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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 COMMISSION FILE NUMBER: 33-15419
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BORG-WARNER SECURITY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3408028
(State of incorporation) (I.R.S. Employer
Identification No.)
200 South Michigan Avenue
Chicago, Illinois 60604
(312) 322-8500
(Address and telephone number of principal executive offices)
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, par value $.01 per share New York Stock Exchange
9-1/8% Senior Subordinated Notes due 2003 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether 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, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
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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. [ ]
The aggregate market value of the voting stock of the registrant held by
stockholders (not including voting stock held by directors and executive
officers of the registrant and affiliates of Merrill Lynch & Co., Inc. (the
exclusion of such stock shall not be deemed an admission by the registrant that
such person is an affiliate of the registrant)) on March 14, 1995 was
approximately $69.3 million. As of March 14, 1995, the registrant had 21,793,425
shares of Common Stock and 1,149,600 shares of Series I Non-Voting Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated herein by reference into
the Part of the Form 10-K indicated.
DOCUMENT PART OF FORM 10-K INTO WHICH INCORPORATED
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The Company's annual report to Parts I, II and IV
stockholders for the year ended
December 31, 1994
The Company's proxy statement for Part III
the 1995 annual meeting of stockholders
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BORG-WARNER SECURITY CORPORATION
FORM 10-K
YEAR ENDED DECEMBER 31, 1994
INDEX
PART I
Item Number Page
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1. Business 3
2. Properties 13
3. Legal Proceedings 13
4. Submission of Matters to a Vote of Security Holders 16
PART II
5. Market for the Registrant's Common Stock
and Related Stockholder Matters 16
6. Selected Financial Data 17
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 17
8. Financial Statements and Supplementary Data 17
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 18
PART III
10. Directors and Executive Officers of the Registrant 18
11. Executive Compensation 18
12. Security Ownership of Certain Beneficial
Owners and Management 18
13. Certain Relationships and Related Transactions 18
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 19
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PART I
ITEM 1. BUSINESS
The Company provides a broad line of protective services for its customers,
including guard, alarm, armored transport and courier services. The Company
believes that, based on revenues and the variety of services offered, it is
the largest and broadest-based supplier in the protective services industry in
the United States.
COMPANY'S BUSINESS UNITS
The Company's protective services business is divided into four business
units: guard services, alarm services, armored transport services and courier
services. Information concerning the revenues, operating profit or loss and
identifiable assets attributable to each of the Company's business units is
incorporated herein by reference to Note 9 of the Notes to Consolidated
Financial Statements.
GUARD SERVICES
The guard services unit provides a variety of guard and related security
services under the Wells Fargo(R), Burns(R), Globe(R) and other service marks
to over 13,000 government and business customers from approximately 319
locations throughout the United States, and in Canada, Colombia and the United
Kingdom. The Company believes that its guard services unit is the largest
contract guard services operation in the world, measured by revenues.
The Company's guard services unit supplies contract uniformed and
plainclothes security officers, who may or may not be armed, to perform a wide
variety of tasks. These security officers patrol and monitor commercial,
financial, industrial, residential and governmental facilities providing
deterrence against crime and breach of governmental security regulations and
detection of fire, accidents and other casualties. The security officers also
monitor electronic systems and control public and employee access to
facilities. Specialized assignments include nuclear and conventional electric
power plant security, pre-departure screening of passengers and luggage at
airports, mailroom services and investigative services, including background
investigations of prospective employees.
The guard services unit employs approximately 76,000 security officers.
Security officers undergo a standardized pre-employment screening program that
features mandatory drug screening, criminal record checks at the county and
municipal court level and verification of consumer credit reports, social
security information and driver's license records. Security officers receive
classroom orientation and field training in safety, first aid and security
techniques and in the handling of specific problems applicable to particular
industries or situations.
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The guard services unit markets guard services through approximately 225
sales representatives nationwide and in Canada, Colombia and the United
Kingdom. Sales personnel operate out of local branch and sales offices. The
guard services unit also bids on contracts with governmental agencies.
Guard services contracts generally provide for such services on a
continuing basis and generally are terminable by either party upon 30 to 60
days notice. Charges for guard services are negotiated with customers and are
based upon payment of a specified amount per guard hour. Typically, such
charges are adjusted for any change in any law, ruling or collective
bargaining agreement causing a change in work hours, wage rates, working
conditions or other costs. Investigative services are generally provided under
specific arrangements, with charges varying according to the nature of the
assignment.
