<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 LETTERHEAD]
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD
ON MAY 6, 1999
TO THE STOCKHOLDERS:
The annual meeting of stockholders of Pittway Corporation will be held on
Thursday, May 6, 1999 at 9:30 A.M., local time, at The Standard Club, 320 S.
Plymouth Court, 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 25, 1999 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
Chicago, Illinois Secretary
April 5, 1999
<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 6, 1999 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
5, 1999. The mailing address of the principal executive offices of the Company
is 200 South Wacker Drive, Suite 700, Chicago, Illinois 60606-5802.
The Company had outstanding on March 25, 1999, the record date for the annual
meeting, 7,877,664 shares of Common Stock and 34,842,357 shares of Class A
Stock. Both classes of stock are traded on the New York Stock Exchange. Such
numbers of shares and all other numbers of shares and exercise or base prices of
options and SARs set forth in this Proxy Statement give effect, to the extent
relevant, to the Company's spinoff (the "Spinoff") of Penton Media, Inc. on
August 7, 1998 and the two-for-one stock split (the "Split") of the Common Stock
and Class A Stock effected in the form of a 100% stock dividend paid on
September 11, 1998 to holders of record at the close of business on September 1,
1998.
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 4,488,330 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 Harris, William W. Harris and
Sidney Barrows (deceased), 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. William W. Harris is the son of Irving B. Harris and King Harris is
the son of Neison Harris.
1
<PAGE> 4
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 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 25, 1999 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, and nominee for director, of the Company, (c) each of the
executive officers of the Company listed in the Summary Compensation Table, (d)
all directors, nominees 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, nominees 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 STOCK SHARES OF CLASS A SHARES OF THAN ELECTION
NAME (1) COMMON STOCK STOCK (1) CLASS A STOCK OF DIRECTORS
---- ------------ ------------ --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
William Harris Investors, Inc (2) (3).... 2,543,800 32.3% 3,615,748 10.4% 25.6%
2 North LaSalle Street
Suite 400
Chicago, Illinois 60602
Mario J. Gabelli et al. (4).............. 1,553,414 19.7 4,036,022 11.6 17.2
One Corporate Center
Rye, New York 10580
Janus Capital Corporation (5)............ None - 3,638,057 10.4 3.2
100 Fillmore Street, Suite 300
Denver, Colorado 80206
Katherine Harris (3) (6)................. 632,786 8.0 1,066,606 3.1 6.5
Roberta Harris (3) (7)................... 401,400 5.1 417,180 1.2 3.9
Jack Polsky (3) (8)...................... 878,724 11.2 1,335,070 3.8 8.9
Boardman Lloyd (3) (7)................... 401,400 5.1 417,180 1.2 3.9
Irving B. Harris (3) (9)................. 2,543,800 32.3 3,615,748 10.4 25.6
King Harris (3) (10)..................... 897,836 11.4 2,025,561 5.8 9.7
Neison Harris (3) (11)................... 778,298 9.9 1,111,426 3.2 7.8
William W. Harris (3) (12) (14).......... 2,543,800 32.3 3,626,283 10.4 25.6
Eugene L. Barnett (13) (14).............. 1,200 * 12,491 * *
Robert L. Barrows (3).................... 80,528 1.0 131,258 .4 .8
Fred Conforti (15)....................... 7,800 .1 364,460 1.0 .4
E. David Coolidge III (14)............... 2,200 * 25,535 .1 *
Anthony Downs (16)....................... 3,300 * 19,645 .1 *
Leo A. Guthart (17)...................... None - 372,178 1.1 .3
Jerome Kahn, Jr. (3) (14) (18)........... 2,543,800 32.3 3,626,283 10.4 25.6
John W. McCarter, Jr.(19)................ 1,000 * 5,400 * *
Paul R. Gauvreau (20).................... None - 188,517 .5 .2
Edward J. Schwartz (21).................. None - 55,955 .2 *
All Directors, Nominees and Executive
Officers of the Company as a group
(16 persons) (22)..................... 4,172,017 53.0 7,894,132 22.7 43.7
The Current Harris Group (3)............. 4,155,977 52.8 6,762,236 19.4 42.5
</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 16, 1999, 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, Robert 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 voting 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, Robert 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 March 16, 1999, filed with the Commission
pursuant to such Section. Such statements, as amended, 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, William W.
