<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
PITTWAY CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
Pittway Corporation Logo
200 South Wacker Drive
Chicago, Illinois 60606-5802
- ------------------------------------------
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD
ON MAY 8, 1997
- ------------------------------------------
TO THE STOCKHOLDERS:
The annual meeting of stockholders of Pittway Corporation will be held on
Thursday, May 8, 1997 at 9:30 A.M., local time, at the Seven Continents Skybird
Meeting Center, Rotunda Building, O'Hare International Airport, Chicago,
Illinois, for the following purposes:
1. To elect directors for the ensuing year.
2. To transact such other business as may properly be brought before the
meeting.
The annual meeting may be postponed or adjourned from time to time without any
notice other than announcement at the meeting, and any and all business for
which notice is hereby given may be transacted at any such postponed or
adjourned meeting.
The Board of Directors has fixed the close of business on March 27, 1997 as the
record date for determination of stockholders entitled to notice of and to vote
at the meeting.
A list of stockholders entitled to vote at the annual meeting will be available
for examination by any stockholder, for any purpose germane to the meeting,
during ordinary business hours at the Company's principal executive offices, 200
South Wacker Drive, Suite 700, Chicago, Illinois 60606-5802 during the ten days
preceding the meeting.
Stockholders are requested to complete and sign the enclosed proxy, which is
solicited by the Board of Directors, and promptly return it in the accompanying
envelope.
BECAUSE TWO CLASSES OF STOCK OF THE COMPANY ARE OUTSTANDING, A SEPARATE FORM OF
PROXY HAS BEEN PREPARED WITH RESPECT TO EACH CLASS OF STOCK. STOCKHOLDERS WHO
OWN OF RECORD SHARES OF ONLY ONE CLASS ARE BEING FURNISHED ONLY WITH THE PROXY
RELATING TO THAT CLASS. STOCKHOLDERS WHO OWN OF RECORD SHARES OF BOTH CLASSES
ARE BEING FURNISHED WITH BOTH PROXIES (IN SEPARATE MAILINGS, EACH OF WHICH ALSO
INCLUDES A COPY OF THIS NOTICE AND THE PROXY STATEMENT). STOCKHOLDERS WHO
RECEIVE BOTH PROXIES MUST COMPLETE, SIGN AND RETURN BOTH PROXIES IN ORDER FOR
THE SHARES OF BOTH CLASSES TO BE VOTED BY PROXY.
By Order of the Board of Directors
JAMES F. VONDRAK
Secretary
Chicago, Illinois
April 4, 1997
<PAGE> 3
PITTWAY CORPORATION LOGO
- ------------------------------------------
PROXY STATEMENT
- ------------------------------------------
This proxy statement is furnished in connection with the solicitation by the
Board of Directors of Pittway Corporation (herein called the "Company") of
proxies for use at the annual meeting of stockholders to be held on Thursday,
May 8, 1997 and at any postponement or adjournment thereof. All shares of Common
Stock and Class A Stock entitled to vote at the annual meeting which are
represented by properly executed proxies will, unless such proxies have been
revoked, be voted in accordance with the instructions given in such proxies or,
if no contrary instructions are given therein, will be voted in the election of
directors as described under "Election of Directors" and as to any other matters
that may properly be presented to the meeting will be voted as described under
"Other Matters." Any stockholder who has given a proxy with respect to any
matter may revoke it at any time prior to the closing of the polls as to that
matter at the annual meeting by delivering a notice of revocation or a duly
executed proxy bearing a later date to the Secretary of the Company, or by
attending the annual meeting and voting in person.
Proxy statements and proxies are being mailed to stockholders on or about April
4, 1997. The mailing address of the principal executive offices of the Company
is 200 South Wacker Drive, Suite 700, Chicago, Illinois 60606-5802.
The Company, a Delaware corporation, was formerly named Standard Shares, Inc.
The Company changed its name to Pittway Corporation in connection with the
December 28, 1989 merger (the "Merger") into the Company of Pittway Corporation,
a Pennsylvania corporation ("Pennsylvania Pittway") 50.1% of which was owned by
the Company.
The Company had outstanding on March 27, 1997, the record date for the annual
meeting, 3,938,832 shares of Common Stock and 17,042,444 shares of Class A
Stock. Both classes of stock are traded on the New York Stock Exchange.
Pursuant to the Company's Restated Certificate of Incorporation, as amended,
prior to the Change of Control Date (as defined therein) generally the holders
of Class A Stock voting as a class are entitled to elect such number of
directors, but not less than two, as equal 25% of the total number of directors
constituting the full Board of Directors and the holders of Common Stock voting
as a class are entitled to elect the remaining directors, and with respect to
all other matters voted upon by the stockholders of the Company, the holders of
Common Stock are entitled to one vote per share of Common Stock and the holders
of Class A Stock are entitled to one-tenth of one vote per share of Class A
Stock.
Subject to certain exceptions, the "Change of Control Date" is defined as the
first date on which the shares of Harris Group Stock (as defined below) are
entitled to cast fewer than 2,244,165 votes (counting the Class A Stock as
entitled to cast one-tenth of one vote per share for this purpose). "Harris
Group Stock" means, at any point in time, shares of Common Stock and Class A
Stock which, at such time, any member of the "Harris Group" (as defined below),
either alone or in combination with any other member or members of the Harris
Group, directly or indirectly beneficially owns (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as such Rule was in effect and interpreted
at 5:00 P.M. Central Standard Time on December 28, 1989), without taking into
account any shares of Common Stock acquired by any member of the Harris Group
subsequent to May 31, 1989 in excess of shares of Common Stock disposed of by
members of the Harris Group subsequent to such date. The "Harris Group" means
Messrs. Irving B. Harris, Neison Harris, King
1
<PAGE> 4
Harris, William W. Harris and Sidney Barrows, and their respective spouses,
descendants and spouses of descendants, trustees of trusts established for the
benefit of such persons, and executors of estates of such persons. Irving B.
Harris and Neison Harris are brothers and Sidney Barrows is their
brother-in-law. William W. Harris is the son of Irving B. Harris and King Harris
is the son of Neison Harris.
So long as the Change of Control Date does not occur prior to the annual meeting
(which the Company believes to be a reasonable assumption), at the meeting the
holders of Class A Stock voting as a class will be entitled to elect three
directors, the holders of Common Stock voting as a class will be entitled to
elect nine directors, and the holders of Common Stock will be entitled to one
vote per share of Common Stock and the holders of Class A Stock to one-tenth of
one vote per share of Class A Stock with respect to any other business as may
properly be brought before the meeting.
Under the Company's By-Laws, attendance at the meeting in person or by proxy by
the holders of Class A Stock entitled to cast at least a majority of the votes
which the Class A Stock is entitled to cast at the meeting is required in order
to establish a quorum for the purpose of electing the directors to be elected by
the Class A Stock, attendance at the meeting in person or by proxy by the
holders of Common Stock entitled to cast at least a majority of the votes which
the Common Stock is entitled to cast at the meeting is required in order to
establish a quorum for the purpose of electing the directors to be elected by
the Common Stock, and attendance at the meeting in person or by proxy by the
holders of Common Stock and Class A Stock entitled to cast at least a majority
of the votes which such stock is entitled to cast at the meeting on matters
other than the election of directors is required in order to establish a quorum
for the purpose of considering any other business.
Pursuant to Delaware law, shares entitled to cast votes on a matter at the
meeting which are the subject of an ABSTAIN on that matter will be treated for
all purposes relevant to that matter as being present at the meeting and
entitled to vote and thus will have the same effect as a vote of such shares
against that matter. Shares entitled to cast votes on a matter at the meeting
which are the subject of a broker non-vote on that matter will be treated for
quorum purposes relevant to that matter as being present at the meeting and
entitled to vote but will not be so treated in determining whether a majority or
other required percentage of the "shares present and entitled to vote" on that
matter has been obtained.
2
<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership (as such term is used in Section 13(d) of the Securities Exchange Act
of 1934 (the "Exchange Act")) as of March 27, 1997 of Common Stock and Class A
Stock by (a) the persons known by the Company to be the beneficial owners of
more than 5% of the outstanding shares of Common Stock or Class A Stock, (b)
each director of the Company, (c) each of the executive officers of the Company
listed in the Summary Compensation Table, (d) all directors and executive
officers of the Company as a group, and (e) the current members of the Harris
Group. The information set forth in the table as to directors and executive
officers is based upon information furnished to the Company by them in
connection with the preparation of this Proxy Statement. Except where otherwise
indicated, the mailing address of each of the stockholders named in the table
is: c/o Pittway Corporation, 200 South Wacker Drive, Suite 700, Chicago,
Illinois 60606-5802.
