-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NvC5bf3j5qLxvpbw+uFXniS3SsFfCeclkG9avw7PpccyOgU3kiFjbK0+brJUwjvk OhD9ZQOh40RJfh9YyGP6AQ== 0000898430-97-001002.txt : 19970317 0000898430-97-001002.hdr.sgml : 19970317 ACCESSION NUMBER: 0000898430-97-001002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19961227 FILED AS OF DATE: 19970314 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PINKERTONS INC CENTRAL INDEX KEY: 0000078666 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-DETECTIVE, GUARD & ARMORED CAR SERVICES [7381] IRS NUMBER: 135318100 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-03017 FILM NUMBER: 97556807 BUSINESS ADDRESS: STREET 1: 15910 VENTURE BOULEVARD SUITE 900 CITY: ENCINO STATE: CA ZIP: 91436-3095 BUSINESS PHONE: 8183808800 MAIL ADDRESS: STREET 1: 15910 VENTURA BLVD., SUITE 900 CITY: ENCINO STATE: CA ZIP: 91436-2810 10-K405 1 FORM 10-K405 DATED 12/27/96 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K _______ FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 27, 1996 ------------------------------------------ OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM ____________________ TO _______________________ COMMISSION FILE NUMBER: 1-11841 PINKERTON'S, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-5318100 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 15910 VENTURA BOULEVARD, SUITE 900, ENCINO, CALIFORNIA 91436-2810 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 380-8800 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, PAR VALUE $.001 PER SHARE PREFERRED STOCK PURCHASE RIGHTS INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO --- --- INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X] THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT ON FEBRUARY 28, 1997 WAS $147,252,205 (EXCLUDING STOCK HELD BY DIRECTORS AND EXECUTIVE OFFICERS WITHOUT DETERMINING AFFILIATE STATUS). THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK, PAR VALUE $.001 PER SHARE, OUTSTANDING ON FEBRUARY 28, 1997 WAS 8,363,355. DOCUMENTS INCORPORATED BY REFERENCE: PORTIONS OF THE REGISTRANT'S 1996 ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 27, 1996 ARE INCORPORATED BY REFERENCE IN PARTS I AND II HEREOF. WITH THE EXCEPTION OF THOSE PORTIONS WHICH ARE EXPRESSLY INCORPORATED BY REFERENCE IN THE ANNUAL REPORT ON FORM 10-K, THE REGISTRANT'S 1996 ANNUAL REPORT TO STOCKHOLDERS IS NOT DEEMED FILED AS PART OF THIS REPORT. PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PRIOR TO THE EXPIRATION OF 120 DAYS AFTER DECEMBER 27, 1996, IN CONNECTION WITH THE REGISTRANT'S ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 24, 1997, ARE INCORPORATED BY REFERENCE IN PART III HEREOF. ================================================================================ PART I ITEM 1. BUSINESS GENERAL Pinkerton's, Inc. (with its consolidated subsidiaries, "Pinkerton" or the "Company") is one of the world's leading providers of contract security and security-related services. The Company, which was founded in 1850 by the original "private eye," Allan Pinkerton, provides uniformed security officer services to more than 5,000 industrial, commercial and governmental clients domestically and internationally, including approximately half of the United States "Fortune 1000" companies. In addition to security officer services, Pinkerton provides security systems design and integration services, security consulting, pre-employment background verification and assessment services, general, undercover and specialized investigations, and patrol and alarm response services. The Company operates more than 220 offices in the United States, Canada, Mexico, Europe and Asia and has more than 45,000 employees. Pinkerton is primarily the result of the combination of the businesses of California Plant Protection, Inc. ("CPP"), founded as a merchant patrol service in 1947, and Pinkerton's, Inc., founded in 1850 as an investigation service. By the end of 1987, CPP had grown to become the fourth largest security officer service company in the United States. CPP acquired Pinkerton in January 1988 from American Brands, Inc. Immediately prior to the acquisition, Pinkerton was the second largest supplier of security officer services in the United States and one of the largest national and international investigation companies. As a consequence of its long and sometimes colorful history, Pinkerton has become one of the best-known security companies in the world. Immediately after the acquisition, CPP merged with and into Pinkerton. In 1996 Pinkerton made progress towards its strategy of being a world-class, global security solutions provider. The Company made progress in building its security systems integration business, a keystone of this strategy, by acquiring four regional systems integrators in 1996 and another in January 1997. Pinkerton is now the largest independent security systems integrator in the United States and continues to seek acquisitions to build this capability nationwide. Pinkerton also acquired the security operations of Select Security, Inc. in Canada in 1996, and on January 1, 1997 acquired WKD Security GmbH, a security service provider in Germany. To broaden the spectrum of services and products provided by Pinkerton, the Company established several strategic alliances with companies having expertise in areas such as electronic data and computer network security and workplace violence and crisis management. During 1996 the Company also launched a variety of initiatives intended to make total quality and continuous improvement a permanent way of life at Pinkerton. The Company was incorporated in 1925 in the State of Delaware. The Company's principal executive offices are located at 15910 Ventura Boulevard, Suite 900, Encino, California 91436-2810; its telephone number is (818) 380-8800. MARKET OVERVIEW Industry research firms have categorized the United States security services market into the following segments: security officer and investigation services, armored car services, central station monitoring services, and security consulting and other services. Security officer and investigation services is the oldest and largest segment of the security industry. Services in this market segment include armed and unarmed security officer and patrol services and various types of investigation services, including background, undercover, insurance claims, financial fraud and other investigations. These services are often characterized as either "proprietary" or "contract." Under proprietary arrangements, users of the services employ, schedule and manage their own security officers and investigators. In contrast, contract services are provided by independent security officer and investigation service companies such as Pinkerton to end users pursuant to contracts. 2 The Company believes that it offers the broadest array of security and security- related services and products in its industry. The Company promotes the concept of "one-stop shopping" as an advantage to clients. SECURITY OFFICER SERVICES Pinkerton's principal business consists of providing security officer services to a wide variety of industrial, commercial and retail businesses, hospitals, governmental units and promoters of special events. Security services include the furnishing of uniformed security officers and other personnel to perform services associated with physical security and protection. Depending on the needs of the client, security officers are on hand, often around-the-clock, to provide facility security, access control, personnel security checks and traffic and parking control and to protect against fire, theft, sabotage and safety hazards. In addition, Pinkerton security officers respond to emergency situations and report fires, intrusions, natural disasters, work accidents and medical crises to appropriate authorities. Pinkerton services automated teller machines and provides specialized vehicle patrol and inspection services and alarm monitoring and response services. Although Pinkerton supplies both armed and unarmed security officers, the vast majority are unarmed. Security officer services are generally provided under specific contracts in which Pinkerton assumes responsibility to employ, schedule and pay all security officers and to provide uniforms, equipment, training, supervision, fringe benefits, bonding and workers' compensation insurance. Pinkerton customarily charges its clients for its services at an hourly rate per person. The contract may provide for a fixed or variable hourly rate. Contracts between Pinkerton and its clients are frequently the result of competitive bidding. Most contracts extend for one year but are often terminable on relatively short notice (usually 30-90 days) by either party. In fiscal years 1994, 1995 and 1996, security officer services accounted for approximately 96%, 96% and 92%, respectively, of the Company's revenues. SECURITY SYSTEMS INTEGRATION SERVICES Pinkerton integrates diverse electronic security systems, such as access control, closed circuit television, alarm monitoring and digital badging, into a coherent interrelated operating system that enhances security and automates alarm response. The Company also provides ongoing maintenance of such systems. Pinkerton has supplier and distribution agreements with the manufacturers of the equipment that the Company believes best meets client needs. The equipment used by Pinkerton is widely available from several suppliers. Management believes that, in order to service an installed security system effectively, a service provider must be located within a three to four hour drive of the client. Pinkerton currently provides these services in many, but not all, regions in the United States, and in some international areas. The Company expects to continue to expand these services by growing internally and by acquiring additional regional security systems integration companies in order to assemble nationwide capabilities. ALARM MONITORING SERVICES Through its Advanced Technology Center, located near Atlanta, Georgia, Pinkerton provides alarm monitoring services. Such services primarily involve remote monitoring of security systems, event monitoring and service automation. The center can monitor many types of electronic systems, such as credit card blocking, card access systems for office buildings and emergency telephones in elevators. SECURITY CONSULTING SERVICES Pinkerton provides security consulting services worldwide. These services include security surveys, assessments, contingency and crisis planning, design and engineering services including computer-aided designs and specifications and systems design. Pinkerton also provides project management services, including quality assurance, construction and budget management and technical documentation. The 3 Company's risk assessment service provides daily, weekly and monthly assessments of international travel and asset risk related to terrorism, crime and political instability INVESTIGATION AND OTHER SECURITY-RELATED SERVICES AND PRODUCTS Pinkerton provides investigation services to a diverse array of businesses, including general and undercover investigations as well as insurance and other fraud investigations, surveillance, personal background checks, mystery shopping, business due diligence investigations and intellectual property infringement investigations. Pinkerton also provides workplace violence prevention and management services as well as investigations related to kidnap and ransom and product contamination incidents. Pinkerton usually offers investigation services to clients on a specific project basis and charges its clients an hourly rate for services performed. Pinkerton occasionally performs such services on a retainer or fixed fee basis. Most agreements between Pinkerton and its clients covering investigation services provide that Pinkerton or the client may terminate their relationship at any time. Pinkerton, as a matter of Company policy, does not perform divorce or political investigations or generally work on behalf of plaintiffs in civil litigation or defendants in criminal litigation. PRE-EMPLOYMENT AND WORKPLACE SERVICES Pinkerton provides anonymous employee reporting, security and safety incident tracking, integrity testing, employee awareness programs, pre-employment background verifications and assessment services for employee selection, such as attitude surveys. Clients can obtain software from Pinkerton that enables the client to send background verification requests and retrieve results on-line from its own PCs. These services are proactive security solutions designed to prevent rather than react to security breaches. STRATEGIC ALLIANCES The Company has entered into strategic alliances with other companies that allow Pinkerton to provide its clients with an even broader spectrum of security- related services. Through these relationships, Pinkerton can provide clients with crisis prevention and management services, computer network security and related consulting services. SALES Pinkerton organizes its operations into domestic and international regions. The Company markets and cross-sells its security and security-related services and products both through its individual district offices worldwide and through its separate marketing and sales organizations. COMPETITION The market for all of Pinkerton's services is highly fragmented and competitive. Domestically, there are approximately ten national security officer and investigation service companies, of which Pinkerton believes it is the second largest on the basis of annual revenue. The Company also competes with large national and multinational security officer companies in certain of its overseas markets and with numerous smaller regional and local companies providing similar services in the United States and international markets. In 1996 Pinkerton became the largest independent security systems integrator in the United States on the basis of annual revenue. There are no other national, independent security systems integrators. However, there are many security product manufacturers that sell and install their own manufactured products and, to various degrees, integrate them with other products; and there are numerous smaller regional and local security systems installers and integrators in the United States and international markets. 4 Competition in the security officer service industry and in the Company's other service areas is intense and is based primarily on price in relation to the quality of service; the scope of services performed; the extent and quality of security officer supervision, recruiting, selection and training; and local and/or national reputation. CUSTOMERS The Company provides services to more than 5,000 industrial, commercial and governmental, including approximately half of the United States "Fortune 1000" companies. Internationally, the Company provides security officer and investigation services to firms in the financial, manufacturing, retail and transportation areas, as well as the United States and foreign governments. The Company's largest client, General Motors Corporation, contracts for over 120,000 security officer hours per week. Total revenue under this contract accounted for approximately 13% of the Company's revenue in 1996. The loss of sales to any single client, with the exception of General Motors, would not have a material adverse effect on the Company. The Company's agreements to supply contract security to General Motors currently extend to 1999. EMPLOYEES Pinkerton believes that the quality of its security officers is key to its ability to offer world-class service. Pinkerton subjects each security officer candidate to a selection process involving an integrity and work ethic test, a structured computer-assisted employment interview, a ten-step background verification and records check and a drug test. Pinkerton managers are screened carefully through a series of interviews, a background verification and a records check. Pinkerton's training efforts consist of providing employees with field manuals, training films, tests, client-specific operating instructions and weekly recorded telephone updates. All security district managers, security and operations managers and field supervisors also must complete Pinkerton's proprietary, accredited Advanced Certification Training Course. In addition, Pinkerton encourages all of its security officers to take this course. Many applicants for investigative positions have had experience in law enforcement, the insurance industry or military branches specializing in investigation prior to joining Pinkerton and, as such, are trained professionals with field experience. Once on the job, Pinkerton provides investigators with field manuals and periodic training. Pinkerton has more than 45,000 employees. At any given time, up to approximately one-third of the Company's employees are considered part-time employees. Collective bargaining agreements cover approximately 5% of its employees in the United States, approximately 83% of its employees in Canada and approximately 94% of its employees in Mexico. The Company is not a party to any collective bargaining agreement covering any of its employees in Europe or Asia. Relations with employees have generally been satisfactory, and Pinkerton has not experienced any significant work stoppages attributable to labor disputes. Security officers and other personnel supplied by Pinkerton to its clients are Pinkerton's employees, even though they may be stationed regularly at a clients' premises. Pinkerton's business is labor intensive and, as a result, is affected by the availability of qualified personnel and the cost of labor. The Company's ability to pass along any increases in labor costs may be limited by contract or by price competition within the industry, which has been intense for several years. Labor shortages can cause the Company to incur significant overtime expense in geographic areas experiencing low unemployment. The premium portion of overtime expense is typically absorbed by the Company. REGULATION AND LEGAL CONSIDERATIONS Pinkerton is subject to and complies with a large number of city, county and state occupational licensing and firearm laws that apply to security officers and private investigators. In addition, most states have laws requiring training and registration of security officers, regulating the use of badges and uniforms, prescribing the use of identification cards or badges, and imposing minimum bond surety or insurance standards. 5 Federal legislation has been introduced to establish minimum Federal standards for security officer qualification and training and similar legislation is pending in several of those states that do not already have standards governing security services. The Company, either directly or through industry trade associations, generally supports the creation of minimum standards for the industry. The Company does not expect the establishment of minimum Federal standards to have an adverse affect on the Company's business. The Company also must comply with city, county and state licensing requirements in order to provide certain systems integration and alarm monitoring services. Many foreign countries also have laws that restrict the ability of Pinkerton to render certain services, including laws prohibiting the provision of private security services and those limiting foreign investment. FINANCIAL INFORMATION ABOUT FOREIGN OPERATIONS See Note 15 to Notes to Consolidated Financial Statements in the Company's 1996 Annual Report to Stockholders incorporated herein by reference. ITEM 2. PROPERTIES Pinkerton leases approximately 56,000 square feet of office space in Encino, California for its corporate headquarters. The lease expires in 2003. Pinkerton has two successive options to further extend the lease until 2013. Except for a few office locations owned by security systems integration subsidiaries, Pinkerton has entered into leases covering each of its office locations. For the year ended December 27, 1996, the aggregate annual rental for all office space under lease, including the Company's foreign operations, was approximately $9.4 million. Leases that expire generally are expected to be renewed or replaced by other leases. ITEM 3. LEGAL PROCEEDINGS The nature of the Company's business subjects it to a significant volume of ordinary, routine claims and lawsuits incidental to such business. The Company maintains self-insurance programs and insurance coverage that it believes are appropriate for its liability risks. Nonetheless, many claims or lawsuits brought against the Company allege substantial damages that, if awarded and ultimately paid by the Company (rather than insurers or indemnitors), could have a material adverse effect on the results of operations or financial condition of the Company. In the opinion of management, based on currently known facts and the advice of legal counsel, there is no single claim or lawsuit, or group of claims or lawsuits based on the same facts, pending against the Company the disposition of which will have a material adverse effect on the results of operations or financial condition of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 6 EXECUTIVE OFFICERS OF REGISTRANT Set forth below are the names and positions and ages as of the date hereof of the Company's current executive officers. Denis R. Brown (57) was elected the President and Chief Executive Officer and a director of the Company in April 1994. Prior to joining the Company, Mr. Brown served at Concurrent Computer Corporation as Chairman of the Board and Chief Executive Officer from April 1992 until August 1993, as Chairman of the Board, President and Chief Executive Officer from July 1991 until April 1992, and as Vice Chairman of the Board, President and Chief Executive Officer from September 1990 until July 1991. Mr. Brown served as President and Chief Executive Officer of Penn Central Industries Group from May 1985 until January 1990. Prior to joining Penn Central, Mr. Brown spent 15 years with ITT Corporation, serving as Corporate Vice President and Group Executive of the Defense Space Group and as President of the Defense Communications Division. Mr. Brown is also serving as a director of Farr Company, a producer and distributor of filters and filtration systems, and CalMat Co., a construction materials supplier and property development and management company. C. Michael Carter (53) has served as Executive Vice President, General Counsel and Corporate Secretary of Pinkerton since joining the Company in September 1994. He directs strategic planning and marketing, corporate development, risk management and legal. Prior to joining Pinkerton, Mr. Carter served at Concurrent Computer Corporation as Senior Vice President, Operations and Secretary from August 1993 to September 1994, and served as Vice President, General Counsel and Secretary and directed corporate development from May 1987 to August 1993. He also served as a director of Concurrent from June 1994 to September 1994. Prior to his employment at Concurrent, Mr. Carter was Senior Corporate Counsel and Assistant Secretary for RJR Nabisco, Inc. and General Counsel and Secretary of RJ Reynolds Development Corporation. He also held senior positions in legal affairs with The Singer Company, and was an associate with Winthrop, Stimpson, Putnam & Roberts in New York. James P. McCloskey (56) has served as Executive Vice President and Chief Financial Officer of the Company since joining the Company in October 1994. Prior to joining the Company, Mr. McCloskey served as Vice President Finance, Treasurer and Chief Financial Officer of Concurrent Computer Corporation from 1986 to 1994 and of Sybron Corporation from 1980 to 1986. Prior to that time, Mr. McCloskey held a number of financial and operating positions with W. R. Grace & Company. He began his career with Price Waterhouse. Don W. Walker (55) was named Executive Vice President, The Americas in March 1997, after serving as Executive Vice President, North American Operations since November 1994. Prior to that he served as Executive Vice President, Investigations since joining the Company in November 1991 and Executive Vice President, Investigations and International Operations since June 1993. Mr. Walker was the founder of Business Risks International ("BRI"), a firm specializing in security consulting, investigations and loss prevention, and served as its President and Chief Executive Officer from September 1985 until joining the Company upon its acquisition of BRI. Prior to founding BRI, Mr. Walker was Assistant General Counsel and Corporate Security Director for Genesco Inc. Mr. Walker also is a former Special Agent of the Federal Bureau of Investigation, and a former President/Chairman of the American Society for Industrial Security. Gary J. Hasenbank (50) has served as Corporate Vice President, Human Resources since joining the Company in April 1994. Prior to joining the Company, Mr. Hasenbank served as Corporate Director of Human Resources of Herbalife International of America, Inc. from July 1993 until joining the Company. He served at Baxter Healthcare International Pharmaseal Division as Division Director of Human Resources from 1988 to 1993, and as Director of Employee Relations from 1981 to 1988. Prior to that, Mr. Hasenbank had spent six years as Human Resources Manager at PepsiCo International and six years as Employment and Compensation Manager at Cessna Aircraft Company. 7 Anthony R. Miller (56) has served as Corporate Vice President, Total Quality Management since joining the Company in May 1995. Prior to joining the Company, Mr. Miller served as Vice President - Chief Quality Officer of Banc One Services Corporation from May 1990 to July 1994. He served at Citicorp Global Payment Products as Vice President - Director Service Management from 1987 to 1990 and as Vice President - Director of Performance Engineering from 1986 to 1987. Prior to that, Mr. Miller spent four years with American Express and three years with International Telephone & Telegraph in systems development positions. Michael A. Stugrin (47) has served as Corporate Vice President, Strategic Planning and Marketing since December 1996, after serving as Corporate Vice President, Marketing since joining the Company in May 1995. Prior to joining the Company, Mr. Stugrin served at Concurrent Computer Corporation from 1992 to 1995 in various senior positions, including Director of Strategic Planning, Director of Corporate and Marketing Communications and Director of National Series 3200 Sales. He served at Unisys Corporation from 1984 to 1992 in various senior marketing and communications positions and at Westinghouse Electric Corporation on its Executive Support Staff from 1981 to 1984. Steven A. Lindsey (46) has served as Controller of the Company since joining the Company in July 1994, and became Vice President and Controller in March 1997. Prior to joining the Company, Mr. Lindsey served as Corporate Controller at Mitsubishi Electronics of America, Inc. from September 1993 until July 1994. Prior to Mitsubishi, Mr. Lindsey spent 10 years with Standard Brands Paint Co. serving as the Vice President, Treasurer and Controller. He began his career with Arthur Andersen & Co. 8 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information called for by this Item is included under the caption "Stock Market Information" in the Company's 1996 Annual Report to Stockholders and is incorporated herein by reference, except for information regarding the Company's limitations on the ability to pay dividends on its Common Stock, which is provided below in response to this Item. The ability of the Company to pay cash dividends on its Common Stock is limited by its Note Purchase Agreement. Under the Note Purchase Agreement, the Company may not declare, pay or incur any liability to make any payment as dividends unless, after giving effect thereto, (i) no event of default would occur or exist, (ii) the Company would be permitted to incur Funded Indebtedness (as defined in the Note Purchase Agreement) and (iii) the aggregate Restricted Payments (as defined in the Note Purchase Agreement) made since December 31, 1989 would not exceed the sum of 50% of cumulative Consolidated Net Income (as defined in the Note Purchase Agreement) plus $1.5 million. ITEM 6. SELECTED FINANCIAL DATA The information called for by this Item is included under the caption "Selected Financial Data" in the Company's 1996 Annual Report to Stockholders and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information called for by this Item is included under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 1996 Annual Report to Stockholders and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information called for by this Item is included under the captions "Consolidated Balance Sheets", "Consolidated Statements of Operations", "Consolidated Statements of Changes in Stockholders' Equity", "Consolidated Statements of Cash Flows", "Notes to Consolidated Financial Statements" and "Independent Auditors' Report" in the Company's 1996 Annual Report to Stockholders and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. 9 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information called for by this Item is incorporated herein by reference to the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission prior to the expiration of 120 days after December 27, 1996 in connection with the Company's Annual Meeting of Stockholders to be held on April 24, 1997, except for information regarding the executive officers of the Company, which is provided in Part I of this Report. ITEM 11. EXECUTIVE COMPENSATION The information called for by this Item is incorporated herein by reference to the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission prior to the expiration of 120 days after December 27, 1996 in connection with the Company's Annual Meeting of Stockholders to be held on April 24, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information called for by this Item is incorporated herein by reference to the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission prior to the expiration of 120 days after December 27, 1996 in connection with the Company's Annual Meeting of Stockholders to be held on April 24, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information called for by this Item is incorporated herein by reference to the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission prior to the expiration of 120 days after December 27, 1996 in connection with the Company's Annual Meeting of Stockholders to be held on April 24, 1997. 10 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Index to Consolidated Financial Statements, Consolidated Financial Statement Schedules and Exhibits.
Page ---- 1. CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets at December 27, 1996, and December 29, 1995........................................................... 30* Consolidated Statements of Operations for the Years Ended December 27, 1996, December 29, 1995, and December 30, 1994........................................................... 31* Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 27, 1996, December 29, 1995, and December 30, 1994.................................... 32* Consolidated Statements of Cash Flows for the Years Ended December 27, 1996, December 29, 1995 and December 30, 1994........................................................... 33* Notes to Consolidated Financial Statements.................................. 34* Independent Auditors' Report................................................ 45*
* Incorporated herein by reference from the indicated pages of the Company's 1996 Annual Report to Stockholders. With the exception of the information expressly incorporated by reference in the Annual Report on Form 10-K, the 1996 Annual Report to Stockholders is not deemed to be "filed" with the Securities and Exchange Commission or otherwise subject to the liabilities of Section 18 of the Securities and Exchange Act of 1934. 2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULE Independent Auditors' Report on Financial Statement Schedule.................. S-1 Schedule II - Valuation and Qualifying Accounts............................... S-2
All other schedules are omitted because they are not required, are not applicable, or the information is included in the Consolidated Financial Statements or Notes thereto. 11 3. EXHIBIT INDEX The exhibits set forth below are filed as part of this Annual Report or are incorporated herein by reference. Where an exhibit is incorporated by reference, the letter which follows the Exhibit number indicates the document to which the reference is made.