Harris and Jerome Kahn, Jr. (and, if elected a director, Robert Barrows)
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, Robert Barrows and William W. Harris. 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 3, 1997 and July 10, 1998, 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
426,700 shares of Common Stock and 374,500 shares of Class A Stock)
except 6,450 shares of Common Stock and 42,733 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 5, 1999, 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 3,638,057 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) Consists of shares held as co-trustee of trusts created by members of
the Current Harris Group. Ms. Harris shares with other members of the
Current Harris Group the power to vote and dispose of such shares.
(7) 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.
(8) Includes 872,116 shares of Common Stock and 1,324,302 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.
4
<PAGE> 7
(9) Consists of the shares held by WHI (of which Irving B. Harris may be
deemed to share control), 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.
(10) King Harris shares the power to vote and dispose of 684,618 of such
shares of Common Stock and 1,213,913 of such shares of Class A Stock.
Includes 331,183 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.
(11) Neison Harris shares the power to vote and dispose of 335,918 of such
shares of Common Stock and 631,364 of such shares of Class A Stock.
(12) Consists of the shares held by WHI (of which William W. Harris may be
deemed to share control), 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.
(13) Mr. Barnett shares power to vote and dispose of all such shares.
(14) Includes 10,400 shares and 135 shares of Class A Stock which he has the
right to acquire within 60 days through the exercise of options awarded
under the Company's 1996 Director Stock Option Plan and 1998 Director
Stock Option Plan, respectively.
(15) Does not include 18,000 shares of Class A Stock owned by Mr. Conforti's
wife, as to which shares he disclaims beneficial ownership. Includes
158,590 shares of Class A Stock as to which Mr. Conforti shares voting
and dispositive power. Includes 197,245 shares of Class A Stock which he
has the right to acquire within 60 days through the exercise of options
awarded under the Company's 1990 Stock Awards Plan.
(16) Includes 5,200 shares and 67 shares of Class A Stock which he has the
right to acquire within 60 days through the exercise of options awarded
under the Company's 1996 Director Stock Option Plan and 1998 Director
Stock Option Plan, respectively.
(17) Mr. Guthart shares power to vote and dispose of 56,816 of such shares.
Includes 192,060 shares of Class A Stock which Mr. Guthart has the right
to acquire within 60 days through the exercise of options awarded under
the Company's 1990 Stock Awards Plan.
(18) Consists of the shares held by WHI, with respect to which Mr. Kahn acts
as portfolio manager, including 540 shares of Common Stock and 878
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.
(19) Mr. McCarter shares power to vote and dispose of such shares of Common
Stock. Such shares of Class A Stock consist of shares which he has the
right to acquire within 60 days through the exercise of an option
awarded under the Company's 1998 Director Stock Option Plan.
(20) Includes 62,029 shares of Class A Stock which Mr. Gauvreau has the right
to acquire within 60 days through the exercise of options awarded under
the Company's 1990 Stock Awards Plan.
(21) Includes 43,075 shares of Class A Stock which Mr. Schwartz has the right
to acquire within 60 days through the exercise of options awarded under
the Company's 1990 Stock Awards Plan.
(22) Includes 2,980,367 shares of Common Stock and 4,562,371 shares of Class
A Stock as to which voting power is shared other than with directors,
nominees and executive officers of the Company and 921,747 shares of
Common Stock and 1,791,491 shares of Class A Stock as to which
dispositive power is so shared. Includes 893,397 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 52,807 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 and
1998 Director Stock Option Plans. Total excludes duplication of shares
within such group.