<TABLE>
<CAPTION>
PERCENT OF
OUTSTANDING
NUMBER OF PERCENT OF NUMBER OF PERCENT OF VOTES ON
SHARES OF OUTSTANDING SHARES OF OUTSTANDING MATTERS OTHER
COMMON SHARES OF CLASS A SHARES OF THAN ELECTION
NAME STOCK(1) COMMON STOCK STOCK(1) CLASS A STOCK OF DIRECTORS
---- --------- ------------ --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
William Harris Investors, Inc.(2)(3)... 1,226,150 31.1% 1,781,924 10.5% 24.9%
2 North LaSalle Street
Suite 400
Chicago, Illinois 60602
Mario J. Gabelli et al.(4)............. 687,698 17.5 2,765,560 16.2 17.1
One Corporate Center
Rye, New York 10580
Janus Capital Corporation(5)........... None -- 1,267,728 7.4 2.2
100 Fillmore Street, Suite 300
Denver, Colorado 80206
First Chicago NBD Corporation(6)....... 273,828 7.0 421,300 2.5 5.6
One First National Plaza
Chicago, Illinois 60670
Katherine Harris(3)(7)................. 423,218 10.7 615,034 3.6 8.6
Roberta Harris(3)(8)................... 200,700 5.1 226,590 1.3 4.0
Jack Polsky(3)(9)...................... 441,312 11.2 708,833 4.2 9.1
Boardman Lloyd(3)(8)................... 200,700 5.1 226,590 1.3 4.0
Irving B. Harris(3)(10)................ 1,226,150 31.1 1,781,924 10.5 24.9
King Harris(3)(11)(21)................. 549,907 14.0 975,026 5.7 11.5
Neison Harris(3)(12)................... 399,416 10.1 712,034 4.2 8.3
Sidney Barrows(3)(13).................. 38,541 1.0 62,821 .4 .8
William W. Harris(3)(14)(16)........... 1,226,150 31.1 1,783,924 10.5 24.9
Eugene L. Barnett(15)(16).............. 600 * 2,978 * *
Fred Conforti(17)(21).................. 3,900 .1 108,997 .6 .3
E. David Coolidge III(16).............. 1,100 * 9,500 .1 *
Anthony Downs(16)...................... 1,650 * 9,189 .1 *
Leo A. Guthart(18)(21)................. None -- 128,461 .8 .2
Jerome Kahn, Jr.(3)(16)(19)............ 1,226,150 31.1 1,783,924 10.5 24.9
Sal F. Marino.......................... None -- 92,190 .5 .2
Leo F. Mullin(16)...................... 750 * 2,000 * *
Daniel J. Ramella(20)(21).............. None -- 39,564 .2 .1
All Directors and Executive Officers of
the Company as a group
(18 persons)(21)(22)................. 2,089,259 53.0 3,677,398 21.6 43.5
The Current Harris Group(3)............ 2,077,989 52.8 3,289,909 19.3 42.7
</TABLE>
- ------------
* Less than one-tenth of one percent
(1) Except as otherwise indicated below, beneficial ownership means the sole
power to vote and dispose of shares.
3
<PAGE> 6
(2) The information as to William Harris Investors, Inc. ("WHI") is derived in
part from statements, as amended February 3, 1997, filed with the
Securities and Exchange Commission (the "Commission") pursuant to Section
13(g) of the Exchange Act. Such statements, together with advice furnished
to the Company separately by WHI, disclose that (i) WHI, an investment
adviser registered under the Investment Advisers Act of 1940, holds all
such shares on behalf, and in terminable discretionary accounts, of Irving
B. Harris, William W. Harris, Sidney Barrows and certain other members of
the Harris Group and Jerome Kahn, Jr., (ii) WHI shares voting power with
such persons, and has sole dispositive power, with respect to all such
shares, (iii) Irving B. Harris and his children (including William W.
Harris) are the sole stockholders of WHI and (iv) Irving B. Harris and
Jerome Kahn, Jr. are, respectively, the Chairman and the President of WHI.
(3) The information as to the Current Harris Group (as defined below),
Katherine Harris, Roberta Harris, Jack Polsky, Boardman Lloyd, Irving B.
Harris, King Harris, Neison Harris, Sidney Barrows and William W. Harris is
derived in part from statements, as amended January 15, 1990, filed with
the Commission pursuant to Section 13(d) of the Exchange Act and
statements, as amended November 15, 1991, filed with the Commission
pursuant to such Section. Such statements were filed on behalf of such
persons as well as those other persons and entities who are currently
members of the Harris Group beneficially owning, directly or indirectly,
shares of Common Stock or Class A Stock (collectively referred to as the
"Current Harris Group"). Such statements disclose that, because of the
relationships among members of the Current Harris Group, such persons may
be deemed to be a group within the meaning of Section 13(d) of the Exchange
Act and the rules and regulations thereunder. Jerome Kahn, Jr. may also be
deemed to be a member of any such group. Irving B. Harris, King Harris,
Neison Harris, Sidney Barrows, William W. Harris and Jerome Kahn, Jr. may
be deemed in control of the Company by reason of beneficial ownership of
stock of the Company by themselves and other members of the Current Harris
Group and by reason of their positions with the Company and its
subsidiaries. The aggregate number of outstanding shares which may be
deemed to be beneficially owned by the Current Harris Group includes all
the shares shown in this table for WHI, Katherine Harris, Roberta Harris,
Jack Polsky, Boardman Lloyd, Irving B. Harris, King Harris, Neison Harris,
Sidney Barrows and William W. Harris and the shares referred to in note (6)
for First Chicago NBD Corporation. Total excludes duplication of shares
within the Current Harris Group. Addition of the shares owned directly by
Jerome Kahn, Jr. would not affect the percentages of outstanding shares or
outstanding votes shown for the Current Harris Group.
(4) The information as to Mario J. Gabelli and entities controlled directly or
indirectly by Mr. Gabelli is derived from statements, as amended November
8, 1996 and February 28, 1997, filed with the Commission pursuant to
Section 13(d) of the Exchange Act. Such statements disclose that (i) Mr.
Gabelli is the chief investment officer for most of the entities signing
such statements and is deemed to have beneficial ownership of the shares
beneficially owned by all such entities, (ii) Mr. Gabelli and such entities
do not admit that they constitute a group within the meaning of Section
13(d) of the Exchange Act and the rules and regulations thereunder and
(iii) Mr. Gabelli and such entities have the sole power to vote and dispose
of all the shares of which they are beneficial owners (unless the aggregate
voting interest of all such entities exceeds 25% of the Company's total
voting interest or other special circumstances exist, in which case the
proxy voting committees of certain of such entities would have the sole
power to vote certain of 280,350 shares of Common Stock and 592,500 shares
of Class A Stock) except 6,950 shares of Common Stock and 94,233 shares of
Class A Stock as to which they have no voting power.
(5) The information as to Janus Capital Corporation ("Janus") is derived from a
statement, as amended February 10, 1997, filed with the Commission pursuant
to Section 13(g) of the Exchange Act. Such statement discloses that (i)
Thomas H. Bailey is President and Chairman of the Board of Janus, owns
approximately 12.2% of Janus and may be deemed to exercise control over
Janus, (ii) Janus is deemed to have beneficial ownership of all 1,267,728
shares, (iii) Janus and Mr. Bailey share voting and dispositive power with
respect to such shares, (iv) all such shares are held by managed portfolios
to which Janus is an investment advisor or sub-advisor and (v) Mr. Bailey
disclaims beneficial ownership of such shares.
(6) The information as to First Chicago NBD Corporation ("FCN") is derived in
part from a statement, as amended February 4, 1997, filed with the
Commission pursuant to Section 13(g) of the Exchange Act. Such statement,
together with advice furnished to the Company separately by members of the
current Harris Group, discloses that FCN is the beneficial owner of 257,843
of such shares of Common Stock and 331,308 of such shares of Class A
4
<PAGE> 7
Stock as co-trustee of trusts created by Neison Harris and shares voting
and dispositive power with its co-trustees, King Harris and another member
of the Current Harris Group.