EXHIBIT NUMBER DESCRIPTION - ------- -------------------------------- 3.1 (h) Restated Certificate of Incorporation of Registrant. 3.2 Amended and Restated By-Laws of Registrant, and Amendment. 4.1 (h) Specimen Common Stock Certificate. 4.2 (c) Rights Agreement, dated July 12, 1991, between Registrant and Bank of New York, as successor Rights Agent. 10.1 (d) 1990 Stock Option Plan and all amendments.* 10.2 (a) Note Purchase Agreement by and between Registrant and The Travelers Insurance Company, The Travelers Indemnity Company, The Equitable Life Assurance Society of the United States, Equitable Variable Life Assurance Company, Tandem Life Insurance Company and The Equitable of Colorado, Inc., dated as of June 14, 1990. 10.3 (b) Form of Directors' and Officers' Indemnification Agreement. 10.4 (e) Master Lease by and between Registrant and Trizec Properties, Inc., dated August 20, 1993 for World Support Center office. 10.5 (f) Employment Agreement by and between Registrant and Denis R. Brown, dated April 20, 1994.* 10.6 (f) Personal Services Agreement by and between Registrant and Thomas W. Wathen, dated February 10, 1994.* 10.7 (g) Amendment No. 1 to Employment Agreement by and between Registrant and Denis R. Brown, dated June 15, 1994.* 10.8 (h) Amendment No. 2 to Employment Agreement between Denis R. Brown and the Registrant, dated February 15, 1995.* 10.9 (h) Supplemental letter agreement regarding employment of C. Michael Carter dated December 9, 1994, with supplement dated February 15, 1995.* 10.10 (h) Supplemental letter agreement regarding employment of James P. McCloskey dated December 9, 1994, with supplement dated February 15, 1995.* 10.11 (h) 1995 Pinkerton Performance and Equity Incentive Plan.* 10.12 (i) First Amendment to the 1995 Pinkerton Performance and Equity Incentive Plan.* 10.13 (j) Severance Plan for Executive Vice Presidents.* 10.14 (j) Severance Plan for Corporate Vice Presidents.* 10.15 (j) Revolving Credit Agreement dated as of November 21, 1995 among the Registrant, Pinkerton GmbH Holding, Pinkerton North Atlantic Limited, the Financial Institutions named therein and Citicorp USA, Inc., as agent. 10.16 (j) Amendment dated November 21, 1995 to Pinkerton's, Inc. Note Purchase Agreement. 10.17 (j) Form of Stock Option Agreement under 1990 Stock Option Plan.* 10.18 (j) Form of Stock Option Agreement (Employee) under 1995 Pinkerton Performance and Equity Incentive Plan.* 10.19 (j) Form of Stock Option Agreement (Non-Employee Director) under 1995 Pinkerton Performance and Equity Incentive Plan.* 10.20 (k) Amendment No. 4 to the Employment Agreement between Denis R. Brown and the Registrant, dated July 1, 1996.* 10.21 Second Amendment to the 1995 Pinkerton Performance and Equity Incentive Plan.* 10.22 Third Amendment to the 1995 Pinkerton Performance and Equity Incentive Plan.* 10.23 Supplemental Retirement Income Plan, as restated, effective January 1, 1996.* 10.24 First Amendment to Revolving Credit Agreement, dated as of December 1, 1996. 11. Computation of Earnings Per Share.
12 13. Sections of the 1996 Annual Report to Stockholders incorporated herein by reference. 21. List of Subsidiaries. 23. Consent of KPMG Peat Marwick LLP. 27. Financial Data Schedule.
(a) Previously filed with Form 10-K for Fiscal Year ended December 28, 1990. (b) Previously filed with Registration Statement on Form S-1 (No. 33-39718). (c) Previously filed with Registration Statement on Form 8-A filed on July 19, 1991. (d) Previously filed with Registration Statement on Form S-8 (No. 33-68492). (e) Previously filed with Form 10-K for Fiscal Year ended December 31, 1993. (f) Previously filed with Form 10-Q for Quarter ended March 25, 1994. (g) Previously filed with Form 10-Q for Quarter ended June 17, 1994. (h) Previously filed with Form 10-K for Fiscal Year ended December 30, 1994. (i) Previously filed with Form 10-Q for Quarter ended September 8, 1995. (j) Previously filed with Form 10-K for Fiscal Year ended December 29, 1995. (k) Previously filed with Form 10-Q for Quarter ended September 6, 1996. * Denotes management contract or compensatory plan or arrangement. _______________________ (b) Reports on Form 8-K. None. (c) Refer to (a) 3 above. (d) Refer to (a) 2 above. 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PINKERTON'S, INC. Date: March 14, 1997 BY: /S/ C. MICHAEL CARTER -------------------------------------- C. Michael Carter Executive Vice President, General Counsel and Corporate Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /S/ DENIS R. BROWN President and Chief Executive Officer March 14, 1997 - ----------------------------- (Principal Executive Officer) Denis R. Brown /S/ JAMES P. MCCLOSKEY Executive Vice President March 14, 1997 - ----------------------------- and Chief Financial Officer James P. McCloskey (Principal Financial Officer) /S/ STEVEN A. LINDSEY Vice President and Controller March 14, 1997 - ----------------------------- (Principal Accounting Officer) Steven A. Lindsey /S/ PETER H. DAILEY Director March 14, 1997 - ----------------------------- Peter H. Dailey /S/ JOHN A. GAVIN Director March 14, 1997 - ----------------------------- John A. Gavin /S/ JAMES R. MELLOR Director March 14, 1997 - ----------------------------- James R. Mellor /S/ GERALD D. MURPHY Director March 14, 1997 - ----------------------------- Gerald D. Murphy /S/ J. KEVIN MURPHY Director March 14, 1997 - ----------------------------- J. Kevin Murphy /S/ ROBERT H. SMITH Director March 14, 1997 - ----------------------------- Robert H. Smith /S/ THOMAS W. WATHEN Director March 14, 1997 - ----------------------------- Thomas W. Wathen /S/ WILLIAM H. WEBSTER Director March 14, 1997 - ----------------------------- William H. Webster
14 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Pinkerton's, Inc.: Under date of February 20, 1997, we reported on the consolidated balance sheets of Pinkerton's, Inc. and subsidiaries as of December 27, 1996 and December 29, 1995, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the three years ended December 27, 1996, December 29, 1995 and December 30, 1994 as contained in the 1996 Annual Report to Stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the Annual Report on Form 10-K for the year 1996. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related consolidated financial statement schedule as listed in the accompanying index. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statement schedule based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG Peat Marwick LLP Los Angeles, California February 20, 1997 S-1 SCHEDULE II PINKERTON'S, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
ADDITIONS ----------------------------- BALANCE AT CHARGED TO CHARGED TO BEGINNING OF COSTS AND OTHER BALANCE AT DESCRIPTION YEAR EXPENSES ACCOUNTS (1) DEDUCTIONS (2) END OF YEAR ----------- ------------ ---------- ------------ -------------- ------------ Allowance for doubtful receivables: Year ended December 27, 1996 $2,881 $1,635 $1,069 $3,013 $2,572 Year ended December 29, 1995 2,784 1,719 958 2,580 2,881 Year ended December 30, 1994 2,795 1,461 1,147 2,619 2,784
- ----------------------------- (1) Amount represents recoveries of accounts receivable previously written off and opening reserve balances for businesses acquired during the year. (2) Amount represents accounts receivable written off. S-2 EXHIBIT INDEX The exhibits set forth below are filed as part of this Annual Report or are incorporated herein by reference. Where an exhibit is incorporated by reference, the letter which follows the Exhibit number indicates the document to which the reference is made.
EXHIBIT NUMBER DESCRIPTION - ------ ------------------------------------------------------------ 3.1 (h) Restated Certificate of Incorporation of Registrant. 3.2 Amended and Restated By-Laws of Registrant, and Amendment. 4.1 (h) Specimen Common Stock Certificate. 4.2 (c) Rights Agreement, dated July 12, 1991, between Registrant and Bank of New York, as successor Rights Agent. 10.1 (d) 1990 Stock Option Plan and all amendments.* 10.2 (a) Note Purchase Agreement by and between Registrant and The Travelers Insurance Company, The Travelers Indemnity Company, The Equitable Life Assurance Society of the United States, Equitable Variable Life Assurance Company, Tandem Life Insurance Company and The Equitable of Colorado, Inc., dated as of June 14, 1990. 10.3 (b) Form of Directors' and Officers' Indemnification Agreement. 10.4 (e) Master Lease by and between Registrant and Trizec Properties, Inc., dated August 20, 1993 for World Support Center office. 10.5 (f) Employment Agreement by and between Registrant and Denis R. Brown, dated April 20, 1994.* 10.6 (f) Personal Services Agreement by and between Registrant and Thomas W. Wathen, dated February 10, 1994.* 10.7 (g) Amendment No. 1 to Employment Agreement by and between Registrant and Denis R. Brown, dated June 15, 1994.* 10.8 (h) Amendment No. 2 to Employment Agreement between Denis R. Brown and the Registrant, dated February 15, 1995.* 10.9 (h) Supplemental letter agreement regarding employment of C. Michael Carter dated December 9, 1994, with supplement dated February 15, 1995.* 10.10 (h) Supplemental letter agreement regarding employment of James P. McCloskey dated December 9, 1994, with supplement dated February 15, 1995.* 10.11 (h) 1995 Pinkerton Performance and Equity Incentive Plan.* 10.12 (i) First Amendment to the 1995 Pinkerton Performance and Equity Incentive Plan.* 10.13 (j) Severance Plan for Executive Vice Presidents.* 10.14 (j) Severance Plan for Corporate Vice Presidents.* 10.15 (j) Revolving Credit Agreement dated as of November 21, 1995 among the Registrant, Pinkerton GmbH Holding, Pinkerton North Atlantic Limited, the Financial Institutions named therein and Citicorp USA, Inc., as agent. 10.16 (j) Amendment dated November 21, 1995 to Pinkerton's, Inc. Note Purchase Agreement. 10.17 (j) Form of Stock Option Agreement under 1990 Stock Option Plan.* 10.18 (j) Form of Stock Option Agreement (Employee) under 1995 Pinkerton Performance and Equity Incentive Plan.* 10.19 (j) Form of Stock Option Agreement (Non-Employee Director) under 1995 Pinkerton Performance and Equity Incentive Plan.* 10.20 (k) Amendment No. 4 to the Employment Agreement between Denis R. Brown and the Registrant, dated July 1, 1996.* 10.21 Second Amendment to the 1995 Pinkerton Performance and Equity Incentive Plan.* 10.22 Third Amendment to the 1995 Pinkerton Performance and Equity Incentive Plan.* 10.23 Supplemental Retirement Income Plan, as restated, effective January 1, 1996.* 10.24 First Amendment to Revolving Credit Agreement, dated as of December 1, 1996.
11. Computation of Earnings Per Share. 13. Sections of the 1996 Annual Report to Stockholders incorporated herein by reference. 21. List of Subsidiaries. 23. Consent of KPMG Peat Marwick LLP. 27. Financial Data Schedule.
(a) Previously filed with Form 10-K for Fiscal Year ended December 28, 1990. (b) Previously filed with Registration Statement on Form S-1 (No. 33-39718). (c) Previously filed with Registration Statement on Form 8-A filed on July 19, 1991. (d) Previously filed with Registration Statement on Form S-8 (No. 33-68492). (e) Previously filed with Form 10-K for Fiscal Year ended December 31, 1993. (f) Previously filed with Form 10-Q for Quarter ended March 25, 1994. (g) Previously filed with Form 10-Q for Quarter ended June 17, 1994. (h) Previously filed with Form 10-K for Fiscal Year ended December 30, 1994. (i) Previously filed with Form 10-Q for Quarter ended September 8, 1995. (j) Previously filed with Form 10-K for Fiscal Year ended December 29, 1995. (k) Previously filed with Form 10-Q for Quarter ended September 6, 1996. * Denotes management contract or compensatory plan or arrangement. EX-3.2 2 AMENDED & RESTATED BY-LAWS OF REGISTRANT Exhibit 3.2 AMENDED AND RESTATED BY-LAWS of PINKERTON'S, INC. TABLE OF CONTENTS
Page ---- ARTICLE I OFFICES........................................................ 1 Section 1.01 REGISTERED OFFICE......................................... 1 Section 1.02 PRINCIPAL OFFICE.......................................... 1 Section 1.03 OTHER OFFICES............................................. 1 ARTICLE II MEETINGS OF STOCKHOLDERS....................................... 1 Section 2.01 ANNUAL MEETINGS........................................... 1 Section 2.02 SPECIAL MEETINGS.......................................... 1 Section 2.03 PLACE OF MEETINGS......................................... 1 Section 2.04 NOTICE OF MEETINGS........................................ 2 Section 2.05 QUORUM.................................................... 2 Section 2.06 VOTING.................................................... 3 Section 2.07 LIST OF STOCKHOLDERS...................................... 4 Section 2.08 INSPECTOR OF ELECTION..................................... 4 Section 2.09 ADVANCE NOTICE OF STOCKHOLDER PROPOSALS BEFORE ANY MEETING OF STOCKHOLDERS........................ 4 Section 2.10 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.................................... 5 ARTICLE III BOARD OF DIRECTORS............................................. 6 Section 3.01 GENERAL POWERS............................................ 6 Section 3.02 NUMBER AND TERM........................................... 6 Section 3.03 ELECTION OF DIRECTORS..................................... 7 Section 3.04 RESIGNATION AND REMOVAL................................... 8 Section 3.05 VACANCIES................................................. 8 Section 3.06 PLACE OF MEETING; TELEPHONE CONFERENCE MEETING............ 8 Section 3.07 FIRST MEETING............................................. 9 Section 3.08 REGULAR MEETINGS.......................................... 9 Section 3.09 SPECIAL MEETINGS.......................................... 9 Section 3.10 QUORUM AND ACTION......................................... 9 Section 3.11 ACTION BY CONSENT......................................... 9 Section 3.12 COMPENSATION.............................................. 10 Section 3.13 COMMITTEES................................................ 10 Section 3.14 OFFICERS OF THE BOARD..................................... 10 ARTICLE IV OFFICERS....................................................... 11 Section 4.01 OFFICERS.................................................. 11 Section 4.02 ELECTION AND TERM......................................... 11 Section 4.03 SUBORDINATE OFFICERS...................................... 11 Section 4.04 REMOVAL AND RESIGNATION................................... 11 Section 4.05 VACANCIES................................................. 12 Section 4.06 CHIEF EXECUTIVE OFFICER................................... 12 Section 4.07 PRESIDENT................................................. 12
i Section 4.08 EXECUTIVE VICE PRESIDENT.................................. 12 Section 4.09 VICE PRESIDENT............................................ 12 Section 4.10 SECRETARY................................................. 13 Section 4.11 TREASURER................................................. 13 ARTICLE V CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.................. 14 Section 5.01 EXECUTION OF CONTRACTS.................................... 14 Section 5.02 CHECKS, DRAFTS, ETC....................................... 14 Section 5.03 DEPOSIT................................................... 14 Section 5.04 GENERAL AND SPECIAL BANK ACCOUNTS......................... 14 ARTICLE VI SHARES AND THEIR TRANSFER...................................... 15 Section 6.01 CERTIFICATES FOR STOCK.................................... 15 Section 6.02 TRANSFER OF STOCK......................................... 15 Section 6.03 REGULATIONS............................................... 15 Section 6.04 LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES.............................................. 16 Section 6.05 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.............................................. 16 ARTICLE VII INDEMNIFICATION................................................ 16 Section 7.01 ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION............................................... 16 Section 7.02 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION............................................... 17 Section 7.03 DETERMINATION OF RIGHT OF INDEMNIFICATION................. 17 Section 7.04 INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY.......................................... 17 Section 7.05 ADVANCE OF EXPENSES....................................... 17 Section 7.06 OTHER RIGHTS AND REMEDIES................................. 18 Section 7.07 INSURANCE................................................. 18 Section 7.08 CONSTITUENT CORPORATIONS.................................. 18 Section 7.09 EMPLOYEE BENEFIT PLANS.................................... 18 Section 7.10 BROADEST LAWFUL INDEMNIFICATION........................... 19 Section 7.11 TERM...................................................... 20 Section 7.12 SEVERABILITY.............................................. 20 Section 7.13 AMENDMENTS................................................ 20 ARTICLE VIII MISCELLANEOUS.................................................. 20 Section 8.01 SEAL...................................................... 20 Section 8.02 WAIVER OF NOTICES......................................... 20 Section 8.03 LOANS AND GUARANTIES...................................... 21 Section 8.04 GENDER.................................................... 21 Section 8.05 AMENDMENTS................................................ 21 ii AMENDED AND RESTATED BY-LAWS of PINKERTON'S, INC. a Delaware Corporation ARTICLE I OFFICES ------- Section 1.01 REGISTERED OFFICE. The registered office of Pinkerton's, Inc. (hereinafter called the "Corporation") shall be at such place in the State of Delaware as shall be designated by the Board of Directors (hereinafter called the "Board"). Section 1.02 PRINCIPAL OFFICE. The principal office for the transaction of the business of the Corporation shall be at such location, within or without the State of Delaware, as shall be designated by the Board. Section 1.03 OTHER OFFICES. The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board may from time to time determine or as the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS ------------------------ Section 2.01 ANNUAL MEETINGS. Annual meetings of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other proper business as may come before such meetings may be held at such time, date and place as the Board shall determine by resolution. Section 2.02 SPECIAL MEETINGS. Except as otherwise required by law and subject to any provision fixed by, or pursuant to, the Certificate of Incorporation of the Corporation, special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the Board pursuant to a resolution approved by a majority of the entire Board, or by the Chairman of the Board or the Chief Executive Officer or President of the Corporation or by a committee of the Board (duly authorized and empowered by the Board to call such meetings), but such special meetings shall not be called by any other person or persons. Section 2.03 PLACE OF MEETINGS. All meetings of the stockholders shall be held at such places, within or without the State of Delaware, as may from time to time be designated by the person or persons calling the respective meetings and specified in the respective notices or waivers of notice thereof. Section 2.04 NOTICE OF MEETINGS. Except as otherwise required by law, notice of each meeting of the stockholders, whether annual or special, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at such meeting by delivering a typewritten or printed notice thereof to him personally, or by depositing such notice in the United States mail, in a postage prepaid envelope, directed to him at his address furnished by him to the Secretary of the Corporation for such purpose or, if he shall not have furnished to the Secretary his address for such purpose, then at his address last known to the Secretary, or by transmitting a notice thereof to him at such address by telegraph, cable or wireless. Except as otherwise expressly required by law, no publication of any notice of a meeting of the stockholders shall be required. Every notice of a meeting of the stockholders shall state the place, date and hour of the meeting, and, in the case of a special meeting, shall also state the purpose or purposes for which the meeting is called. Except as otherwise expressly required by law, notice of any adjourned meeting of the stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. Notice shall not be required to be given to any stockholder to whom (i) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period between such two consecutive annual meetings, or (ii) all, and at least two, payments of dividends or interest on securities during a twelve month period, have been sent by first class mail addressed to such person at his address as shown on the records of the Corporation and have been returned undeliverable. Any action or meeting which shall have been taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the Corporation a written notice setting forth his then current address, the requirement that notice be given to such person shall be reinstated. No notice need be given to any person with whom communication is unlawful, nor shall there be any duty to apply to any governmental authority or agency for any permit or license to give notice to any such person. Section 2.05 QUORUM. Except as provided by law or by the Certificate of Incorporation, the holders of record of a majority in voting interest of the shares of stock of the Corporation entitled to be voted, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders of the Corporation or any adjournment thereof. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. In the absence of a quorum at any meeting or any adjournment thereof, a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat or, in the absence therefrom of all the stockholders, any officer entitled to preside at or to act as secretary of such meeting may adjourn such meeting from time to time. At any such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally called. Section 2.06 VOTING. (a) At each meeting of the stockholders, each stockholder shall be entitled to vote in person or by proxy each share or fractional share of the stock of the Corporation which has voting rights on the matter in question and which shall have been held by him and registered in his name on the books of the Corporation: (i) on the date fixed pursuant to Section 2.10 of these By-laws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting, or (ii) if no such record date shall have been so fixed, then (A) at the close of business on the day next preceding the day on which notice of the meeting shall be given or (B) if notice of the meeting shall be waived, at the close of business on the day next preceding the day on which the meeting shall be held. (b) Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors in such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation he shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise or with respect to which two or more persons have the same fiduciary relationship, shall be voted in accordance with the provisions of the General Corporation Law of the State of Delaware (the "GCL"). (c) Any such voting rights may be exercised by the stockholder entitled thereto in person or by his proxy appointed by an instrument in writing, subscribed by such stockholder or by his attorney thereunto authorized and delivered to the secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three years from its date unless said proxy shall provide for a longer period. The attendance at any meeting of a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless he shall in writing so notify the secretary of the meeting prior to the voting of the proxy. At any meeting of the stockholders, all matters, except as otherwise provided in the Certificate of Incorporation, in the By-laws or by law, shall be decided by the vote of a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat and thereon. The vote at any meeting of the stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy if there be such proxy, and it shall state the number of shares voted. Section 2.07 LIST OF STOCKHOLDERS. The Secretary of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the entire duration thereof, and may be inspected by any stockholder who is present. Section 2.08 INSPECTOR OF ELECTION. At any meeting of the stockholders, the chairman of such meeting may appoint an inspector or inspectors of election to act with respect to such vote. Each inspector so appointed shall first subscribe an oath faithfully to execute the duties of an inspector at such meeting with strict impartiality and according to the best of his ability. Such inspectors shall decide upon the qualification of the voters and shall report the number of shares represented at the meeting and entitled to vote on such question, shall conduct and accept the votes, and, when the voting is completed, shall ascertain and report the number of shares voted respectively for and against the question. Reports of the inspectors shall be in writing and subscribed and delivered by them to the Secretary of the Corporation. Inspectors need not be stockholders of the Corporation, and any officer of the Corporation may be an inspector on any question other than a vote for or against a proposal in which he shall have a material interest. Section 2.09 ADVANCE NOTICE OF STOCKHOLDER PROPOSALS BEFORE ANY MEETING OF STOCKHOLDERS. At any special meeting of stockholders, only such business shall be conducted as shall have been set forth in the notice of special meeting. To be properly brought before an annual meeting of stockholders, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (b) otherwise properly brought before the meeting by or at the direction of the Board or (c) otherwise properly brought before the meeting by a stockholder of the Corporation who is a stockholder of record at the time of giving of the notice provided for below and at the time of the annual meeting at which the business is proposed to be conducted, who shall be entitled to vote at such meeting upon such proposed business if the same shall come before the meeting and who complies with the procedures set forth in this Section 2.09. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than one hundred twenty (120) days prior to the first anniversary of the date of the proxy statement given by the Corporation to its stockholders in connection with the previous year's annual meeting. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting: (i) a brief description of the business desired to be brought and the reasons for conducting such business at the meeting, (ii) the name and record address of the stockholder proposing such business and any other stockholders known by such stockholder to be supporting such proposal, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder and by any other stockholders known by such stockholder to be supporting such proposal, and (iv) any material or financial interest of the stockholder in such business. Notwithstanding anything in these By-laws to the contrary, no business shall be conducted at any meeting of the stockholders except in accordance with the procedures set forth in this Section 2.09. The Chairman of the Board or other presiding officer shall, if the facts warrant, determine and declare at any meeting of the stockholders that business was not properly brought before the meeting in accordance with the provisions of this Section 2.09, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. In addition to the foregoing provisions of this Section 2.09, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters contemplated by this Section 2.09. Section 2.10 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. (b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board. If no record date has been fixed by the Board, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by the GCL, shall be the first date on which a signed consent setting forth the action taken or proposed to be taken is delivered to the Corporation in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board and prior action by the Board is required by the GCL, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board adopts the resolution taking such prior action. (c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall not be more than sixty (60) days prior to such actions. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution related thereto. ARTICLE III BOARD OF DIRECTORS ------------------ Section 3.01 GENERAL POWERS. The property, business and affairs of the Corporation shall be managed by or under the direction of the Board, which may exercise all of the powers of the Corporation, except such as are by the Certificate of Incorporation, by the By-laws or by law conferred upon or reserved to the stockholders. Section 3.02 NUMBER AND TERM. The authorized number of directors of the Corporation shall be between six (6) and twelve (12), as established from time to time by resolution of the Board. Until changed by resolution of the Board, the authorized number of directors of the Corporation shall be eight (8). Directors need not be stockholders of the Corporation. Each director shall hold office until a successor is elected and qualified or until the director resigns or is removed. Section 3.03 ELECTION OF DIRECTORS. (a) The directors shall be elected by the stockholders of the Corporation, and at each election the persons receiving the greatest number of votes, up to the number of directors then to be elected, shall be the persons then elected. The election of directors is subject to any provisions contained in the Certificate of Incorporation relating thereto, including any provision for a classified Board of Directors. (b) Nomination of persons for election to the Board, other than those made by or at the direction of the Board or by any nominating committee or person appointed by the Board, shall be made by a stockholder only if timely written notice of such nomination or nominations has been given to the Secretary of the Corporation. To be timely, such notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than fifty (50) days nor more than seventy-five (75) days prior to the annual meeting; provided, however, that in the event that less than sixty (60) days' notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. Each such notice to the Secretary shall set forth: (i) the name and address of record of the stockholder who intends to make the nomination or nominations; (ii) the class and number of shares of capital stock of the Corporation that are beneficially owned by the stockholder and a representation that the stockholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) the name, age, business address and residence address, and principal occupation or employment of each nominee; (iv) the class and number of shares of capital stock of the Corporation that are beneficially owned by each nominee; (v) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons pursuant to which the nomination or nominations are to be made by the stockholder; (vi) such other information regarding each nominee as would be required to be disclosed and included in a proxy statement pursuant to the proxy rules then in effect promulgated by the Securities and Exchange Commission under Section 14 of the Securities Exchange Act of 1934, as amended; and (vii) the consent of each nominee to serve as a director of the Corporation if so elected. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation. The Board may reject any nomination by a stockholder not timely made or otherwise not in accordance with the terms of paragraph (b) of this Section 3.03. If the Board reasonably determines that the information provided in the stockholder's notice does not satisfy the informational requirements of this paragraph (b) in any material respect, the Secretary of the Corporation shall promptly notify such stockholder of the deficiency in writing. The stockholder shall have an opportunity to cure the deficiency by providing additional information to the Secretary within such period of time, not to exceed ten (10) days from the date such deficiency notice is given to the stockholder, as the Board shall reasonably determine. If the deficiency is not cured within such period, or if the Board reasonably determines that the additional information provided by the stockholder, together with the information previously provided, does not satisfy the requirements of this paragraph (b) in any material respect, then the Board may reject such stockholder's nomination. The Secretary of the Corporation shall notify a stockholder in writing whether his nomination has been made in accordance with the requirements of this paragraph (b). Section 3.04 RESIGNATION AND REMOVAL. Any director of the Corporation may resign at any time by giving written notice to the Board or to the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time is not specified, it shall take effect immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Except as and to the extent provided in the Corporation's Certificate of Incorporation, any or all of the directors of the Corporation may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of eighty percent (80%) of the outstanding voting stock of the Corporation, voting as a single class. Section 3.05 VACANCIES. Except as otherwise provided in the Certificate of Incorporation, any vacancy in the Board, whether because of death, resignation, disqualification, an increase in the number of directors, or any other cause may be filled by vote of the majority of the remaining directors, although less than a quorum, or by a sole remaining director. Each director so chosen to fill a vacancy shall hold office until his successor shall have been elected and shall qualify or until he shall resign or shall have been removed. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his term of office. Upon the resignation of one or more directors from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided hereinabove in the filling of other vacancies. Section 3.06 PLACE OF MEETING; TELEPHONE CONFERENCE MEETING. The Board may hold any of its meetings at such place or places within or without the State of Delaware as the Board may from time to time by resolution designate or as shall be designated by the person or persons calling the meeting or in the notice or waiver of notice of any such meeting. Directors may participate in any regular or special meeting of the Board or any meeting of a committee thereof by means of conference telephone or similar communications equipment pursuant to which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. Section 3.07 FIRST MEETING. The Board shall meet as soon as practicable after each annual election of directors and notice of such first meeting shall not be required. Section 3.08 REGULAR MEETINGS. Regular meetings of the Board may be held at such times as the Board shall from time to time by resolution determine. If any day fixed for a meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting shall be held at the same hour and place on the next succeeding business day which is not a legal holiday. Except as provided by law, notice of regular meetings need not be given. Section 3.09 SPECIAL MEETINGS. Special meetings of the Board may be called at any time by the Chairman of the Board, a Chairman Emeritus, the Chief Executive Officer, or by any three (3) directors, to be held at the principal office of the Corporation, or at such other place or places, within or without the State of Delaware, as the person or persons calling the meeting may designate. Notice of the time and place of special meetings shall be given to each director either (i) by mailing or otherwise sending to him a written notice of such meeting, charges prepaid, addressed to him at his address as it is shown upon the records of the Corporation, or if it is not so shown on such records or is not readily ascertainable, at the place in which the meetings of the directors are regularly held, at least seventy-two (72) hours prior to the time of the holding of such meeting; or (ii) by orally communicating the time and place of the special meeting to him at least twenty-four (24) hours prior to the time of the holding of such meeting. Either of the notices as above provided shall be due, legal and personal notice to such director. Section 3.10 QUORUM AND ACTION. Except as otherwise provided in the By-laws or by law, the presence of a majority of the authorized number of directors shall be required to constitute a quorum for the transaction of business at any meeting of the Board, and all matters shall be decided at any such meeting, a quorum being present, by the affirmative votes of a majority of the directors present. In the absence of a quorum, a majority of directors present at any meeting may adjourn the same from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given. The directors shall act only as a Board, and the individual directors shall have no power as such. Section 3.11 ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or such committee. Such action by written consent shall have the same force and effect as the unanimous vote of such directors. Section 3.12 COMPENSATION. No stated salary need be paid to directors, as such, for their services but, as fixed from time to time by resolution of the Board, the directors may receive directors' fees, compensation and reimbursement for expenses for attendance at directors' meetings, for serving on committees and for discharging their duties; provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 3.13 COMMITTEES. The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent permitted by law and provided in the resolution of the Board establishing such committees, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation (except as provided by law), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders the dissolution of the Corporation or revocation of a dissolution, or amending the By-laws; and unless the resolution of the Board expressly so provides, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger. Unless the Board otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board conducts its business pursuant to these By-laws. Any such committee shall keep written minutes of its meetings and report the same to the Board when required. Section 3.14 OFFICERS OF THE BOARD. The Board shall have a Chairman of the Board and may, at the discretion of the Board, have a Vice Chairman. The Chairman of the Board or the Vice Chairman shall be appointed from time to time by the Board and shall have such powers and duties as shall be approved by the Board or as prescribed in the By-laws. The Chairman of the Board shall preside at the meetings of the Board and of the stockholders, provided that, at his option, he may delegate these duties, or either of them, to the Chief Executive Officer. ARTICLE IV OFFICERS -------- Section 4.01 OFFICERS. The Officers of the Corporation shall be a Chief Executive Officer, a President, one or more Executive Vice Presidents, one or more Vice Presidents, a Secretary and a Treasurer. The Corporation may also have, at the discretion of the Board, one or more Assistant Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers and such other officers as may be appointed in accordance with the provisions of Section 4.03 of these By-laws. One person may hold two or more offices, except that the Secretary may not also hold the office of President or Chief Executive Officer. The salaries of all officers of the Corporation shall be fixed from time to time by the Board. Section 4.02 ELECTION AND TERM. The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 4.03 or Section 4.05 of these By-laws, shall be chosen annually by the Board, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or until his successor shall be elected and qualified. Section 4.03 SUBORDINATE OFFICERS. The Board may appoint, or may authorize the Chief Executive Officer to appoint, such other officers as the business of the Corporation may require, each of whom shall have such authority and perform such duties as are provided in the By-laws or as the Board or the Chief Executive Officer from time to time may specify, and shall hold office until he shall resign or shall be removed or otherwise disqualified to serve. Section 4.04 REMOVAL AND RESIGNATION. Any officer may be removed, with or without cause, by a majority of the directors at the time in office, at any regular or special meeting of the Board, or, except in the case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board. The Chief Executive Officer may resign at any time by giving written notice to the Chairman of the Board and the Secretary and any other officer may resign at any time by giving written notice to the Chief Executive Officer or the Secretary of the Corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 4.05 VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the By-laws for the regular appointments to such office. Section 4.06 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the Corporation shall, subject to the control of the Board, have general supervision, direction and control of the business and affairs of the Corporation. He shall have the general powers and duties of management usually vested in the chief executive officer of a corporation, and shall have such other powers and duties with respect to the administration of the business and affairs of the Corporation as may from time to time be assigned to him by the Board or as prescribed by the By-laws. In the absence or disability of the President, the Chief Executive Officer, in addition to his assigned duties and powers, shall perform all the duties of the President and when so acting shall have all the powers and be subject to all the restrictions upon the President. Section 4.07 PRESIDENT. The President shall exercise and perform such powers and duties with respect to the administration of the business and the affairs of the Corporation as may from time to time be assigned to him by the Chief Executive Officer (unless the President is also the Chief Executive Officer) or by the Board or as is prescribed in the By-laws. In the absence or disability of the Chief Executive Officer, the President shall perform all of the duties of the Chief Executive Officer and when so acting shall have all the powers and be subject to all of the restrictions upon the Chief Executive Officer. Section 4.08 EXECUTIVE VICE PRESIDENT. The Executive Vice Presidents shall exercise and perform such powers and duties with respect to the administration of the business and affairs of the Corporation as from time to time may be assigned to each of them by the President, the Chief Executive Officer, the Board or as is prescribed by the By-laws. In the absence or disability of the President and the Chief Executive Officer, the Executive Vice Presidents, in order of their rank as fixed by the Board, or if not ranked, the Executive Vice President designated by the Board, shall perform all of the duties of the President and when so acting shall have all of the powers of and be subject to all the restrictions upon the President. Section 4.09 VICE PRESIDENT. The Vice Presidents shall exercise and perform such powers and duties with respect to the administration of the business and affairs of the Corporation as from time to time may be assigned to each of them by the President, the Chief Executive Officer, the Board or as is prescribed by the By-laws. The Board may authorize the Chief Executive Officer to appoint such Vice Presidents as the business of the Corporation may require, each of whom shall have such authority and perform such duties as are provided in the By-laws or as the Board or the Chief Executive Officer from time to time may specify, and shall hold office until he shall resign or shall be removed or otherwise disqualified to serve. Section 4.10 SECRETARY. The Secretary shall keep, or cause to be kept, a book of minutes at the principal office for the transaction of the business of the Corporation, or such other place as the Board may order, of all meetings of directors and stockholders, with the time and place of holding, whether regular or special, and if special, how authorized and the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at stockholders' meetings and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office for the transaction of the business of the Corporation or at the office of the Corporation's transfer agent, a share register, or a duplicate share register, showing the names of the stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all the meetings of the stockholders and of the Board required by the By-laws or by law to be given, and he shall keep the seal of the Corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board or the By-laws. If for any reason the Secretary shall fail to give notice of any special meeting of the Board called by one or more of the persons identified in Section 3.09 of these By-laws, or if he shall fail to give notice of any special meeting of the stockholders called by one or more of the persons identified in Section 2.02 of these By-laws, then any such person or persons may give notice of any such special meeting. Section 4.11 TREASURER. The Treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, surplus and shares. Any surplus, including earned surplus, paid-in surplus and surplus arising from a reduction of capital, shall be classified according to source and shown in a separate account. The books of account at all reasonable times shall be open to inspection by any director. The Treasurer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board. He shall disburse the funds of the Corporation as may be ordered by the Board, shall render to the President, to the Chief Executive Officer and to the directors, whenever they request it, an account of all of his transactions as Treasurer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board or the By-laws. ARTICLE V CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. ---------------------------------------------- Section 5.01 EXECUTION OF CONTRACTS. The Board, except as otherwise provided in the By-laws, may authorize any officer or officers, agent or agents, or employee or employees to enter into any contract or execute any instrument in the name and on behalf of the Corporation, and such authority may be general or confined to specific instances; and unless so authorized by the Board or by the By-laws, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount. Section 5.02 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board. Each such person shall give such bond, if any, as the Board may require. Section 5.03 DEPOSIT. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board may select, or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. For the purpose of deposit and for the purpose of collection for the account of the Corporation, the President, the Chief Executive Officer, any Executive Vice President or the Treasurer (or any other officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation who shall be determined by the Board from time to time) may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the Corporation. Section 5.04 GENERAL AND SPECIAL BANK ACCOUNTS. The Board from time to time may authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board may select or as may be selected by an officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of the By-laws, as it may deem expedient. ARTICLE VI SHARES AND THEIR TRANSFER ------------------------- Section 6.01 CERTIFICATES FOR STOCK. Every owner of stock of the Corporation shall be entitled to have a certificate or certificates, in such form as the Board shall prescribe, certifying the number and class of shares of the stock for the Corporation owned by him. The certificates representing shares of such stock shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the Chairman of the Board, the President or an Executive Vice President and by the Secretary or an Assistant Secretary or by the Treasurer or an Assistant Treasurer. Any or all of the signatures on the certificates may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon any such certificate shall thereafter have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as though the person who signed such certificate, or whose facsimile signature shall have been placed thereupon, were such officer, transfer agent or registrar at the date of issue. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by such certificates, the number and class of shares represented by such certificates, respectively, and the respective dates thereof, and in case of cancellation, the respective dates of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be cancelled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so cancelled, except in cases provided for in Section 6.04 of these By-laws. Section 6.02 TRANSFER OF STOCK. Transfer of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, or with a transfer clerk or a transfer agent appointed as provided in Section 6.03 of these By-laws, and upon surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be stated expressly in the entry of transfer if, when the certificate or certificates shall be presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. Section 6.03 REGULATIONS. The Board may make such rules and regulations as it may deem expedient, not inconsistent with the By-laws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. The Board may appoint, or authorize any officer or officers to appoint, one or more transfer clerks or one or more transfer agents and one or more registrars, and may require all certificates for stock to bear the signature or signatures of any of them. Section 6.04 LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. In any case of loss, theft, destruction, or mutilation of any certificate of stock, another may be issued in its place upon proof of such loss, theft, destruction, or mutilation and upon the giving of a bond of indemnity to the Corporation in such form and in such sums as the Board may direct; provided, however, that a new certificate may be issued without requiring any bond when, in the judgment of the Board, it is proper to do so. Section 6.05 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The President or any Executive Vice President and the Secretary or any Assistant Secretary of this Corporation are authorized to vote, represent and exercise on behalf of this Corporation all rights incident to all shares of any other corporation or corporations standing in the name of this Corporation. The authority herein granted to said officers to vote or represent on behalf of this Corporation any and all shares held by this Corporation in any other corporation or corporations may be exercised either by such officers in person or by any person authorized so to do by proxy or power of attorney duly executed by said officers. ARTICLE VII INDEMNIFICATION --------------- Section 7.01 ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a member of any committee or similar body, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, that he had reasonable cause to believe that his conduct was unlawful. Section 7.02 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or as a member of any committee or similar body, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 7.03 DETERMINATION OF RIGHT OF INDEMNIFICATION. Any indemnification under Section 7.01 or 7.02 of these By-laws (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 7.01 and 7.02 of these By-laws. Such determination shall be made (i) by the Board by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. Section 7.04 INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the other provisions of this Article VII, to the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 7.01 or 7.02 of these By-laws, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 7.05 ADVANCE OF EXPENSES. Expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VII. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board deems appropriate. Section 7.06 OTHER RIGHTS AND REMEDIES. The indemnification and advancement of expenses provided by, or granted pursuant to, the other Sections of this Article VII shall not be deemed exclusive and are declared expressly to be nonexclusive of any other rights to which those seeking indemnification or advancements of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Section 7.07 INSURANCE. Upon resolution passed by the Board, the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a member of any committee or similar body against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article VII. Section 7.08 CONSTITUENT CORPORATIONS. For the purposes of this Article VII, references to "the Corporation" include in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a member of any committee or similar body shall stand in the same position under the provisions of this Article VII with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. Section 7.09 EMPLOYEE BENEFIT PLANS. For the purposes of this Article VII, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VII. Section 7.10 BROADEST LAWFUL INDEMNIFICATION. In addition to the foregoing, the Corporation shall, to the broadest and maximum extent permitted by Delaware law, as the same exists from time to time (but, in case of any amendment to or change in Delaware law, only to the extent that such amendment or change permits the Corporation to provide broader rights of indemnification than is permitted to the Corporation prior to such amendment or change), indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding. In addition, the Corporation shall, to the broadest and maximum extent permitted by Delaware law, as the same may exist from time to time (but, in case of any amendment to or change in Delaware law, only to the extent that such amendment or change permits the Corporation to provide broader rights of payment of expenses incurred in advance of the final disposition of an action, suit or proceeding than is permitted to the Corporation prior to such amendment or change), pay to such person any and all expenses (including attorneys' fees) incurred in defending or settling any such action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer, to repay such amount if it shall ultimately be determined by a final judgment or other final adjudication that he is not entitled to be indemnified by the Corporation as authorized in this Section 7.10. The first sentence of this Section 7.10 to the contrary notwithstanding, the Corporation shall not indemnify any such person with respect to any of the following matters: (i) remuneration paid to such person if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law; or (ii) any accounting of profits made from the purchase or sale by such person of the Corporation's securities within the meaning of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; or (iii) actions brought about or contributed to by the dishonesty of such person, if a final judgment or other final adjudication adverse to such person establishes that acts of active and deliberate dishonesty were committed or attempted by such person with actual dishonest purpose and intent and were material to the adjudication; or (iv) actions based on or attributable to such person having gained any personal profit or advantage to which he was not entitled, in the event that a final judgment or other final adjudication adverse to such person establishes that such person in fact gained such personal profit or other advantage to which he was not entitled; or (v) any matter in respect of which a final decision by a court with competent jurisdiction shall determine that indemnification is unlawful; provided, however, that the Corporation shall perform its obligations under the second sentence of this Section 7.10 on behalf of such person until such time as it shall be ultimately determined by a final judgment or other final adjudication that he is not entitled to be indemnified by the Corporation as authorized by the first sentence of this Section 7.10 by virtue of any of the preceding clauses (i), (ii), (iii), (iv) or (v). Section 7.11 TERM. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 7.12 SEVERABILITY. If any part of this Article VII shall be found, in any action, suit or proceeding or appeal therefrom or in any other circumstances or as to any particular officer, director, employee or agent to be unenforceable, ineffective or invalid for any reason, the enforceability, effect and validity of the remaining parts or of such parts in other circumstances shall not be affected, except as otherwise required by applicable law. Section 7.13 AMENDMENTS. The foregoing provisions of this Article VII shall be deemed to constitute an agreement between the Corporation and each of the persons entitled to indemnification hereunder, for as long as such provisions remain in effect. Any amendment to the foregoing provisions of this Article VII which limits or otherwise adversely affects the scope of indemnification or rights of any such persons hereunder shall, as to such persons, apply only to claims arising, or causes of action based on actions or events occurring, after such amendment and delivery of notice of such amendment is given to the person or persons so affected. Until notice of such amendment is given to the person or persons whose rights hereunder are adversely affected, such amendment shall have no effect on such rights of such persons hereunder. Any person entitled to indemnification under the foregoing provisions of this Article VII shall, as to any act or omission occurring prior to the date of receipt of such notice, be entitled to indemnification to the same extent as had such provisions continued as By-laws of the Corporation without such amendment. ARTICLE VIII MISCELLANEOUS ------------- Section 8.01 SEAL. The Board shall provide a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and words and figures showing that the Corporation was incorporated in the State of Delaware and showing the year of incorporation. Section 8.02 WAIVER OF NOTICES. Whenever notice is required to be given under any provision of the By-laws, the Certificate of Incorporation or by law, a written waiver, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when a person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless required by the Certificate of Incorporation. Section 8.03 LOANS AND GUARANTIES. The Corporation may lend money to, or guarantee any obligation of, and otherwise assist any officer or other employee of the Corporation or of its subsidiaries, including any officer who is a director, whenever, in the judgment of the Board, such loan, guaranty or assistance may reasonably be expected to benefit the Corporation. The loan, guaranty, or other assistance may be with or without interest, and may be unsecured or secured in such manner as the Board shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Section 8.04 GENDER. All personal pronouns used in the By-laws shall include the other genders, whether used in the masculine, feminine or neuter gender, and the singular shall include the plural, and vice versa, whenever and as often as may be appropriate. Section 8.05 AMENDMENTS. The By-laws, or any of them, may be rescinded, altered, amended or repealed, and new By-laws may be made (i) by the Board, by vote of a majority of the number of directors then in office as directors, acting at any meeting of the Board, or (ii) by the stockholders, by the vote of the holders of eighty (80%) percent of the outstanding voting stock of the Corporation, at any annual or special meeting of stockholders, provided that notice of such proposed amendment, modification, repeal or adoption is given in the notice of the annual or special meeting; provided, however, that the By-laws can only be amended if such amendment would not conflict with the Certificate of Incorporation. Any By-laws made or altered by the requisite number of stockholders may be altered or repealed by the Board of Directors or may be altered or repealed by the requisite number of stockholders. CERTIFICATE OF SECRETARY I, C. Michael Carter, Corporate Secretary of Pinkerton's, Inc., a Delaware Corporation (the "Corporation"), do hereby certify that the following Resolutions were duly adopted at a meeting of the Board of Directors of the Corporation, duly called and held on December 11, 1996, at which a quorum was present and acting throughout, and that said Resolutions have not been rescinded, amended or modified: RESOLVED, that Section 3.02 of the By-Laws of the Corporation be amended to read in its entirety as follows: "Section 3.02 NUMBER AND TERM. The authorized number of directors of the Corporation shall be established from time to time by the Board. Until changed by amendment to this Section 3.02, the authorized number of directors of the Corporation shall be nine (9). Directors need not be stockholders of the Corporation. Each director shall hold office until a successor is elected and qualified or until the director resigns or is removed." RESOLVED, that the chief executive, financial and legal officers of the Corporation be, and each of them hereby is, authorized to take all such actions, and to execute and deliver such agreements, instruments and documents, in the name and on behalf of the Corporation and under its corporate seal, and to pay such expenses as in their judgment shall be necessary, proper and advisable to fully carry out the intent and accomplish the purposes of the foregoing resolution. IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of December, 1996. /s/ C. Michael Carter ----------------------- C. Michael Carter EX-10.21 3 SECOND AMENDMENT TO PERFORMANCE & EQUITY PLAN EXHIBIT 10.21 SECOND AMENDMENT TO THE 1995 PINKERTON PERFORMANCE AND EQUITY INCENTIVE PLAN Subject to and upon the approval of this Amendment by the stockholders at the 1996 Annual Meeting of Stockholders of Pinkerton's, Inc., the 1995 Pinkerton Performance and Equity Incentive Plan is hereby amended to replace in its entirety the first sentence of Section 4(a) - Maximum Number of Shares of Common Stock with the following sentence: The maximum number of shares of Common Stock in respect of which Awards may be granted under the Plan, subject to adjustment as provided in Section 15 of the Plan shall be Seven Hundred Fifty-four Thousand Four Hundred Fifty (754,450). IN WITNESS THEREOF, the undersigned authorized officer of Pinkerton's, Inc. certifies that the foregoing Amendment has been duly approved and adopted by the Board of Directors and the stockholders as of April 26, 1996. PINKERTON'S, INC. By: /s/ C. Michael Carter ---------------------------------- C. Michael Carter Executive Vice President, General Counsel and Corporate Secretary EX-10.22 4 THIRD AMENDMENT TO THE PERFORMANCE & EQUITY PLAN EXHIBIT 10.22 THIRD AMENDMENT TO THE 1995 PINKERTON PERFORMANCE AND EQUITY INCENTIVE PLAN The 1995 Pinkerton Performance and Equity Incentive Plan is hereby amended as of December 11, 1996 to modify Section 2(e) - Definitions as follows: 1. For any Award granted prior to December 11, 1996, the definition of "Change of Control" appearing in Section 2(e) shall apply. 