ALARM SERVICES
The alarm services unit provides electronic security services in the United
States and Canada under the Wells Fargo(R) service mark for its commercial
customers and under the Pony Express(R) service mark for its residential
customers. In addition, this unit provides an integrated guard, patrol and
alarm service to Bel Air, Beverly Hills and other suburbs of Los Angeles under
the trade name Bel-Air Patrol. The Company believes that its alarm services
unit is one of the largest electronic security service operations in the
United States, measured by revenues. The unit has approximately 2,440 full-
time and 165 part-time employees.
Commercial. The alarm services unit designs, installs, monitors and
services electronic detection systems located at customers' premises. These
systems are tailored to customers' needs and may include intrusion and fire
detection, critical process and sprinkler monitoring, access control and
closed-circuit television monitoring systems. The Company's alarm systems and
devices may be monitored on the premises of the customer by the customer's own
personnel or linked through telephone lines or long range radio to one of 12
central stations operated by the Company in the United States and Canada. The
Company also services its installed systems.
The alarm services unit services approximately 79,000 security systems in
financial institutions, industrial and commercial businesses and complexes,
warehouses, facilities of federal, state and local governments, defense
installations, and health care and educational facilities. Commercial accounts
represent approximately 90 percent of this unit's revenues.
The majority of the Company's monitoring contracts are for an initial five-
year period with automatic renewal for additional one-year terms, unless
terminated by either party. Upon installation, a customer pays an installation
fee and agrees to pay an annual service charge for ordinary maintenance and
monitoring during the life of the contract. It has been the unit's experience
that its customers generally continue the service after
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expiration of the initial term of the contract and enter into new five-year
monitoring contracts. The cost of the installation is capitalized and
depreciated over varying periods that have a weighted average life of
approximately ten years. Approximately 71 percent of the alarm services
unit's revenue for 1994 was derived from service charges for maintenance and
central station monitoring.
The alarm services unit conducts its sales, installation and service
operations from 40 branch offices in the United States and Canada, some of
which are on the same premises as a monitoring station, and additional
satellite offices. The alarm services unit has a nationwide sales force that
is separated into broad-based commercial groups, as well as specialized sales
teams that address the specific needs of the financial community, engineered
systems market and other high growth segments of the industry. One group, for
example, focuses on multi-location companies such as national retail chains
and fast food outlets that require a single point of control for planning,
servicing, monitoring and reporting for all locations.
In 1994, the alarm services unit was restructured to bring decision-making
about service closer to the customer, and to strengthen management's
connection with existing operations. Nine regional offices were established to
manage the unit's 40 branches. The Company expects that the regional offices
will manage most of the administrative issues, while the branch offices devote
full attention to sales and service issues. The unit has continued
consolidating its monitoring stations into regional monitoring centers in
order to reduce costs. Since the beginning of 1991, the Company has reduced
the number of its monitoring stations from 34 to 12. The alarm services unit
has enhanced customer service through intensive training programs for sales,
management, installation and service employees and more sophisticated
operational controls.
The alarm services unit also makes direct sales of security equipment to
government and commercial users (including other companies in the alarm
business) and designs, assembles and sells engineered systems for commercial
fire suppression.
Residential. The alarm services unit also installs fire and intrusion
protection systems for residential customers under the Pony Express(R) service
mark. Residential customer sales, service and monitoring are generally
performed from the same facilities as for commercial accounts. Residential
systems are installed by the Company with monitoring agreements and often with
maintenance agreements. The majority of the residential monitoring contracts
are for an initial period of three to five years with automatic renewal for
additional one-year terms, unless terminated by either party. The unit
services approximately 27,000 residential security systems.
Bel-Air Patrol. The Company also provides a complete protective package,
including central station alarm service and surveillance systems, security
guards and day and night patrols, to residents in Bel Air and Beverly Hills
and other nearby communities of Los Angeles. The Company provides these
services to approximately 13,000 customers under
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the trade name Bel-Air Patrol.
The alarm services unit purchases electronic equipment and component parts
for systems from a number of suppliers, and is not dependent upon any single
source for such equipment or parts.