(7) Consists of shares held as co-trustee of trusts created by members of the
Current Harris Group or as custodian for a member of the Harris Group who
is a minor. Ms. Harris shares with other members of the Current Harris
Group the power to vote and dispose of 417,382 shares of such Common Stock
and 605,524 shares of such Class A Stock.
(8) Consists of shares held by Ms. Harris and Mr. Lloyd as co-trustees of a
trust created by a member of the Current Harris Group. They share with
other members of the Current Harris Group the power to vote and dispose of
such shares.
(9) Includes 439,958 shares of Common Stock and 706,627 shares of Class A Stock
held as co-trustee of trusts created by members of the Current Harris
Group. Mr. Polsky shares with other members of the Current Harris Group the
power to vote and dispose of such shares.
(10) Consists of the shares held by WHI (of which Irving B. Harris is a
controlling stockholder), certain of which are held by WHI for the account
of Mr. Harris or would otherwise be deemed beneficially owned by him
without regard to WHI. As set forth in note (2), the voting power of the
shares held by WHI is shared by WHI with the respective persons for whose
account they are held and WHI has sole dispositive power with respect to
such shares.
(11) King Harris shares the power to vote and dispose of 530,754 of such shares
of Common Stock and 850,934 of such shares of Class A Stock. Includes
73,911 shares of Class A Stock which Mr. Harris has the right to acquire
within 60 days through the exercise of options awarded under the Company's
1990 Stock Awards Plan.
(12) Neison Harris shares the power to vote and dispose of 145,676 of such
shares of Common Stock and 427,969 of such shares of Class A Stock. He also
shares with another member of the Current Harris Group the power to dispose
of, but not vote, an additional 45,750 shares of Common Stock and 58,050
shares of Class A Stock.
(13) Does not include 121,800 shares of Common Stock and 198,534 shares of Class
A Stock owned by Mr. Barrows' wife, as to which shares he disclaims
beneficial ownership. Includes 13,491 shares of Common Stock and 21,990
shares of Class A Stock held by WHI for the account of Mr. Barrows. As set
forth in note (2), the voting power of such shares is shared by WHI with
Mr. Barrows and WHI has sole dispositive power with respect to such shares.
Mr. Barrows shares the power to vote and dispose of the shares not held by
WHI.
(14) Consists of the shares held by WHI (of which William W. Harris is a
controlling stockholder), certain of which are held by WHI for the account
of Mr. Harris or would otherwise be deemed beneficially owned by him
without regard to WHI. As set forth in note (2), the voting power of the
shares held by WHI is shared by WHI with the respective persons for whose
account they are held and WHI has sole dispositive power with respect to
such shares.
(15) Eugene Barnett shares power to vote and dispose of all such shares.
(16) Includes 2,000 shares of Class A Stock which he has the right to acquire
within 60 days through the exercise of an option awarded under the
Company's 1996 Director Stock Option Plan.
(17) Does not include 9,000 shares of Class A Stock owned by Mr. Conforti's
wife, as to which shares he disclaims beneficial ownership. Includes 65,152
shares of Class A Stock as to which he shares voting and dispositive power.
(18) Includes 28,408 shares of Class A Stock as to which Mr. Guthart shares
voting and dispositive power.
(19) Consists of the shares held by WHI, with respect to which Mr. Kahn acts as
portfolio manager, including 270 shares of Common Stock and 439 shares of
Class A Stock owned by Mr. Kahn. As set forth in note (2), the voting power
of the shares held by WHI is shared by WHI with the respective persons for
whose account they are held and WHI has sole dispositive power with respect
to such shares.
(20) Mr. Ramella shares power to vote and dispose of 23,022 of such shares.
Includes 16,098 shares of Class A Stock which Mr. Ramella has the right to
acquire within 60 days through the exercise of options awarded under the
Company's 1990 Stock Awards Plan.
(21) Includes shares of Class A Stock beneficially owned as of December 31, 1996
through participation in the Company's salary reduction plan (such date
being the most recent date for which information regarding account balances
under such plan is available).
5
<PAGE> 8
(22) Includes 1,459,245 shares of Common Stock and 2,284,846 shares of Class A
Stock as to which voting power is shared other than with directors and
executive officers of the Company and 510,906 shares of Common Stock and
940,728 shares of Class A Stock as to which dispositive power is so shared.
Includes 193,296 shares of Class A Stock which executive officers of the
Company have the right to acquire within 60 days through the exercise of
options awarded under the Company's 1990 Stock Awards Plan and 12,000
shares of Class A Stock which non-employee directors of the Company have
the right to acquire within 60 days through the exercise of options awarded
under the Company's 1996 Director Stock Option Plan. Total excludes
duplication of shares within such group.
ELECTION OF DIRECTORS
Twelve directors are to be elected to serve until the next annual meeting of
stockholders and until their respective successors have been elected. Three of
such directors are to be elected by the Class A Stock voting as a class and the
remaining nine directors are to be elected by the Common Stock voting as a
class. The directors to be elected by a particular class will be elected by
plurality of the votes cast FOR directors of such class. Except to the extent
that stockholders voting in a particular class indicate otherwise on their
proxies solicited by the Company's Board of Directors relating to such class,
the holders of such proxies intend to vote such proxies for the election as
directors of the persons named in the following table as nominees for election
by such class (all of whom are now serving as directors elected by such class),
provided that if any of the nominees for election by such class shall be unable
or shall fail to act as such by virtue of an unexpected occurrence, such proxies
will be voted for such other person or persons as shall be determined by the
holders of such proxies in their discretion or, so long as such action does not
conflict with the provisions of the Company's Restated Certificate of
Incorporation, as amended, relating to the proportion of directors to be elected
by the Class A Stock, the Board of Directors may, in its discretion, reduce the
number of directors to be elected.
NOMINEES FOR ELECTION BY THE HOLDERS OF CLASS A STOCK
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION
NOMINEE SINCE AGE AND DIRECTORSHIPS
------- -------- --- --------------------
<S> <C> <C> <C>
Eugene L. Barnett(A)......................... 1980 69 Retired; Consultant (March 1991 to April
1993) to, Chairman and Chief Executive
Officer (1976 to 1991) of, The Brand
Companies, Inc. (specialty contractor);
Vice President of the Company (1979 to
1993); Director, AptarGroup, Inc.
(specialty packaging components
manufacturer) and National Service
Corporation (specialty contractor)
E. David Coolidge III(A)(N).................. 1994 53 Chief Executive Officer (since January 1996),
Managing Partner (1995), Manager, Corporate
Finance Department (1977 to 1995) of
William Blair & Company L.L.C. (investment
banker)
Anthony Downs (A)(C)......................... 1971 66 Senior Fellow (since prior to 1991) of
Brookings Institution (non-profit social
policy research center); Consultant (since
1991); Director, Bedford Properties, Inc.