2. For any Award granted on or after December 11, 1996 to persons other than those identified on Schedule A hereto, the definition of "Change of ---------- Control" appearing in Section 2(e) shall be deemed modified to insert at the beginning of clauses (iii) and (iv) of the definition, after the words "approval by the stockholders of the Company" the words "and the subsequent completion". IN WITNESS THEREOF, the undersigned authorized officer of Pinkerton's, Inc. certifies that the foregoing Amendment has been duly approved and adopted by the Board of Directors as of December 11, 1996. PINKERTON'S, INC. By: /s/ C. Michael Carter ---------------------------------- C. Michael Carter Executive Vice President, General Counsel and Corporate Secretary Schedule A to Third Amendment to the 1995 Pinkerton Performance and Equity Incentive Plan ---------------------------------------------------- Persons for whom modified definition of "Change of Control" for any Award granted on or after December 11, 1996 does not apply: Denis R. Brown C. Michael Carter James P. McCloskey EX-10.23 5 SUPPLEMENTAL RETIREMENT INCOME PLAN EXHIBIT 10.23 PINKERTON'S, INC. ----------------- SUPPLEMENTAL RETIREMENT INCOME PLAN ----------------------------------- AS RESTATED, EFFECTIVE JANUARY 1, 1996 -------------------------------------- TABLE OF CONTENTS ----------------- I. PLAN HISTORY AND FEATURES........................... 1 II. DEFINITIONS......................................... 2 2.1 "Age"..................................... 2 2.2 "Anniversary Date"........................ 2 2.3 "Beneficiary"............................. 2 2.4 "Benefit"................................. 3 2.5 "Board"................................... 3 2.6 "Employee"................................ 3 2.7 "Employer"................................ 3 2.8 "Employment".............................. 3 2.9 "Final Average Monthly Compensation"...... 4 2.10 "Grandfathered Benefit"................... 4 2.11 "Normal Benefit Form"..................... 5 2.12 "Normal Retirement Age"................... 5 2.13 "Participant"............................. 5 2.14 "Plan".................................... 5 2.15 "Plan Administrator"...................... 6 2.16 "Plan Year"............................... 6 2.17 "Retirement".............................. 6 2.18 "Vested".................................. 6 2.19 "Years of Service"........................ 6 2.20 "Years of Participation".................. 6
III. EMPLOYEE PARTICIPATION.............................. 7 3.1 Requirements for Participation................. 7 IV. BENEFITS............................................ 8 4.1 Benefits on Retirement..................... 8 4.2 Benefit Formula............................ 9 4.3 Pre-Retirement Death Benefits.............. 11 4.4 Suspension of Benefits..................... 12 V. FUNDING OF BENEFITS................................. 13 5.1 Source of Funds............................ 13 VI. VESTING............................................. 14 6.1 Vesting.................................... 14 6.2 Forfeiture Events.......................... 15 6.3 Vesting upon a Change of Control........... 15 VII. ADMINISTRATION OF THE PLAN.......................... 20 7.1 Duties of the Plan Administrator........... 20 7.2 Claims Procedure........................... 21 7.3 Arbitration Procedure...................... 24 7.4 Effect of Plan Administrator Action........ 28 7.5 Administrative Committee................... 29 VIII. AMENDMENT AND TERMINATION OF THE PLAN............... 30 8.1 Amendment/Termination...................... 30
IX. MISCELLANEOUS PROVISIONS............................ 31 9.1 Payments................................... 31 9.2 Termination of Employment.................. 32 9.3 Alienation................................. 32 9.4 Duty to Provide Data....................... 33 9.5 Limitation on Rights of Employees.......... 34 9.6 Governing Law.............................. 34 9.7 Plurals.................................... 35 9.8 Titles..................................... 35 9.9 References................................. 35 APPENDIX I.................................................... 36 APPENDIX II................................................... 38 SCHEDULE I ................................................... 39
PINKERTON'S, INC. ----------------- SUPPLEMENTAL RETIREMENT INCOME PLAN ----------------------------------- AS RESTATED, EFFECTIVE JANUARY 1, 1996 -------------------------------------- ARTICLE I --------- PLAN HISTORY AND FEATURES ------------------------- California Plant Protection adopted this Plan, effective October 1, 1987. Pinkerton's, Inc. assumed sponsorship of this Plan when California Plant Protection was merged into it. The Plan was amended and restated in its entirety as of April 26, 1990 and again as of March 29, 1991, amended in certain particulars as of October 1, 1991 and again as of May 21, 1993, and again amended and restated in its entirety as of May 1, 1994. The plan was further amended as of February 15, 1995, on May 31, 1995 (as of May 31, 1994) and as of May 31, 1995. In addition, with respect to four specific individuals, the benefits of the Plan were modified in 1994 as evidenced by confidential written agreements between these individuals and Pinkerton's, Inc. Effective January 1, 1996, this document restates this Plan in its entirety. This document shall govern all persons' rights under the Plan, whether accrued before or after January 1, 1996. A confidential Appendix to the Plan sets forth the provisions of the written agreements by and between the four specific individuals and Pinkerton's, Inc. as referenced above. This Plan is an unfunded retirement plan that benefits a select group of management and highly compensated employees. 1 While the Plan is subject to the Employee Retirement Income Security Act of 1974, it is not intended to be a qualified retirement plan under applicable provisions of the Internal Revenue Code or similar provisions of state law. ARTICLE II ---------- DEFINITIONS ----------- The following terms, when capitalized, shall have the meanings specified below unless the context clearly indicates to the contrary. 2.1 "Age" shall mean the age of the person as of his or her last birthday. --- 2.2 "Anniversary Date" shall mean the last day of the Plan Year. ---------------- 2.3 "Beneficiary" shall mean a person or entity entitled to receive benefits ----------- upon a Participant's death. A Participant may designate, revoke and redesignate a Beneficiary or Beneficiaries in a written form acceptable to the Plan Administrator, which shall be effective upon delivery to and acceptance by the Plan Administrator. Spousal consent to the designation of a Beneficiary other than the Participant's spouse is required to the extent the Participant's Benefit would be considered community property. When the Participant dies, his or her Beneficiary shall be the Beneficiary or Beneficiaries properly designated by the Participant surviving when distributions are due to commence. If no designated Beneficiary or Beneficiaries are then alive, the Participant's Beneficiary shall be the Participant's surviving spouse, or, if none, the Participant's 2 estate. If a Beneficiary dies after receiving the first payment the Beneficiary is due under the Plan, the remaining amounts payable to the Beneficiary shall be paid to the Beneficiary's estate, except as the Participant may have otherwise provided in his or her written designation of beneficiary. 2.4 "Benefit" shall mean the benefit to which the Participant in question is ------- then entitled under Section 4.1, provided it is Vested under Article VI. 2.5 "Board" shall mean the Board of Directors of Pinkerton's, Inc. ----- 2.6 "Employee" shall mean an individual who renders services to the Employer as -------- a common law employee or officer, as determined by the Plan Administrator. 2.7 "Employer" shall mean Pinkerton's, Inc. and any other company which adopts -------- the Plan, any successor entity which continues the Plan or such companies collectively. 2.8 "Employment" shall mean the period during which an individual is an ---------- Employee. Employment with a predecessor to or affiliate of the Employer shall be treated as Employment with the Employer, unless otherwise specified by the Plan Administrator. Employment shall commence on the day the individual first performs services for the Employer as an Employee and shall terminate on the day such services for the Employer cease, as determined under Section 9.2. If a Participant has more than one period of Employment, only the most recent period of Employment shall be taken into account for any Plan purpose, except as otherwise specified by the Plan Administrator in a written notice 3 to the Participant and except as provided in Section 4.4(a). 2.9 "Final Average Monthly Compensation" shall mean one-sixtieth of a ---------------------------------- Participant's total "earnings" (as defined below) paid (or accrued, in the case of annual incentive plan awards) during the five year period ending on his or her last day of Employment. If the individual was an Employee for less than five years, his or her "Final Average Monthly Compensation" shall mean the Participant's total "earnings" (as defined below), paid (or accrued, in the case of annual incentive plan awards) in his or her number of full months of Employment dividied by such number of full months of Employment. A Participant's "earnings" shall mean the Participant's regular base salary and annual incentive plan award, determined in accordance with the following special rules: (a) Except as provided in subsection (b), an Employee's earnings shall not include severance pay, sign-on bonuses, commissions, incentive compensation (other than annual incentive plan awards), pay in lieu of vacations, reimbursements or other expense allowances, options, phantom stock, company car or car allowances, employee benefits, deferred compensation, fringe benefits, moving expenses, or payments or benefits similar to any of the foregoing. (b) Notwithstanding subsection (a), a Participant's earnings shall include amounts that would otherwise have been "earnings" under this Section if the Participant had not made a salary reduction election under a cash or deferred, cafeteria or similar plan of the Employer. 2.10 "Grandfathered Benefit" shall mean the dollar amount of the --------------------- 4 monthly vested benefit to which the Participant in question was entitled as of April 30, 1994, under the Plan as then in effect, as conclusively set forth on Schedule I hereto. This amount shall not increase because of subsequent increases in Final Average Monthly Compensation or Years of Participation. A Participant's Grandfathered Benefit shall be payable in the Normal Benefit Form commencing upon the later of (A) termination of Employment with the Employer, or (B) attainment of the earlier of age fifty-five (55) or age fifty (50) and completion of twenty (20) Years of Participation. 2.11 "Normal Benefit Form" shall mean the normal form of benefit under the Plan, ------------------- which shall consist of monthly payments to the Participant commencing as of the first day of the calendar month coincident with or next following the Participant's Retirement and ending with the payment for the calendar month in which the Participant dies, with the provision that, if the Participant dies before having received one hundred eighty (180) monthly payments, the Participant's Beneficiary shall continue receiving such monthly payments until a total of one hundred eighty (180) monthly payments have been made to either the Participant or his or her Beneficiary. 2.12 "Normal Retirement Age" shall mean the first day of the month following the --------------------- month in which the Participant reaches age sixty-two (62). 2.13 "Participant" shall mean any Employee who is included in the Plan pursuant ----------- to Article III and any current or former Employee who has a Vested Benefit. 2.14 "Plan" shall mean this document, including Schedule I and ---- 5 the Appendices hereto. The Appendices are on file in the office of the President and Chief Executive Officer of Pinkerton's, Inc., and shall only be made available to Participants identified in each Appendix, except as the Plan Administrator otherwise authorizes. 2.15 "Plan Administrator" shall mean Pinkerton's, Inc., acting through the ------------------ Administrative Committee appointed pursuant to Section 7.5. 2.16 "Plan Year" shall mean a twelve (12) consecutive month period beginning --------- January 1st and ending December 31st. 2.17 "Retirement" shall mean the commencement of benefit payments to a ---------- Participant in accordance with Section 4.1 on or after his or her termination of Employment. 2.18 "Vested" shall mean that a Participant's Benefit has become nonforfeitable, ------ as more fully provided in Article VI, subject to the exceptions set forth in Section 6.2. 2.19 "Years of Service" shall mean years of Employment, pro rated to the nearest ---------------- 1/12th year. 2.20 "Years of Participation" shall mean the Plan Years in which an Employee ---------------------- completes twelve (12) full months as a Participant; however, for any Plan Year in which an Employee completes less than twelve (12) full months as a Participant, Years of Participation shall be calculated as a fraction, the numerator of which shall be the number of full months of Participation as a Participant during the Plan Year and the denominator of which shall be twelve (12), subject to the following special rules: 6 (a) If the Employee became a Participant before April 1, 1991, his or her Years of Participation shall be determined based on the number of Years of Service since the individual became an Employee. (b) In no event shall any period after a Participant ceases actively participating in the Plan ever be taken into account in determining his or her Years of Participation. (c) In the event of termination of Employment before the date upon which his or her benefit can first commence, any fractional Year of Participation the Participant may have shall be rounded down to the next lowest whole number. (d) If a Participant works to or past the date upon which his or her Benefit can first commence, any fractional Year of Participation the Participant may have shall be taken into account in calculating the Participant's Benefit. Hence, for example, if the Participant has 14.25 Years of Participation, in applying the formula in Section 4.2, 14.25 Years of Participation will be taken into account. ARTICLE III ----------- EMPLOYEE PARTICIPATION ---------------------- 3.1 Requirements for Participation ------------------------------ Only a select group of management or highly compensated employees may participate in this Plan. The Plan Administrator, acting with the approval of the Board, shall determine which 7 Employees shall be Participants and when their active participation in this Plan shall begin or end. In order to actively participate in this Plan and begin or continue accruing benefits under the Plan, an Employee must sign such participation agreements as may from time to time may be prescribed by the Plan Administrator. If a Participant's active participation under the Plan ceases for any reason, the amount of his or her Benefit under Section 4.1 shall be determined as if the Participant terminated Employment on the date his or her active participation ceased. ARTICLE IV ---------- BENEFITS -------- 4.1 Benefit on Retirement --------------------- (a) A current Employee who has a Vested Benefit and who has attained age fifty-five (55) may elect Retirement, except that, if the individual has a Grandfathered Benefit and has not attained age fifty-five (55), he or she may elect Retirement after attaining both age fifty (50) and completing twenty (20) Years of Participation. A Retirement election must be made in advance, by written notice to the Plan Administrator in accordance with procedures it specifies. A former Employee shall be deemed to have retired on the earliest date upon which he or she could have elected Retirement if still an Employee. Commencing at Retirement, Benefits shall be paid in the Normal Benefit Form in the amount determined under Subsection (b). (b) A Participant's Benefit shall be the greater of (1) the dollar amount determined under Section 4.2 to the extent Vested, 8 reduced by .00416667 for each full calendar month (approximately five percent (5%) per year) in which the benefit commencement date precedes the calendar month in which the Participant attains his or her Normal Retirement Age or (2) his or her Grandfathered Benefit. 4.2 Benefit Formula --------------- (a) The monthly benefit of a Participant commencing at Normal Retirement Age in the Normal Benefit Form shall be equal to two percent (2%) or three and one-half percent (3.5%) of the Participant's Final Average Monthly Compensation for each Year of Participation, whichever percentage the Plan Administrator, with the consent of the Board, specifies as applying to the Participant. A Participant's maximum benefit under the preceding sentence shall be forty percent (40%) of his or her Final Average Monthly Compensation if the Participant is accruing benefits at the two percent (2%) benefit accrual rate or fifty-two and one-half percent (52.5%) of his or her Final Average Monthly Compensation if the Participant is accruing benefits at the three and one-half percent (3.5%) benefit accrual rate. The benefit determined under this Subsection shall then be reduced by the offsets in Subsection (d). (b) If the Plan Administrator changes the benefit accrual percentage applicable to a Participant, the Participant's benefit under this Section 4.2 shall be determined by multiplying each benefit accrual percentage by the Years of Participation completed while the benefit accrual percentage was applicable, adding the results and then multiplying that sum by the Participant's Final Average Monthly Compensation. The maximum benefit limitations of Subsection (a) shall then be applied as follows: 9 If the Participant's rate of benefit accrual is raised from two percent (2%) to three and one-half percent (3.5%), his or her benefit under this Section shall not thereafter exceed fifty-two percent (52%) of the Participant's Final Average Monthly Compensation. If the Participant's rate of benefit accrual is lowered to two percent (2%) from three and one half percent (3.5%), his or her benefit under this Section shall not thereafter exceed the greater of forty percent (40%) of the Participant's Final Average Monthly Compensation or the benefit to which the Participant would have been entitled under this Section had his or her Employment terminated immediately before the change in accrual rates went into effect. Any benefit determined under this Subsection shall then be reduced by the offsets in Subsection (d). (c) See Section 3.1 for the method of determining the benefit of a Participant whose active participation in the Plan ceases for any reason. (d) A Participant's benefit under this Section shall be reduced (but not below zero) by the actuarial equivalent of all of the following amounts (such actuarial equivalents to be determined by an Enrolled Actuary retained by the Plan Administrator, using the methods and assumptions that both the Plan Administrator and the Enrolled Actuary determine to be appropriate): (i) Any employer-provided pension or similar benefits (whether paid before or after the Participant's benefit goes into pay status under this Plan) accrued while employed for another company during periods for which the Participant was given past service credit for benefit accrual purposes under this Plan; 10 (ii) Except as otherwise provided by the Plan Administrator, the amount of any judgment, arbitration award, settlement or similar payment the Employer is obligated to pay the Participant on account of or related to a dispute arising in connection with his or her termination of Employment, whether paid before or after the Participant's Benefit goes into pay status. 4.3 Pre-Retirement Death Benefits ----------------------------- If a Participant dies with a Vested Benefit before benefit payments from the Plan commence, the Participant's Beneficiary shall be entitled to a monthly payment for one hundred eighty (180) months. A Participant's Benefit shall become one hundred percent (100%) Vested if the Participant dies while still an Employee. The monthly amount payable to the Beneficiary shall be determined under Subsection (a) or (b), whichever is applicable. (a) If the Participant dies after his or her Benefit could have commenced under Section 4.1, the monthly payment to the Beneficiary shall be equal in amount to the monthly payment the Participant would have received if his or her Benefit had commenced just before the Participant died. (b) If the Participant dies before his or her Benefit could commence under Section 4.1, the monthly payment to the Beneficiary shall be determined as follows: The Benefit that would have been payable to the Participant had he or she ceased active participation in the Plan on the date of death and thereafter commenced receiving benefits on the earliest allowable date under Section 4.1 shall be determined. The resulting amount shall then be reduced actuarially (by an enrolled actuary 11 selected by the Plan Administrator using the methods and assumptions that both the Plan Administrator and the enrolled actuary determine to be appropriate) by the cost of commencing the death benefit before the earliest date upon which the Participant's Benefit could have commenced. 4.4 Suspension of Benefits ---------------------- (a) If a Participant's benefit has commenced and the Participant again becomes an Employee, the Participant's benefit shall cease to be payable. Thereafter, his or her rights under this Plan shall be determined as if he or she had never previously commenced benefits, except that, if the Participant's benefit had first commenced before age sixty-two (62), it shall be actuarially reduced (but not below the dollar level previously in pay status) by the value of all benefit payments previously made, as determined by an enrolled actuary selected by the Plan Administrator, using the methods and assumptions that both the Plan Administrator and the enrolled actuary determine to be appropriate. If a Participant dies while his or her Benefit is suspended under Subsection (a), the pre-retirement death benefit payable under Section 4.3 shall be the Benefit that would have been payable to the Participant, as determined in accordance with this Section, if he or she had retired on his or her date of death, but the one hundred eighty (180) monthly death benefit payments due under Section 4.3 shall be reduced by the number of benefit payments the Participant received prior to his or her death. (b) No amounts shall be paid under this Plan to a Participant while that Participant is engaged in "Other Employment" as defined below, without the Plan Administrator's 12 written consent. A Benefit suspended under this subsection shall recommence when the Participant's Other Employment ends. "Other Employment" shall mean the rendering of full or part-time services as an employee, consultant, officer or director to any company (other than the Employer or an affiliate), but only if such services commenced after April 30, 1994. The Plan Administrator shall consent to a Participant's Other Employment if the Participant furnishes information reasonably required by the Plan Administrator and, on the basis of that information, the Plan Administrator determines that the Other Employment will not aid an entity which is in competition with the Employer or its affiliates. If the facts change, or if the Participant refuses to furnish any additional information that the Plan Administrator requests, the Plan Administrator may revoke a consent it has previously given. If a Participant dies while his or her Benefit is suspended for Other Employment under this Subsection (b), the Participant's Beneficiary shall receive a monthly payment in the amount the Participant was receiving prior to the suspension of his or her Benefit until a total of one hundred eighty (180) monthly payments have been made in the aggregate to both the Participant and his or her Beneficiary. If a Participant dies while engaged in Other Employment (with or without the Plan Administrator's consent) but before his or her Benefit commences, the pre- retirement death benefit provided for in Section 4.3 shall be payable. ARTICLE V --------- FUNDING OF BENEFIT ------------------ 5.1 Source of Funds --------------- All benefits under this Plan shall be paid by the 13 Employer out of its general assets except to the extent the Employer establishes other funding mechanisms. ARTICLE VI ---------- VESTING ------- 6.1 Vesting ------- Grandfathered Benefits are one hundred percent (100%) Vested. A Participant's Benefit under Section 4.2 shall become one hundred percent (100%) Vested upon completion of five (5) Years of Participation; provided that if the -------- Employee was a grade level 14 (or above) employee prior to becoming a Participant, was eligible to participate in the Employer's District Managers' Insurance Bonus Plan (the "DMIBP") as of the date he or she became a Participant, and ceased to be eligible to participate in or accrue benefits under the DMIBP as of the date he or she became a Participant, then, for the sole purpose of determining when the Participant's Benefit has Vested and not for the purpose of determining the amount of the Participant's Benefit, his or her completion of five (5) Years of Participation shall be determined based upon the number of months since the Employee first became both a grade level 14 (or above) employee and eligible to participate in the DMIBP. For the purpose of this Section 6.1, an Employee becomes eligible to participate in the DMIBP as of the date from which the three (3) years of service with Employer, required by Section 3(a) of the DMIBP to enter the DMIBP, begins being counted by Employer. Even if Vested, a Benefit shall be subject to forfeiture under Section 6.2. 14 6.2 Forfeiture Events ----------------- The unvested portion of a Participant's Benefit shall be forfeited upon termination of Employment. In addition, a Participant's Benefit, whether or not Vested, shall be forfeited to the extent specified by the Board, if the Board determines that the Participant, while an Employee, committed (1) any act of civil or criminal fraud that causes serious harm to the Employer or any affiliate; (2) any act involving the personnel or property of the Employer or any affiliate (or of any of their customers, clients or suppliers) which likely constitutes a felony (whether or not the Employee is indicted or convicted of such felony); or (3) any violation of the Employer's policies on ethical business conduct or similar matters which causes or is likely to cause significant harm to the Company. 