if all the properties were sold or returned to the lenders.
The Company presently intends to hold its existing investments in
preferred stocks, USSB and Cylink although occasional sales of preferred
and USSB stocks may be made selectively as conditions warrant.
****
This quarterly report, other than historical financial information,
contains forward-looking statements that involve a number of risks and
uncertainties. Important factors that could cause actual results to
differ materially from those indicated by such forward-looking
statements are set forth in Item 1 of the Company's annual report on
Form 10-K for the year ended December 31, 1996. These include risks and
uncertainties relating to government regulation, competition and
technological change, intellectual property rights, capital spending,
international operations, and the Company's acquisition strategies.
PART II - OTHER INFORMATION
ITEM 1. 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 developed 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.
12
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 appealed the trial court's
decision granting summary judgment. In August 1996, the appellate court
affirmed all but three issues in the trial court's summary judgment
order in favor of Saddlebrook. A hearing is set for May 15, 1997 to
determine the scope of the three issues remaining for retrial.
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 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.
The Company in the normal course of business is subject to a number of
lawsuits and claims both actual and potential in nature including a
lawsuit claiming patent infringement that is scheduled for trial in
13
1997. While management believes that resolution of the patent
infringement suit and other 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Number Description
10 Employment Agreement with Daniel J. Ramella
dated as of January 1, 1997.
27 Financial Data Schedule
(submitted only in electronic format)
(b) No reports on Form 8-K have been filed during the quarter
for which this report is filed.
SIGNATURES
Pursuant to the requirements 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
(Duly Authorized Officer and
Principal Financial Officer)
Date: April 30, 1997
14
<PAGE>
Exhibit 10
Form 10-Q
Pittway Corporation
March 31, 1997
EMPLOYMENT AGREEMENT
AGREEMENT made as of January 1, 1997, between Penton Publishing,
Inc., a Delaware corporation (the "Company"), and Daniel J. Ramella
("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 operating 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") or the Chairman and Chief Executive Officer of
the Company to expand or limit such duties, responsibilities and
authority, either generally or in specific instances. Executive shall
have the title President 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 Chairman and Chief Executive
Officer 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 have more than a de
minimis effect on Executive's performance of his duties under this
Agreement, participation in charitable and civic endeavors and
management of Executive's personal investments and business interests)
to the business and affairs of the Company and the business and
affairs of any subsidiary or affiliate. 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 Cleveland 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. Compensation and Benefits.
(a) Salary. The Company agrees to pay Executive a salary during
the Employment Period, in semi-monthly installments. Executive's
initial salary shall be $330,000 per annum. Executive's salary may be
increased by the Board from time to time.
(b) Bonus(es). The Board may, in its sole discretion, award a
bonus to Executive for any calendar year during the Employment Period.
(c) Expense Reimbursement. 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. Executive acknowledges that under the Company's
current air travel reimbursement policy, reimbursement is limited to
coach fare (plus Executive's cost of any upgrade certificates used to
upgrade to first class) on travel within the United States and is
limited to business class fare on travel to and from foreign cities.
(d) Standard Executive Benefits Package. 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, 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.
(e) Additional Benefits. 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
(iii) participation in the Pittway Corporation Supplemental
Executive Retirement Plan (the "SERP"), effective
January 1, 1996, a copy of
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which, as currently in effect, is attached hereto as
Exhibit A, except that the beginning date for accrual
of a benefit shall be January 1, 1997.
(f) Indemnification. With respect to Executive's acts or
failures to act during the Employment Period in his capacity as a
director, officer, employee or agent of the Company, Executive shall
be entitled to indemnification from the Company, and to liability
insurance coverage (if any), on the same basis as other directors and
officers of the Company.