(real estate investment trust), General
Growth Properties, Inc. (real estate
investment trust) and Massachusetts Mutual
Life Insurance Corporation (insurance
company)
</TABLE>
6
<PAGE> 9
NOMINEES FOR ELECTION BY THE HOLDERS OF COMMON STOCK
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION
NOMINEE SINCE AGE AND DIRECTORSHIPS
------- -------- --- --------------------
<S> <C> <C> <C>
Sidney Barrows(E)+........................... 1963 78 Of counsel (since January 1994) to,
shareholder (prior to 1994) in, law firm of
Leonard, Street and Deinard, Minneapolis,
Minnesota; Vice Chairman of the Board of
the Company (since the Merger); Vice
President of the Company (1963 to the
Merger); Treasurer of the Company (1974 to
the Merger)
Fred Conforti................................ The 55 President of Pittway Systems Technology Group
Merger* (division of Pennsylvania Pittway until the
Merger, division of the Company since the
Merger); Vice President of the Company
(since the Merger); Vice President of
Pennsylvania Pittway (1977 to the Merger)
Leo A. Guthart(E)............................ 1980 59 Chairman and Chief Executive Officer of
Pittway Security Group (division of
Pennsylvania Pittway until the Merger,
division of the Company since the Merger);
Vice Chairman of the Board of the Company
(since the Merger) and of Pennsylvania
Pittway (1984 to the Merger); Director,
AptarGroup, Inc. (specialty packaging
components manufacturer) and Chairman of
the Board and Director, Cylink Corporation
(commercial data encryption / wireless
communication company); Trustee, Acorn
Investment Trust (mutual funds)
Irving B. Harris(E)+......................... 1953 86 Chairman of the Executive Committee of the
Company (since the Merger); President of
the Company (1964 to the Merger); Chairman
of the Executive Committee of Pennsylvania
Pittway (1984 to the Merger); Chairman of
the Board of Acorn Investment Trust (mutual
funds); Director, Teva Pharmaceutical
Industries Ltd. (pharmaceutical
manufacturer)
King Harris(E)(N)+........................... 1975 53 President and Chief Executive Officer of the
Company (since the Merger); President (1984
to 1987), President and Chief Executive
Officer (1987 to the Merger) of
Pennsylvania Pittway; Chairman of the Board
and Director, AptarGroup, Inc. (specialty
packaging components manufacturer) and
Director, Cylink Corporation (commercial
data encryption/wireless communication
company)
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION
NOMINEE SINCE AGE AND DIRECTORSHIPS
------- -------- --- --------------------
<S> <C> <C> <C>
Neison Harris(E)+............................ 1963 82 Chairman of the Board of the Company (since
1974); Chairman of the Board (1984 to the
Merger), President (1966 to 1984) of
Pennsylvania Pittway
William W. Harris(C)(E)(N)+.................. 1975 57 Private Investor; Treasurer (since prior to
1991) of KidsPac (political action
committee); Director, AptarGroup, Inc.
(specialty packaging components
manufacturer) and Cylink Corporation
(commercial data encryption / wireless
communication company)
Jerome Kahn, Jr.(C).......................... 1994 62 President (since October 1996), Vice
President (prior to 1991 to October 1996) of
William Harris Investors, Inc. (investment
advisor); Trustee, Acorn Investment Trust
(mutual funds)
Leo F. Mullin(C)............................. 1995 54 Vice Chairman (since December 1995) of Unicom
Corporation and Commonwealth Edison
Company(public utility); President and
Chief Operating Officer (November 1993 to
1995) of First Chicago Corporation (bank
holding company); Chairman, President and
Chief Executive Officer (1991 to 1993) of
American National Bank and Trust Company of
Chicago; Director, Inland Steel Industries,
Inc. (steel manufacturer)
</TABLE>
- ------------
(A) Member of Audit Committee
(C) Member of Compensation Committee
(E) Member of Executive Committee
(N) Member of Nominating Committee
* Director of Pennsylvania Pittway prior to the Merger
+ Irving B. Harris and Neison Harris are brothers and Sidney Barrows is their
brother-in-law. William W. Harris is the son of Irving B. Harris and King
Harris is the son of Neison Harris.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company met eight times during 1996.
The Company's Board of Directors has an Audit Committee, a Compensation
Committee, an Executive Committee and a Nominating Committee.
The Audit Committee reviews and, as it deems appropriate, approves internal
accounting and financial controls for the Company and accounting principles and
auditing practices and procedures to be employed in preparation and review of
financial statements of the Company. The Audit Committee also makes
recommendations to the full Board concerning the engagement of independent
public accountants to audit the annual financial statements of the Company and
its subsidiaries and arranges with such accountants the scope of the audit to be
undertaken by such accountants. The current members of the Audit Committee are
Eugene L. Barnett (Chairman), E. David Coolidge III and Anthony Downs. During
1996, the Committee met twice.
8
<PAGE> 11
The Compensation Committee reviews and determines the compensation of executive
officers, reviews and makes recommendations to the full Board with respect to
salaries, bonuses and deferred compensation of other officers and executives,
compensation of directors and management succession, and makes such
determinations and performs such other duties as are expressly delegated to it
pursuant to the terms of any employee benefit plan of the Company. The
Compensation Committee administers the Company's 1990 Stock Awards Plan. The
current members of the Compensation Committee are Anthony Downs (Chairman),
William W. Harris, Jerome Kahn, Jr. and Leo F. Mullin. During 1996, the
Compensation Committee met four times.
The Executive Committee generally meets prior to each regular meeting of the
Board of Directors to distill topics and issues to be presented at such
meetings. When the full Board is not in session, the Executive Committee may
exercise all the powers and authority of the Board of Directors except as
limited by law. The current members of the Executive Committee are Irving B.
Harris (Chairman), Sidney Barrows, Leo A. Guthart, King Harris, Neison Harris
and William W. Harris. During 1996, the Executive Committee met six times.
The Nominating Committee, as it deems appropriate, makes recommendations to the
full Board with respect to the size and composition of the Board and its
committees and with respect to nominees for election as directors. The current
members of the Nominating Committee are William W. Harris (Chairman), E. David
Coolidge III and King Harris. During 1996, the Nominating Committee did not
meet; it determined its recommendations with respect to nominees for election as
directors at the 1997 annual meeting at a meeting held during 1997. The
Nominating Committee will consider suggestions regarding candidates for election
to the Board submitted by stockholders in writing to the Secretary of the
Company. With regard to the 1998 annual meeting of stockholders, any such
suggestion must be received by the Secretary no later than the date by which
stockholder proposals for such annual meeting must be received as described
below under the heading "Stockholder Proposals for the 1998 Annual Meeting."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, Anthony Downs, William W. Harris, Jerome Kahn, Jr. and Leo F.
Mullin were the members of the Compensation Committee.
Pulbrook Associates ("Pulbrook"), a limited partnership of which Irving B.
Harris owns 58.7% as a limited partner and a corporation owned by a trust of
which William W. Harris is a trustee owns 1.3% as the general partner, was
indebted to the Company during 1996 pursuant to an amortizing 8% mortgage note
in the original principal amount of $193,000 delivered in November 1993 in
connection with Pulbrook's purchase of a National Pride car care center from the
Company. The largest outstanding note balance during 1996 (on January 1, 1996)
was $182,216. The balance as of March 27, 1997 was $171,737.
9
<PAGE> 12
EXECUTIVE OFFICERS
All officers of the Company are elected each year by the Board of Directors at
its annual organization meeting in May. In addition to Sidney Barrows, Fred
Conforti, Leo A. Guthart, Irving B. Harris, King Harris and Neison Harris,
information with respect to whom is set forth above, the executive officers of
the Company include the following:
Paul R. Gauvreau, 57, Financial Vice President and Treasurer of the Company
since the Merger, Financial Vice President of Pennsylvania Pittway from
1979 to the Merger, Treasurer of Pennsylvania Pittway from 1972 to the
Merger.
Thomas L. Kemp, 45, Chairman and Chief Executive Officer since September
1996 of Penton Publishing, Inc. (subsidiary of the Company), President and
Chief Operating Officer from January 1996 to August 1996, Executive Vice
President from 1994 to 1996, and Senior Vice President, Business and
Special Interest division from 1992 to 1994 of Miller Freeman, Inc.
(business magazine publisher and exhibition manager), Vice President of the
Company since September 1996.
Daniel J. Ramella, 45, President and Chief Operating Officer since 1990,
Senior Vice President Publishing from 1989 to 1990, and Magazine Publisher
prior thereto, of Penton Publishing, Inc. (subsidiary of the Company), Vice
President of the Company since 1991.
Edward J. Schwartz, 55, Vice President of the Company since the Merger,
Vice President-Finance of the Company from 1979 to the Merger, Vice
President of Pennsylvania Pittway from 1987 to the Merger.
Philip V. McCanna, 50, Controller of the Company since 1995, Director of
Financial Reporting of the Company from 1989 to 1995, Controller of The
Brand Companies, Inc. (specialty contractor) from 1984 to 1989.
James F. Vondrak, 52, Secretary of the Company since 1995, Group Controller
of Pittway Systems Technology Group (division of the Company) since 1994,
Controller of System Sensor (division of the Company) from the Merger to
1994.
COMPENSATION
BOARD COMPENSATION
Compensation to non-officer directors is paid at the rate of $2,500 per quarter
plus $3,000 for each Board meeting attended in person, $1,000 for each Board
meeting attended by telephone and $1,000 for each committee meeting attended,
except that $250 is paid for attending a committee meeting held on the same day
as a Board meeting. The Chairman of the Audit Committee is paid an additional
$2,000 per year. Officer directors are not separately compensated for serving as
directors.