5
<PAGE> 8
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, with the exception of Mr. Barrows, 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 71 Retired; Consultant (March 1991 to April 1993) to
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 55 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 68 Senior Fellow of Brookings Institution (non-profit
social policy research center); Consultant;
Director, Bedford Properties, Inc. (real estate
investment trust), Essex Property Trust, Inc. (real
estate investment trust), General Growth Properties,
Inc. (real estate investment trust), Massachusetts
Mutual Life Insurance Corporation (insurance
company) and Penton Media, Inc. (business media
company)
</TABLE>
NOMINEES FOR ELECTION BY THE HOLDERS OF COMMON STOCK
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION
NOMINEE SINCE AGE AND DIRECTORSHIPS
------- -------- --- --------------------
<S> <C> <C> <C>
Robert L. Barrows+ .......................... -- 50 Shareholder in the law firm of Leonard, Street and
Deinard, Minneapolis, Minnesota; Director,
AptarGroup, Inc. (specialty packaging components
manufacturer)
Fred Conforti................................ 1990 57 President of Pittway Systems Technology Group
(division of the Company); Vice President of the
Company (since 1990)
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION
NOMINEE SINCE AGE AND DIRECTORSHIPS
------- -------- --- -------------------
<S> <C> <C> <C>
Leo A. Guthart (E)........................... 1980 61 Chairman and Chief Executive Officer of Pittway
Security Group (division of the Company); Vice
Chairman of the Board of the Company (since 1990);
Director, AptarGroup, Inc. (specialty packaging
components manufacturer) and Chairman of the Board
and Director, Cylink Corporation (commercial data
encryption company); Trustee, Acorn Investment Trust
(mutual funds)
Irving B. Harris (E)+........................ 1953 88 Chairman of the Executive Committee of the Company
(since 1990); Chairman of the Board of Acorn
Investment Trust (mutual funds)
King Harris (E) (N) +........................ 1975 55 President and Chief Executive Officer of the Company
(since 1990); Chairman of the Board and Director,
AptarGroup, Inc. (specialty packaging components
manufacturer); Chairman of the Board and Director,
Penton Media, Inc. (business media company)
Neison Harris (E) +.......................... 1963 84 Chairman of the Board of the Company (since 1974)
William W. Harris (C) (E) (N) +.............. 1975 59 Private Investor; Treasurer of KidsPac (political
action committee); Director, Cylink Corporation
(commercial data encryption company)
Jerome Kahn, Jr. (C)......................... 1994 64 President (since October 1996), Vice President
(prior to 1994 to October 1996) of William Harris
Investors, Inc. (investment advisor); Trustee, Acorn
Investment Trust (mutual funds)
John W. McCarter, Jr. (C).................... 1998 61 President and Chief Executive Officer (since October
1996) of The Field Museum (natural history museum);
Senior Vice President (prior to 1994 to October
1996) of Booz-Allen & Hamilton, Inc. (consulting);
Director, W.W. Grainger, Inc. (industrial supply
distributor), A.M. Castle & Company (industrial
specialty metal distributor), H.T. Insight Funds,
Inc. (mutual funds) and The LaSalle Partners Funds,
Inc. (mutual funds)
</TABLE>
- -----------
(A) Member of Audit Committee
(C) Member of Compensation Committee
(E) Member of Executive Committee
(N) Member of Nominating Committee
+ Irving B. Harris and Neison Harris are brothers. William W. Harris is the son
of Irving B. Harris and King Harris is the son of Neison Harris. Robert Barrows
is the nephew of Irving B. Harris and Neison Harris and the first cousin of
William W. Harris and King Harris.
7
<PAGE> 10
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company met nine times during 1998.
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
1998, the Committee met twice.
The Compensation Committee reviews and determines the compensation of certain
executive officers, reviews and makes recommendations to the full Board with
respect to salaries, bonuses and deferred compensation of certain 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 John W. McCarter, Jr. During 1998, the
Compensation Committee met five 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), Leo A. Guthart, King Harris, Neison Harris and William W.
Harris. During 1998, 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 1998, the Nominating Committee met once.
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 2000 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 2000 Annual Meeting."
Fred Conforti attended only 56% of the meetings of the Board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, Anthony Downs, William W. Harris, Jerome Kahn, Jr. and (after May
7, 1998) John W. McCarter, Jr., 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 1998 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 1998 (on January 1, 1998)
was $162,282. The balance as of March 25, 1999 was $148,035.
8
<PAGE> 11
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 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, 59, Financial Vice President, Treasurer and Chief
Financial Officer of the Company, since prior to 1994.
Edward J. Schwartz, 57, Vice President of the Company since prior to 1994.
Philip V. McCanna, 52, Controller of the Company since 1995, Director of
Financial Reporting of the Company prior to 1995.
