<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended March 31, 1995
Commission file number: 33-15419
BORG-WARNER SECURITY CORPORATION
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3408028
- ----------------------------- ---------------------
State or other jurisdiction of (I.R.S. Employer
Incorporation or organization Identification No.)
200 South Michigan Avenue, Chicago, Illinois 60604
- -------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 322-8500
--------------
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
----- -----
On April 30, 1995 the registrant had 21,985,948 shares of Common Stock and
1,149,600 shares of Series 1 Non-Voting Common Stock outstanding.
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<PAGE>
-1-
BORG-WARNER SECURITY CORPORATION AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
THREE MONTHS ENDED MARCH 31, 1995
INDEX
Page No.
--------
PART I. Financial Information
---------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
at March 31, 1995 and December 31, 1994 . . . . . . . . 2
Consolidated Statement of Earnings for
the three months ended March 31, 1995 and 1994. . . . . 3
Condensed Consolidated Statement of Cash Flows for
the three months ended March 31, 1995 and 1994 . . . . 4
Notes to the Consolidated
Financial Statements. . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . 10
PART II. Other Information
-----------------
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . 14
Item 2. Changes in Securities . . . . . . . . . . . . . . 15
Item 3. Defaults Upon Senior Securities . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . 15
Item 5. Other Information . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . 15
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
-2-
Part I. Financial Information
Item 1. Financial Statements
--------------------
BORG-WARNER SECURITY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- ------------
<S> <C> <C>
ASSETS
------
Cash and cash equivalents $ 17.5 $ 15.8
Receivables, net 121.7 106.7
Inventories 12.9 12.2
Other current assets 28.2 24.8
------ ------
Total current assets 180.3 159.5
Property, plant and equipment at cost 529.3 537.7
Less accumulated depreciation 246.5 242.6
------ ------
Net property, plant and equipment 282.8 295.1
Net excess purchase price
over net assets acquired 283.5 286.5
Deferred tax asset 51.2 50.8
Other assets 51.0 38.4
------ ------
$848.8 $830.3
====== ======
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Notes payable $ 9.8 $ 14.5
Accounts payable and accrued expenses 183.4 181.8
------ ------
Total current liabilities 193.2 196.3
Long-term debt 476.4 454.0
Other long-term liabilities 134.8 136.2
Capital stock:
Common stock 0.3 0.2
Series I non-voting common stock - -
Preferred stock - -
Other stockholders' equity 44.1 43.6
------ ------
Total stockholders' equity 44.4 43.8
------ ------
$848.8 $830.3
====== ======
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
-3-
BORG-WARNER SECURITY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1995 1994
------ ------
<S> <C> <C>
Net service revenues $462.4 $439.1
Cost of services 372.4 349.6
Selling, general and
administrative expenses 57.7 52.7
Depreciation 14.9 14.3
Amortization of excess purchase
price over net assets acquired 3.8 4.1
Other income - (0.5)
Interest expense and finance charges 13.8 11.9
------ ------
Earnings(loss) before income taxes (0.2) 7.0
Provision (benefit)for income taxes (0.3) 2.8
------ ------
Net earnings $ 0.1 $ 4.2
====== ======
Net earnings per share $ - $ .18
====== ======
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
-4-
BORG-WARNER SECURITY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
-------- --------
<S> <C> <C>
OPERATING:
Net earnings $ 0.1 $ 4.2
Adjustments to reconcile net earnings to net
cash flows provided by operating activities:
Non-cash charges to earnings:
Depreciation and amortization 18.7 18.4
Amortization of debt discounts 0.4 0.5
Changes in assets and liabilities:
Decrease in receivables 9.0 2.5
(Increase) in other current assets (4.1) (2.3)
Increase in accounts payable and accrued expenses 1.6 14.4
Net change in other long-term assets and liabilities (4.1) (1.9)
Cash used for discontinued Centaur operations (0.9) -
------ ------
Net cash provided by operating activities 20.7 35.8
------ ------
INVESTING:
Capital expenditures and investments in sales-type
leases (13.3) (17.0)
Payments related to businesses acquired - (9.5)
Proceeds from sales of other assets 0.7 0.4
------ ------
Net cash (used in) investing activities (12.6) (26.1)
------ ------
FINANCING:
Net increase (decrease) in notes payable (4.7) 3.4
Increases in long-term debt 51.4 8.1
Reductions in long-term debt (29.4) (20.9)
Net increase (decrease) in receivables sold (24.0) 2.0
Sales of treasury common stock 0.3 0.7
------ ------
Net cash (used in) financing activities (6.4) (6.7)
------ ------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1.7 3.0
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 15.8 11.2
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17.5 $ 14.2
====== ======
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
-5-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) The financial statements of Borg-Warner Security Corporation and
Consolidated Subsidiaries ("Company") have been prepared in accordance with
the instructions to Form 10-Q. The statements are unaudited, but include all
adjustments, consisting of normal recurring items, which the Company considers
necessary for a fair presentation of the information set forth herein. The
results of operations for the three months ended March 31, 1995 are not
necessarily indicative of the results to be expected for the entire year.
(2) The allowance for doubtful accounts was $7.3 million at March 31, 1995 and
$7.7 million at December 31, 1994. The accumulated amortization on excess
purchase price over net assets acquired was $82.2 million at March 31, 1995
and $78.5 million at December 31, 1994. The outstanding balance of
receivables sold at March 31, 1995 was $88.0 million, compared with $112.0
million sold at December 31, 1994.
Net cash payments for interest and income taxes were as follows (in millions
of dollars):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
---- ----
<S> <C> <C>
Interest paid $ 9.4 $ 6.3
Income taxes refunded (2.4) (9.8)
</TABLE>
(3) The Company's $(0.3)million and $2.8 million provision for income taxes
for the three months ended March 31, 1995 and 1994 reflect estimated annual
tax rates for the year applied to federal, state and foreign income.
<PAGE>
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(4) The following tables summarize the capitalization of the Company at March
31, 1995 and December 31, 1994 (in millions of dollars):
<TABLE>
<CAPTION>
March 31, 1995 December 31,1994
------------------ ------------------
DEBT Current Long-Term Current Long-Term
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Bank borrowings (at an average
rate of 7.5% in 1995 and 5.4%
in 1994; and 7.4% at March 31,
1995) $ - $ 60.0 $ - $ 88.0
Bank revolving commitment
loan due through 1999 (at
an average rate of 8.3% in
1995 and 7.6% in 1994; and
8.2% at March 31, 1995) - 156.6 - 105.2
8% notes (face amount of
$100 million due 1996) - 97.9 - 97.5
Unsecured notes (at an average
rate of 6.0% in 1995 and 5.9%
in 1994; and 7.2% at March 31,
1995) 0.7 1.2 5.3 1.3
Capital lease liability (at an
average rate of 8.3% in 1995 and
9.2% in 1994; and 7.8% at
March 31, 1995) 9.1 11.7 9.2 13.0
9-1/8% senior subordinated
notes due 2003 - 149.0 - 149.0
---- ------ ----- ------
Total notes payable and
long-term debt $9.8 $476.4 $14.5 $454.0
==== ====== ===== ======
</TABLE>
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY March 31, December 31,
1995 1994
--------- ------------
<S> <C> <C>
Common stock:
Common stock $ 0.3 $ 0.2
Series I non-voting common stock - -
Preferred stock - -
Capital in excess of par value 30.9 30.9
Notes receivable - management stock
purchase (0.9) (1.0)
Retained earnings 29.8 29.7
Cumulative translation adjustment (0.4) (0.5)
------ ------
59.7 59.3
Less treasury common stock, 2,222,325
shares in 1995 and 2,237,344 shares
in 1994, at cost (15.3) (15.5)
------ ------
Total stockholders' equity $ 44.4 $ 43.8
====== ======
</TABLE>
<PAGE>
-7-
<TABLE>
<CAPTION>
CAPITAL STOCK - NUMBER OF SHARES March 31, December 31,
(Thousands of shares) 1995 1994
--------- ------------
<S> <C> <C>
Common Stock, $.01 par value:
Authorized 50,000.0 50,000.0
Issued 22,446.1 22,435.7
Outstanding 21,794.2 21,758.4
Series I non-voting common stock,
$.01 par value:
Authorized 25,000.0 25,000.0
Issued 2,720.0 2,720.0
Outstanding 1,149.6 1,160.0
Preferred stock, $.01 par value:
Authorized 5,000.0 5,000.0
Issued and outstanding - -
</TABLE>
In March 1995, the Company amended its revolving and letter of credit
agreements with respect to covenants related to earnings, leverage, fixed
charge coverage, net worth, capital expenditures and acquisitions. In
connection with the renegotiation of financial covenants required to be
maintained under its receivables transfer facility, the Company has agreed to
increased reserve requirements and certain other changes. In addition, the
maturity date of this facility has been changed to September 30, 1995 from
November 1997.