Under the Company's 1996 Director Stock Option Plan, on the third trading date
after the annual meeting held in each of the years 1996, 1997, 1998 and 1999,
each director of the Company who is not then an employee of the Company or any
of its subsidiaries and who has not previously been awarded an option under the
Plan is automatically awarded a non-qualified stock option to purchase shares of
Class A Stock at the market value on the date of the award (4,000 shares in the
case of each option granted in 1996; and 3,000, 2,000 and 1,000 shares in the
case of each option to be granted in 1997, 1998 and 1999, respectively). Each
option is exercisable six months after its award as to 1,000 shares and,
provided the optionee is still a director of the Company and is not an employee
of the Company or any of its subsidiaries, becomes exercisable as to an
additional 1,000 shares on each anniversary of its award. Each option has a term
of ten years, but, if earlier,
10
<PAGE> 13
will expire five years after the optionee ceases to be a member of the Board for
any reason. A maximum of 30,000 shares of Class A Stock (subject to adjustment)
may be subject to options under the Plan. In 1996, each of Messrs. Barnett,
Coolidge, Downs, W. Harris, Kahn and Mullin was awarded an option to purchase
4,000 shares at an exercise price of $47.50.
SUMMARY COMPENSATION TABLE
The following table sets forth compensation information for the President and
Chief Executive Officer of the Company (who served as such throughout 1996) and
for each of the Company's four most highly compensated other executive officers
serving at the end of 1996. No other person who served as an executive officer
of the Company at any time during 1996 had 1996 compensation in excess of the
1996 compensation of any of the executive officers named in the table.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
AWARDS PAYOUTS
------------------------- -------
ANNUAL RESTRICTED SECURITIES
COMPENSATION STOCK UNDERLYING LTIP
------------------- AWARDS OPTIONS/SARS PAYOUTS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) ($)(1)(2) (#)(1)(3)(4) (5) COMPENSATION
- --------------------------------------- ---- -------- -------- ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
King Harris, President and 1996 $550,000 $500,000 $250,000 19,500 $ 4,946(6)
Chief Executive Officer 1995 525,000 40,050 5,077
1994 500,000 200,000 36,862 5,256
Fred Conforti, President of 1996 425,000 150,000 18,907 4,590(7)
Pittway Systems Technology Group 1995 375,000 125,000 25,950 5,077
(division of the Company) 1994 360,000 100,014 29,395 5,256
Leo A. Guthart, Chairman and Chief 1996 425,000 450,000 13,000 4,612(8)
Executive Officer of Ademco Security 1995 375,000 350,000 19,500 $30,000 5,077
Group (division of the Company) 1994 355,000 300,000 19,317 4,779
Sal F. Marino, Chairman and Chief 1996 350,000 330,000 12,000 130,145(9)
Executive Officer of Penton Publishing, 1995 330,000 19,200 95,000 106,169
Inc. (subsidiary of the Company) 1994 315,000 10,822 98,402
Daniel J. Ramella, President and Chief 1996 315,000 150,000 100,000 7,000 4,852(10)
Operating Officer of Penton Publishing, 1995 300,000 115,000 100,000 10,500 75,000 3,534
Inc. (subsidiary of the Company) 1994 285,000 115,000 100,014 2,768
</TABLE>
- ------------
(1) All of the restricted stock awards, a SAR for 5,607 shares awarded for 1996
to F. Conforti and the following SARs awarded for 1995 and 1994 were
awarded in lieu of bonuses or portions of bonuses that would otherwise have
been paid in cash: K. Harris, 10,800 and 7,594 shares, respectively; F.
Conforti, 6,000 and 9,493 shares, respectively; and S. Marino, 7,200 and
10,822 shares, respectively.
(2) The restricted stock awards shown for 1996 were awarded in 1997 and thus
were not outstanding at the end of 1996. The other restricted stock awards
shown remained outstanding in full at the end of 1996. The aggregate value
of the 23,950 shares of Class A Stock subject to such other awards and to
the one other restricted stock award held by a named executive officer that
remained outstanding at the end of 1996 was then $1,281,325. Each award
shown was a Performance Shares Award scheduled to vest in equal pro rata
installments over the five years subsequent to its grant. Under the terms
of each award, no shares are distributable until vesting of such award in
full or earlier termination of employment, and at the time shares are
distributed an amount is payable equal to the normal quarterly dividends
which would have been paid on such shares had such shares been issued on
the date such award was granted.
(3) Includes a SAR awarded for 1996 in 1997 (and thus not shown in the
following sections titled "Option/SAR Grants During Year" and "Option/SAR
Exercises and Year-End Values") to F. Conforti for 5,607 shares. The SAR
was a Bonus Shares Award vested in full upon grant. Under the terms of the
SAR, following a date approximately three years after the date of grant (or
following the date of any earlier termination of employment), an amount is
payable equal to the fair market value of the shares on such date plus the
normal quarterly dividends which would have been paid on such shares had
such shares been issued on the date such SAR
11
<PAGE> 14
was granted. The Compensation Committee may, in its sole discretion,
determine to pay the fair market value of the shares in shares of Class A
Stock rather than in cash.
(4) Adjusted as appropriate to reflect the Company's 3-for-2 stock split in
1996.
(5) Consists of amounts paid under incentive plans established in 1992 based on
the improvement of profitability and return on equity between 1992 and 1994
for their respective businesses.
(6) Consists of $4,500 annual matching Company contributions during the year to
the Company's salary reduction plan and $446 for term life insurance
provided by the Company during the year.
(7) Consists of $4,144 annual matching Company contributions during the year to
the Company's salary reduction plan and $446 for term life insurance
provided by the Company during the year.
(8) Consists of $4,500 annual matching Company contributions during the year to
the Company salary reduction plan and $112 for term life insurance provided
by the Company during the year.
(9) Consists of $3,047 annual matching Company contributions during the year to
the Company's salary reduction plan, $45 for term life insurance provided
by the Company during the year, and $127,053 required minimum distributions
paid during the year from the Company's salary reduction plan and a Company
retirement plan. Mr. Marino retired from the Company on December 31, 1996.
The amount shown does not include the present value equivalent amount paid
to him in connection with his retirement described below under the heading
"Employment Agreements" nor the lump sum distribution and distribution in
kind elected by him in connection with his retirement pursuant to the terms
of a Company retirement plan and the Company's salary reduction plan. In
connection with Mr. Marino's retirement, a subsidiary of the Company
entered into a consulting arrangement with him under which he will receive
$100,000 per year for up to five years and will be provided with office
space and support and reimbursement of certain club dues (having a value of
approximately $11,000 per year) for five years.
(10) Consists of $4,406 annual matching Company contributions during the year to
the Company's salary reduction plan and $446 for term life insurance
provided by the Company during the year.
OPTION/SAR GRANTS DURING YEAR
The following table sets forth information with respect to options and stock
appreciation rights ("SARs") granted during 1996 to executive officers named in
the Summary Compensation Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(4)
OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE EXPIRATION ----------------------
NAME GRANTED(#)(1) FISCAL YEAR PRICE($/SH)(1) DATE 5%($) 10%($)
---- ------------- ------------ ---------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
King Harris(2).......... 19,500 7.8 $43.25 3/10/06 530,394 1,344,123
King Harris(3).......... 10,800 4.3 0 1/21/99 520,973 598,998
Fred Conforti(2)........ 13,300 5.3 43.25 3/10/06 361,756 916,761
Fred Conforti(3)........ 6,000 2.4 0 1/21/99 289,429 332,777
Leo A. Guthart(2)....... 13,000 5.2 43.25 3/10/06 353,596 896,082
Sal F. Marino(2)........ 12,000 4.8 43.25 3/31/97 25,950 51,900
Sal F. Marino(3)........ 7,200 2.9 0 1/21/99 347,315 399,332
Daniel J. Ramella(2).... 7,000 2.8 43.25 3/10/06 190,398 482,506
</TABLE>
- ------------
(1) Adjusted as appropriate to reflect the Company's 3-for-2 stock split in
1996.