James F. Vondrak, 54, Secretary of the Company since 1995, Group Controller
of Pittway Systems Technology Group (division of the Company) since 1994.
COMPENSATION
BOARD COMPENSATION
During 1998, compensation to non-officer directors was 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 was paid for attending a committee meeting
held on the same day as a Board meeting. The Chairman of the Audit Committee was
paid an additional $2,000 per year. Effective January 1, 1999, the compensation
per quarter was increased to $3,500 and the Chairman of the Compensation
Committee will be paid an additional $2,000 per year. Officer directors are not
separately compensated for serving as directors.
Under the Company's 1998 Director Stock Option Plan, the Board may from time to
time grant to directors who are not employees of the Company or any of its
subsidiaries ("Eligible Directors") non-qualified options to purchase shares of
Class A Stock at the market values on the dates of grant. The maximum number of
shares which may be issued under the Plan is 135,000 (subject to adjustment).
Each option may have a term of up to 10 years, but, if earlier than scheduled
expiration, will expire five years after the optionee's service as a member of
the Board terminates for any reason. Each option becomes exercisable as
determined by the Board, but except in the event of death or disability cannot
be exercised during the six months subsequent to grant.
Pursuant to the Plan, during 1998 non-qualified options were granted as follows:
Mr. McCarter - 5,400 shares; Mr. Barnett - 540 shares; Mr. Coolidge - 540
shares; Mr. Downs - 270 shares; Mr. W. Harris - 540 shares; Mr. Kahn - 540
shares. Mr. McCarter's option was exercisable upon grant with respect to 50% and
becomes exercisable with respect to the balance on the first anniversary of
grant provided he is then an Eligible Director. Each of the other options was
exercisable upon grant with respect to 25% and becomes exercisable with respect
to an additional 25% on each anniversary of grant provided the holder is then an
Eligible Director. Mr. McCarter's option was granted to him following his
initial election to the Board at the 1998 annual meeting. The options granted to
the other directors were granted to them to avoid dilution under their options
pursuant to the Company's 1996 Director Stock Option Plan that were outstanding
at the time of the Spinoff.
9
<PAGE> 12
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 1998) and
for each of the Company's four most highly compensated other executive officers
serving at the end of 1998. No other person who served as an executive officer
of the Company at any time during 1998 had 1998 compensation in excess of the
1998 compensation of any of the executive officers named in the table.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-----------------------------
RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING
COMPENSATION AWARDS OPTIONS/SARS
------------ ($) (1) (#) (1) ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (2) (3) (2) (4) COMPENSATION
- ---------------------------------------- ---- ------ ------- -------- ------------ -------------
(1)
----
<S> <C> <C> <C> <C> <C> <C>
King Harris, President and 1998 $650,000 $720,000 54,600 $5,256 (5)
Chief Executive Officer 1997 550,000 470,000 71,614 5,206
1996 550,000 500,000 $250,000 52,650 4,946
Fred Conforti, President of 1998 500,000 280,000 37,200 5,256 (5)
Pittway Systems Technology Group 1997 460,000 500,000 35,910 5,206
(division of the Company) 1996 425,000 150,000 51,048 4,590
Leo A. Guthart, Chairman and Chief 1998 500,000 590,000 100,000 36,400 3,363 (6)
Executive Officer of Pittway Security 1997 460,000 100,000 56,173 4,612
Group (division of the Company) 1996 425,000 450,000 35,100 4,612
Paul R. Gauvreau, Financial Vice President, 1998 290,000 210,000 26,439 5,256 (5)
Treasurer and Chief Financial Officer 1997 275,000 180,000 10,800 5,206
1996 260,000 70,000 30,000 13,324 4,944
Edward J. Schwartz, 1998 195,000 100,000 12,587 5,243 (7)
Vice President 1997 185,000 90,000 10,206 5,169
1996 172,000 60,000 10,000 10,370 4,880
</TABLE>
- -----------
(1) All of the restricted stock awards, options and SARs relate to Class A
Stock.