<PAGE>
-8-
(5) Earnings per common share are based on average outstanding common shares
and common share equivalents. Common share equivalents recognize the dilutive
effects of common shares which may be issued in the future upon exercise of
certain stock options. The number of shares used in the computation of
earnings per share were as follows (in thousands of shares):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
------ ------
<S> <C> <C>
Average common shares
outstanding 22,933 22,860
Common stock equivalents 174 448
------ ------
Total used for computation
of per share earnings 23,107 23,308
====== ======
</TABLE>
(6) The Company's discontinued property and casualty insurance subsidiary
("Centaur") ceased writing insurance in 1984 and has been operating under
rehabilitation since September 1987. Rehabilitation is a process supervised
by the Illinois Director of Insurance to attempt to compromise claim
liabilities at an aggregate level that is not in excess of Centaur's assets.
In rehabilitation, Centaur's assets are currently being used to satisfy claim
liabilities under direct insurance policies written by Centaur. Any remaining
assets will be applied to Centaur's obligations to other insurance companies
under reinsurance contracts. If all of Centaur's obligations are not
satisfied through rehabilitation, it is possible that satisfaction could be
sought from the Company for Centaur's liabilities.
The foregoing has resulted in one pending lawsuit against the Company, certain
of its current and former subsidiaries, and directors and officers of certain
current and former subsidiaries for recovery of alleged damages incurred
because of Centaur's failure to satisfy its reinsurance obligations. The
lawsuit seeks in excess of $100 million for current losses, future losses and
other damages and also seeks punitive damages. The Company believes that any
damages for failure to satisfy reinsurance obligations are solely the
responsibility of Centaur and that the resolution of the lawsuit relating to
Centaur, including the Company's indemnification obligations to certain former
officers and directors, will not have a material adverse effect on its
financial position or future operating results; however, no assurance can be
given as to the ultimate outcome with respect to such lawsuit.
<PAGE>
-9-
The Company and certain of its current and former subsidiaries have been
identified by the U.S. Environmental Protection Agency and certain state
environmental agencies as potentially responsible parties("PRPs") at several
hazardous waste disposal sites under the Comprehensive Environmental Response,
Compensation and Liability Act ("Superfund") and equivalent state laws and, as
such, may be liable for the cost of cleanup and other remedial activities at
these sites. Responsibility for cleanup and other remedial activities at a
Superfund site is typically shared among PRPs based on an allocation formula.
The Company believes that none of these matters individually or in the
aggregate will have a material adverse effect on its financial position or
future operating results, generally either because the maximum potential
liability at a site is not large or because liability will be shared with
other PRPs, although no assurance can be given with respect to the ultimate
outcome of any such liability. Based on its estimate of allocations of
liability among PRPs, the probability that other PRPs, many of whom are large,
solvent public companies, will fully pay the costs allocated to them,
currently available information concerning the scope of contamination at such
sites, estimated remediation costs at such sites, estimated legal fees and
other factors, the Company has made provisions for indicated environmental
liabilities in the aggregate amount of approximately $11 million (relating to
environmental matters with respect to discontinued operations of the Company).
If any environmental liability claim relating to the Company's former chemical
and plastics business is made, the Company is indemnified by the purchaser of
such business, General Electric Company. Since the disposition, the Company
has notified General Electric Company of various claims made with respect to
the Company's former chemical and plastic business and General Electric
Company has assumed all of such claims and has not contested its
indemnification obligations. There is no dollar limitation on the General
Electric Company's indemnification and there are no other material limitations
or exclusions with respect thereto. If any environmental liability claim
relating to the operations of the Company's discontinued automotive subsidiary
is made, the Company will be indemnified by such former subsidiary.
The Company believes that the various asserted claims and litigation in which
it is involved will not materially affect its financial position or future
operating results, although no assurance can be given with respect to the
ultimate outcome of any such claim or litigation.
<PAGE>
-10-
Item 2. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
RESULTS OF OPERATIONS
---------------------
Consolidated net service revenue increased 5% to $462.4 million in the first
quarter of 1995 from $439.1 million in the first quarter of 1994. The revenue
increase resulted from expanded service offerings, rate increase programs and
recognition of revenue under sales-type leases. Operating profit, which is
pretax earnings before interest expense and unallocated corporate expenses,
declined 21% between these periods primarily due to increased costs of
service. For several years competitive market conditions have limited the
Company's ability to increase prices while direct costs, primarily employee
costs, have been increasing.
The revenue contributed by each of the Company's business units was as
follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
1995 1994
------ ------
<S> <C> <C>
Guard $302.0 $291.0
Alarm 65.1 52.6
Armored 56.7 52.1
Courier 38.6 43.4
------ ------
Total $462.4 $439.1
====== ======
</TABLE>
Guard revenue increased 4% primarily from increased guard hours and prices.
The guard unit's operating profit declined 2% because of higher labor costs,
which were only partially offset by increased prices. In certain geographic
areas the unit has experienced a contraction of the labor market, which has
increased direct costs through higher wages and increased amounts of unbilled
overtime. Because the market has constrained price increases, the Company has
not been able to pass on such cost increases to customers and margins have
declined. The Company expects that the guard market will remain price
competitive.
<PAGE>
-11-
Alarm revenue increased 24% primarily from treatment of commercial and
residential alarm installations as sales-type leases and increased
installations of residential alarm systems. The increase in revenue related
to the sales-type leases will be offset in future periods by reduced rental
revenue from equipment under operating leases. Alarm's operating profit
declined primarily because of lower margins on direct sales of commercial
installations and higher operating expenses, including maintenance costs and
selling, general and administrative expenses. Alarm's operating profit was
also adversely affected by higher depreciation and amortization charges
resulting from systems improvements implemented in 1994 to improve service
quality. Price competition has also applied downward pressure on operating
margins in 1995 and 1994. Because the commercial market continues to constrain
price increases for monitoring services, the unit will attempt to diversify
its largely commercial customer base by continuing its efforts to penetrate
the residential security market.