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");
(iv) the Company's termination of Executive's employment for
Cause ("Termination for Cause");
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(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 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"); provided that if the Good Reason
identified in such notice is the Good Reason set forth
in paragraph 5(e)(ii) hereof, the Company may, at its
option, defer the effective date of such termination
for up to ninety (90) additional days; 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
twenty (120) 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 which harms
or damages any of them to any extent;
(iv) conduct by Executive that brings 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
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Executive with Advance Notice shall not constitute
such a repudiation or abandonment);
(vii) breach by Executive of any of the agreements in
paragraph 8 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) the Company's giving notice that the extension provision
in the first sentence of paragraph 5(b) hereof shall
no longer apply; or
(iii) 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), expense reimbursements or
benefits other than: (i) any salary which has accrued but is unpaid,
and any reimbursable expenses which have been incurred but are unpaid,
and any unexpired vacation days which have accrued under the Company's
vacation policy, but are unused 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, (iii) any benefits to which
Executive is entitled under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA") and (iv) 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), (ii) and (iii) 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 for a
period of twenty-four (24) months after the last day of the month in
which the Employment Period ends, 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 pay any
such subsequent amounts 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) or, 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 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. In addition, the Company shall reimburse
Executive (net after taxes on the receipt of such reimbursement) for
any premiums paid by Executive for health insurance provided to
Executive (for Executive and his dependents) by the Company subsequent
to the end of the Employment Period pursuant to the requirements of
COBRA as in effect on the date of this Agreement. It is expressly
understood that the Company's payment obligations under this
subparagraph (d) shall cease in the event Executive breaches any of
his agreements in paragraph 7 or 8 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 subparagraph (a), clauses (i), (ii) and (iii) above.
7. Confidential Information. Executive acknowledges 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 Chairman and Chief Executive Officer
of the Company unless and
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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 Chairman and Chief Executive Officer 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, 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.
8. 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 (i) that during the Employment Period
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 business-to-business publishing
business or any other business then actively being conducted by the
Company or any of its subsidiaries or affiliates, and (ii) that for
two years after the Employment Period 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, assist Reed-Elsevier PLC, Chilton Company (a
division of Capital Cities/ABC, Inc.), CMP Publications, Inc. or any
subsidiary or affiliate of any of them, or any successor or assignee
of any of them, in engaging or being engaged in the business activity
of publishing a magazine or electronic media product that directly
competes with any magazine or electronic media product then being
published by, conducting a trade show that directly competes with any
trade show then being conducted by, or creating or disseminating any
other product that competes directly with any product then being
created or disseminated by, the Company or any of its subsidiaries or
affiliates.
(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.
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<PAGE>
(d) Nothing in this paragraph 8 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.
9. 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 8 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).
10. 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.
11. Survival. Paragraphs 7 and 8 hereof shall survive and
continue in full force in accordance with their terms notwithstanding
any termination of the Employment Period.
12. 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. Daniel J. Ramella
2204 Land's End Lane
Westlake, OH 44145
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Notices to the Company:
Mr. Thomas L. Kemp
Chairman and Chief Executive Officer
Penton Publishing, Inc.
1100 Superior Avenue
Cleveland, OH 44114
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.
13. 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.
14. Payment of Certain Costs and Expenses.
(a) Prevailing Party's Litigation Expenses. In the event of
litigation between the Company and Executive related to this
Agreement, the non-prevailing party shall reimburse the prevailing
party for any costs and expenses (including without limitation
attorneys' fees) reasonably incurred by the prevailing party in
connection therewith.
(b) Change of Control of Company. Without limiting the
generality of subparagraph (a) above, 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, for purposes of Section 13(d) of the Securities
Exchange Act of 1934, as amended, a person or group other than (i)
Pittway or (ii) one or more members of the Harris Group (as currently
defined in Pittway Corporation's Restated Certificate of
Incorporation, as amended) becomes the beneficial owner of stock of
Pittway Corporation possessing a majority of the voting power under
ordinary circumstances with respect to the election of directors.
15. Complete Agreement. This Agreement embodies the complete
agreement and understanding between the parties with respect to the
subject matter hereof and effective as
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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.
16. 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.
17. 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) Pittway or any subsidiary or
affiliate thereof 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.
18. Choice of Law. This Agreement shall be governed by the
internal law, and not the laws of conflicts, of the State of Ohio.
19. 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.
PENTON PUBLISHING, INC.
By /s/ Thomas L. Kemp
Thomas L. Kemp
Chairman and CEO
/s/ Daniel J. Ramella
DANIEL J. RAMELLA
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Exhibit A
to Exhibit 10
Pittway Corporation
March 31, 1997
Form 10-Q
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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<PAGE>
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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<PAGE>
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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<PAGE>
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:
Its:
Date:
ATTEST
By _________________________________
Its _____________________________
Date_____________________________
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<PAGE>
Exhibit 1
to Exhibit A
of Exhibit 10\
Pittway Corporation
March 31, 1997
Form 10-Q
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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(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
-9-
<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
-10-
<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.
* * * * *
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first written above.
PITTWAY CORPORATION
By ___________________________
Its __________________________
______________________________
[EXECUTIVE]
-12-
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<PERIOD-END> MAR-31-1997
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0
0
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