(2) All of the restricted stock awards and the following SARs were awarded
in lieu of bonuses or portions of bonuses that would otherwise have been
paid in cash: K. Harris, 18,964 shares for 1997; F. Conforti, 15,138
shares for 1996; L. Guthart, 21,073 shares for 1997; P. Gauvreau, 2,524
for 1996; and E. Schwartz, 3,587 shares for 1998, 2,106 shares for 1997
and 2,270 shares for 1996.
(3) The restricted stock awards shown for 1998 were awarded in 1999 and thus
were not outstanding at the end of 1998. The other restricted stock awards
shown remained outstanding in full at the end of 1998. The aggregate value
of the 40,351 shares subject to such other awards and to three other
restricted stock awards held by named executive officers that remained
outstanding at the end of 1998 was then $1,334,105. 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.
(4) Includes a SAR awarded for 1998 in 1999 (and thus not shown in the
following sections titled "Option/SAR Grants During Year" and "Option/SAR
Exercises and Year-End Values") to E. Schwartz for 3,587 shares. The SAR
was a Bonus Shares Award vested in full upon grant. Under the terms of
such SAR, following a date approximately three years after the date of
grant (or following the date of any earlier termination of employment),
such shares are issued and 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 SAR was granted. The Compensation
Committee may, in its sole discretion, determine to pay the fair market
value of such shares in cash rather issue such shares.
(5) Consists of $4,800 annual matching Company contributions during the year
to the Company's salary reduction plan and $456 for term life insurance
provided by the Company during the year.
(6) Consists of $3,249 annual matching Company contributions during the year
to the Company's salary reduction plan and $114 for term life insurance
provided by the Company during the year.
(7) Consists of $4,800 annual matching Company contributions during the year
to the Company's salary reduction plan and $443 for term life insurance
provided by the Company during the year.
10
<PAGE> 13
OPTION/SAR GRANTS DURING YEAR
The following table sets forth information with respect to options and stock
appreciation rights ("SARs") granted during 1998 to executive officers named in
the Summary Compensation Table.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(4)
OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE EXPIRATION ----------------------
NAME GRANTED(#) FISCAL YEAR PRICE ($/ SH) DATE 5%($) 10%($)
- ---- ------------ ------------ ---------------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
King Harris (1)............. 54,600 6.0 $23.74 8/18/05 527,685 1,229,731
King Harris (2)............. 18,964 2.1 0 1/20/01 520,881 598,893
Fred Conforti (1)........... 37,200 4.1 23.74 8/18/05 359,522 837,839
Leo A. Guthart (1).......... 36,400 4.0 23.74 8/18/05 351,790 819,821
Leo A. Guthart (2).......... 21,073 2.3 0 1/20/01 578,809 665,496
Paul R. Gauvreau (1)........ 12,000 1.3 23.74 8/18/05 115,975 270,271
Paul R. Gauvreau (3)........ 14,439 1.6 27.2454 6/15/05 160,152 373,222
Edward J. Schwartz (1)...... 9,000 1.0 23.74 8/18/05 86,981 202,703
Edward J. Schwartz (2)...... 2,106 .2 0 1/20/01 57,845 66,509
</TABLE>
- -----------
(1) 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 disability or retirement
upon or after reaching age sixty-five; partial acceleration in increments
of 33 1/3% each year commencing one year after the date of grant if
termination is for any other reason other than for "cause").
(2) Consists of SAR's with respect to Class A Stock awarded under the
Company's 1990 Stock Awards Plan (in lieu of a portion of a bonus that
would otherwise have been paid in cash) at a reference price 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), the shares of Class A
Stock are issued and 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 the SAR was granted. The Compensation Committee may, in
its sole discretion, determine to pay the fair market value of such shares
in cash rather than issue such shares.
(3) Consists of a non-qualified option to purchase Class A Stock granted under
the Company's 1990 Stock Awards Plan at an exercise price equal to the
market price on the date of grant. The option was fully exercisable on the
date of grant. The option was granted in exchange for Mr. Gauvreau's
surrender of a portion of a SAR previously granted to him under the Plan.
See "Compensation Committee Report on Executive Compensation - Stock
Option and Stock Appreciation Right (SAR) Program".