Armored revenue increased 9% primarily through increased prices, higher volume
in the ATM service operations and expanded services. Armored's operating
profit increased 17% primarily from improved price realization partially
offset by higher cargo insurance and labor costs. Although cargo loss payouts
for the first quarter of 1995 declined from the prior-year level, cargo
insurance provisions were increased. During subsequent periods in 1994 an
escalating rate of violent attacks against armored car and ATM servicing
personnel increased security costs and insurance premiums, and the Company is
maintaining its provision at a higher level.
The courier unit's business is generally subject to a mild level of
seasonality, with the first quarter traditionally reflecting a lower level of
activity because of weather-related problems associated with the
transportation industry. Courier revenue declined 11% primarily due to a
reduced volume of traditional financial document shipments. The lost volume
has been partially offset by new business acquired during the first quarter of
1995 and by improved pricing. New business includes the courier unit's
package express activities, which specialize in next-day delivery of small
packages and other time-sensitive commodities. Courier's operating profit
declined in 1995 as a result of the reduced revenues and a fixed cost base of
established route structures. The Company is reviewing its route structure
and branch organization in light of the reduced volume of business.
<PAGE>
-12-
Interest expense and finance charges increased 16% in 1995 over the comparable
1994 period because of the increased market interest rates experienced during
1994. The income tax benefit recorded in the first quarter of 1995 primarily
resulted from an adjustment to deferred income taxes of $.2 million. This
adjustment occurred from a change in the tax basis of certain liabilities as a
result of sales and settlements.
FINANCIAL CONDITION AND LIQUIDITY
---------------------------------
Current liabilities exceeded current assets at March 31, 1995 and December 31,
1994 due to the sale of receivables pursuant to a receivable transfer
facility. The outstanding balance of sold receivables was $88 million and
$112 million at March 31, 1995 and December 31, 1994, respectively. The
levels of receivables, inventory and current liabilities are partly seasonal
in nature and are influenced by the timing of billings, collections and
payrolls. The Company's policy is to keep working capital as low as is
operationally feasible to minimize related carrying costs.
Net cash provided by operating activities was $20.7 million in the first
quarter of 1995 compared with $35.8 million in the 1994 first quarter. The
decrease is primarily the result of fluctuations in working capital
requirements, including payroll accruals. Long-term debt increased to $476.4
million at March 31, 1995 compared with $454.0 million at December 31, 1994
due primarily to the decrease in receivables sold under the receivables
transfer facility. Total debt (including receivables sold) declined slightly.
The Company expects that continuing operations, together with existing credit
facilities and replacements thereof, will generate sufficient cash to fund
current operating requirements and capital expenditures.
To avoid potential non-compliance with the covenants contained in its
revolving and letter of credit agreements, the Company amended these
facilities in March 1995 with respect to covenants related to earnings,
leverage, fixed charge coverage, net worth, capital expenditures and
acquisitions. In connection with the renegotiation of financial covenants
required to be maintained under its receivables transfer facility, the Company
has agreed to increased reserve requirements and certain other changes. In
addition, the maturity date of this facility has been changed to September 30,
1995 from November 1997.
The Company is currently arranging $680 million in financing through a
syndicate of banks and other financial institutions. The new financing will
replace existing debt facilities, including the $100 million principal amount
of 8% notes due 1996 and the Company's existing revolving credit, letter of
credit and receivable transfer facilities. The new financing facility is
subject to certain conditions, including successful syndication and other
customary closing matters. It is expected to be in place by mid-1995.
<PAGE>
-13-
As discussed more fully in Note 6 of the Notes to Consolidated Financial
Statements, various complaints seeking substantial dollar amounts have been
filed against the Company. In each of these cases, the Company believes that
it has a defendable position or has adequate reserves to protect the Company
from material losses. The Company believes that it has established adequate
provisions for litigation liabilities in its financial statements in
accordance with generally accepted accounting principles. The Company
believes that none of these matters individually or in the aggregate will have
a material adverse effect on its financial position or future operating
results, although no assurance can be given with respect to the ultimate
outcome of any such proceeding.
<PAGE>
-14-
Part II. Other Information
Item 1. Legal Proceedings
-----------------
As previously reported in the Company's Annual Report on Form 10-K for the
year ended December 31, 1994, Centaur Insurance Company ("Centaur"), the
Company's discontinued property and casualty insurance subsidiary, has been
operating under rehabilitation since September 1987. Rehabilitation is a
process supervised by the Illinois Director of Insurance to attempt to
compromise Centaur's liabilities at an aggregate level that is not in excess
of its assets. The foregoing has resulted in one pending lawsuit against the
Company for recovery of alleged damages incurred as a result of Centaur's
failure to satisfy its reinsurance obligations.
In June 1988, the Insurance Commissioner of the State of California as trustee
of Mission Insurance Trust and four other affiliated insurance companies filed
a complaint in the Superior Court of the State of California, County of Los
Angeles, against the Company and certain of its current and former
subsidiaries alleging damages resulting from the failure of Centaur to satisfy
its reinsurance obligations. This lawsuit alleges damages to plaintiff, as
Trustee of Mission Insurance Company, Mission National Insurance Company,
Enterprise Insurance Company, Holland-America Insurance Company and Mission
Reinsurance Corporation, based on (i) conduct justifying piercing the
corporate veil, (ii) fraud and (iii) negligent misrepresentation. The
complaint was amended in 1989 to add 11 former officers and directors of the
Company's current and former subsidiaries as defendants and to allege
additional causes of action based on (i) breach of fiduciary duty and
imposition of personal liability, (ii) fraudulent conveyance, (iii)
constructive trust and (iv) conspiracy and to add a claim for punitive
damages. The complaint was further amended in February 1995 to allege
additional causes of action based on negligence and breach of the covenant of
good faith and fair dealing. The second amended complaint seeks judgment for
current losses, future losses and other damages in an amount alleged to exceed
$100 million.
In 1989, the Company filed a motion to dismiss or stay the action, pending
resolution of Centaur's rehabilitation in Illinois. The court declined to
dismiss the action, but entered an order staying the action until the
rehabilitation proceeding is resolved, except that the parties may pursue
discovery to preserve evidence. In 1992, the Centaur rehabilitator filed a
motion to intervene and dismiss the complaint on the grounds that the
plaintiff lacked standing and that its claims were not ripe for adjudication.
The motion is pending. In 1993, six of the 11 individual defendants were
dismissed from the lawsuit. In September 1994, the court effectively lifted
its stay. Active discovery is now being pursued. The Company intends to
defend this lawsuit vigorously.
<PAGE>
-15-
Item 2. Changes in Securities
---------------------
Inapplicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Inapplicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(A) Exhibits:
10.1 - Employment Agreement dated as of March 28, 1995 for
J. Joe Adorjan
10.2 - Agreement dated as of March 28, 1995 with Donald C.
Trauscht
27 - Financial Data Schedule
(b) Reports on Form 8-K:
None
<PAGE>
-16-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Borg-Warner Security Corporation
--------------------------------
(Registrant)
By /s/ Timothy M. Wood
------------------------
(Signature)
Timothy M. Wood
Vice President, Finance
(Principal Financial and Accounting Officer)
Date: May 12, 1995
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Borg-Warner Security Corporation, a Delaware
corporation (the "Company"), and J. J. Adorjan (the "Executive"), dated as of
the 28th day of March, 1995.