6.3 Vesting upon a Change of Control -------------------------------- (a) If a "Change in Control" of the Employer occurs, as defined in Subsection (b) below a Participant's Benefit shall become one hundred percent (100%) Vested if, within the two (2) year period following the date of the Change of Control, the Plan is terminated or the Participant is discharged or laid off. (b) A "Change in Control" shall be deemed to have occurred on and after the effective date of this Plan Restatement, upon the occurrence of any of the following events: (i) the acquisition by any individual, entity or group (a "Person"), including any "person" within the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange 15 Act, of twenty percent (20%) or more of either (A) the then outstanding shares of Common Stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions ----------------- shall not constitute a Change in Control: (1) any acquisition directly from the Company (excluding any acquisition resulting from the exercise of a conversion or exchange privilege in respect of outstanding convertible or exchangeable securities), (2) any acquisition by the Company, (3) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (4) any acquisition by any corporation pursuant to a reorganization, merger or consolidation involving the Company, if, immediately after such reorganization, merger or consolidation, each of the conditions described in clauses (A), (B) and (C) of subsection (iii) of this definition shall be satisfied, (5) any purchase of Outstanding Company Common Stock by any Person that on April 20, 1994 owned more than twenty percent (20%) of the Outstanding Company Common Stock (a "Substantial Holder") if the number of shares purchased, when added to all other shares of Outstanding Company Common Stock purchased by such Substantial Holder after April 20, 1994, is less than ten percent (10%) of the Outstanding Company Common Stock, or (6) upon the death of a Substantial Holder, the transfer (a) by testamentary disposition or the laws of intestate succession to the estate or the legal beneficiaries or heirs of such Substantial Holder, or (b) by the provisions of any living trust to the named current income beneficiaries thereof as of April 20, 1994, of Outstanding Company Common Stock beneficially owned by such Substantial Holder at the time of his death; and 16 provided further that, for purposes of clause (2), if any Person (other than the - ---------------- Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company) shall become the beneficial owner of twenty percent (20%) or more of the Outstanding Company Common Stock or twenty percent (20%) or more of the Outstanding Company Voting Securities by reason of an acquisition by the Company and such Person shall, after such acquisition by the Company, become the beneficial owner of any additional shares of the Outstanding Company Common Stock or any additional Outstanding Voting Securities and such beneficial ownership is publicly announced, such additional beneficial ownership shall constitute a Change of Control; (ii) individuals who, as of the date following the Company's 1994 Annual Meeting of Shareholders, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least sixty-six and two-thirds percent (66-2/3%) of such Board; provided, however, that any individual who becomes a ----------------- director of the Company subsequent to such date whose election, or nomination for election by the Company's stockholders, was approved by the vote of at least sixty-six and two-thirds percent (66-2/3%) of the directors then comprising the Incumbent Board shall be deemed to have been a member of the Incumbent Board; and provided, further, that no individual who was initially elected as a ----------------- director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall be deemed to have been a member of the Incumbent Board; 17 (iii) approval by the stockholders of the Company and the subsequent completion of a reorganization, merger or consolidation unless, in any such case, immediately after such reorganization, merger or consolidation, (A) more than sixty percent (60%) of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and more than sixty percent (60%) of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals or entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation and in substantially the same proportions relative to each other as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or the corporation resulting from such reorganization, merger or consolidation (or any corporation controlled by the Company), or any Person which beneficially owned, immediately prior to such reorganization, merger or consolidation, directly or indirectly, twenty percent (20%) or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owned, directly or indirectly, twenty percent (20%) or more of the then outstanding shares of common stock of such corporation or twenty percent (20%) or more of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors and (C) at least sixty-six and two-thirds percent (66- 2/3%) of the members of the board of directors of the corporation 18 resulting from such reorganization, merger or consolidation where members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such reorganization, merger or consolidation; or (iv) approval by the stockholders of the Company and the subsequent completion of (A) a plan of complete liquidation or dissolution of the Company or (B) the sale or other disposition of all or substantially all of the assets of the Company other than to a corporation with respect to which, immediately after such sale or other disposition, (1) more than sixty percent (60%) of the then outstanding shares of common stock thereof and more than sixty percent (60%) of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such sale or other disposition and in substantially the same proportions relative to each other as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (2) no Person (other than the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or such corporation (or any corporation controlled by the Company) and any Person which beneficially owned, immediately prior to such sale or other disposition, directly or indirectly, twenty percent (20%) or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, twenty percent (20%) or more of the then 19 outstanding shares of common stock thereof or twenty percent (20%) or more of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors and (3) at least sixty-six and two- thirds percent (66-2/3%) of the members of the board of directors thereof were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition. ARTICLE VII ----------- ADMINISTRATION OF THE PLAN -------------------------- 7.1 Duties of the Plan Administrator -------------------------------- The Plan Administrator shall be responsible for the general administration and management of the Plan. The Plan Administrator shall have all powers and duties necessary to fulfill its responsibilities, including, but not limited to, the following powers and duties: (a) To interpret the Plan as it, in its discretion, determines to be appropriate; (b) To determine all questions relating to the right of any person to receive benefits; (c) To determine the amount and kind of benefits payable to Participants and their Beneficiaries; (d) To administer the claims procedure set forth in Section 7.2; 20 (e) To exercise all other powers or duties granted to the Plan Administrator by other provisions of the Plan; (f) To provide the Board with recommendations as to which Employees should participate in the Plan and the benefit accrual rates that should apply to them; and (g) To recommend to the Board any amendments to the Plan which the Plan Administrator determines to be appropriate or necessary. 7.2 Claims Procedure ---------------- (a) Normally, a Participant or Beneficiary need not present a formal claim in order to qualify for rights or benefits under this Plan. However, if any such person (a "Claimant") does not believe that he or she will receive the benefits to which the person is entitled or believes that the Plan is not being operated properly or that his or her legal rights have been or are being violated with respect to the Plan, the Claimant must file a formal claim under the procedures set forth in this Section. A formal claim must be filed within six (6) months of the date upon which the Claimant (or his or her predecessor in interest) first knew (or should have known) of the facts upon which the claim is based, unless the Plan Administrator, in writing, consents otherwise. The procedures in this Section shall apply to all claims that any person has with respect to the Plan. (b) A claim by any person shall be presented to the Plan Administrator in writing. A claims official appointed by the Plan Administrator shall, within ninety (90) days of 21 receiving the claim, consider the claim and issue his or her determination thereon in writing to the Claimant, his or her representative and the Plan Administrator. The claims official may extend the determination period for up to an additional ninety (90) days by giving the Claimant written notice. With the written consent of the Claimant, the determination period can be extended further. If the claim is granted, the benefits or relief the Claimant seeks will be provided. (c) If the claim is wholly or partially denied, the claims official shall, within ninety (90) days (or such longer period as described above), provide the Claimant with written notice of the denial, setting forth, in a manner calculated to be understood by the Claimant, (i) the specific reason or reasons for the denial; (ii) specific references to pertinent Plan provisions on which the denial is based; (iii) a description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why the material or information is necessary, and (iv) an explanation of the Plan's claim review procedure. If the claims official fails to respond to the claim in a timely manner, the Claimant may treat the claim as having been denied by the claims official. (d) Each Claimant shall have the opportunity to appeal in 22 writing the claims official's denial of a claim to a review official designated by the Plan Administrator (which may be a person, a committee or the Plan Administrator) for a full and fair review. A Claimant must request review of a denied claim within sixty (60) days after receipt by the Claimant of written notice of denial of his or her claim or within sixty (60) days after such written notice was due, if the written notice was not sent. In connection with the review proceeding, the Claimant or his or her duly authorized representative may review pertinent documents and may submit issues and comments in writing. The Claimant may only present evidence and theories during the review which the Claimant presented during the claims procedure, except for information which the claims official requested the Claimant to provide to perfect the claim (See Subsection (c)(iii)). Any claims which the Claimant does not in good faith pursue through the review stage of the procedure shall be treated as having been irrevocably waived. (e) The Plan Administrator may adopt procedures pursuant to which claims shall be reviewed and may, in its discretion, adopt different procedures for different claims without being bound by past actions. Any procedures adopted, however, shall be designed to afford a Claimant a full and fair review of his or her claim. (f) The decision by the review official upon review of a claim shall be made not later than sixty (60) days after the written request for review is received by the Plan Administrator, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than one hundred twenty (120) days after receipt of the request for review, unless the Claimant agrees to a greater extension of that deadline. 23 (g) The decision on review shall be in writing and shall include specific reasons for the decision written in a manner calculated to be understood by the Claimant, with specific references to the pertinent Plan provisions on which the decision is based. (h) If a Claimant pursued his or her claim through the review stage of the claims procedure and the claim was denied (or the review official failed to decide the claim on a timely basis, in which case it shall be deemed denied), the Claimant will be permitted to appeal the denial by arbitration pursuant to Section 7.3 of the Plan. In no event shall any claim to which this procedure applies be subject to resolution by any means (such as in a court of law) other than by this claims procedure or arbitration under Section 7.3. (i) This Section shall apply to a claim notwithstanding any failure by the Plan Administrator or his delegates to follow the procedures in this Section with respect to the claim. However, an arbitrator reviewing such a claim may permit a Claimant to present additional evidence or theories if the arbitrator determines that the Claimant was precluded from presenting them during the claim and review procedures due to procedural errors of the Plan Administrator or its delegates. 7.3 Arbitration Procedure --------------------- (a) If a Claimant's appeal is denied, his or her sole remaining remedy shall be to appeal the matter to an impartial arbitrator. Arbitration shall be in accordance with the 24 Employment Dispute Resolutions Rules of the American Arbitration Association (the "AAA") before an arbitrator who is familiar with employee benefit matters and who is licensed to practice law in the State in which the arbitration is convened (the "Arbitrator"). The Arbitrator shall be selected in the following manner from a list of eleven (11) arbitrators drawn by the AAA from its panel of labor and employment arbitrators: Each party shall designate all arbitrators on the list whom they find acceptable; the Arbitrator shall be chosen by alternate striking from the list of arbitrators acceptable to both parties, with the party who did not initiate the arbitration striking first. If only one arbitrator is acceptable to both parties, he or she shall be the Arbitrator. If none of the arbitrators are acceptable to both parties, a new panel of arbitrators shall be obtained from the AAA and the selection process shall recommence. The arbitration shall take place in or near the city in which the Claimant is or was last employed by the Employer, or, in which the Plan is principally administered, whichever is specified by the Plan Administrator, or in such other location as may be acceptable to both the Claimant and the Plan Administrator. The Arbitrator shall apply federal law. The Arbitrator shall have the exclusive authority to resolve any factual or legal claim relating to the Plan or relating to the interpretation, applicability or enforceability of this arbitration provision, including, but not limited to, any claim that all or any part of this provision is void or voidable. The arbitration shall be final and binding upon all parties. (b) The Claimant must submit a request for arbitration to the Plan Administrator within sixty (60) days of receipt of the written denial of his or her appeal (or within sixty (60) days of the date he or she should have received that determination). 25 (c) The Claimant and the Plan shall equally share the fees and costs of the Arbitrator. Each party shall pay its own costs and attorneys' fees, if any. The Arbitrator, in his or her discretion, may award reasonable attorneys' fees to the prevailing party. (d) The Claimant must deposit with the Plan Administrator one-half (1/2) of the anticipated fees and costs of the Arbitrator, as reasonably determined by the Plan Administrator before the arbitration. At least two (2) weeks before delivering his or her decision, the Arbitrator shall send his or her final bill for fees and costs to the Plan Administrator for payment. The Plan Administrator shall apply the amount deposited by the Claimant to pay the Claimant's share of the Arbitrator's fees and costs and shall return any surplus deposit after all fees and costs have been billed by the Arbitrator. If Claimant's deposit is exhausted, Claimant shall be billed for any remaining fees and costs Claimant owes. Failure to pay any amount or deposit any amount within seven (7) days after the Claimant has actual knowledge of the bill shall constitute the Claimant's irrevocable election to withdraw Claimant's arbitration request and abandon his or her claim. (e) At least thirty (30) days before the arbitration hearing, the parties must exchange lists of witnesses, including any expert witness, and copies of all exhibits intended to be used at the hearing. The Claimant may not present any evidence, facts, arguments or theories at the arbitration which were not pursued in the appeal, except pursuant to Section 7.2(i) or in response to new evidence, facts, arguments or theories presented on behalf of the Plan. 26 (f) The Plan Administrator shall submit to the Arbitrator a certified copy of the record upon which the review official's decision was made. The Arbitrator may grant the Claimant's appeal, in whole or in part, only if the Arbitrator determines that its grant is justified because (1) the review official was in error upon an issue of law, (2) the review official acted arbitrarily or capriciously in denying the appeal, or (3) the review official's findings of fact, if applicable, were not supported by substantial evidence. (g) The Arbitrator shall have jurisdiction to hear and rule on pre-hearing disputes and is authorized to hold pre-hearing conferences by telephone or in person as the Arbitrator deems necessary. The Arbitrator shall apply the Federal Rules of Evidence and shall have the authority to entertain a motion to dismiss or a motion for summary judgment by any party and shall apply the standards governing such motions under the Federal Rules of Civil Procedure. The Arbitrator shall render an award and opinion in the form typically rendered in labor arbitrations. The results of the arbitration, unless otherwise agreed to by the parties or ordered by the Arbitrator on motion, shall not be confidential and may be reported by any news agency or legal publisher or service. (h) Either party may (1) designate one expert witness, (2) take the deposition of one individual and the other party's expert witness, (3) propound requests for production of documents to any party, (4) subpoena witnesses and documents for the arbitration, but only as to the discovery permitted in this paragraph (or any additional discovery permitted by the Arbitrator on a showing of substantial need), (5) arrange for a court reporter to provide a stenographic record of the 27 proceedings at the party's own cost (6) upon request at the close of the hearing, be given leave to file a post-hearing brief within the time limit established by the Arbitrator and (7) bring an action in any court of appropriate jurisdiction to compel arbitration under this provision and to enforce an arbitration award. (i) If any part of these arbitration procedures are void and unenforceable, in whole or in part, that shall not affect the validity of the remainder of the procedures. (j) No party has the right to sue in any federal or state court with respect to any matter to which the Plan's claim or arbitration procedure applies, except as provided in Subsection (h). (k) To be entitled to any benefit under this Plan, the Claimant must agree to these arbitration provisions, which agreement shall be presumed unless the Claimant asserts otherwise, in which case the Claimant shall not be entitled to any benefits under the Plan. 7.4 Effect of Plan Administrator Action ----------------------------------- The Plan shall be interpreted by the Plan Administrator and all its delegates and agents in accordance with the terms of the Plan and their intended meanings, but interpretations of the Plan document, as in effect prior to January 1, 1996, shall not be thereafter applicable and such prior interpretations shall not be used in any arbitration or other legal proceeding. The Plan Administrator and all its delegates or agents shall have the discretion to make any findings of fact needed in the administration of the Plan, and shall have the discretion to 28 interpret or construe ambiguous, unclear or implied (but omitted) terms in any fashion they deem to be appropriate in their sole judgment. The validity of any such finding of fact, interpretation, construction or decision shall not be given de novo review if challenged in court, by arbitration or in any other ------- forum, and shall be upheld unless clearly arbitrary or capricious. To the extent the Plan Administrator or its delegate or agent has been granted discretionary authority under the Plan, the Plan Administrator's or such delegate's or agent's prior exercise of such authority shall not obligate it to exercise its authority in a like fashion thereafter. If, due to errors in drafting, any Plan provision does not accurately reflect its intended meaning, as demonstrated by consistent interpretations or other evidence of intent, or as determined by the Plan Administrator in its sole and exclusive judgment, the provision shall be considered ambiguous and shall be interpreted by the Plan Administrator and its delegates and agents in a fashion consistent with its intent, as determined by the Plan Administrator in its reasonable discretion. The Plan may be amended retroactively to cure any such ambiguity. This Section may not be invoked by any person to require the Plan to be interpreted in a manner which is inconsistent with its interpretation by the Plan Administrator. All actions taken and all determinations made in good faith by the Plan Administrator or its delegates and agents shall be final and binding upon all persons claiming any interest in or under the Plan. 7.5 Administrative Committee ------------------------ (a) The Plan Administrator is Pinkerton's, Inc., acting through the Administrative Committee that serves pursuant to this Section. 29 (b) The Administrative Committee shall consist of those members of the Board who then serve on the Board's Compensation Committee, augmented by one officer of Pinkerton's, Inc., appointed by, and serving at the pleasure of the Compensation Committee and who shall have no voting rights. (c) Any action of the Administrative Committee shall be taken pursuant to a majority vote of a quorum of its members or its full membership. Any action of the Administrative Committee may also be taken pursuant to the written consent of a majority of its members and their action shall constitute the action of the Administrative Committee and be as binding as if all members had joined in the action. A quorum of the Administrative Committee shall consist of a majority of its members. The secretary of the Administrative Committee may execute any certificate or other written direction on behalf of the Administrative Committee. (d) A member of the Administrative Committee shall not vote or act upon any matter which specifically relates to such person as a Participant or in which the member has an interest which may affect such member's best judgment. ARTICLE VIII ------------ AMENDMENT AND TERMINATION OF THE PLAN ------------------------------------- 8.1 Amendment/Termination --------------------- (a) The Board reserves the right, in its nonfiduciary settlor capacity, at any time to amend or terminate the Plan prospectively or retroactively (by a formal, written and explicit 30 instrument), but not in a way which would reduce any Vested Benefit's present value (as determined by an Enrolled Actuary selected by the Plan Administrator using the methods and assumptions that both the Plan Administrator and Enrolled Actuary determine to be appropriate). For example, the Board could at any time terminate the Plan, and in connection with that termination, satisfy all benefit obligations by causing the Employer to pay each Participant or Beneficiary the lump sum present value of his or her Vested Benefit. (b) No Plan amendment, unless it expressly provides otherwise, shall be applied retroactively to increase the Benefit or Vested percentage of a former Participant whose Employment terminated before the date the amendment became effective. However, in every other respect, all rights under the Plan shall be determined under the terms of the Plan as in effect at the time the determination is made. ARTICLE IX ---------- MISCELLANEOUS PROVISIONS ------------------------ 9.1 Payments -------- (a) In the event any amount becomes payable under the Plan to a minor or a person who, in the sole judgment of the Plan Administrator, is considered to be unable to give a valid receipt for the payment by reason of physical or mental condition, the Plan Administrator may direct that payment be made to any person found by the Plan Administrator, in its sole judgement, to have assumed the care of the person in question. Any payment made pursuant to such a finding shall constitute payment by the Plan 31 and result in a full release and discharge of the Plan Administrator, the Employer and their officers, directors, employees, agents, owners and representatives. (b) Payment of benefits to the person entitled thereto may be sent by first class mail, address correction requested, to the last known address on file with the Plan Administrator. If, within six (6) months from the date of issuance of the payment, the payment letter cannot be delivered to the person entitled thereto or the payment has not been negotiated, the payment shall be treated as forfeited. (c) Taxes shall be withheld from each payment made under the Plan to the extent required by applicable law. 9.2 Termination of Employment ------------------------- A person's Employment shall terminate upon the first to occur of his or her resignation from or discharge by the Employer or his or her death or Retirement. A person's Employment shall not terminate on account of an authorized leave of absence, sick leave or vacation, or on account of a military leave or a direct transfer between Employers. However, failure to return to work upon expiration of any leave of absence, sick leave or vacation or within the time period allowed under applicable personnel policies of the Employer shall be considered a resignation effective as of the expiration of such leave of absence, sick leave or vacation. 9.3 Alienation ---------- The rights of a Participant or Beneficiary under the Plan 32 shall not be subject to any claim or any creditor nor to attachment or garnishment or other legal process by any creditor. A Participant or Beneficiary shall not have the right to alienate, anticipate, commute, pledge, encumber or assign any of the benefits or payments or proceeds which the individual may expect to receive, contingently or otherwise, under the Plan. The provision of this Section shall not preclude any assignment or alienation expressly permitted under applicable pension plan law or other provisions of the Plan. 9.4 Duty to Provide Data -------------------- (a) Every person with an interest in the Plan or claiming benefits under the Plan shall furnish the Plan Administrator on a timely and accurate basis with such documents, evidence or information as it considers necessary or desirable for the purpose of administering the Plan. This includes completing insurance applications and submitting to medical examinations, if required by the Plan Administrator. The Plan Administrator may deny the accrual or benefits or postpone the payment of benefits (without accrual of interest) until such information and such documents have been furnished. (b) Every person claiming a benefit under this Plan shall give written notice to the Plan Administrator of his or her postal address and each change of postal address. Any communication, statement or notice addressed to such a person at his or her latest post office address as filed with the Plan Administrator will, on deposit in the United States mail with postage prepaid, be as binding upon such person for all purposes of the Plan as if it had been received, whether actually received or not. If a person fails to give notice of his or her correct 33 address, the Plan Administrator, the Employer and the delegates and agents shall not be obliged to search for, or to ascertain, his or her whereabouts. 9.5 Limitation on Rights of Employees --------------------------------- The Plan is strictly a voluntary undertaking on the part of the Employer and shall not constitute a contract between the Employer and any Employee, or consideration for, or an inducement or condition of, the employment of any Employee. Except as otherwise required by statute, nothing contained in the Plan shall give any Employee the right to be retained in the service of the Employer or to interfere with or restrict the right of the Employer, which is hereby expressly reserved, to discharge or retire any Employee at any time for any reason not prohibited by statute, without the Employer being required to show cause for the termination. Except as otherwise required by statute, inclusion under the Plan will not give any Employee any right or claim to any benefit hereunder except to the extent such right has specifically become fixed under the terms of the Plan. The doctrine of substantial performance shall have no application to Employees, Participants, or Beneficiaries. Each condition and provision including numerical items, has been carefully considered and constitutes the minimum limit on performance which will give rise to the applicable right. 9.6 Governing Law ------------- The Plan shall be interpreted, administered and enforced in accordance with federal law. To the extent that state law is applicable, however, the laws of the State of California shall apply. 34 9.7. Plurals ------- Where the context so indicates, the singular shall include the plural and vice versa. 9.8 Titles ------ Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan. 9.9 References ---------- Unless the context clearly indicates to the contrary, a reference to a Plan provision, statute, regulation or document shall be construed as referred to any subsequently enacted, adopted or executed counterpart. Executed at Encino, California as of the 1st day of --------- January 199 6 - ----------------- ----. PINKERTON'S, INC. By: /s/ Thomas W. Wathen ---------------------------------- Chairman of the Board of Directors By: /s/ Denis R. Brown ------------------------------------- President and Chief Executive Officer 35 APPENDIX I ---------- This Appendix sets forth special provisions that relate to the individuals identified below, notwithstanding anything in the Plan to the contrary: Provisions Relating to Denis R. Brown - ------------------------------------- 1. Mr. Brown's Benefit under Section 4.1 shall be Fifty-Two and one/half percent (52.5%) of his Final Average Monthly Compensation, which shall be determined solely on the basis of his "Executive's Base Salary" and his "Incentive Compensation", as such terms are defined in his Employment Agreement dated April 20, 1994. In determining Mr. Brown's Final Average Monthly Compensation, Incentive Compensation shall be taken into account as if paid on the last day of the Pinkerton's, Inc. fiscal year in which it accrued and only to the extent it does not exceed one-half of the Executive's Base Salary paid to Mr. Brown during that fiscal year. 2. Notwithstanding Section 6.1, Mr. Brown's Benefit under the Plan shall vest as follows, so long as Mr. Brown remains an Employee:
Date Vested Percentage ---- ----------------- April 19, 1999 20% August 7, 1999 46.667% August 7, 2000 73.334% August 7, 2001 100%
3. In applying Section 4.3 (relating to pre-retirement death benefits) with respect to Mr. Brown, paragraph 1 of this Appendix shall be applied as if Mr. Brown's Benefit were thirty-five percent (35%) of his Final Average Monthly Compensation 4. Wherever the term "Change of Control" appears in the Plan, when applied to Mr. Brown, the definition of "Change of Control" in Section 3.01 of Mr. Brown's employment agreement with Pinkerton's, Inc. dated as of April 20, 1994, shall be used. Provisions Relating to Thomas W. Wathen - --------------------------------------- 1. Mr. Wathen's Benefit under Section 4.1 of the Plan shall be $25,000 per month commencing on the first day of the calendar month following the date he ceases to be the President and Chief Executive Officer and an employee of Pinkerton's, Inc. 36 2. Mr. Wathen's Benefit shall be one hundred percent (100%) under Section 6.1, except that Mr. Wathen's Benefit shall be forfeited under the circumstances set forth in Sections 8.01(c) and 9.01 of his Personal Services Agreement with the Company, as in effect on May 1, 1994. Provisions relating to C. Michael Carter - ---------------------------------------- 1. Commencing on September 27, 1999 (i.e., the fifth anniversary of the --- effective date of Mr. Carter's participation in the Plan), Mr. Carter shall be deemed, for purposes of calculating benefits under the Plan, to have completed 1.8 Years of Participation for each year or partial year during which he is a Participant in the Plan following September 27, 1999. As a result of the foregoing, following September 27, 1999, Mr. Carter's effective accrual rate under the Plan shall be 6.3 percent. 2. Section 4.3 of the Plan (relating to pre-retirement death benefits) shall be applied as if Mr. Carter's Benefit were thirty-five percent (35%) of his Final Average Monthly Compensation. 3. Wherever the term "Change of Control" appears in the Plan, when applied to Mr. Carter, the definition of "Change of Control" in Appendix B to Mr. ---------- Carter's employment agreement with Pinkerton's, Inc. dated December 9, 1994, shall be used. Provisions relating to James P. McCloskey - ----------------------------------------- 1. Commencing on October 4, 1999 (i.e., the fifth anniversary of the effective ---- date of Mr. McCloskey's participation in the Plan), Mr. McCloskey shall be deemed, for purposes of calculating benefits under the Plan, to have completed 2.96 Years of Participation for each year or partial year during which he is a Participant in the Plan following October 4, 1999. As a result of the foregoing, following October 4, 1999, Mr. McCloskey's effective accrual rate under the Plan shall be 10.35 percent. 2. Section 4.3 of the Plan (relating to pre-retirement death benefits) shall be applied as if Mr. McCloskey's Benefit were thirty-five percent (35%) of his Final Average Monthly Compensation. 3. Wherever the term "Change of Control" appears in the Plan, when applied to Mr. McCloskey, the definition of "Change of Control" in Appendix B to Mr. ---------- McCloskey's employment agreement with Pinkerton's, Inc. dated December 9, 1994, shall be used. Appendix I Approved by the Board of Directors on December 11, 1996 37 APPENDIX II ----------- This Appendix sets forth special provisions that relate to the individual identified below, notwithstanding anything in the Plan to the contrary: Provision relating to Don W. Walker - ----------------------------------- 1. Commencing on January 13, 1997 (i.e., the fifth anniversary of the ---- effective date of Mr. Walker's participation in the Plan), Mr. Walker's Benefit shall be as follows:
Date Benefit ---- ------- January 13, 1997 26.250% January 13, 1998 30.625% January 13, 1999 35.000% January 13, 2000 39.375% January 13, 2001 43.700% January 13, 2002 48.125% January 13, 2003 52.500%
Appendix II Approved by the Board of Directors as of December 11, 1996 38 SCHEDULE I ---------- GRANDFATHERED BENEFITS ----------------------
Current or Former Annual Employee Grandfathered Benefit - -------- --------------------- Gerard Brown $51,295 George C. Davis $35,128 Maurice Dispennett $34,018 Bruce Menzies $31,236 Kevin B. O'Connor $30,599 Peter C. Sawyers $ 0 Billy L. Stephens $71,636
39 EX-10.24 6 FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT EXHIBIT 10.24 PINKERTON'S, INC. FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT This FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT (this "AMENDMENT") is dated as of December 1, 1996 and entered into by and among Pinkerton's, Inc., a Delaware corporation (the "COMPANY"), the Designated Subsidiaries (as defined in the Credit Agreement referred to below), the financial institutions listed on the signature pages hereof (the "LENDERS"), and Citicorp USA, Inc., as agent for the Lenders (the "AGENT"), and, for purposes of Section 3 hereof, the Subsidiary Guarantors listed on the signature pages hereof, and is made with reference to that certain Revolving Credit Agreement dated as of November 21, 1995 (the "CREDIT AGREEMENT"), by and among the Company, the Designated Subsidiaries, the Lenders and the Agent. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, the Company, the Designated Subsidiaries and the Lenders have entered into the Credit Agreement, pursuant to which certain credit facilities were extended to the Company and the Designated Subsidiaries; and WHEREAS, the Company, the Designated Subsidiaries and the Lenders desire to amend the Credit Agreement in certain respects; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENT TO THE CREDIT AGREEMENT 1.1 AMENDMENTS TO ARTICLE I: DEFINITIONS AND ACCOUNTING TERMS --------------------------------------------------------- A. The definition of "Applicable Margin" in Section 1.01 of the Credit Agreement is hereby amended by deleting the table set forth therein in its entirety and substituting the following therefor:
"Level I Level II Level III Period Period Period ------- -------- --------- .350% .400% .500%"
1 B. The definition of "Permitted Investments" in Section 1.01 of the Credit Agreement is hereby amended by deleting it in its entirety and substituting the following therefor: ""PERMITTED INVESTMENTS" means investments permitted under the Company's Investment Policy, which investments are intended by the Company to be short-term and non-speculative in nature, provided that (i) the weighted average life of the securities comprising such investments does not exceed one year, (ii) the maturity of each of the securities comprising such investments does not exceed two years from the date of acquisition of such security, and (iii) the securities comprising such investments do not constitute more than five percent of the debt or equity (as applicable) of the issuer of such securities. For the purposes of this definition: "Company's Investment Policy" --------------------------- means the Company's investment policy as approved by the Company's Chief Executive Officer and Chief Financial Officer. The Company shall provide copies of the Company's Investment Policy, as amended from time to time, to the Agent and the Lenders." C. The definition of "Termination Date" in Section 1.01 of the Credit Agreement is hereby amended by deleting the date "November 21, 1998" set forth therein and substituting therefor the date "November 19, 1999". 1.2 AMENDMENTS TO ARTICLE II: AMOUNTS AND TERMS OF THE ADVANCES ----------------------------------------------------------- A. Section 2.04(a)(ii) of the Credit Agreement is hereby amended by deleting it in its entirety and substituting the following therefor: "(ii) the weighted average rate per annum that its derived from the following rates: (A) a rate of .150% per annum with respect to each day during a Level I Period; (B) a rate of .175% per annum with respect to each day during a Level II Period; and (C) a rate of .250% per annum with respect to each day during a Level III Period." B. Section 2.19(a) of the Credit Agreement is hereby amended by deleting the date "November 21, 1997" set forth therein and substituting therefor the date "November 20, 1998". 1.3 AMENDMENT TO ARTICLE V: NEGATIVE COVENANTS OF BORROWER ------------------------------------------------------ Section 5.02(g) of the Credit Agreement is hereby amended by deleting the amount "$10,000,000" set forth therein and substituting therefor the amount "$15,000,000". 1.4 AMENDMENT TO ARTICLE VI: EVENTS OF DEFAULT ------------------------------------------ 2 Section 6.01(c) of the Credit Agreement is hereby amended by deleting the phrase "(other than Section 5.02(f)(iv))" and substituting therefor the phrase "(other than Sections 5.02(f)(ii) and 5.02(f)(iv))". SECTION 2. COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce the Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, the Company represents and warrants to each Lender that the following statements are true, correct and complete: A. CORPORATE POWER AND AUTHORITY. Each of the Company and the Designated Subsidiaries has all requisite corporate power and authority to enter into this Amendment, and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the "AMENDED AGREEMENT"). B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action on the part of the Company and the Designated Subsidiaries. C. NO CONFLICT. The execution and delivery by the Company and the Designated Subsidiaries of this Amendment and the performance by the Company and the Designated Subsidiaries of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to the Company or any of its Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of the Company or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on the Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of the Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries (other than any Liens created under any of the Loan Documents in favor of the Agent on behalf of the Lenders), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of the Company or any of its Subsidiaries. D. GOVERNMENTAL CONSENTS. The execution and delivery by the Company and the Designated Subsidiaries of this Amendment and the performance by the Company and the Designated Subsidiaries of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. 3 E. BINDING OBLIGATION. This Amendment and the Amended Agreement have been duly executed and delivered by the Company and the Designated Subsidiaries and are the legally valid and binding obligations of the Company and the Designated Subsidiaries, enforceable against the Company and the Designated Subsidiaries in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT. The representations and warranties contained in Article IV of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. G. ABSENCE OF DEFAULT. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default or a Potential Event of Default. SECTION 3. ACKNOWLEDGEMENT AND CONSENT Each of the Subsidiary Guarantors is party to a Subsidiary Guaranty and such Subsidiary Guarantor has guarantied the Obligations. Each Subsidiary Guarantor hereby acknowledges that it has reviewed the terms and provisions of the Credit Agreement and this Amendment and consents to the amendment of the Credit Agreement effected pursuant to this Amendment. Each Subsidiary Guarantor hereby confirms that the Subsidiary Guaranty to which it is a party or otherwise bound will continue to guaranty to the fullest extent possible the payment and performance of all "Subsidiary Guarantied Obligations" as such term is defined in the applicable Subsidiary Guaranty, including without limitation the payment and performance of all such "Subsidiary Guarantied Obligations" in respect of the Obligations of the Company and the Designated Subsidiaries now or hereafter existing under or in respect of the Amended Agreement. Each Subsidiary Guarantor acknowledges and agrees that any Subsidiary Guaranty to which it is a party or otherwise bound shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or limited by the execution or effectiveness of this Amendment. Each Subsidiary Guarantor represents and warrants that all representations and warranties contained in the Amended Agreement and the Subsidiary Guaranty to which it is a party or otherwise bound are true, correct and complete in all material respects on and as of the Amendment Effective Date to the same extent as though 4 made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. Each Subsidiary Guarantor acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Amendment, such Subsidiary Guarantor is not required by the terms of the Credit Agreement or any other Loan Document to consent to the amendments to the Credit Agreement effected pursuant to this Amendment and (ii) nothing in the Credit Agreement, this Amendment or any other Loan Document shall be deemed to require the consent of such Subsidiary Guarantor to any future amendments to the Credit Agreement. SECTION 4. MISCELLANEOUS A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS. (i) On and after the Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. (ii) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (iii) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of the Agent or any Lender under, the Credit Agreement or any of the other Loan Documents. B. FEES AND EXPENSES. The Company acknowledges that all costs, fees and expenses as described in Section 9.04 of the Credit Agreement incurred by the Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of the Company. C. HEADINGS. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, 5 THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Amendment shall become effective as of the date first set forth above upon the execution of a counterpart hereof by each of the Lenders and each of the other parties hereto and receipt by the Company and the Agent of written or telephonic notification of such execution and authorization of delivery thereof (such date being referred to herein as the "AMENDMENT EFFECTIVE DATE"). 6 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. PINKERTON'S, INC. By: /s/ James P. McCloskey -------------------------------- Title: EVP & CFO ----------------------------- PINKERTON GMBH HOLDING By: /s/ James P. McCloskey -------------------------------- Title: Managing Director ----------------------------- PINKERTON NORTH ATLANTIC LIMITED By: /s/ James P. McCloskey -------------------------------- Title: Director ----------------------------- WKD PINKERTON SECURITY SERVICES GMBH & CO. KG By PINKERTON GMBH HOLDING, general partner By: /s/ James P. McCloskey -------------------------------- Title: Managing Director ----------------------------- PINKERTON MANAGEMENT CORPORATION (for purposes of Section 3 only) as a Subsidiary Guarantor By: /s/ Gary J. Hasenbank -------------------------------- Title: Vice President ----------------------------- S-1 PINKERTON SERVICE CORPORATION (for purposes of Section 3 only) as a Subsidiary Guarantor By: /s/ Gary J. Hasenbank -------------------------------- Title: Vice President ----------------------------- S-2 CITICORP USA., INC., AS A LENDER AND AS AGENT By: /s/ Marjorie Futornick -------------------------------- Title: Vice President ----------------------------- CITIBANK, N.A., AS ISSUING LENDER By: /s/ David L. Harris -------------------------------- Title: Vice President ----------------------------- BANK OF MONTREAL, AS A LENDER By: /s/ [Illegible] -------------------------------- Title: Sr. Vice President ----------------------------- DRESDNER BANK AG, AS A LENDER New York and Grand Cayman Branches By: /s/ [Illegible] /s/ [Illegible] -------------------------------- Title: V.P. V.P. ----------------------------- PNC BANK, NATIONAL ASSOCIATION, AS A LENDER By: /s/ [Illegible] -------------------------------- Title: Vice President ----------------------------- S-3 UNION BANK OF CALIFORNIA, N.A., AS A LENDER By: /s/ Linda L. Brawn -------------------------------- Title: Vice President ----------------------------- S-4 EX-11 7 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 Pinkerton's, Inc. COMPUTATION OF EARNINGS PER SHARE (In thousands, except per share data)
Year Ended ----------------------------------------------------------------- December 27, December 29, December 30, 1996 1995 1994 -------------- -------------- -------------- Net income (loss) $ 12,450 $ 10,500 $ (10,242) ============== ============== =============== Weighted average number of shares outstanding 8,353 8,312 8,265 Dilutive effect of outstanding stock options 178 39 23 -------------- -------------- --------------- Weighted average number of shares, as adjusted, for calculation of earnings (loss) per share 8,531 8,351 8,288 =============== =============== =============== Net income (loss) per common share $ 1.46 $ 1.26 $ (1.24) =============== =============== ===============
EX-13 8 SECTIONS OF THE 1996 ANNUAL REPORT EXHIBIT 13 SELECTED FINANCIAL DATA Dollars and shares in thousands, except per share data OPERATING STATEMENT DATA
December 27, December 29, December 30, December 31, December 25, Year Ended 1996 1995 1994 1993/a/ 1992 - ---------- ------------ ------------ ------------ ------------ ------------ Service revenues $906,247 $862,793 $849,960 $772,026 $703,676 Cost of services 791,877 771,172 773,526 688,995 625,285 - ------------------------------------------------------------------------------------------------------------------------------- Gross profit 114,370 91,621 76,434 83,031 78,391 Operating expenses 81,256 61,857 57,983 54,982 49,827 Amortization of intangible assets 9,335 8,873 10,240 8,323 7,053 Write-down of intangible assets and other special charges - - 14,435 3,800 2,500 Gain from litigation settlements, net - - (2,369) - - - ------------------------------------------------------------------------------------------------------------------------------- Operating profit (loss) 23,779 20,891 (3,855) 15,926 19,011 Provision for reserve against investment - - - 3,267 - Interest expense, net 2,253 2,870 3,969 4,238 5,062 Other income (1,962) - - - - - ------------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 23,488 18,021 (7,824) 8,421 13,949 Provision for income taxes 11,038 7,521 2,418 5,220 5,362 - ------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 12,450 $ 10,500 $(10,242) $ 3,201 $ 8,587 - ------------------------------------------------------------------------------------------------------------------------------- Net income (loss) per common share $ 1.46 $ 1.26 $ (1.24) $ .39 $ 1.04 - ------------------------------------------------------------------------------------------------------------------------------- Weighted average common shares and common share equivalents outstanding 8,531 8,351 8,288 8,284 8,257 - ------------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA At Year End 1996 1995 1994 1993 1992 - ----------- ---- ---- ---- ---- ---- Working capital/b/ $104,459 $ 90,225 $ 85,400 $ 92,100 $ 99,032 Total assets 315,281 290,909 278,090 282,738 260,828 Current maturities of long-term debt 8,575 8,575 8,575 8,575 - Long-term debt, less current maturities 37,313 34,275 42,850 51,425 60,000 Total stockholders' equity 130,381 113,725 103,422 111,631 114,202 Book value per common share/c/ $ 15.28 $ 13.62 $ 12.47 $ 13.53 $ 13.87 - -------------------------------------------------------------------------------------------------------------------------------- OTHER FINANCIAL DATA Year 1996 1995 1994 1993 1992 - --- ---- ---- ---- ---- ---- Gross profit margin 12.6% 10.6% 9.0% 10.8% 11.1% Operating profit (loss) margin 2.6% 2.4% (0.5)% 2.1% 2.7% Current ratio/b/ 2.10 2.05 2.06 2.27 2.70 Long-term debt to equity ratio .29 .30 .41 .46 .53 Return on beginning equity 10.9% 10.2% (9.2)% 2.8% 7.7% Return on ending capital/d/ 8.5% 8.8% (4.9)% 3.1% 7.3% Operating cash flow/e/ $28,858 $25,876 $17,913 $19,504 $19,578 - --------------------------------------------------------------------------------------------------------------------------------
a The Company's fiscal year 1993 consisted of 53 weeks, whereas all other fiscal years presented consisted of 52 weeks. b Working capital and current ratio include the effect of $11.6 million borrowed to fund the acquisition of WKD Security GmbH on January 1, 1997. c Book value per common share has been calculated based upon weighted average common shares and common share equivalents outstanding during each year. d In 1994, return on ending capital was computed using the statutory tax rate. e Operating cash flow represents net income (loss) plus amortization and depreciation for all years. Also added back to determine operating cash flow were: provision for reserve against investment in 1993 and write-down of intangible assets in 1994. Management's Discussion and Analysis of Financial Condition and Results of Operations Pinkerton's fiscal year comprises the 52-week (or 53-week) period ending on the Friday closest to December 31, within the reporting year. R E S U L T S O F O P E R A T I O N S 1996 Compared to 1995 Service Revenues The Company's service revenues increased by $43.4 million, or 5.0%, from $862.8 million in 1995 to $906.2 million in 1996. This increase reflects $19.8 million of revenues from businesses acquired during 1996, a net increase in all other business of $27.4 million, and revenue reductions arising from currency fluctuations of $3.8 million. Domestic Service Revenues Compared with the prior year, the Company's domestic service revenues increased by $21.2 million, or 2.9%, from $726.2 million in 1995 to $747.4 million in 1996. This increase reflects $14.3 million of revenues from businesses acquired during 1996 with revenues from all other domestic sources increasing $6.9 million. Domestic service revenues reflect $106.7 million and $96.4 million of revenue from General Motors in 1996 and 1995, respectively. International Service Revenues Service revenues of the Company's international operations increased by $22.2 million, or 16.3%, from $136.6 million in 1995 to $158.8 million in 1996. This increase reflects $5.5 million of revenues from businesses acquired in 1996 and additional business from new and existing clients of $20.5 million, partially offset by reductions arising from currency fluctuations of $3.8 million. As a percentage of total service revenues, international operations were 15.8% in 1995 and 17.5% in 1996. Cost of Services and Gross Profit The Company's cost of services increased by $20.7 million, or 2.7%, from $771.2 million in 1995 to $791.9 million in 1996. This increase was primarily due to payroll and related expenses accompanying the increase in service revenues noted above. The Company's gross profit margin improved from 10.6% in 1995 to 12.6% in 1996, principally as a result of operating cost efficiencies and reduction in the number of unprofitable contracts. Gross profit was also favorably impacted by the inclusion of the Company's security systems integration operations, which typically experience higher gross margins than the Company's security service operations. Operating Expenses Operating expenses increased by $19.4 million, or 31.3%, from $61.9 million in 1995 to $81.3 million in 1996. Operating expenses were 9.0% of service revenues in 1996 and 7.2% of service revenues in 1995. The higher operating expense percentage reflects the Company's ongoing expenditures for new systems, quality processes and training programs implemented to enhance customer value. Operating expenses also reflect the operations of the Company's security systems integration service operations, which have both higher gross profit margins and operating expenses than the Company's security service operations. Amortization Amortization of intangible assets increased by $0.4 million, or 4.5%, from $8.9 million in 1995 to $9.3 million in 1996, primarily due to acquisitions made in 1996. Operating Profit Operating profit was $23.8 million, or 2.6% of service revenues in 1996, as compared with an operating profit of $20.9 million, or 2.4% of revenues in 1995. Operating profit increased as a percentage of revenues due to improved gross profit margins, partially offset by an increase in operating expenses discussed above. Interest Interest income decreased $0.3 million to $2.4 million in 1996 as a result of a decrease in interest rates in 1996 as compared with 1995. Interest expense decreased by $1.0 million, or 17.9%, from $5.6 million in 1995 to $4.6 million in 1996 as a result of a reduced average level of outstanding debt in 1996 as compared with 1995. In December 1996, the Company borrowed DM 18 million ($11.6 million) in connection with the acquisition of WKD Security GmbH. As a result, the Company expects interest expense to be higher in 1997. Other Income In 1996, the Company entered into an agreement with the previous owner related to the acquisition of Pinkerton's, Inc. by California Plant Protection, Inc. in 1988. As a result of this agreement, the Company received a cash payment of $5.2 million. Of this amount, $3.2 million represents a reimbursement of income and other taxes paid on behalf of the previous owner, which was recorded in the consolidated balance sheet; the remaining amount of $2.0 million was recorded as other income, since it represents an adjustment to the original cost of acquisition. Income Taxes Income taxes were $11.0 million in 1996 as compared with $7.5 million in 1995. The effective tax rate in 1996 is 47.0% as compared with 41.7% in 1995. In 1995, the Company's effective tax rate was caused by non-recurring tax minimization strategies and benefits from targeted jobs tax credits that expired in 1995. *** 1995 Compared to 1994 Service Revenues The Company's service revenues increased by $12.8 million, or 1.5%, from $850.0 million in 1994 to $862.8 million in 1995. This increase reflects $8.9 million of revenues from businesses acquired during 1995, a net increase in all other business of $7.8 million, and revenue reductions arising from currency fluctuations of $3.9 million. Domestic Service Revenues Compared with the prior year, the Company's domestic service revenues increased by $11.7 million, or 1.6%, from $714.5 million in 1994 to $726.2 million in 1995. This increase reflects $8.9 million of revenues from businesses acquired during 1995, with revenues from all other domestic sources increasing $2.8 million. Domestic service revenues reflect $96.4 million and $92.3 million of revenue generated by the General Motors account in 1995 and 1994, respectively. Domestic service revenues, net of acquisition and General Motors revenues, declined $1.2 million in 1995. This decline occurred primarily as a result of an active program to improve profitability by reducing unprofitable business, which resulted in a reduction in domestic service hours of 2.2%. International Service Revenues Service revenues of the Company's international operations increased by $1.1 million, or 0.8%, from $135.5 million in 1994 to $136.6 million in 1995. This increase was attributable to increased service requirements from new and existing clients, partially offset by reductions arising from currency fluctuations. As a percentage of total service revenues, international operations were 15.9% in 1994 and 15.8% in 1995. Cost of Services and Gross Profit The Company's cost of services decreased by $2.3 million, or 0.3%, from $773.5 million in 1994 to $771.2 million in 1995. This decrease was primarily due to operating cost efficiencies and the improved availability of labor in the markets in which the Company operates, partially offset by payroll and related expenses accompanying the increase in service revenues noted above. The Company's gross profit margin also improved from 9.0% in 1994 to 10.6% in 1995, principally as a result of operating cost efficiencies and reduction in the number of unprofitable contracts. Operating Expenses Operating expenses increased by $3.9 million, or 6.7%, from $58.0 million in 1994 to $61.9 million in 1995. Operating expenses were 7.2% of service revenues in 1995 and 6.8% of service revenues in 1994. The increase in 1995 reflects the Company's expenditures in international markets to develop new business, as well as company-wide expenditures to advance our quality initiatives, improve the recruitment and training of employees, and improve other processes. Amortization Amortization of intangible assets decreased by $1.3 million, or 12.7%, from $10.2 million in 1994 to $8.9 million in 1995. This decrease reflects lower amortization in the United Kingdom and Mexico due to a write-down of related intangibles in the fourth quarter of 1994. Operating Profit Operating profit was $20.9 million, or 2.4% of service revenues in 1995, as compared with an operating