(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 increase to
$27.47/share (5%) or $31.58/share (10%) at the end of that term. In order
for such annual rates of appreciation to be realized over the 7-year term
of the options, the market price of Class A Stock would have to increase
to $33.40/share (5%) or $46.26/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 $160,000,000 (5%) or $335,000,000 (10%) during that 3-year
term and by approximately $413,000,000 (5%) or $962,000,000 (10%) during
that 7-year term.
11
<PAGE> 14
OPTION/SAR EXERCISES AND YEAR-END VALUES
The following table sets forth information with respect to exercises of options
and SARs during 1998 by the executive officers named in the Summary Compensation
Table and the values of unexercised options and SARs held by them as of December
31, 1998.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN 1998 AND YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/
SHARES OPTIONS/SARS AT YEAR-END(#) SARS AT YEAR-END($)
ACQUIRED ON VALUE ----------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
King Harris 97,716 $2,385,071 278,533 208,024 $7,024,166 $3,665,714
Fred Conforti 25,631 622,559 161,335 140,358 3,941,234 1,965,404
Leo A. Guthart 0 0 156,960 127,673 3,833,467 2,079,802
Paul R. Gauvreau 16,407 340,885 57,989 39,364 1,132,858 623,592
Edward J. Schwartz 3,078 73,763 34,975 32,168 854,154 555,144
</TABLE>
EMPLOYMENT AGREEMENTS
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. The agreements are for
terms expiring December 31, 2001 and September 26, 2002, 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 specified advance 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. In 1998, the Company
entered into similar agreements with Mr. Gauvreau and Mr. Schwartz. See
"Compensation Committee Report on Executive Compensation - Employment Agreement
with P. Gauvreau and E. Schwartz" below.
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, eligible covered employees of the
Company, its divisions and 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 and are determined from time to time
by their respective employers. For 1998, such percentages ranged from 1.5% 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.
12
<PAGE> 15
Retirement Plans
The Company and its subsidiaries have tax-qualified retirement plans covering
all domestic salaried employees, and certain domestic hourly employees, after
three months of service. The plans are fully paid for by the Company, and
employees become fully vested after five years of service. The annual benefit
payable to an employee under the plans upon retirement, computed as a straight
life annuity amount, equals the sum of the separate amounts the employee accrues
for each of his years of service under the plans plus certain increases put into
effect prior to 1998. 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 column 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 1999 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 1999 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 $130,000) are: K. Harris,
$119,730; F. Conforti, $109,808; L. Guthart, $130,101; P. Gauvreau, $99,410; and
E. Schwartz, $56,887.
Supplemental Executive Retirement Plan
Four executive officers of the Company and three 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 after January 1, 1995 plus, in one case, an increase based on a pro
forma adjustment to tax-qualified retirement benefits. 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 and/or Bonus 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 1999 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 1999 remains constant)
are: K. Harris, $34,902; L. Guthart, $20,442; P. Gauvreau, $28,644; and E.
Schwartz, $48,353.
13
<PAGE> 16
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 the
Company's senior executive officers, in the case of senior executive officers
who have employment agreements subject to provisions regarding base salary which
appear in those agreements. The Company delegates compensation decisions
relating to other executive officers to the Chief Executive Officer and senior
executive officers who report directly to him.
In making its compensation decisions, the Committee's primary goal is to make
such compensation competitive with compensation offered by other firms in
similar industries with similar levels of size and performance. 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 any year, the Committee does not base decisions primarily on preserving
such deductibility.
The Committee set the salaries of the Company's Chairman of the Board and
Chairman of the Executive Committee (neither of whom receives any other
compensation from the Company) for 1998 based on the Committee's perception of
the value of their services to the Company.
The Committee's policies applicable to compensation of the Company's other
senior executive officers, other than its chief executive officer, for 1998 were
as follows:
SALARY
The Committee obtained from an outside compensation specialist a detailed report
regarding salaries being paid to top-level executives in a wide variety of
companies roughly the same size as the Company. The outside specialist also
compiled data from certain similar-sized companies in the electronic and
electrical equipment field. 1,947 companies were analyzed via statistical
regression to prepare the general industry data. 55 companies were included in
the data for the electronic and electrical equipment field.
Only six 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/communications 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 five
publicly-held companies in the alarm equipment business. While three of these
companies are smaller than the Company's Groups, they still are indicative of
what competitive firms are paying in the alarm industry. 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.