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its shareholders
to employ the Executive in the positions set forth below, and the Executive
desires to serve in those capacities;
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment Period. The Company shall employ the Executive, and
the Executive shall serve the Company, on the terms and conditions set forth in
this Agreement, for the period commencing on April 15, 1995, and ending on
December 31, 1999 (the "Employment Period").
2. Position and Duties. (a) From the first day of the Employment
Period through October 14, 1995, the Executive shall serve as President and
Chief Operating Officer of the Company, reporting to the Chief Executive Officer
of the Company, with such duties and responsibilities as are customarily
assigned to such positions, and such other duties and responsibilities not
inconsistent therewith as may be
<PAGE>
assigned to him from time to time by the Chief Executive Officer. From October
15, 1995 through the end of the Employment Period, the Executive shall serve as
President and Chief Executive Officer of the Company, reporting to the Board;
and effective as of December 31, 1995, the Executive shall also serve as
Chairman of the Board, with such duties and responsibilities as are customarily
assigned to such positions, and such other duties and responsibilities not
inconsistent therewith as may be assigned to him from time to time by the Board.
In addition, throughout the Employment Period, the Executive shall be nominated
to serve as a member of the Board.
(b) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive shall
devote his full-time efforts to the business and affairs of the Company and use
his best efforts to carry out such responsibilities faithfully and efficiently.
It shall not be considered a violation of the foregoing for the Executive to (i)
serve on corporate, civic or charitable boards or committees, (ii) deliver
lectures or fulfill speaking engagements and (iii) manage personal investments,
so long as such activities do not interfere with the performance of the his
responsibilities as an employee of the Company in accordance with this
-2-
<PAGE>
Agreement or violate the provisions of Section 8 of this Agreement.
(c) The Executive's services shall be performed primarily at the
Company's headquarters in Chicago, Illinois; provided, that the Executive may
continue to maintain his primary residence in St. Louis, Missouri.
3. Compensation. (a) Base Salary. During the Employment Period,
the Executive shall receive an annual base salary (the "Annual Base Salary") at
the annual rate of $900,000. The Annual Base Salary shall be payable in
accordance with the Company's payroll practices for key executives as in effect
from time to time. During the Employment Period, the Annual Base Salary shall
be reviewed for possible increase at least annually. Any increase in the Annual
Base Salary shall not limit or reduce any other obligation of the Company under
this Agreement. The Annual Base Salary shall not be reduced after any such
increase, and the term "Annual Base Salary" shall thereafter refer to the Annual
Base Salary as so increased.
(b) Annual Bonus. In addition to the Annual Base Salary, for each
calendar year or portion of a calendar year during the Employment Period, the
Executive shall be eligible to earn an annual cash bonus (the "Annual Bonus")
pursuant to the Company's annual cash bonus program. The
-3-
<PAGE>
Annual Bonus for the period from the first day of the Employment Period through
December 31, 1995 shall be $400,000 if performance goals, mutually agreed upon
by the Executive and the Compensation Committee of the Board, are achieved;
provided, that such amount shall be reduced by the amount of any bonus paid to
the Executive by Emerson Electric Co. ("Emerson") for its fiscal year ending
October 31, 1995. The Annual Bonus for subsequent years shall be based on
achievement of performance goals established by the Compensation Committee of
the Board, such that if the threshold performance goals are achieved, the Annual
Bonus shall be $200,000, and if the maximum goals are achieved or exceeded, the
Annual Bonus shall be $500,000. Each Annual Bonus shall be paid in a single
cash lump sum no later than 60 days after the end of the period for which the
Annual Bonus is awarded.
(c) Deferral Election. Notwithstanding the provisions of Section
3(a) and (b) of this Agreement, the Executive may defer the payment of all or
any portion of the Annual Base Salary or Annual Bonus for any year, provided
that before the beginning of the year with respect to which such Annual Base
Salary or Annual Bonus is paid, he notifies the Company in writing of his
election to do so. Any compensation that is so deferred shall accrue interest
at the Company's cost of funds from bank lenders (the "Interest
-4-
<PAGE>
Rate") or such other rate of return as shall be agreed between the Executive and
the Compensation Committee of the Board at the time the deferral election is
made. Such deferred compensation, together with the accrued interest or other
deemed earnings thereof, shall be paid to the Executive in cash upon the
termination of his employment by the Company in a single lump sum or, if so
specified in the deferral election, in up to five equal annual installments.
The Company may, but shall not be required to, set aside funds in a grantor
trust or otherwise to provide for such payment, but the Executive's rights to
such deferred compensation shall at all times be as a general creditor of the
Company, and he shall have no right to or other interest in any such funds set
aside by the Company.
(d) Deferred Compensation. (i) As soon as practicable after the
first day of the Employment Period, the Company shall issue to a grantor trust
subject to the claims of the Company's creditors (the "Trust") a number of
shares of the Company's common stock having an aggregate value of $1,500,000 on
the first day of the Employment Period; provided, however, that any fractional
shares shall be rounded to the nearest whole share. The shares in the Trust,
together with any dividends and other distributions made with respect thereto to
the trustee of the Trust, shall be delivered to the Executive in four equal
annual installments on
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each of the first four anniversaries of the first day of the Employment Period.
(ii) On each of the first four anniversaries of the first day of the
Employment Period, the Company shall pay the Executive $250,000 in cash (the
"Special Deferred Compensation").
(iii) The Executive shall have no interest in the assets of the
Trust, and his rights to such assets and to the Special Deferred Compensation
shall be at all times limited to the rights of a general creditor of the
Company.
(e) Common Stock Options. The Executive shall be granted options
under and pursuant to the provisions of the Company's 1987 Management Stock
Option Plan and 1993 Stock Incentive Plan to purchase 300,000 shares of the
Company's common stock as follows:
<TABLE>
<CAPTION>
Plan Options Grant Date
---- ------- ----------
<S> <C> <C>
1987 141,873 April 16, 1995
1993 100,000 April 16, 1995
1993 58,127 January 2, 1996
</TABLE>
Such options shall become exercisable in three equal installments on each of the
first three anniversaries of April 16, 1995.
(f) Split Dollar Life Insurance. The Company shall provide the
Executive with a split-dollar life insurance policy (the "Policy") with a face
amount of $400,000, by
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assuming the policy provided to the Executive by Emerson or otherwise. The
subowner of the Policy shall be the Executive, and the Executive shall have the
right to designate the beneficiary of the Policy. The Company shall pay all
premiums required to keep the Policy in effect during the Employment Period, and
shall be entitled to recover from the proceeds of the Policy the "Company
Amount" (as defined in the next sentence) upon the death of the Executive. The
"Company Amount" shall be an amount equal to the excess of (i) the amount, if
any, paid by the Company to acquire the Policy from Emerson plus the premiums on
such Policies paid by the Company over (ii) any dividends received by the
Company in respect of such premiums, but only to the extent such dividends are
not used to purchase additional insurance for the benefit of the Executive. The
Executive shall have the right at any time to purchase the Policy from the
Company at a cash price equal to the Company Amount determined as if the
Executive's death occurred on the date such right is exercised.
(g) Supplemental Benefit Compensation. During the Employment Period,
the Executive shall receive supplemental benefit compensation on terms and
conditions to be mutually agreed between the Executive and the Compensation
Committee of the Board.