(2) Consists of non-qualified options to purchase Class A Stock granted under
the Company's 1990 Stock Awards Plan at exercise prices equal to the market
prices on the dates of grant. Each option becomes exercisable on the third
anniversary of the date of grant, subject to acceleration in the event of
earlier termination of employment (full acceleration if earlier termination
is on account of death, permanent
12
<PAGE> 15
disability or retirement upon or after reaching age sixty-five; partial
acceleration in increments of 33 1/3% each year commencing one year after
the date of grant if termination is for any other reason other than for
"cause").
(3) Consists of SARs with respect to Class A Stock awarded under the Company's
1990 Stock Awards Plan (in lieu of bonuses or portions of bonuses that would
otherwise have been paid in cash) at reference prices of zero dollars and
fully vested at grant. Under the terms of each SAR, following a date
approximately three years after the date of grant (or following the date of
any earlier termination of employment), an amount is payable equal to the
fair market value of the shares on such date plus the normal quarterly
dividends which would have been paid on such shares had such shares been
issued on the date such SAR was granted. The Compensation Committee may, in
its sole discretion, determine to pay the fair market value of the shares in
shares of Class A Stock rather than in cash.
(4) The assumed annual rates of appreciation in the price of Class A Stock are
in accordance with rules of the Securities and Exchange Commission and are
not predictions of future market prices of the Class A Stock nor of the
actual values the named executive officers will realize. In order for such
annual rates of appreciation to be realized over the 3-year term of the
SARs, the market price of Class A Stock would have to remain at or above
$48.24/share (5%) or increase to $55.46/share (10%) at the end of that term.
In order for such annual rates of appreciation to be realized over the
10-year term of the options, the market price of Class A Stock would have to
increase to $70.45/share (5%) or $112.18/share (10%) during that term. In
such events, and assuming corresponding annual rates of increase for the
market price of Common Stock, the market value of all currently outstanding
shares of Common Stock and Class A Stock would have increased by
approximately $138,000,000 (5%) or $289,000,000 (10%) during that 3-year
term and by approximately $570,000,000 (5%) or $1,445,000,000 (10%) during
that 10-year term.
OPTION/SAR EXERCISES AND YEAR-END VALUES
The following table sets forth information with respect to exercises of options
and SARs during 1996 by the executive officers named in the Summary Compensation
Table and the values of unexercised options and SARs held by them as of December
31, 1996.
AGGREGATED OPTION/SAR EXERCISES IN 1996 AND YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISABLE
OPTIONS/SARS AT IN-THE-MONEY OPTIONS/
SHARES YEAR-END(#)(1) SARS AT YEAR-END($)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
King Harris........... 0 $ 0 73,240 78,018 $3,020,653 $1,784,800
Fred Conforti......... 0 0 19,902 53,152 724,765 1,215,487
Leo A. Guthart........ 0 0 19,317 51,817 703,461 1,050,669
Sal F. Marino......... 0 0 24,000 0 407,000 0
Daniel J. Ramella..... 35,670 1,465,608 16,098 17,500 586,236 320,250
</TABLE>
- ------------
(1) Adjusted as appropriate to reflect the Company's 3-for-2 stock split in
1996.
13
<PAGE> 16
EMPLOYMENT AGREEMENTS
An employment agreement between a subsidiary of the Company and Mr. Marino
provided for a minimum annual salary of $350,000 during 1996 and for payment to
him of $500,000 (or payment to his estate of a reduced amount) in installments
over a period of 60 months after termination of employment. In connection with
his retirement from the Company on December 31, 1996, the subsidiary paid Mr.
Marino the present value equivalent of such installments.
Employment agreements between the Company and K. Harris and L. Guthart provide
for minimum annual salaries of $550,000 and $425,000, respectively,
supplementary insurance coverage (or its cash equivalent) and participation in
the Company's supplemental executive retirement plan effective January 1, 1995.
The agreements are for terms expiring December 31, 1999 and 2001, respectively.
Each agreement renews automatically at the end of each year for an additional
year (or until age 65, if earlier) unless either party thereto elects otherwise,
but may be terminated by the executive officer on 180 days' notice (with
forfeiture of supplemental retirement benefits). Each agreement includes
non-competition, non-solicitation and confidentiality obligations on the part of
the executive officer which survive its termination.
PLANS AND ARRANGEMENTS
In the descriptions of plans and arrangements which follow, and in the
descriptions elsewhere in this Proxy Statement of outstanding restricted stock
awards, options and SARs, references are made to shares of Class A Stock. If the
Change of Control Date (as defined in the Company's Restated Certificate of
Incorporation, as amended) should occur, the Class A Stock will change into
Common Stock on a share-for-share basis. In the event of any such change,
references to Class A Stock in such descriptions should be understood to refer
to Common Stock.
Salary Reduction Plan
Under the Company's salary reduction plan (which was originated by Pennsylvania
Pittway and assumed by the Company in connection with the Merger), eligible
covered employees of the Company and its subsidiaries may elect to have a
portion of their "earnings" (total cash compensation less certain items)
contributed to the plan by their employers, and their employers match such
contributions with specified percentages thereof. The percentages vary as
between separate groups of covered employees and are determined from time to
time by their employers. For 1996, such percentages ranged from .6% to 3.0% of
eligible covered employees' "earnings." Contributions and matches are invested
in one or more investment funds selected by the employees from among those
available under the plan. Such funds include a fund which invests solely in
Class A Stock. Salary reduction contributions vest immediately. Subject to
acceleration in the event of termination of employment upon retirement after age
65 or on account of death or disability, employer matching contributions vest on
a cumulative basis of 20% per year of credited service under the plan. Vested
contributions (after any earnings or losses from the investment thereof) are
distributed in a lump sum or installments following termination of employment,
but account balances may under certain circumstances and subject to certain
conditions be withdrawn or borrowed earlier.
Retirement Plans
The Company and its subsidiaries have tax-qualified retirement plans covering
all domestic salaried employees, and certain domestic hourly employees, after
three months of service. The plans are fully paid for by the Company, and
employees become fully vested after five years of service. The annual benefit
payable to an employee under the plans upon retirement, computed as a straight
life annuity amount, equals the sum of the
14
<PAGE> 17
separate amounts the employee accrues for each of his years of service under the
plans plus certain increases put into effect prior to 1996. Such separate
amounts are determined as follows: for each year through 1988, 1.2% of such
year's compensation up to the Social Security wage base for such year and 1.8%
(2.0% for years after 1986) of such year's compensation above such wage base;
for each year after 1988 through the year in which the employee reaches
thirty-five years of service, 1.2% of such year's "covered compensation" and
1.85% of such year's compensation above such "covered compensation"; and for
each year thereafter, 1.2% of such year's compensation. The employee's
compensation under the plans for any year includes all salary (before any
election under the Company's salary reduction plan or cafeteria plan),
commissions and overtime pay and, beginning in 1989, bonuses (in the case of
each executive officer named in the Summary Compensation Table, the equivalent
of the sum of the amounts set forth for such executive officer for such year in
the Annual Compensation and LTIP Payout columns of such Table and the amount
taxable to such executive officer during such year related to options and SARs
awarded pursuant to the Company's 1990 Stock Awards Plan); subject to such
year's limit applicable to tax-qualified retirement plans ($160,000 for 1997
and, currently, for each year thereafter). The employee's "covered compensation"
under the plans for any year is generally the average, computed such year, of
the Social Security wage bases for each of the thirty-five years preceding the
employee's Social Security retirement age, assuming that such year's Social
Security wage base will not change in the future. Normal retirement age under
the plans is age 65, and reduced benefits are available as early as age 55.
Benefits are not subject to reduction for Social Security benefits or other
offset amounts. Estimated annual benefits payable under the plans upon
retirement at normal retirement age for the following persons (assuming 1997 and
future compensation at the $160,000 limit currently applicable and that covered
compensation remains constant; but without regard to the formula limitation on
annual benefits imposed on tax-qualified retirement plans, currently $125,000)
are: K. Harris, $119,731; F. Conforti, $106,925; L. Guthart, $130,100; and D.
Ramella, $88,145.
Upon his retirement from the Company on December 31, 1996, S. Marino became
entitled to an annual pension of $70,214.