loss of $3.9 million, or 0.5% of revenues in 1994. Operating profit increased as a percentage of revenues due to improved gross profit margins, partially offset by an increase in operating expenses discussed above. The operating loss in 1994 reflects the write-down of intangible assets of $11.5 million and other special charges of $2.9 million. Interest Interest income increased $1.2 million to $2.7 million in 1995. The increase resulted from higher average interest rates in 1995, as well as an increase in average invested funds as compared with 1994. Interest expense increased by $0.1 million, or 1.8%, from $5.5 million in 1994 to $5.6 million in 1995. Income Taxes Income taxes were $7.5 million in 1995 as compared with $2.4 million in 1994. The effective tax rate in 1994 was not meaningful in consideration of the positive tax provision and a net loss. The Company has historically experienced a high effective tax rate due to the cost of expansion into international markets and amortization of intangibles which, historically, have not been tax deductible. In 1995, the Company employed tax minimization strategies and experienced job-related tax credits which lowered its effective tax rate to 41.7%. *** F I N A N C I A L C O N D I T I O N Capital Resources At December 27, 1996, the Company had $33.8 million in cash, an increase of $13.5 million from December 29, 1995, and $8.5 million in marketable securities, a $10.9 million decrease from December 29, 1995. Net cash provided by operating activities of $12.4 million and $3.3 million of net cash provided by financing activities was reduced by $2.2 million of net cash payments relating to investing activities. The Company's principal investing activities during 1996 were acquisitions ($7.3 million), the purchase of computer and other equipment ($5.8 million), and net sales of marketable securities ($10.9 million). The Company's principal financing activities during 1996 were a cash borrowing of $11.6 million under the revolving line of credit; an annual principal installment of $8.6 million, reducing the Company's long-term debt; and $0.3 million of cash receipts related to the exercise of stock options. The Company has an acquisitions program intended to implement its strategy to become a world-class, global security solutions provider. The Company also has an ongoing program to replace capital equipment as required. Both of these activities will continue during 1997. In addition, an annual principal installment of $8.6 million is due each June. One of Pinkerton's significant capital resources is the Pinkerton name, to which a value of approximately $54.8 million was assigned upon the acquisition of Pinkerton by California Plant Protection in January 1988. The Company believes that the value assigned to the name is representative of its market value. Management expects that the Company will be able to further capitalize on the Pinkerton name in the security and security-related service and product business. Liquidity Pinkerton's cash needs during the first six months of each year are greater because of the impact of higher payroll taxes. In addition, the Company is required to make annual principal payments of approximately $8.6 million (in the month of June) through the year 2000 in repayment of its Senior Notes. Semi- annual interest payments of approximately $1.8 million and $1.3 million related to the Senior Notes are due in June and December 1997, respectively. The Company has an unsecured revolving credit facility with a group of banks for borrowings up to $70.0 million, of which $50.0 million may be letters of credit. The facility also provides for a possible increase up to $100.0 million of borrowings (of which $50.0 million may be letters of credit) upon certain conditions. At December 27, 1996, there were DM 18.0 million ($11.6 million) of cash borrowings outstanding under the revolving line of credit which, together with $11.0 million of the Company's general funds, were utilized on January 1, 1997, to complete the acquisition of WKD Security GmbH, more fully discussed at Note 17 of Notes to Consolidated Financial Statements, "Subsequent Events." Also at December 27, 1996, $32.6 million in letters of credit had been issued by the Company to secure obligations under the Company's self-insurance programs. Such programs cover workers' compensation, general liability, fidelity, health, dental and automobile risks up to certain limits. Payments under these programs are not entirely predictable. The Company believes existing liquid resources, cash generated from operations and funds available under the revolving credit facility are sufficient for all planned operating and capital requirements. The Company also has access to capital markets, if necessary, to raise funds for working capital, capital spending and other investments for business growth. O U T L O O K : I S S U E S A N D R I S K S The Company's Annual Report includes discussions of its long-term growth outlook and future plans. The following issues and risks, among others, should also be considered in evaluating this information: Billing Rates and Competition Future billing rates the Company is able to charge for its services may vary from historical levels depending on market factors. Availability and Cost of Labor The Company's ability to deliver quality services depends heavily on the ready availability and cost of labor in the Company's markets. A strong economy may cause labor shortages in a geographical market, which may result in margins being constrained by unbillable overtime costs. Risk Arising from Litigation The nature of the Company's business subjects it to a significant volume of ordinary, routine claims and lawsuits incidental to such business. The Company maintains self-insurance programs and insurance coverage that it believes are appropriate for its liability risks. Nonetheless, many claims or lawsuits brought against the Company allege substantial damages that, if awarded and ultimately paid by the Company (rather than insurers or indemnitors), could have a material adverse effect on the results of operations or financial condition of the Company. See Note 14 of Notes to Consolidated Financial Statements, "Commitments and Contingencies." Currency Exchange The Company makes acquisitions and operates in various countries and transacts such business in international currencies, subjecting the Company to currency rate fluctuations. Accounting Standards Accounting standards promulgated by the Financial Accounting Standards Board change periodically. Changes in such standards may have an impact on the Company's future reported earnings. Retirement Plan Liabilities and Interest Rates The Company maintains several unfunded retirement plans, the liabilities of which are significantly affected by changes in long-term interest rates. Changes in long-term interest rates could have an impact on the Company's future reported earnings and financial position. Termination of Contracts A majority of the Company's revenue is derived from security guard contracts, which are typically for one-year terms, but generally provide for earlier termination by either party in certain circumstances. A net increase in terminations could have an adverse impact on the Company's future reported earnings; however, the Company has historically experienced a low rate of cancellations. Ability to Sustain Growth Through Acquisition The Company's revenue growth is partially dependent upon the Company's ability to attract and acquire additional business through acquisition. International Operations The Company operates in various international markets and engages in security activities that may contain more risk than operations in the United States. The profitability of such operations and associated risks may affect the Company's results and recoverability of goodwill. Consolidated Balance Sheets
December 27, December 29, In thousands 1996 1995 - --------------------------------------------------------------------------------------- A S S E T S Current assets: Cash and cash equivalents $ 33,761 $ 20,215 Investment in marketable securities 8,460 19,396 Accounts receivable (includes unbilled amounts of $30,196 in 1996 and $28,981 in 1995) 137,055 116,692 Less allowance for doubtful receivables 2,572 2,881 ....................................................................................... 134,483 113,811 ....................................................................................... Inventory 3,799 2,516 Prepaid expenses and taxes 11,566 13,762 Deferred income taxes 7,121 6,836 ....................................................................................... Total current assets 199,190 176,536 ....................................................................................... Equipment and leasehold improvements, net of accumulated depreciation and amortization of $26,818 in 1996 and $21,619 in 1995 14,977 14,017 Other assets: Intangible assets, net 57,311 60,895 Deferred income taxes 23,467 23,612 Other 20,336 15,849 ....................................................................................... 101,114 100,356 ....................................................................................... $315,281 $290,909 - --------------------------------------------------------------------------------------- L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y Current liabilities: Accounts payable $ 9,790 $ 7,304 Accrued liabilities 76,366 70,432 Current maturities of long-term debt 8,575 8,575 ....................................................................................... Total current liabilities 94,731 86,311 ....................................................................................... Accrued retirement benefits and other non-current liabilities 52,856 56,598 Long-term debt, less current maturities 37,313 34,275 Commitments and contingencies Stockholders' equity: Preferred stock -- 15 Common stock 8 8 Additional paid-in capital 74,887 74,463 Other adjustments (5,441) (9,238) Retained earnings 60,927 48,477 ....................................................................................... 130,381 113,725 ....................................................................................... $315,281 $290,909 - ---------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements. Consolidated Statements of Operations
December 27, December 29, December 30, In thousands, except per share data 1996 1995 1994 - ----------------------------------------------------------------------------------------- Service revenues $906,247 $862,793 $849,960 Cost of services 791,877 771,172 773,526 ......................................................................................... Gross profit 114,370 91,621 76,434 Operating expenses 81,256 61,857 57,983 Amortization of intangible assets 9,335 8,873 10,240 Write-down of intangible assets and other special charges -- -- 14,435 Gain from litigation settlements, net -- -- (2,369) ......................................................................................... Operating profit (loss) 23,779 20,891 (3,855) Other (income) deductions: Interest income (2,393) (2,713) (1,532) Interest expense 4,646 5,583 5,501 Other (1,962) -- -- ......................................................................................... 291 2,870 3,969 ......................................................................................... Income (loss) before income taxes 23,488 18,021 (7,824) Provision for income taxes 11,038 7,521 2,418 ......................................................................................... Net income (loss) $ 12,450 $ 10,500 $(10,242) - ----------------------------------------------------------------------------------------- Net income (loss) per common share $ 1.46 $ 1.26 $ (1.24) - ----------------------------------------------------------------------------------------- Weighted average common shares and common share equivalents outstanding 8,531 8,351 8,288 - -----------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements. Consolidated Statements of Changes in Stockholders' Equity
Additional Total Preferred Common Paid-In Other Retained Stockholders' In thousands Stock Stock Capital Adjustments Earnings Equity - ------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1993 $ 16 $ 8 $72,986 $(9,600) $ 48,221 $111,631 ............................................................................................................................... Dividends on preferred stock -- -- -- -- (1) (1) Issuance of common stock -- -- 226 -- -- 226 Exercise of stock options -- -- 533 -- -- 533 Minimum retirement plans liability adjustment -- -- -- 1,412 -- 1,412 Foreign currency translation adjustment -- -- -- (137) -- (137) Net loss -- -- -- (10,242) (10,242) ............................................................................................................................... Balance at December 30, 1994 16 8 73,745 (8,325) 37,978 103,422 ............................................................................................................................... Dividends on preferred stock -- -- -- -- (1) (1) Redemption of preferred stock (1) -- -- -- -- (1) Cancellation of restricted common stock -- -- (233) -- -- (233) Exercise of stock options -- -- 951 -- -- 951 Minimum retirement plans liability adjustment -- -- -- (640) -- (640) Foreign currency translation adjustment -- -- -- (273) -- (273) Net income -- -- -- 10,500 10,500 ............................................................................................................................... Balance at December 29, 1995 15 8 74,463 (9,238) 48,477 113,725 ............................................................................................................................... Redemption of preferred stock (15) -- -- -- -- (15) Cancellation of restricted common stock -- -- (2) -- -- (2) Exercise of stock options -- -- 426 -- -- 426 Minimum retirement plans liability adjustment -- -- -- 2,693 -- 2,693 Foreign currency translation adjustment -- -- -- 1,104 -- 1,104 Net income -- -- -- 12,450 12,450 ............................................................................................................................... Balance at December 27, 1996 $ -- $ 8 $74,887 $(5,441) $ 60,927 $130,381 - -------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements. Consolidated Statements of Cash Flows
December 27, December 29, December 30, In thousands 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------- O P E R A T I N G A C T I V I T I E S : Net income (loss) $ 12,450 $ 10,500 $(10,242) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Amortization of intangible assets 9,335 8,873 10,240 Depreciation and other amortization 7,073 6,503 6,414 Provision for losses on doubtful receivables 1,635 1,719 1,461 Deferred income taxes (2,079) (2,731) (2,264) Write-down of intangible assets -- -- 11,501 Changes in assets, liabilities and stockholders' equity: Accounts receivable (18,103) (2,501) (4,637) Inventory (430) 437 1,056 Prepaid expenses and taxes 2,342 (799) (4,359) Other assets (5,525) (3,276) (1,557) Accounts payable 1,196 88 (1,527) Accrued and other non-current liabilities 3,593 4,032 14,428 Foreign currency revaluation of net assets 920 (867) (565) ......................................................................................................................... Net cash provided by operating activities 12,407 21,978 19,949 ......................................................................................................................... I N V E S T I N G A C T I V I T I E S : Purchase of marketable securities (21,545) (52,673) (23,273) Sales/redemptions of marketable securities 32,481 43,858 31,191 Purchase of equipment and leasehold improvements (5,827) (5,336) (4,237) Payments for net assets of acquired businesses, net of cash acquired (7,272) (7,515) (11,678) ......................................................................................................................... Net cash used in investing activities (2,163) (21,666) (7,997) ......................................................................................................................... F I N A N C I N G A C T I V I T I E S : Proceeds from long-term debt 11,613 -- -- Principal repayment of long-term debt (8,575) (8,575) (8,575) Exercise of stock options 279 735 405 Redemption of preferred stock (15) (1) -- ......................................................................................................................... Net cash provided by (used in) financing activities 3,302 (7,841) (8,170) ......................................................................................................................... Net increase (decrease) in cash 13,546 (7,529) 3,782 Cash and cash equivalents at beginning of year 20,215 27,744 23,962 ......................................................................................................................... Cash and cash equivalents at end of year $ 33,761 $ 20,215 $ 27,744 - ------------------------------------------------------------------------------------------------------------------------- Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 4,449 $ 5,448 $ 6,222 Income taxes $ 13,191 $ 10,215 $ 9,942 - -------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements. Notes to Consolidated Financial Statements N O T E 1 Corporate Organization Pinkerton's, Inc. and subsidiaries is the resultant corporate entity following the acquisition on January 19, 1988, by California Plant Protection, Inc. of Pinkerton's, Inc. (formerly owned by American Brands, Inc.). N O T E 2 Summary of Significant Accounting Policies Accounting Cycle Pinkerton's fiscal year comprises the 52-week (or 53-week) period ending on the Friday closest to December 31, within the reporting year. The Company's quarterly reporting periods consist of three four-week periods for the first, second and third quarters, and four four-week periods for the fourth quarter. Principles of Consolidation The consolidated financial statements include the accounts of Pinkerton's, Inc. ("the Company") and its subsidiaries, which are primarily wholly owned. All significant intercompany accounts and transactions have been eliminated. Revenue Recognition The Company's operations consist mainly of providing security officer, systems integrator and investigation services to industrial, commercial, financial and other similar business clients. Substantially all business activity is with customers located throughout the United States, Canada, Europe, Asia and Mexico, and is not concentrated in any particular geographical region therein or by any type of economic activity. Service revenues are recognized as services are provided, including amounts for unbilled, rendered services. Sales to a single customer aggregated $121.6 million in 1996 and $109.5 million in 1995. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions. These affect the reported amounts of assets, liabilities, and the amount of contingent assets or liabilities disclosed in the consolidated financial statements. Actual results could differ from the estimates made. Equipment and Leasehold Improvements Equipment and leasehold improvements are recorded at cost. Equipment is depreciated over the estimated useful life of the related assets. The estimated useful life of equipment is 3 to 10 years. Leasehold improvements are amortized over the period of the related lease or the estimated life of the improvement, whichever is shorter. Accelerated methods of depreciation are used for income tax purposes, and the straight-line method is utilized for substantially all assets for financial reporting purposes. When equipment and leasehold improvements are retired or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is included in the results of operations. Intangible Assets Intangible assets represent the excess of the purchase price of acquired businesses over fair values of related net tangible assets (goodwill) and values assigned to other intangible assets such as non-compete agreements, contract rights and copyrights. Goodwill and other intangibles are amortized on a straight-line basis over periods of 10 to 25 years, and 3 to 10 years, respectively. The Company assesses the recoverability of goodwill and other intangible assets by determining whether the amortization of those balances can be recovered through projected (undiscounted) future results. The amount of impairment, if any, is measured based on projected discounted future cash flows using a discount rate reflecting the Company's average cost of capital. Self-Insurance Reserves The Company maintains various self-insurance programs for workers' compensation, general liability, fidelity, health, dental and automobile liability risks in the United States. These programs are administrated by the Company, insurance companies and other third parties. The Company is self- insured up to specified per-occurrence limits and maintains insurance coverage for losses in excess of specified amounts and for certain international activities not covered by the Company's self-insurance programs. Estimated costs under these programs, including incurred but not reported claims, are recorded as expenses based upon actuarially determined historical experience and trends of paid and incurred claims. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating loss and tax credit carry forward. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are 35 expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enacted date. Income taxes have not been provided on the undistributed earnings of certain foreign subsidiaries as such earnings will continue to be invested in those subsidiaries for an indefinite period. Foreign Currency Translation The Company translates revenues and expenses of its foreign subsidiaries using the weighted average exchange rates prevailing during the year. The assets and liabilities of such subsidiaries are translated at the rate of exchange in effect at year end, and translation adjustments are recorded as a component of stockholders' equity in the consolidated balance sheets. At December 27, 1996, and December 29, 1995, the cumulative multi-year effect of translation adjustments was a decrease to stockholders' equity of $3.8 million and $4.9 million, respectively. Income (Loss) per Share Income (loss) per common share is computed based on the weighted average number of shares of common stock and common stock equivalents, if dilutive, outstanding during each period. Common stock equivalents represent the number of shares that would be issued, assuming the exercise of dilutive stock options, reduced by the number of shares that could be repurchased on the open market with the proceeds from the exercise of those options. Fair Value of Financial Instruments The carrying amount of the Company's financial instruments, which principally include cash, accounts receivable, accounts payable and accrued expenses, approximates fair value due to the relatively short maturity of such instruments. Stock-Based Compensation Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. Marketable Securities The Company adopted Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities," on January 1, 1994. SFAS 115 requires investments to be classified in one of three categories: held-to-maturity securities, available-for-sale securities, and trading securities. The Company classifies its investments, comprised principally of highly liquid debt instruments with maturities greater than 90 days, as available-for-sale securities. Available-for-sale securities are reported at fair value. Statement of Cash Flows The Company considers cash equivalents to be all highly liquid investments with original maturities of 90 days or less. Reclassifications Certain reclassifications have been made to the prior year balances to conform to the 1996 presentation. N O T E 3 Acquisitions The Company is pursuing its strategic plan to provide a broader array of products and services to its client base, including security systems integration services and products. In pursuit of these plans, the Company acquired two regional security systems integration companies in 1995, four in 1996 and another in January 1997. The Company also acquired the security operations of Select Security, Inc. in Canada in 1996; and WKD Security GmbH ("WKD"), a security service provider in Germany, on January 1, 1997. Pro-forma financial information with respect to the 1995 and 1996 acquisitions is not included, as it is not significant to the consolidated financial statements. The acquisition of WKD is more fully discussed at Note 17 of Notes to Consolidated Financial Statements, "Subsequent Events." N O T E 4 Intangible Assets Intangible assets in the accompanying consolidated balance sheets consist of the following:
December 27, December 29, In thousands 1996 1995 - ------------------------------------------------------------- Goodwill $ 76,150 $ 73,380 Less accumulated amortization (31,573) (28,028) ............................................................. 44,577 45,352 ............................................................. Other intangibles 40,954 36,947 Less accumulated amortization (28,220) (21,404) ............................................................. 12,734 15,543 ............................................................. Total $ 57,311 $ 60,895 - -------------------------------------------------------------
Goodwill and other intangibles, principally contract rights, were written down in the fourth quarter of 1994 in the amount of $11.5 million. This write-down related primarily to the Company's business in the United Kingdom (U.K.). From inception of the acquisitions which formed the U.K. business, the sales and earnings projections made at the time of these acquisitions were not attained due to a prolonged economic recession, increased competitive pressures, the loss of contracts and difficulties encountered in developing and managing a large, national U.K. company. These conditions resulted in significant losses after amortization in 1994 and a significant deficiency in the U.K. subsidiary's equity. The Company determined that these conditions would continue, and that projected results would not support the remaining balance of goodwill and other intangible assets amounting to $15.4 million. The methodology used by the Company to assess the recovery of goodwill and other intangibles was to review recent trends and where appropriate to project future results of operations, considering all available information, for the remaining life of the intangible asset as of December 30, 1994. Such methodology established that certain balances of goodwill and other intangible assets in two international businesses (U.K. and Mexico) were impaired and could not be recovered from future operations. Therefore, these intangible assets were written down based on projected discounted future cash flows using a discount rate reflecting the Company's average cost of capital. N O T E 5 Long-Term Debt On June 14, 1990, the Company issued $60.0 million of unsecured Senior Notes to major insurance companies. Under the terms of the Note Purchase Agreement, which has a term of 10 years, interest is fixed at a rate of 10.35% per annum, payable semi-annually on June 15 and December 15 of each year. Six annual principal payments of $8,575,000 are required under the agreement beginning in June 1994, with an additional seventh payment of $8,550,000 required at maturity. The fair value of the Senior Notes is estimated to be $36.5 million at December 27, 1996, based on market interest rates for comparable loans. In November 1995, the Company replaced its existing revolving credit facility with an unsecured revolving credit facility with a group of banks for multi-currency borrowings up to $70.0 million, of which $50.0 million may be letters of credit (used primarily to support obligations under the Company's self-insurance programs). The termination date for the facility is November 19, 1999. The facility also provides for a possible increase up to $100.0 million of borrowings (of which $50.0 million may be letters of credit) upon certain conditions. Under the agreement, the Company is required to pay a fee on outstanding letters of credit of 0.5% per annum, payable quarterly, and interest on cash borrowings computed at the prime rate of the agent bank, payable monthly. A commitment fee of .175% per annum, payable monthly, is also required on any unused portions of the facility. At December 27, 1996, $32.6 million in letters of credit were outstanding and there were DM 18.0 million ($11.6 million) of cash borrowings outstanding under the revolving line of credit, which were used to acquire WKD on January 1, 1997. Under the terms of the Note Purchase Agreement and Revolving Credit Agreement, the Company is required to maintain certain financial ratios and meet certain net worth and working capital requirements. As of December 27, 1996, the Company was in compliance with its covenants. In addition, the agreements limit the Company's ability to pay dividends, dispose of assets, make capital expenditures and acquisitions, and incur additional indebtedness, as well as other limitations. The Company has no foreign or domestic derivatives, interest rate swaps or other hedge products as of December 27, 1996. N O T E 6 Accrued and Other Non-Current Liabilities Accrued liabilities consist of the following:
December 27, December 29, In thousands 1996 1995 - --------------------------------------------------------- Self-insurance reserves, current $12,802 $15,086 Salaries and wages 25,053 21,824 Payroll taxes and withholdings 6,777 7,199 Estimated liability for vacation benefits 8,376 6,805 Other 23,358 19,518 ......................................................... $76,366 $70,432 - ---------------------------------------------------------