-7-
<PAGE>
(h) Other Benefits. During the Employment Period: (i) the Executive
shall be entitled to participate in all incentive, savings and retirement plans,
practices, policies and programs of the Company to the same extent as other key
executives; and (ii) the Executive and/or the Executive's family, as the case
may be, shall be eligible for participation in, and shall receive all benefits
under, all welfare benefit plans, practices, policies and programs provided by
the Company and its affiliated companies (including, without limitation,
medical, prescription, dental, disability, salary continuance, employee life
insurance, group life insurance, accidental death and travel accident insurance
plans and programs) to the same extent as other key executives.
(i) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in carrying out the Executive's duties under this Agreement,
provided that the Executive complies with the policies, practices and procedures
of the Company for submission of expense reports, receipts, or similar
documentation of such expenses.
(j) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to paid vacation, the use of a Company-provided car of the
Executive's choice, tax and financial planning services, and payment of annual
dues, assessments and expenses at one country club and one dinner
-8-
<PAGE>
club selected by the Executive, in each case on the terms and conditions as are
in effect for other key executives of the Company from time to time or, if not
made available to other key executives, on terms and conditions that are
determined by the Compensation Committee of the Board to be fair and reasonable.
4. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. The Company shall be entitled to terminate the
Executive's employment because of the Executive's Disability during the
Employment Period. "Disability" means that (i) the Executive has been unable,
for a period of six months, or for a total of 180 days in any given period of
twelve months, to perform the Executive's duties under this Agreement, as a
result of physical or mental illness or injury, and (ii) a physician selected by
the Company or its insurers, and acceptable to the Executive or the Executive's
guardian or legal representative, has determined that the Executive's incapacity
is total and permanent. A termination of the Executive's employment by the
Company for Disability shall be communicated to the Executive by written notice,
and shall be effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), unless the Executive is able to,
and does, return to full-time
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<PAGE>
performance of the Executive's duties before the Disability Effective Date.
(b) By the Company. (i) The Company may terminate the Executive's
employment during the Employment Period for Cause or without Cause. "Cause"
means:
A. the willful failure or refusal of the Executive to
perform his duties under this Agreement (other than as a result of
physical or mental illness or injury); provided that the Company shall
give written notice to the Executive at least 30 days prior to such
termination of the Company's intent to terminate, which notice shall
set out in detail the ways in which Executive has failed to perform
such duties, and Executive shall have failed to cure such failure
prior to the expiration of such 30-day period; or
B. any fraud, embezzlement or other dishonesty of the
Executive that adversely affects the Company's business or reputation;
or
C. the Executive's conviction of a felony or entering into
a plea of nolo contendere with respect to a felony.
(ii) A termination of employment by the Company for Cause shall be
effectuated by giving the Executive written notice ("Notice of Termination for
Cause") of the termination, setting forth the conduct of the Executive that
constitutes Cause. Except as provided in clause A of Section 4(b)(i) above, a
termination of employment by the Company for Cause shall be effective on the
date when the Notice of Termination for Cause is given, unless the notice sets
forth a later date (which date shall in no event be later than 30 days after the
notice is given).
-10-
<PAGE>
(iii) A termination of the Executive's employment by the
Company without Cause shall be effected by giving the Executive written notice
of the termination.
(c) By the Executive. (i) The Executive may terminate
employment for Good Reason. "Good Reason" means:
A. the assignment to the Executive of any duties inconsistent in
any respect with paragraph (a) of Section 2 of this Agreement, other
than actions that are not taken in bad faith and are remedied by the
Company within 5 days after receipt of notice thereof from the
Executive;
B. any failure by the Company to comply with any provision of
Section 3 of this Agreement, other than failures that are not taken in
bad faith and are remedied by the Company within 5 days after receipt
of notice thereof from the Executive;
C. any failure by the Company to comply with Section 10(c) of
this Agreement; or
D. should there be a Change of Control of the Company (as
defined below) a termination by the Executive, at his own initiative,
for any reason during the 30-day period immediately following the
first anniversary of the date of the Change of Control.
For purposes of this Agreement, "Change in Control" means the happening of any
of the following events:
(1) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 50% 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
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<PAGE>
the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); excluding, however, the following: (A) any
acquisition directly from the Company, other than an acquisition by
virtue of the exercise of a conversion privilege unless the security
being so converted was itself acquired directly from the Company, (B)
any acquisition by the Company, (C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (D) any acquisition by
any Person pursuant to a transaction which complies with clauses (A),
(B) and (C) of subsection (3) of this Section 4(c)(i); or
(2) A change in the composition of the Board such that the
individuals who, as of the first day of the Employment Period,
constitute the Board (such Board shall be hereinafter referred to as
the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, for purposes of this Section
4(c)(i), that any individual who becomes a member of the Board
subsequent to such date, whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a
majority of those individuals who are members of the Board and who
were also members of the Incumbent Board (or deemed to be such
pursuant to this proviso) shall be considered as though such
individual were a member of the Incumbent Board; but, provided
further, that any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board
shall not be so considered as a member of the Incumbent Board; or
(3) The approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other disposition
of all or substantially all of the assets of the Company ("Corporate
Transaction"); excluding, however, such a Corporate Transaction
pursuant to which (A) all or substantially all of the individuals and
entities
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<PAGE>
who are the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Corporate Transaction will beneficially own,
directly or indirectly, more than 60% of, respectively, the
outstanding shares of common stock, and the combined voting power of
the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation
resulting from such Corporate Transaction (including, without
limitation, a corporation which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such
Corporate Transaction, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no
Person (other than the Company, any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company or such corporation resulting from such
Corporate Transaction) will beneficially own, directly or indirectly,
20% or more of, respectively, the outstanding shares of common stock
of the corporation resulting from such Corporate Transaction or the
combined voting power of the outstanding voting securities of such
corporation entitled to vote generally in the election of directors
except to the extent that such ownership existed with respect to the
Company prior to the Corporate Transaction and (C) individuals who
were members of the Incumbent Board will constitute at least a
majority of the members of the board of directors of the corporation
resulting from such Corporate Transaction; or
(4) The approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(ii) A termination of employment by the Executive for Good Reason
shall be effectuated by giving the Company written notice ("Notice of
Termination for Good Reason") of the termination, setting forth the conduct of
the
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<PAGE>
Company that constitutes Good Reason. A termination of employment by the
Executive for Good Reason shall be effective on the fifth business day following
the date when the Notice of Termination for Good Reason is given, unless the
notice sets forth a later date (which date shall in no event be later than 30
days after the notice is given).
(d) No Waiver. The failure to set forth any fact or circumstance in a
Notice of Termination for Cause or a Notice of Termination for Good Reason shall
not constitute a waiver of the right to assert, and shall not preclude the party
giving notice from asserting, such fact or circumstance in an attempt to enforce
any right under or provision of this Agreement; provided, that the foregoing
shall not mean that a notice purporting to be a Notice of Termination for Cause
pursuant to clause A of Section 4(b)(i) that fails to comply with said clause A
will be treated as a valid Notice of Termination for Cause.
(e) Date of Termination. The "Date of Termination" means the date of
the Executive's death, the Disability Effective Date, the date on which the
termination of the Executive's employment by the Company for Cause or by the
Executive for Good Reason is effective, or the date on which the Company gives
the Executive notice of a termination of employment without Cause or the
Executive gives the Company
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<PAGE>
notice of a termination of employment without Good Reason, as the case may be.