Supplemental Executive Retirement Plan
Three executive officers of the Company and four other employees of the Company
or a subsidiary participate in the Company's supplemental executive retirement
plan, which is not tax-qualified. The annual benefit payable to a participant
under the plan at age 65, computed as a straight life annuity amount, equals the
sum of the separate amounts the participant accrues for each of his years of
service during or after 1995 (or, in the case of one executive officer,
September 3, 1996). The separate amount for each such year is 1.85% of that
portion of the participant's salary and annual discretionary cash bonus, if any,
for such year (before any election under the Company's salary reduction plan,
and including any portion of such bonus taken in the form of Performance Shares
Awards) in excess of $150,000 (or any higher limit applicable that year to tax-
qualified retirement plans) but less than $300,000. Benefits are not subject to
reduction for Social Security benefits or other offset amounts. Accrued benefits
are subject to forfeiture in certain events. Estimated annual benefits payable
under the plan upon retirement at age 65 for the following persons (assuming
1997 and future annual salary and discretionary cash bonus of not less than
$300,000 for each of them and that the $160,000 limit applicable in 1997 remains
constant) are: K. Harris, $37,678; and L. Guthart, $23,218.
15
<PAGE> 18
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") makes
salary, bonus and long-term incentive plan decisions with respect to all of the
Company's executive officers, in the case of salary decisions regarding certain
of such executive officers subject to the provisions of their employment
agreements.
In making such decisions, a primary goal, subject to the Company's performance
being adequate to support it, is that the compensation paid to the Company's
executive officers remain competitive. While the Committee is mindful of Section
162(m) of the Internal Revenue Code of 1986, as amended, and the loss of
deductibility for federal income tax purposes of certain remuneration of a
covered executive officer in excess of $1,000,000 during 1994 or any subsequent
year, the Committee does not base decisions primarily on preserving such
deductibility.
The Committee's policies applicable to compensation of the Company's executive
officers other than its chief executive officer for 1996 were as follows:
SALARY
The Committee obtained from an outside compensation specialist a detailed report
regarding salaries being paid to top level executives in companies of roughly
the same size and in the same type of business as that of the Company executive.
In the case of Mr. Conforti and Mr. Guthart, salary information from 42
companies in the electronic/electrical equipment field was used to generate
comparative information. In the case of Mr. Marino and Mr. Ramella, 73 companies
in the media industry, including four direct competitors, were used as sources
of data. In the case of Corporate Office executives, salary information from
both electronic/electrical equipment companies and durable goods manufacturers
was used.
Only three of the companies included in the report had their performance
reflected in the Value Line Electronics Industry Index used in the Performance
Graph which follows this Report. The Committee does not know whether any of the
companies included in the report had its performance reflected in the Wilshire
5000 Index used in such Performance Graph. Because nearly all of the Company's
major direct competitors are either divisions of larger diversified companies or
privately held, those competitors generally are not included in either the
outside compensation specialist's report or such indices. The Committee believes
that the electronic/electrical equipment companies included in the outside
compensation specialist's report are, as a group, as comparable to the companies
included in the Value Line Electronics Industry Index as any other group of
companies for which compensation information was available to the Committee.
The report specifically identified salaries at the 50th, 75th and 90th
percentiles of the ranges of salaries surveyed. It also showed pay differentials
between presidents and chief executive officers (CEOs) of free-standing
companies and presidents and CEOs of division-based companies. The Committee
tended to focus on salaries paid in free-standing companies for two reasons.
First, Company businesses are given a high degree of autonomy and effectively
run as free-standing companies. Second, Company executives are likely targets of
management recruiters from free-standing competitors of the Company.
The Committee also reviewed published compensation information from four
publicly held companies in the alarm equipment business. While these companies
are smaller than the Company's major alarm divisions, they still are indicative
of what competitive firms are paying in the alarm industry. Similar information
regarding compensation in the trade publishing industry was not readily
available.
As for salary policy in general, the Committee aimed at setting salaries
somewhere between the 50th and 75th percentile of the salary ranges reported by
the outside compensation specialist.
16
<PAGE> 19
BONUS
The Committee used the same outside compensation specialist to determine the
ranges of total cash compensation (i.e., salaries plus bonuses) being offered by
"comparable" companies in the electronic/electrical equipment, trade publishing,
and durable goods manufacturing industries. As was the case with salary
information supplied by the specialist, the Committee focused on total cash
compensation being given in the 50th to 75th percentile range because it felt
that this range was appropriate for an executive doing a good job in a business
performing well. Using the ranges as a guide, the Committee awarded bonuses
which were related to general management performance and, in the case of
executives other than Corporate Office executives, the following criteria with
regard to their respective businesses:
1. The accomplishment of yearly goals and objectives
2. Growth in pre-tax profit
3. The overall level of pre-tax profit compared to other Company businesses
4. Return on equity
For 1996, bonuses for executive officers ranged from 50% to 136% of their base
salaries and total cash compensation ranged between the 33rd and 94th percentile
of the ranges for free-standing companies reported by the outside compensation
specialist.
No set formula was used to determine total cash compensation because the
Committee believed that annual formulas, used alone, are too rigid and lead to
pay distortions on a year-to-year basis. In the case of executives other than
Corporate Office executives, the Committee gave the greatest weight, however, to
growth in pre-tax profit and return on equity. Each of such executives
accomplished the goals set for him as to those criteria.
The restricted stock awards (Performance Shares Awards) and one SAR (Bonus
Shares Award) for 1996 shown in the Summary Compensation Table, as well as Bonus
Shares Awards for 1996 made to three other executive officers, were made in lieu
of bonuses or portions of bonuses which would otherwise have been paid in cash.
STOCK OPTION AND STOCK APPRECIATION RIGHT (SAR) PROGRAM
In 1993, the Committee established a ten-year Stock Option and Stock
Appreciation Right (SAR) Program to more closely tie the financial interests of
managers with those of stockholders. In 1996, 213,350 stock options were granted
to 88 top and middle managers, including all five executive officers named in
the Summary Compensation Table. The exercise price of the options was the market
price of the Company's Class A Stock on the date of the grant.
The Program was designed by the Company's outside compensation specialist, who
patterned it after programs used by many other companies of the Company's size.
The Committee intends, subject to continuing improvement in the Company's
profits, that over the ten-year period stock options and SARs equivalent to
approximately 10% of the Company's outstanding shares will be awarded. According
to the outside compensation specialist, the 10% target represents the median for
companies of the Company's size.
The combined total of stock options and SARs granted under the Program through
1996 -- 1,017,698 (as adjusted) -- represents approximately 4.9% of the
Company's outstanding Common and Class A Stock. The Committee intended that the
initial option and SAR grants in 1993 be somewhat larger than normal as a way of
giving added incentive to the executives participating.
17
<PAGE> 20
The specific stock option grants given in 1996 were allocated among executives
on the basis of their positions and levels of responsibility. The numbers and
values of options and SARs already held by the executives were not a factor in
the allocation.
The Bonus Shares Awards for 1996, SARs which were awarded in lieu of bonuses or
portions of bonuses which would otherwise have been paid in cash, were not part
of the Program.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee obtained from an outside compensation specialist a detailed report
regarding compensation being paid to Presidents and CEOs of a broad range of
electronic/electrical equipment and durable goods manufacturers of roughly the
same size as the Company. The report specifically identified in dollar terms the
50th, 75th and 90th percentile of base salary, total cash compensation (base
salary plus cash bonus) and total compensation (including stock options and
other consideration) being paid to these comparable Presidents and CEOs. Mr.
Harris's base salary was at the 49th percentile of compensation reported. Of his
cash bonus (including restricted stock awards awarded in lieu of a portion of
cash bonus), 53% was determined based on the 1996 increase in the Company's net
operating income pursuant to a formula set by the Compensation Committee during
the first 90 days of 1996 and the remainder was discretionary. Mr. Harris's
total cash compensation and total compensation were, respectively, at the 68th
and 80th percentiles of compensation reported. The Committee felt Mr. Harris's
compensation was appropriate given the Company's outstanding growth in earnings
and return on equity during the year.