The Company establishes self-insurance reserves for the estimated costs under workers' compensation, general liability, fidelity, health, dental and automobile liability insurance programs, including reserves for known claims, estimates of incurred but not reported claims and the expected loss development of unsettled claims. Estimated requirements are periodically reviewed and revisions are charged to operations in the period that estimates are changed. Activity in these reserve accounts for 1996, 1995 and 1994 is summarized as follows:
December 27, December 29, December 30, In thousands 1996 1995 1994 - ----------------------------------------------------------------------- Balance at beginning of year $ 49,839 $ 45,078 $ 38,189 Provision charged to operations 35,263 44,500 51,179 Payments (37,862) (39,739) (44,290) ....................................................................... Balance at end of year 47,240 49,839 45,078 ....................................................................... Less current portion included in accrued liabilities 12,802 15,086 12,689 ....................................................................... Long-term portion $ 34,438 $ 34,753 $ 32,389 - -----------------------------------------------------------------------
The Company is required to secure its financial obligation to cover potential future claims. This requirement is being satisfied with letters of credit issued under the revolving credit facility. The Company has established trust accounts for its contributions to a voluntary employees' beneficiary association (VEBA), from which all employee medical insurance claims, premiums and vacation pay under Company-sponsored plans are paid. Accrued liabilities at December 27, 1996, and December 29, 1995, reflect the estimated liability to the trusts. N O T E 7 Income Taxes The components of income (loss) before income taxes for domestic and foreign operations were as follows:
December 27, December 29, December 30, In thousands 1996 1995 1994 - ----------------------------------------------------------------------------- Domestic $27,378 $22,132 $ 5,303 Foreign (3,890) (4,111) (13,127) ............................................................................. $23,488 $18,021 $ (7,824) - -----------------------------------------------------------------------------
The following is a summary of the provision (benefit) for income taxes:
December 27, December 29, December 30, In thousands 1996 1995 1994 - --------------------------------------------------------------------------------- Current: Federal $ 9,790 $ 7,891 $ 3,360 State 2,424 1,855 1,809 Foreign 757 506 234 ................................................................................. 12,971 10,252 5,403 ................................................................................. Deferred: Federal (1,586) (2,343) (2,516) State (384) (388) (511) ................................................................................. (1,970) (2,731) (3,027) ................................................................................. Tax benefit-exercise of employee stock options 37 -- 42 ................................................................................. $11,038 $ 7,521 $ 2,418 - ---------------------------------------------------------------------------------
The provision for income taxes for the years ended December 27, 1996, December 29, 1995, and December 30, 1994, differed from the amount computed by applying the statutory federal income tax rate of 35% in each year to income (loss) before income taxes. The reasons for these differences are as follows:
December 27, December 29, December 30, In thousands 1996 1995 1994 - ----------------------------------------------------------------------------- U.S. Federal income tax (benefit) at statutory rate $ 8,220 $6,307 $(2,738) State income taxes, net of Federal benefit 1,372 954 849 ............................................................................. 9,592 7,261 (1,889) Changes resulting from: Targeted jobs tax credit -- (986) (1,448) Purchase price adjustment (769) -- -- Amortization of intangible assets 911 789 1,695 Undistributed earnings of foreign subsidiaries 268 211 (690) Write-down of foreign intangible assets -- -- 3,896 Tax-exempt interest income (123) (92) (225) Non-taxable dividend income (168) -- -- Other, net (313) 5 380 Change in valuation allowance 1,640 333 699 ............................................................................. $11,038 $7,521 $ 2,418 - -----------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities are presented below:
December 27, December 29, In thousands 1996 1995 - ------------------------------------------------------------- Deferred tax assets: Allowance for doubtful receivables $ 727 $ 750 Self-insurance reserves 18,430 19,762 Retirement plans 5,644 6,662 Provision against investment 1,592 1,596 Vacation pay 2,911 2,606 Benefit from acquired net operating loss 717 828 Amortization of intangibles 3,524 2,055 Foreign loss carryover 7,489 5,849 Other 771 129 ............................................................. Total deferred tax assets $41,805 $40,237 - ------------------------------------------------------------- Deferred tax liabilities: State taxes $ 1,895 $ 1,873 Prepaid insurance 587 704 Contribution to VEBA 336 302 Other 910 1,061 ............................................................. Total deferred tax liabilities $ 3,728 $ 3,940 ............................................................. Deferred tax assets valuation allowance (7,489) (5,849) ............................................................. Net deferred tax assets $30,588 $30,448 - -------------------------------------------------------------
N O T E 8 Other Special Charges In 1994, the Company recorded a pre-tax charge of $2.9 million, consisting primarily of severance, recruiting and relocation charges. N O T E 9 Other Income In 1996, the Company entered into an agreement with the previous owner related to the acquisition of Pinkerton's, Inc. by California Plant Protection, Inc. in 1988. As a result of this agreement, the Company received a cash payment of $5.2 million. Of this amount, $3.2 million represents a reimbursement of income and other taxes paid on behalf of the previous owner, which was recorded in the consolidated balance sheet; the remaining amount of $2.0 million was recorded as other income, since it represents an adjustment to the original cost of acquisition. N O T E 10 Retirement Plans The Company maintains the Supplemental Retirement Income Plan (SRIP) for certain executives and key employees. The plan has two benefit levels: (i) a benefit at age 62 of 2.0% of final five-year average compensation for each full year of participation, up to a maximum of 40.0%; or (ii) a benefit at age 62 of 3.5% of final five-year average compensation for each full year of participation, up to a maximum of 52.5%. Vesting of benefits under the SRIP normally occurs when a participant has five years of SRIP participation. The SRIP has no plan assets. The Company has purchased life insurance policies on the lives of certain individual executives as an investment that it may use to provide pre-retirement death benefits and retirement benefits. The cash surrender value of these policies aggregated $9.3 million and $7.1 million as of December 27, 1996, and December 29, 1995, respectively, and is included in other assets on the Company's consolidated balance sheets. In connection with the acquisition of Pinkerton, the Company assumed liability for the Discretionary Unfunded Deferred Compensation Plan for Key Employees (DUDCPKE), a plan covering a group of former Pinkerton executives. Participants are entitled to receive monthly payments of deferred compensation for life upon reaching age 60, in amounts ranging from 20.0% to 40.0% of the average three highest annual compensation amounts, depending on years of service. In connection with the operation of a large security contract at the Company's Canadian subsidiary, the Company operates a Canadian Pension Plan for the related security guards. The following table sets forth the status of the Company's retirement plans and amounts recognized in the Company's consolidated balance sheets as of December 27, 1996, and December 29, 1995:
December 27, December 29, In thousands 1996 1995 - ----------------------------------------------------------------------------- Actuarial present value of benefit obligations: Accumulated benefit obligation $19,684 $21,907 ............................................................................. Projected benefit obligation $24,086 $22,249 ............................................................................. Plan assets 1,468 910 Projected benefit obligation in excess of plan assets 22,618 21,339 Unrecognized net loss (5,795) (6,208) Prior service cost not yet recognized in net retirement plan cost (4,763) (6,046) ............................................................................. Accrued periodic retirement plan cost before minimum liability 12,060 9,085 Additional minimum liability 6,397 11,912 ............................................................................. Liability included in accrued retirement benefits and other non-current liabilities $18,457 $20,997 - -----------------------------------------------------------------------------
Net retirement plan cost for 1996, 1995 and 1994 included the following components :
December 27, December 29, December 30, In thousands 1996 1995 1994 - ----------------------------------------------------------------------- Service costs benefits earned during the period $1,992 $1,349 $1,384 Interest cost on projected benefit obligation 1,440 1,531 900 Amortization of net loss 274 137 411 Amortization of past service cost 313 313 322 ....................................................................... Net periodic retirement plan cost $4,019 $3,330 $3,017 - -----------------------------------------------------------------------
Assumptions used in accounting for the retirement plans as of 1996, 1995 and 1994 were:
December 27, December 29, December 30, 1996 1995 1994 - --------------------------------------------------------------------------------- Discount rates 7.0% 7.0% 8.5% Rates of increase in compensation levels 4.0% to 5.0% 4.0% to 5.0% 4.0% - ---------------------------------------------------------------------------------
The Company has no significant post-retirement obligations other than the SRIP, DUDCPKE and the Canadian Pension Plan. N O T E 11 Employee Stock Purchase Plan The Company has a stock purchase plan for eligible employees, under which Company stock can be purchased at market value through payroll deductions. N O T E 12 Stock Option Plans 1990 Stock Option Plan In February 1990, the Company adopted the 1990 Stock Option Plan (the "1990 Plan"), which provides for the granting of either incentive stock options or non-statutory stock options to key employees and directors of the Company to purchase up to an aggregate 270,000 shares of common stock, subject to adjustment for stock splits, stock dividends or similar capital adjustments. In April 1993, the 1990 Plan was amended to increase the number of shares of common stock reserved for issuance upon the exercise of options granted under the plan from 270,000 to 1,220,000. In February 1995, in connection with the adoption of the 1995 Pinkerton Performance and Equity Incentive Plan, the 1990 Plan was frozen such that no further grants would be made under the plan. At that time, under the 1990 Plan, options with respect to 783,550 shares were outstanding, options with respect to 32,000 shares had been exercised, and there remained 404,450 shares available under the plan with respect to which future option grants could have been made. At December 27, 1996, options with respect to 620,112 shares were outstanding, expiring through December 30, 2004, of which options with respect to 295,728 shares were exercisable. 1995 Pinkerton Performance and Equity Incentive Plan In February 1995, the Company adopted the 1995 Pinkerton Performance and Equity Incentive Plan (the "1995 Plan"), which provides for the granting of stock options, stock appreciation rights, restricted stock awards and performance awards to employees and stock options or certain common stock awards to non-employee directors of the Company. In April 1996, the plan was amended to increase the maximum number of shares of common stock with respect to which awards may be granted to 754,450, subject to adjustment for stock dividends, stock splits, recapitalizations or similar capital changes. At December 27, 1996, options with respect to 251,900 shares were outstanding, expiring through July 23, 2006, of which options with respect to 21,000 shares were exercisable. The Company's stock option plans are administered by the Compensation Committee of the Board of Directors, which consists of four independent directors. The committee is authorized to determine the participants in the 1995 Plan and the time of, type of and number of shares underlying awards under such plan. A summary of the status of the Company's stock option plans as of December 27, 1996, December 29, 1995, and December 30, 1994, and changes during the years ended on those dates is presented below:
Number of Weighted Average Shares Exercise Price - ----------------------------------------------------------------------- Outstanding at December 31, 1993 262,937 $ 19.40 Granted 614,750 17.80 Exercised (29,424) 13.75 Canceled (66,404) 20.57 ....................................................................... Outstanding at December 30, 1994 781,859 18.25 Granted 33,200 17.24 Exercised (62,759) 14.15 Canceled (55,400) 21.21 ....................................................................... Outstanding at December 29, 1995 696,900 18.34 Granted 241,000 19.12 Exercised (16,801) 16.60 Canceled (49,087) 21.63 ....................................................................... Outstanding at December 27, 1996 872,012 $ 18.40 - ----------------------------------------------------------------------- Options exercisable: December 30, 1994 207,109 December 29, 1995 202,005 December 27, 1996 316,728
The following table summarizes information about stock options outstanding at December 27, 1996:
O P T I O N S O U T S T A N D I N G - -------------------------------------------------------------------------------- Number of Shares Weighted Weighted Outstanding at Average Average Range of December 27, Remaining Exercise Exercise Prices 1996 Contractual Life Price - -------------------------------------------------------------------------------- $14.75 - 19.00 632,850 8.0 $17.29 $19.50 - 27.13 239,162 7.4 $21.36 - --------------------------------------------------------------------------------
O P T I O N S E X E R C I S A B L E - ----------------------------------------------------------------- Number of Shares Weighted Exercisable at Average Range of December 27, Exercise Exercise Prices 1996 Price - ----------------------------------------------------------------- $14.75 - 19.00 224,850 $16.64 $19.50 - 27.13 91,878 $22.95 - -----------------------------------------------------------------
Had compensation cost for the Company's stock plans been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the Company's net income and net income per common share would have been reduced by approximately $0.6 million, or $0.07 per share for the year ended December 27, 1996, and approximately $0.2 million, or $0.02 per share for the year ended December 29, 1995. The weighted average fair value of the options granted during the year ended December 27, 1996, and December 29, 1995, was estimated as $12.14 per share and $11.33 per share, respectively, on the date of grant using the Black- Scholes option-pricing model with the following assumptions:
December 27, December 29, 1996 1995 - ------------------------------------------------------------- Dividend yield -- -- ............................................................. Volatility .37 .37 ............................................................. Risk-free interest rate 6.0% 7.0% ............................................................. Expected life 7 years 7 years - -------------------------------------------------------------
N O T E 13 Capital Stock Capital stock at December 27, 1996, and December 29, 1995, consists of the following:
Number of Shares --------------------------- December 27, December 29, 1996 1995 - ------------------------------------------------------------------ 8% cumulative preferred stock, $100 par value: Class A: Authorized 1,000 1,000 Issued and outstanding -- -- Class B: Authorized 47,000 47,000 Issued and outstanding -- 153 11% cumulative preferred stock, $100 par value: Class C: Authorized 20,000 20,000 Issued and outstanding -- 1 Designated preferred stock, $.001 par value: Authorized 5,000,000 5,000,000 Issued and outstanding -- -- Common stock, $.001 par value: Authorized 100,000,000 100,000,000 Issued and outstanding 8,361,679 8,344,969 - ------------------------------------------------------------------
N O T E 14 Commitments and Contingencies The Company has commitments under operating leases, primarily for building and office space, expiring at various dates through December 2003. Certain of the leases provide for additional rent based on increases in the consumer price index or upon stated future rent revisions, payment of insurance, property taxes and for certain other costs of occupancy. Most leases contain renewal options. Rental expense for the years ended December 27, 1996, December 29, 1995, and December 30, 1994, was approximately $9,403,000, $7,747,000 and $7,679,000, respectively. The following is a schedule of future minimum annual rental payments required under the Company's operating leases as of December 27, 1996:
In thousands - ------------------------------------------------- 1997 $ 8,643 1998 7,580 1999 6,104 2000 4,908 2001 3,623 2002 and thereafter 9,985 ................................................. $40,843 - -------------------------------------------------
In addition to the above, the Company has agreements with leasing companies to lease automobiles over periods of 24 to 60 months, which are primarily used in the conduct of the Company's security operations. At December 27, 1996, the Company had 1,594 vehicles leased under these operating lease agreements. The maximum aggregate future rental commitment on the vehicles currently leased is $7,071,000. The nature of the Company's business subjects it to a significant volume of ordinary, routine claims and lawsuits incidental to such business. The Company maintains self-insurance programs and insurance coverage that it believes are appropriate for its liability risks. Nonetheless, many claims or lawsuits brought against the Company allege substantial damages that, if awarded and ultimately paid by the Company (rather than insurers or indemnitors), could have a material adverse effect on the results of operations or financial condition of the Company. On November 21, 1996, a jury awarded a judgment against the Company of $10.0 million for damages related to injuries suffered by a person on property on which the Company provided security services. The Company intends to appeal the verdict and expects that ultimately the judgment will be overturned due to a variety of legal defenses. Based on the advice of legal counsel, management believes that the Company will prevail in its appeal of the case. In addition, the same court found that the property management company must indemnify the Company for the liability and expenses of this case. No amount related to the judgment has been recorded in the Company's consolidated financial statements at December 27, 1996. In the opinion of management, based on currently known facts and the advice of legal counsel, there is no single claim or lawsuit, or group of claims or lawsuits based on the same facts, pending against the Company the disposition of which will have a material adverse effect on the results of operations or financial condition of the Company. During 1994, the Company reached litigation settlements relating to the procurement of uniforms and services provided. As a result of these settlements, the Company recorded a net pre-tax gain of $2.4 million. N O T E 15 International Operations The Company has international operations located in Europe, Canada, Mexico and Asia. Summarized information relating to the international subsidiaries is as follows:
December 27, December 29, December 30, In thousands 1996 1995 1994 - ----------------------------------------------------------------------- For the year: Service revenues $158,873 $136,611 $135,445 Operating loss $ (3,417) $ (3,062) $(15,410) At year end: Total assets $ 71,671 $ 41,407 $ 39,600 - -----------------------------------------------------------------------
In 1994, the Company recorded an $11.5 million write-down of goodwill and other intangible assets associated primarily with the Company's business in the United Kingdom. N O T E 16 Quarterly Financial Information (Unaudited) Pinkerton's fiscal year is comprised of the 52-week (or 53-week) period ending on the Friday closest to December 31, within the reporting year. The Company's quarterly reporting periods consist of three four-week periods for the first, second and third quarters, and four four-week periods for the fourth quarter.
In thousands, except First Second Third Fourth per share data Quarter Quarter/a/ Quarter Quarter/b/ - ------------------------------------------------------------------------------- Year ended December 27, 1996 Service revenues $200,036 $200,918 $207,496 $297,797 Gross profit 23,186 23,990 27,558 39,636 Net income 1,709 3,047 3,031 4,663 Net income per common share/c/ $ .20 $ .36 $ .36 $ .54 Weighted average common shares and common share equivalents outstanding 8,408 8,563 8,537 8,589 Year ended December 29, 1995 Service revenues $198,321 $195,442 $197,942 $271,088 Gross profit 18,751 19,560 22,235 31,075 Net income 1,471 1,563 1,974 5,492 Net income per common sharec $ .18 $ .19 $ .24 $ .65 Weighted average common shares and common share equivalents outstanding 8,345 8,303 8,333 8,407 - -----------------------------------------------------------------------------
a The second quarter of 1996 includes $2.0 million of other income. b The fourth quarter of 1995 includes the impact of tax minimization strategies. c The sum of the quarterly income per share amounts do not equal the annual amount reported since per share amounts are computed independently for each quarter and for the full year, based on the respective weighted average common shares and common share equivalents outstanding. N O T E 17 Subsequent Events On January 1, 1997, the Company acquired all of the outstanding stock of WKD Security GmbH, a German-based provider of uniformed security officer and cash transit services. The purchase price was approximately $22.6 million, paid in cash. The Company borrowed $11.6 million under its revolving line of credit, with the borrowing being denominated in German Deutsche Marks (DM 18.0 million). The balance of the acquisition price, or $11.0 million, was paid from the Company's general funds. In 1996, WKD Security GmbH had revenue of $23.8 million and net income of $2.5 million. A Form 8-K pertaining to this acquisition was filed with the Securities and Exchange Commission on January 16, 1997, and amended in March 1997. Independent Auditor's Report The Board of Directors and Stockholders of Pinkerton's, Inc.: We have audited the accompanying consolidated balance sheets of Pinkerton's, Inc. and subsidiaries as of December 27, 1996 and December 29, 1995 and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the three years ended December 27, 1996, December 29, 1995 and December 30, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pinkerton's, Inc. and subsidiaries as of December 27, 1996 and December 29, 1995 and the results of their operations, changes in stockholders' equity and cash flows for the years ended December 27, 1996, December 29, 1995 and December 30, 1994 in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Los Angeles, California February 20, 1997 Stockholder and Corporate Information S T O C K M A R K E T I N F O R M A T I O N The Company's common stock is traded on the New York Stock Exchange (NYSE) under the symbol PKT. From its 1990 initial public offering to June 25, 1996, the Company's common stock was traded on the Nasdaq National Market (Nasdaq) under the symbol PKTN. The following table sets forth the high and low bid quotations for each quarter of 1996 and 1995 as reported on the NYSE and Nasdaq. Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.
High Low - ----------------------------------- 1996 Fourth Quarter $27.00 $22.38 Third Quarter 25.00 21.00 Second Quarter 25.50 19.75 First Quarter 20.50 18.25 1995 Fourth Quarter $21.50 $17.63 Third Quarter 18.75 15.75 Second Quarter 17.00 14.75 First Quarter 19.75 15.50 - -----------------------------------
The Company historically has not paid cash dividends on its common stock, and its present policy is to retain any earnings for use in its business. The Company does not intend to change such policy in the foreseeable future. Additionally, certain covenants of the Company's Note Purchase Agreement place restrictions on the Company's ability to pay dividends. On March 5, 1997, there were 343 stockholders of record of the Company's common stock. A N N U A L M E E T I N G The Annual Meeting of Stockholders will be held at 2:00 p.m. on Thursday, April 24, 1997, at the Westwood Marquis Hotel and Gardens, 930 Hilgard Avenue, Los Angeles, California 90024-3033. F O R M 10 - K Upon written request to the Pinkerton Investor Relations Department, the Company will provide, at no cost, a copy of the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission. P I N K E R T O N 'S, I N C. W O R L D S U P P O R T C E N T E R 15910 Ventura Boulevard Suite 900 Encino, CA 91436-2810 T R A N S F E R A G E N T A N D R E G I S T R A R The Bank of New York 101 Barclay Street New York, NY 10286 (800) 524-4458 I N D E P E N D E N T A U D I T O R S KPMG Peat Marwick LLP 725 S. Figueroa Street Los Angeles, CA 90017 EX-21 9 LIST OF SUBSIDIARIES EXHIBIT 21 PINKERTON'S. INC. LIST OF SUBSIDIARIES
NAME STATE OR COUNTRY OF ORGANIZATION ---- -------------------------------- Alarm Systems, Inc. Louisiana Alertline Limited United Kingdom Business Risks International (Europe) Limited United Kingdom Delta Audio Visual Security, Inc. Louisiana Delta Audio Visual of Texas, Inc. Texas Delta Countermeasures, Inc. Louisiana Distribution Associates South, Inc. Georgia Douglas Roesch Communications, Inc. California Guardian Uniforms, Inc. California J.L. Torbeck Co. Ohio Judicial Services Limited United Kingdom Omega Corporation California Pinkerton (Asia) Limited British Virgin Islands Pinkerton (Australia) Pty. Ltd. Australia Pinkerton Aviation Security Limited United Kingdom Pinkerton's of Canada Limited Canada Pinkerton (China) Limited Hong Kong Pinkerton Consulting (M) Sdn Bhd (49% owned) Malaysia Pinkerton Consulting Services (Taiwan) Ltd. Taiwan Pinkerton Court Escort Services Limited United Kingdom Pinkerton C.R. s.r.o Czech Republic Pinkerton's du Quebec Limitee Canada Pinkerton (Far East) Inc. Philippines Pinkerton Government Services, Inc. Delaware Pinkerton GmbH Holding Germany Pinkerton (Hong Kong) Limited Hong Kong Pinkerton Insurance Company, Inc. Tennessee Pinkerton Investigation Services Limited United Kingdom Pinkerton Korea Limited Korea Pinkerton Management Corporation California Pinkerton North Atlantic Limited United Kingdom Pinkerton Protection Services, L.P. Indiana Pinkerton Security Service GmbH Germany Pinkerton Security Services Limited United Kingdom Pinkerton Security Services (Guernsey) Limited United Kingdom Pinkerton Security Services Ireland (Ireland), Ltd. (50% owned) Pinkerton Security Systems, Inc. California Pinkerton Service Corporation California Pinkerton Servicios de Investigacao E Seguranca, Lda. Portugal Pinkerton's Servicios de Seguridad Privada, S.A. de C.V. Mexico Pinkerton (Singapore) Pte Ltd. Singapore Pinkerton Slovakia s.r.o. Slovakia
PINKERTON'S. INC. LIST OF SUBSIDIARIES (continued)
NAME STATE OR COUNTRY OF ORGANIZATION ---- -------------------------------- Pinkerton (Thailand) Limited Thailand ProNet Image & Audio, Inc. North Carolina P. T. Pinkerton Indonesia Indonesia Signacon Controls, Inc. New York The Stanton Corporation North Carolina Summons & Warrants (U.K.) Limited United Kingdom Titan Security Services Inc. Michigan WKD Security GmbH Germany WKD Pinkerton Security Services GmbH & Co. KG Germany Yeoman Security Group Limited United Kingdom Yeoman Security Guards Limited United Kingdom 125129 Canada, Inc. (dba Canadalarm) Canada
EX-23 10 CONSENT OF KPMG PEAT MARWICK LLP EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT The Board of Directors and Stockholders Pinkerton's, Inc.: We consent to incorporation by reference in the Registration Statements on Form S-8 No. 33-68492, No. 33-41795, No. 33-36200 and No. 33-93902 of Pinkerton's, Inc. of our reports dated February 20, 1997, relating to the consolidated balance sheets of Pinkerton's, Inc. and subsidiaries as of December 27, 1996 and December 29, 1995 and the related consolidated statements of operations, changes in stockholders' equity and cash flows and related schedule for the three years ended December 27, 1996, December 29, 1995 and December 30, 1994, which reports appear herein or are incorporated herein by reference. /s/ KPMG Peat Marwick LLP Los Angeles, California March 14, 1997 EX-27 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS INCORPORATED HEREIN BY REFERENCE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR YEAR DEC-29-1995 DEC-27-1996 DEC-31-1994 DEC-30-1995 DEC-29-1995 DEC-27-1996 20,215 33,761 19,396 8,460 116,692 137,055 2,881 2,572 2,516 3,799 176,536 199,190 35,636 41,795 21,619 26,818 290,909 315,281 86,311 94,731 34,275 37,313 0 0 15 0 74,471 74,895 39,239 55,486 290,909 315,281 862,793 906,247 862,793 906,247 771,172 791,877 771,172 791,877 69,011 86,994 1,719 1,635 2,870 2,253 18,021 23,488 7,521 11,038 10,500 12,450 0 0 0 0 0 0 10,500 12,450 1.26 1.46 1.26 1.46
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