5. Obligations of the Company upon Termination. (a) Other Than for
Cause, Death or Disability; Good Reason. If, during the Employment Period, the
Company terminates the Executive's employment, other than for Cause or
Disability, or the Executive terminates his employment for Good Reason, the
Company shall pay the amounts described in subparagraph (i) below to the
Executive in a lump sum in cash within 30 days after the Date of Termination and
shall continue the benefits described in subparagraph (ii) below until the end
of the Employment Period. The payments provided pursuant to this Section 5(a)
are intended as liquidated damages for a termination of the Executive's
employment by the Company other than for Cause or Disability or for the actions
of the Company leading to a termination of the Executive's employment by the
Executive for Good Reason, and shall be the sole and exclusive remedy therefor.
(i) The amounts to be paid in a lump sum as described above are:
A. The Executive's accrued but unpaid cash compensation (the
"Accrued Obligations"), which shall equal the sum of (1) any portion
of the Executive's Annual Base Salary through the Date of Termination
that has not yet been paid, (2) an amount equal to the Annual Bonus
that would have been paid for the year of termination, if all goals
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had been achieved at the expected level (the "Annual Bonus Amount"),
times a fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the
denominator of which is 365; (3) any compensation previously deferred
by the Executive pursuant to Section 3(c) of this Agreement (together
with any accrued interest or earnings thereon) that has not yet been
paid; and (4) any accrued but unpaid Annual Bonuses and vacation pay;
and
B. Severance pay equal to (1) the present value as of the Date of
Termination (at a discount rate equal to the applicable federal rate
under Section 1274(d) of the Internal Revenue Code of 1986, as amended
(the "Code"), or any successor thereto, in effect for the month of
termination (the "Applicable Federal Rate")) of the sum of (I) the
Annual Base Salary and (II) the Annual Bonus Amount, in each case for
the remainder of the Employment Period, (2) the assets then held in
the Trust (if any) and (3) the amount of any Special Deferred
Compensation that has not yet been paid.
(ii) The benefits to be continued are benefits to the Executive and/or
the Executive's family at least as favorable as those that would have been
provided to them under Section 3(f) and clause (ii) of Section 3(h) of this
Agreement if the Executive's employment had continued through the end of the
Employment Period; provided, however, that during any period when the Executive
is eligible to receive such benefits under another employer-provided plan, the
benefits provided by the Company under this Section 5(a)(ii) may be made
secondary to those provided under such other plan.
(b) Death or Disability. If the Executive's employment is terminated
by reason of the Executive's death
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or Disability during the Employment Period, the Company shall pay the Accrued
Obligations to the Executive or the Executive's estate or legal representative,
as applicable, in a lump sum in cash within 30 days after the Date of
Termination, and the Company shall have no further obligations under this
Agreement. If the Executive's death or disability occurs after the second
anniversary of the first day of the Employment Period, the Executive or his
estate will be entitled to receive the assets then held in the Trust, if any,
and the amount of any Special Deferred Compensation that has not yet been paid.
(c) Cause; Other than for Good Reason. If the Executive's employment
is terminated by the Company for Cause during the Employment Period, or if the
Executive terminates his employment during the Employment Period other than for
Good Reason, the Company shall pay the Executive the sum of (i) the Annual Base
Salary through the Date of Termination, and (ii) the amount of any compensation
previously deferred by the Executive pursuant to Section 3(c) of this Agreement
(together with any accrued interest or earnings thereon), in each case to the
extent not yet paid, and the Company shall have no further obligations under
this Agreement.
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6. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies for which the Executive may qualify, nor, subject to paragraph (f) of
Section 11, shall anything in this Agreement limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Vested benefits and other amounts
that the Executive is otherwise entitled to receive under any plan, policy,
practice or program of, or any contract or agreement with, the Company or any of
its affiliated companies on or after the Date of Termination shall be payable in
accordance with such plan, policy, practice, program, contract or agreement, as
the case may be, except as explicitly modified by this Agreement.
7. No Mitigation. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and, except as specifically provided in Section 5(a)(ii) of this Agreement, such
amounts shall not be reduced, regardless of whether the Executive obtains other
employment.
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8. Confidential Information; Noncompetition. (a) The Executive
shall hold in a fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the Company or any of
its affiliated companies and their respective businesses that the Executive
obtains during the Executive's employment by the Company or any of its
affiliated companies and that is not public knowledge (other than as a result of
the Executive's violation of this Section 8(a)) ("Confidential Information").
The Executive shall not communicate, divulge or disseminate Confidential
Information at any time during or after the Executive's employment with the
Company, except with the prior written consent of the Company or as otherwise
required by law or legal process.
(b) During the Noncompetition Period (as defined below), the
Executive shall not, without the prior written consent of the Board, engage in
or become associated with a Competitive Activity. For purposes of this Section
8(b): (i) the "Noncompetition Period" means the period during which the
Executive is employed by the Company, plus, if the Executive's employment is
terminated by the Company for Cause or voluntarily by the Executive other than
with Good Reason, the remainder of the Employment Period plus two years after
the end of the Employment Period; (ii) a "Competitive Activity" means any
business or other endeavor that provides
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<PAGE>
guard, alarm or armored transport protective services or courier services; and
(iii) the Executive shall be considered to have become "associated with a
Competitive Activity" if he becomes directly or indirectly involved as an owner,
employee, officer, director, independent contractor, agent, partner, advisor, or
in any other capacity calling for the rendition of the Executive's personal
services, with any individual, partnership, corporation or other organization
that is engaged in a Competitive Activity. Notwithstanding the foregoing, the
Executive may make and retain investments during the Employment Period and
thereafter in not more than five percent of the equity of any entity engaged in
a Competitive Activity, if such equity is listed on a national securities
exchange or regularly traded in an over-the-counter market.
9. Arbitration; Attorneys' Fees. Any dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
aribitration in the State of Illinois, in accordance with the rules of the
American Arbitration Association then in effect, and judgment may be entered on
the arbitrator's award in any court having jurisdiction. The Company agrees to
pay, as incurred, to the fullest extent permitted by law, all legal fees and
expenses that the Executive may reasonably incur as a result of any
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contest (regardless of the outcome) by the Company, the Executive or others of
the validity or enforceability of or liability under, or otherwise involving,
any provision of this Agreement; provided, that in the case of any contest in
which the Executive seeks to obtain any relief from the Company pursuant to this
Agreement, such fees and expenses shall be paid by the Company only if the
Executive obtains a substantial portion of the relief he seeks; and provided,
further, that in the case of any action brought by the Company to enforce any
provision of Section 8 of this Agreement, such fees and expenses shall be paid
by the Company only if it fails to obtain a substantial portion of the relief it
seeks.
10. Successors. (a) This Agreement is personal to the Executive
and, without the prior written consent of the Company, shall not be assignable
by the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
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(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
both the Company as defined above and any such successor that assumes and agrees
to perform this Agreement, by operation of law or otherwise.
11. Miscellaneous. (a) This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified except by a written agreement executed
by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications under this Agreement shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
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If to the Executive:
--------------------
J. J. Adorjan
223 North Bemiston
Clayton, Missouri 63105
If to the Company:
------------------
Borg-Warner Security Corporation
200 South Michigan Avenue
Chicago, Illinois 60604
Attention: General Counsel
or to such other address as either party furnishes to the other in writing in
accordance with this Section 11(b). Notices and communications shall be
effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with law.