EMPLOYMENT AGREEMENT WITH T. KEMP
In 1996, the Committee approved an employment agreement with T. Kemp in
connection with his becoming employed by Penton Publishing, Inc., a subsidiary
of the Company, on September 3, 1996 as its Chief Executive Officer and thereby
becoming an executive officer of the Company. The agreement included provision
for initial options to purchase Class A Stock and certain other signing-related
compensation. On an ongoing basis, the agreement provides for a minimum annual
salary of $400,000, supplementary insurance coverage, participation in the
Company's supplemental executive retirement plan effective September 3, 1996 and
the payment of accrued but unvested pension plan and salary reduction plan
benefits in the event of termination of employment prior to full vesting. The
agreement is for a term of three years, and renews automatically at the end of
each year for an additional year (or until age 65, if earlier) unless either
party thereto elects otherwise, but may be terminated by Mr. Kemp on 120 days'
notice (with forfeiture of supplemental retirement benefits). The agreement
includes non-competition, non-solicitation and confidentiality obligations on
the part of Mr. Kemp which survive its termination.
Compensation Committee
Anthony Downs, Chairman
William W. Harris,
Jerome Kahn, Jr.
Leo F. Mullin
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<PAGE> 21
PERFORMANCE GRAPH
The following line graph compares the yearly percentage change in cumulative
total shareholder return, assuming reinvestment of dividends into additional
shares of the stock on which paid, for the Company's Common Stock and Class A
Stock with a broad stock market index (Wilshire 5000 Index), an industry index
(Value Line Electronics Industry Index), and, through 1992, an industry index
previously used in the Company's proxy statements (Value Line Diversified
Industry Index). The Company believes that the Value Line Electronics Industry
Index represents a better comparison for periods since the spin off of
AptarGroup, Inc. on April 22, 1993 (the "Spinoff"), because the majority of the
Company's sales, earnings and assets since the Spinoff have come from the
electronics-related Alarms and Other Security Products segment of its business.
Comparison of Five Year Cumulative Total Return
Pittway Corporation Common Stock and Class A Stock, Wilshire 5000 Index,
Value Line Electronics Industry Index and (through 1992) Value Line Diversified
Industry Index
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Pittway Common * 100 117 215 250 428 507
Pittway Class A * 100 122 239 302 514 613
VL Electronics 100 120 153 177 197 228
Wilshire 5000 100 109 121 121 165 200
VL Diversified 100 118
* For periods subsequent to the Spinoff, (A) total return on the Common Stock
was computed assuming that the share of AptarGroup, Inc. common stock
distributed for each share of Common Stock was reinvested in Common Stock on
that date, and (B) total return on Class A Stock was computed assuming that
the share of AptarGroup, Inc. common stock distributed for each share of
Class A Stock was reinvested in Class A Stock on that date.
</TABLE>
19
<PAGE> 22
CERTAIN TRANSACTIONS
During 1996, a limited partnership in which Irving B. Harris and William W.
Harris have interests was indebted to the Company. See "Compensation Committee
Interlocks and Insider Participation."
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on a review of reports of ownership, reports of changes of
ownership and written representations under Section 16(a) of the Securities
Exchange Act of 1934 which were furnished to the Company during or with respect
to 1996 by persons who were, at any time during 1996, directors or officers of
the Company or beneficial owners of more than 10% of the outstanding shares of
Common Stock or Class A Stock, the only such person who failed to file on a
timely basis any report required by such Section during 1996 was Thomas L. Kemp,
whose Form 3 reporting his holdings of Company stock as of the date he became an
executive officer of the Company was filed late.
ANNUAL REPORT
The Company's annual report for the year ended December 31, 1996 has been mailed
separately to stockholders prior to the mailing of this proxy statement.
Stockholders are referred to the report for financial and other information
about the Company, but such report is not incorporated in this proxy statement
and is not to be deemed a part of the proxy soliciting material.
STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
Any stockholder proposal to be considered for inclusion in proxy material for
the Company's annual meeting of stockholders in May 1998 must be received at the
principal executive offices of the Company no later than December 5, 1997.
PROXY SOLICITATION
Proxies will be solicited by mail. Proxies may also be solicited by directors,
officers and a small number of regular employees of the Company personally or by
mail, telephone or telegraph, but such persons will not be specially compensated
for such services. Brokerage houses, custodians, nominees and fiduciaries will
be requested to forward the soliciting material to the beneficial owners of
stock held of record by such persons, and the Company will reimburse them for
their expenses in doing so.
The entire cost of solicitation will be borne by the Company.
20
<PAGE> 23
OTHER MATTERS
Price Waterhouse LLP, who served as auditors for the year ended December 31,
1996, have been selected by the Board, upon recommendation of the Audit
Committee, to audit the consolidated financial statements of the Company for the
year ending December 31, 1997. It is expected that a representative of Price
Waterhouse LLP will attend the annual meeting, with the opportunity to make a
statement if he should so desire, and will be available to respond to
appropriate questions.
The management does not intend to present, and does not have any reason to
believe that others will present, any item of business at the annual meeting
other than those specifically set forth in the notice of the meeting. However,
if other matters are properly presented for a vote, the proxies will be voted
for such matters in accordance with the judgment of the persons acting under the
proxies.
By Order of the Board of Directors
JAMES F. VONDRAK
Secretary
Chicago, Illinois
April 4, 1997
21
<PAGE> 24
COMMON STOCK PROXY
PITTWAY CORPORATION
This Proxy is solicited on behalf of the Board of Directors
for the annual meeting of stockholders to be held on May 9, 1997
Neison Harris, King Harris, and James F. Vondrak (each with full power
of substitution) are hereby authorized to vote all the shares of Common Stock
which the undersigned would be entitled to vote if personally present at the
annual meeting of stockholders of Pittway Corporation to be held on May 9,
1997, and at any adjournment thereof, as follows on the reverse side and below.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED ON THE REVERSE
SIDE, BUT IF NO DIRECTION IS GIVEN, THE SHARES WILL BE VOTED FOR THE ELECTION
AS DIRECTORS OF THE NAMED NOMINEES.
YOUR VOTE IS IMPORTANT! PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE
SIDE AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE> 25
PITTWAY CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
<TABLE>
<S> <C>
Withhold For all
1. Election of Directors - For Authority Except
Nominees: S. Barrows, F. Conforti, L. Guthart, I. Harris,
K. Harris, N. Harris, W. Harris, J. Kahn, Jr. and L. Mullin
---------------------------------------------------
(INSTRUCTION: To withhold authority to vote for any
individual nominee, write that nominee's name in
the space provided above.)
2. In their discretion, upon such other business as may
properly be brought before the meeting
The undersigned acknowledges receipt of
the Notice of Annual Meeting of
Stockholders and of the Proxy Statement.
Dated: , 1997
---------------------------
Signature(s)
----------------------------
-----------------------------------------
IMPORTANT: Please sign exactly as your
name or names appear on the left. Joint
owners should each sign personally. If
you sign as agent, or in any other
representative capacity, please state the
capacity in which you sign.
</TABLE>
<PAGE> 26
CLASS A STOCK PROXY
PITTWAY CORPORATION
This Proxy is solicited on behalf of the Board of Directors
for the annual meeting of stockholders to be held on May 9, 1997
Neison Harris, King Harris, and James F. Vondrak (each with full power
of substitution) are hereby authorized to vote all the shares of Class A Stock
which the undersigned would be entitled to vote if personally present at the
annual meeting of stockholders of Pittway Corporation to be held on May 9,
1997, and at any adjournment thereof, as follows on the reverse side and below.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED ON THE REVERSE
SIDE, BUT IF NO DIRECTION IS GIVEN, THE SHARES WILL BE VOTED FOR THE ELECTION
AS DIRECTORS OF THE NAMED NOMINEES.
YOUR VOTE IS IMPORTANT! PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE
SIDE AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE> 27
PITTWAY CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
<TABLE>
<S> <C>
1. Election of Directors - Withhold For all
Nominees: E. Barnett, E.D. Coolidge III and A. Downs For Authority Except
---------------------------------------------------
(INSTRUCTION: To withhold authority to vote for any
individual nominee, write that nominee's name in
the space provided above.)
2. In their discretion, upon such other business as may
properly be brought before the meeting
The undersigned acknowledges receipt of
the Notice of Annual Meeting of
Stockholders and of the Proxy Statement.
Dated: , 1997
---------------------------
Signature(s)
----------------------------
-----------------------------------------
IMPORTANT: Please sign exactly as your
name or names appear on the left. Joint
owners should each sign personally. If
you sign as agent, or in any other
representative capacity, please state the
capacity in which you sign.
</TABLE>