14
<PAGE> 17
BONUS
The cash bonuses of Mr. Conforti and Mr. Guthart were determined by formulas set
by the Compensation Committee during the first 90 days of 1998. The cash bonuses
of Mr. Gauvreau and Mr. Schwartz were set by the Committee on a discretionary
basis after an evaluation of their individual performances, their accomplishment
of pre-established goals and objectives, and the relative financial performance
of the Company. In the process of determining these discretionary bonuses, the
Committee also reviewed the general industry information relating to total cash
compensation (base salary plus cash bonus) in comparably-sized companies
supplied by the outside compensation specialist.
For 1998, bonuses for these executive officers ranged from 66% to 118% of their
base salaries and total cash compensation ranged between the 74th and 90th
percentile of the ranges for free-standing companies reported by the outside
compensation specialist.
On a discretionary basis, a Performance Shares Award was awarded to Mr. Guthart
in addition to the cash bonus earned by him during the year. A Bonus Shares
Award was awarded to Mr. Schwartz in lieu of a portion of his bonus which would
otherwise have been paid in cash.
STOCK OPTION AND STOCK APPRECIATION RIGHT (SAR) PROGRAM
In 1993, the Committee established a Stock Option and Stock Appreciation Right
(SAR) Program to more closely tie the financial interests of managers with those
of stockholders. In 1998, 579,900 stock options were granted to 139 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.
In 1998, the Committee, after consultation with its outside compensation
specialist, determined that, subject to continuing improvement in the Company's
profits, over the seven-year period beginning with 1998 the annual target for
awards of stock options and SARs under the Program should be between 1.5% and
1.75% of the Company's outstanding shares.
The specific stock option grants given in 1998 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 and Performance Shares Awards which were awarded in 1998 as
part of the Company's bonus program were not part of the Stock Option and SAR
Program.
During 1998, the Company offered each holder of a then outstanding SAR (other
than a Bonus Shares Award) the opportunity to surrender some or all of such SAR
and receive in exchange a fully-exercisable, seven-year non-qualified option to
purchase a formula number of shares of Class A Stock at an exercise price equal
to the market price on the date of the new grant. The options granted as a
result of acceptances were also not part of the Program.
15
<PAGE> 18
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee reviewed the same information and analysis described above insofar
as it related to compensation being paid to Presidents and CEOs of similar-sized
companies. The compensation specialist's 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 comparable Presidents and
CEOs. Mr. Harris's base salary was at the 61st percentile of compensation
reported for similar-sized companies in general industry. His cash bonus was
derived from a formula set by the Compensation Committee during the first 90
days of 1998. His total cash compensation was at the 78th percentile of
compensation reported for general industry companies.
EMPLOYMENT AGREEMENTS WITH P. GAUVREAU AND E. SCHWARTZ
In 1998, the Committee approved employment agreements with P. Gauvreau and E.
Schwartz, and in 1999 the Committee approved revisions to those agreements. The
agreements provide for minimum annual salaries of $290,000 and $195,000,
respectively, supplementary insurance coverage and participation in the
Company's supplemental executive retirement plan retroactive to January 1, 1995
(in the case of Mr. Schwartz, with a benefit increase based on a pro forma
adjustment to his tax-qualified retirement benefits). Each agreement is for a
term currently expiring December 31, 2001, 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 the employee 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 employee which survive its termination.
The Committee felt it appropriate to enter into formal contracts for employment
with Mr. Gauvreau and Mr. Schwartz and to offer them participation in a
supplemental retirement plan in order to encourage them to continue their
valuable services to the Company.
Compensation Committee
Anthony Downs, Chairman
William W. Harris,
Jerome Kahn, Jr.
John W. McCarter, Jr.
16
<PAGE> 19
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) and an industry
index (Value Line Electronics Industry Index).