(d) Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under this Agreement all federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
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<PAGE>
(e) The failure of the Executive or the Company to insist upon strict
compliance with any provision of, or to assert any right under, this Agreement
(including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 4(c) of this Agreement) shall not
be deemed to be a waiver of such provision or right or of any other provision of
or right under this Agreement.
(f) The Executive and the Company acknowledge that this Agreement
supersedes any other agreement between them concerning the subject matter
hereof.
(g) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, and which together shall constitute one
instrument.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization of its Board of Directors, the Company
has caused this Agreement to be executed in its name on its behalf, all as of
the day and year first above written.
--------------------------------------
J. J. Adorjan
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BORG-WARNER SECURITY CORPORATION
By___________________________________
Name:
Title:
-25-
<PAGE>
AGREEMENT
---------
THIS AGREEMENT, dated as of the 28th day of March, 1995, is made by
and between Borg-Warner Security Corporation, a Delaware corporation (the
"Company"), and Donald C. Trauscht (the "Executive").
WHEREAS, the Executive has served the Company in various executive
capacities since 1987, and currently serves as Chairman of the Board of
Directors (the "Board"), Chief Executive Officer and President; and
WHEREAS, the Executive and the Company have entered into an Employment
Agreement dated as of the 29th day of July, 1987, as amended (the "Employment
Agreement"); and
WHEREAS, the Executive and the Company have agreed, subject to the
terms and conditions of this Agreement, that the Executive shall resign his
position as President effective as of April 15, 1995, shall resign his position
as Chief Executive Officer effective as of October 15, 1995, and shall retire
from the Board and from his position as Chairman of the Board, as well as from
his employment with the Company, effective as of December 31, 1995;
<PAGE>
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
provisions herein contained, the Executive and the Company agree with each other
as follows:
1. Resignation. The Executive hereby resigns from his position as
President effective as of April 15, 1995 and from his position as Chief
Executive Officer effective as of October 15, 1995, and retires from the Board
and from his position as Chairman of the Board, as well as from his employment
with the Company, effective December 31, 1995.
2. Certain Payments. On January 1, 1996, or as soon as practicable
thereafter, the Company shall pay to the Executive a lump sum in cash the
aggregate of the following amounts to which he is entitled:
(i) to the extent not heretofore paid, the Executive's base
salary through December 31, 1995, at the annual rate of $650,000 (less
withholding in accordance with Section 9(d));
(ii) $1,300,000 (less withholding in accordance with Section
9(d)), representing full payment of two years' base salary; and
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(iii) The amount shown on Schedule A hereto (less withholding in
accordance with Section 9(d)), representing all compensation
previously deferred by the Executive and all accrued vacation pay;
(iv) the balance, as of December 31, 1995, of the Executive's
account in the Company's Retirement Savings Excess Benefit Plan (the
"Excess Plan"), which payment shall be in full settlement of all
benefits to the Executive and his spouse under the Excess Plan; and
(v) an amount equal to the present value, on December 31, 1995,
(using a discount rate equal to the short-term applicable federal rate
under Section 1274(b) of the Internal Revenue Code of 1986, as amended
or any successor thereto, in effect for December, 1995) of the amounts
that would have been credited to the Executive pursuant to the
Company's Supplemental Benefit Compensation Program (the "Supplemental
Program") if he had remained employed by the Company through December
31, 1997, assuming that the amounts and timing of such credits would
have been the same as the amounts credited to the Executive for 1995,
which payment shall be in full settlement of all benefits to the
Executive and his spouse under the Supplemental Program.
-3-
<PAGE>
3. 1995 Bonus. The Executive shall be paid his annual bonus for 1995
to the extent earned, in accordance with the terms for such bonus previously
established by the Compensation Committee of the Board.
4. Other Benefits. (a) During 1996 and 1997, the Company shall
provide to Executive with health insurance coverage substantially similar to the
coverage provided to him immediately before his retirement (and if he has
elected the Supplemental Dental and Vision Plan coverage, subject to his
continuing to pay for such coverage at the same contribution rate as in effect
immediately before his retirement; provided, that benefits otherwise receivable
by the Executive pursuant to this Section 4(a) shall be reduced to the extent
comparable benefits are actually received by him. The Executive agrees to
report any such comparable benefits actually received by him to the Company
immediately upon receipt. Beginning January 1, 1998, the Executive shall
receive health insurance under the Company's Retiree Health Care Plan, or any
successor thereto, on the same basis as other similarly situated retired
employees of the Company, as if he had retired on December 31, 1997.
(b) Except as specifically provided in Section 2 with respect to the
Excess Plan and the Supplemental Program,
-4-
<PAGE>
the termination of the Executive's employment with the Company in connection
with this Agreement shall not affect any vested benefits to which the Executive
and/or the Executive's spouse may be entitled as of the date hereof pursuant to
the Company's Retirement Savings Plan and any other plans providing post-
retirement pension or welfare benefits, and such benefits shall be provided in
accordance with the terms of such plans.
(c) The Executive's currently outstanding options (the "Options"),
which are listed on Schedule B hereto, shall remain fully exercisable in
accordance with their terms from and after the date hereof through December 31,
1998.
(d) Through December 31, 1996, the Executive will be provided with an
office, secretarial support and appropriate office furniture and equipment, all
at Company expense, either on the premises of the Company or elsewhere, as the
Company shall elect.
(e) The Company shall pay for the Executive's membership in the
Carlton Club for calendar year 1996.
(f) A paid owner's title to the currently leased Cadillac automobile
used by the Executive shall be transferred to the Executive on December 31,
1995.
-5-
<PAGE>
5. Non-Compete; Confidentiality. (a) Until December 31, 1998, the
Executive shall not directly or indirectly, whether as owner, partner, officer,
employee, agent or consultant, engage in or be employed in any way by any
business or other endeavor that provides guard, alarm or armored transport
protective services or courier services; provided, that in no event shall this
Section 5(a) preclude the Executive from owning less than 5% of the outstanding
voting stock of any publicly traded corporation.
(b) At all times hereafter, the Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by him during
his employment by the Company and which shall not be public knowledge, and the
Executive shall not, without prior written consent of the Company, communicate
or divulge any such information, knowledge or data to anyone other than the
Company and those designated by it; provided, that the foregoing prohibition
shall not apply to the extent such information, knowledge or data (i) was
publicly known at the time of disclosure to the Executive, (ii) becomes publicly
known or available thereafter other than by any means in violation of this
Agreement, or (iii) is required to be
-6-
<PAGE>
disclosed by the Executive as a matter of law or pursuant to any court or
regulatory order.
(c) The Executive acknowledges and agrees that his obligations under
this Section 5 are of a special, unique and extraordinary character and that a
failure to perform any such obligation or a violation thereof may cause
irreparable injury to the Company, the amount of which will be impossible to
estimate or determine and which cannot be adequately compensated. Therefore,
the Executive agrees that the Company shall be entitled, as a matter of course,
to an injunction, restraining order, writ of mandamus or other equitable relief
from any court of competent jurisdiction, including relief in the form of
specific performance, restraining any violation or threaten violation of any
term of this Section 5, or requiring compliance with or performance of any
obligation under this Section 5 by the Executive and such other persons as the
court shall order. The rights and remedies provided the Company hereunder are
cumulative and shall be in addition to the rights and remedies otherwise
available to the Company under any other agreement or applicable law.
6. Mutual Releases; Indemnification. (a) In consideration of the
Executive's execution of this Agreement, the Company, for itself and its
subsidiaries and affiliates and their respective successors, hereby waives and
releases
-7-
<PAGE>
any common law, statutory or other complaints, claims, charges or causes of
action arising out of the Executive's employment with, or his serving as a
director of, the Company and any of its subsidiaries and affiliates, both known
and unknown, in law or in equity, which any of them may now have or ever had
against the Executive.
(b) In consideration of the Company's execution of this Agreement,
and except with respect to the Company's obligations pursuant to this Agreement
or any other vested benefits to which the Executive is entitled, the Executive
hereby waives and releases any common law, statutory or other complaints,
claims, charges or causes of action arising out of the Executive's employment
with, or his serving as a director of, the Company and any of its subsidiaries
and affiliates, both known and unknown, in law or in equity, which he may now
have or ever had against any of them. The Executive further agrees to execute a
General Release in the form of Schedule C concurrent with his retirement and
effective as of December 31, 1995.
(c) The Company shall indemnify and hold harmless the Executive with
respect to any claims arising out of or in any way relating to his actions as a
director, officer or employee of the Company or any of its subsidiaries or
affiliates to the fullest extent permitted under Delaware law
-8-
<PAGE>
and as provided in the Company's certificate of incorporation and by-laws in
effect at the date hereof (to the extent consistent with applicable law).
7. Employment Agreement Superseded. This Agreement supersedes the
Employment Agreement, which shall be deemed terminated from and after the date
hereof without any remaining obligation of either party thereunder. Nothing in
this Agreement shall, however, limit or otherwise affect such rights as the
Executive may have with respect to the Options by their terms.
8. Successors.
(a) This Agreement is personal to the Executive and, without the
prior written consent of the Company, shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or
-9-
<PAGE>
assets of the Company to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this Agreement,
"Company" shall mean the Company as defined above and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
9. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
-10-
<PAGE>
If to the Executive:
--------------------
Donald C. Trauscht
4 Arden Court
Oak Brook, Illinois 60521
If to the Company:
------------------
Borg-Warner Security Corporation
200 South Michigan Avenue
Chicago, Illinois 60604
Attention: President
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such amounts as shall be required to be withheld pursuant to any
applicable law or regulation.
(e) Neither the Executive's nor the Company's failure to insist upon
strict compliance with any provision hereof shall be deemed to be a waiver of
such provision or any other provision thereof.
-11-
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused this Agreement to be executed in its name on its behalf, all as of the
day and year first above written.
-------------------------------------
Donald C. Trauscht
BORG-WARNER SECURITY CORPORATION
By:___________________________________
-12-
<PAGE>
Schedule A
----------
Accrued Vacation Days:
Twenty-five (25) days as of March 28, 1995
-13-
<PAGE>
Schedule B
----------
<TABLE>
<CAPTION>
Grant & Grant Plan/ Number Number
Number Date Type Price Vested* Unvested*
- ------- ----- ----- ----- ------- ---------
<S> <C> <C> <C> <C> <C>
N00008 7/30/87 87/NQ $ 5.00 35,000 0
P00112 7/30/87 87/NQ $ 5.00 32,620 2,380
N00029 4/28/88 87/NQ $ 5.00 16,667 0
P00127 4/28/88 87/NQ $ 5.00 3,660 340
S01272 4/26/94 93/NQ $15.9375 0 100,000
</TABLE>
- --------------
* As of March 28, 1995
-14-
<PAGE>
Schedule C
----------
GENERAL RELEASE
---------------
1. General Release. In consideration of the additional
benefits provided by the Company to the Executive, the Executive, with full
understanding of the contents and legal effect of this Release and having the
right and opportunity to consult with his counsel, releases and discharges the
Company, its shareholders, officers, directors, supervisors, managers,
employees, agents, representatives, attorneys, parent companies, divisions,
subsidiaries and affiliates, and its predecessors, successors, heirs, executors,
administrators, and assigns ("Released Parties") from any and all claims,
actions, causes of action, grievances, suits, charges, or complaints of any kind
or nature whatsoever, that he ever had or now has, whether fixed or contingent,
liquidated or unliquidated, known or unknown, suspected or unsuspected, and
whether arising in tort, contract, statute or equity, before any federal, state,
local, or private court, agency, arbitrator, mediator, or other entity,
regardless of the relief or remedy. Without limiting the generality of the
foregoing, it being the intention of the parties to make this Release as broad
and as general as the law permits, this Release specifically includes any and
all claims arising from any alleged violation by the Released Parties under the
Age Discrimination in Employment Act of 1967, as amended; Title VII of the Civil
Rights Act of 1964, as amended; the Civil Rights Act of 1866, as amended by the
Civil Rights Act of 1991 (42-U.S.C. Section 1981); the Rehabilitation Act of
1973, as amended; the Employee Retirement Security Act of 1974, as amended; the
Illinois Human Rights Act, the Cook County Human Rights Ordinance, the Chicago
Human Rights Ordinance, and other similar state or local laws; the Americans
with Disabilities Act; the Family and Medical Leave Act; the Equal Pay Act;
Executive Order 11246; Executive Order 11141; and any other statutory claim,
employment or other contract claim (including, but not limited to, any claims,
rights or entitlement under the employment agreement dated March 28, 1995), or
common law claim for wrongful discharge, defamation, or invasion of privacy
arising out of or involving his employment with the Company, the termination of
his employment with the Company, or involving any continuing effects of his
employment with the Company or termination of employment with the Company. The
foregoing notwithstanding, the Executive shall not be deemed under this
Agreement to have waived or released any rights he may have under the by-laws of
the Company or its Certificate of Incorporation to be indemnified, defended or
reimbursed with respect to any claims brought against him in his capacity as an
employee, officer, director, agent or representative of the Company, and its
predecessors and their affiliates.
-15-
<PAGE>
2. The Executive represents and certifies that he has
carefully read and fully understands all of the previous and effects of this
Release, has knowingly and voluntarily entered into this Release freely and
without coercion, and acknowledges that on December 31, 1995, the Company
advised him to consult with an attorney prior to executing this Release and
further advised him that he had at least twenty-one (21) days within which to
consider this Release. The Executive is voluntarily entering into this Release
and neither the Company nor its agents, representatives, or attorneys made any
representations concerning the terms or effects of this Release other than those
contained in the Release itself.
3. The Executive acknowledges that he has seven (7) days from
the date this Release is executed in which to revoke his acceptance of this
Release, and this Release will not be effective or enforceable until such seven
(7) day period has expired.
IN WITNESS WHEREOF, the Executive has voluntarily signed
this General Release.
--------------------------------------
Donald C. Trauscht
--------------------------------------
Dated
-16-
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
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<SECURITIES> 0
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<ALLOWANCES> 7
<INVENTORY> 13
<CURRENT-ASSETS> 180
<PP&E> 529
<DEPRECIATION> 247
<TOTAL-ASSETS> 849
<CURRENT-LIABILITIES> 193
<BONDS> 476
<COMMON> 0
0
0
<OTHER-SE> 44
<TOTAL-LIABILITY-AND-EQUITY> 849
<SALES> 0
<TOTAL-REVENUES> 462
<CGS> 0
<TOTAL-COSTS> 372
<OTHER-EXPENSES> 19
<LOSS-PROVISION> 1
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