Comparison of Five Year Cumulative Total Return
Pittway Corporation Common Stock and Class A Stock, Wilshire 5000 Index and
Value Line Electronics Industry Index
[PEFORMANCE CHART]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Pittway Common * 100 116 199 236 313 404
Pittway Class A * 100 127 215 256 336 428
VL Electronics 100 130 172 224 338 424
Wilshire 5000 100 100 136 165 217 268
</TABLE>
* For periods subsequent to the spinoff of Penton Media, Inc. on August 7,
1998, (A) total return on the Common Stock was computed assuming that the
share of Penton Media, Inc. common stock distributed for each share of Common
Stock was reinvested in Common Stock on that date, and (B) total return on
the Class A Stock was computed assuming that the share Penton Media, Inc.
common stock distributed for each share of Class A Stock was reinvested in
Class A Stock on that date.
CERTAIN TRANSACTIONS
During 1998, 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." Leonard, Street and Deinard, a law firm
of which Robert Barrows is a shareholder, was during 1998 and continues to be
representing the Company in the defense of certain patent infringement
litigation.
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 1998 by persons who were, at any time during 1998, directors or officers of
the Company or beneficial owners of more than 10% of the outstanding shares of
Common Stock or Class A Stock, all reports required by such Section during 1998
were filed on a timely basis except that a Form 4 for King Harris reporting the
exercise of a SAR was filed late and the Form 5s for each of William W. Harris
and Jerome Kahn, Jr. failed to include until after the filing deadline the grant
of an option under the Company's 1998 Director Stock Option Plan.
17
<PAGE> 20
ANNUAL REPORT
The Company's annual report for the year ended December 31, 1998 has been mailed
to stockholders. 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 2000 ANNUAL MEETING
Any stockholder proposal to be considered for inclusion in proxy material for
the Company's annual meeting of stockholders in May 2000 must be received at the
principal executive offices of the Company no later than December 7, 1999.
DISCRETIONARY VOTING OF 2000 PROXIES
The persons named in proxies solicited by the Company's Board of Directors in
connection with the Company's 2000 annual meeting of stockholders will have
discretionary authority to vote such proxies with respect to any matter properly
presented by a stockholder at the meeting that is not specifically set forth in
the notice of the meeting if the Company does not have notice of such matter on
or before February 19, 2000 (unless the date of the meeting is changed by more
than 30 days from May 6, 2000, in which event such persons will have such
discretionary authority if the Company does not have notice of such matter a
reasonable time before the Company mails its proxy materials for the meeting).
PROXY SOLICITATION
Proxies will be solicited by mail. Proxies may also be solicited by directors,
officers and a small number of regular employees of the Company personally or by
mail, telephone or telegraph, but such persons will not be specially compensated
for such services. Brokerage houses, custodians, nominees and fiduciaries will
be requested to forward the soliciting material to the beneficial owners of
stock held of record by such persons, and the Company will reimburse them for
their expenses in doing so.
The entire cost of solicitation will be borne by the Company.
OTHER MATTERS
PricewaterhouseCoopers LLP (PWC), who served as auditors for 1998, 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, 1999. It is expected that a representative of PWC 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 5, 1999
18
<PAGE> 21
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 6, 1999
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 6, 1999, and at
any postponement or 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)
PITTWAY CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Election of Directors For Withhold For All
Nominees: R. Barrows, F. Conforti, L. Guthart, I. Harris All Authority Except
K. Harris, N. Harris, W. Harris, J. Kahn Jr. and J. McCarter Jr. [ ] [ ] [ ]
(INSTRUCTION: To withhold authority to vote for any individual
nominee. Write that nominee's name in the space provided below.)
- ----------------------------------------------------------------
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.
IMPORTANT: Please sign exactly as your name or names appear above. Dated:_____________, 1999
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. Signature(s) _______________________________________________
</TABLE>
v FOLD AND DETACH HERE V
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY FORM PROMPTLY USING
THE ENCLOSED ENVELOPE.
<PAGE> 22
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 6, 1999
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 6, 1999,
and at any postponement or 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)
PITTWAY CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Election of Directors For withhold For All
Nominees: E. Barnett, E. Coolidge III and A. Downs All Authority Except
[ ] [ ] [ ]
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name in the space provided below.)
- ----------------------------------------------------------------
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.
IMPORTANT: Please sign exactly as your name or names appear above. Dated:_____________, 1999
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. Signature(s) _______________________________________________
</TABLE>
v FOLD AND DETACH HERE V
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY FORM PROMPTLY USING
THE ENCLOSED ENVELOPE.