ARMORED TRANSPORT SERVICES
The armored transport services unit is a security-related cash services
business that provides traditional armored transport services, automatic
teller machine ("ATM") services and cash management services in the United
States under the Wells Fargo(R) service mark. The unit employs approximately
7,000 employees at approximately 125 facilities throughout the United States
and Puerto Rico.
Armored Transport. The Company provides vault storage and specialized,
secure transportation services using armed guards in carrying currency,
securities and other valuables for banks and national and local retail
customers. Despite the widespread use of credit cards and wire transfers,
billions of dollars of currency, securities and other valuables are
transported daily as part of the United States economy. The Company's armored
transport business uses a fleet of approximately 2,100 vehicles to transport
approximately $5 billion of currency and securities each business day. The
Company believes it is the second largest armored transportation operation in
the United States, measured by revenues.
The Company provides armored transport services for over 15,000 customers,
including NationsBank, K-Mart and Wal Mart. Most of the customer contracts are
for a multi-year term with automatic renewal for additional one-year terms,
unless terminated by either party. It has been the unit's experience that its
customers generally continue the service after the initial term of the
contract.
The armored transport services operation has a sales force of approximately
40 people dedicated to the solicitation of transportation-related accounts and
a separate sales force that focuses solely on transportation-related accounts
for national retail customers. Approximately 45 percent of the armored
transport unit's revenue in 1994 was derived from retail customers. The
Company believes that retail customers provide an opportunity for significant
growth in the armored transport business.
Generally, the Company assumes responsibility for the safe arrival at the
destination of transported commodities. The armored transport unit maintains a
risk management department that is responsible for loss prevention, security
investigation, employee safety and training and coordination with local and
federal law enforcement personnel.
ATM Servicing. The armored transport unit also provides special services to
approximately 18,000 ATMs on a national basis. The Company believes it is the
leading
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servicer of ATMs in the United States, measured by both revenues and the
number of ATMs serviced.
The Company controls its ATM services through an automated national
dispatching center located in Columbia, Maryland. The dispatch center
coordinates all customer requests and directs field technicians throughout the
country. The automation system provides detailed service confirmation data
both internally and to the customer. ATM servicing is a time-critical business
and the Company guarantees a response time of 90 minutes or less to its major
accounts.
During 1994 the Company expanded its service to offer financial
institutions a complete range of management and maintenance services for ATM
networks. The Company provides cash preparation and replenishment, deposit
collection and verification, on-site balancing of ATM funds, preventive
maintenance and first and second line maintenance services, including
necessary hardware maintenance. The Company also sells refurbished ATM
equipment.
In January 1994 the Company's ATM servicing unit acquired the assets of
Shields Business Machines, Inc., a New Jersey-based servicer of approximately
2,000 ATMs in Pennsylvania, New Jersey and New York.
The Company's ATM servicing unit has a sales force of approximately five
persons. Most of the customer contracts are for a multi-year term with
automatic renewal for additional one-year terms, unless terminated by either
party.
Cash Management Services. The armored transport unit also provides cash
management services to approximately 500 financial institutions and retail
customers. These highly automated services include currency storage and
preparation, micro-encoding of checks, deposit verification and consolidation,
coin wrapping and storage and food stamp processing. The Company's cash
management services represent a growing component of service as both financial
and retail institutions increasingly are outsourcing such operations. Existing
customers of the armored transport and ATM services operations represent a
potential market for the Company's cash management service. Most of the
customer contracts are for a multi-year term with automatic renewal for
additional one-year terms, unless terminated by either party.
COURIER SERVICES
The courier services unit transports time-sensitive packages for commercial
businesses and non-negotiable financial documents for Federal Reserve banks
and financial institutions through 39 branch and 70 satellite offices in 32
states under the Pony Express(R) service mark. The unit provides ground
courier services through a fleet of approximately 3,300 vehicles and
commercial and charter air service for longer distance or extremely time-
critical shipments. During 1994 the courier services unit handled
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approximately 22 million shipments and traveled approximately 230 million
miles.
Although the Pony Express service mark traces its roots to the Pony Express
of Old West fame, the present courier operation began as a financial commodity
courier transporting cancelled checks and other non-negotiable financial
documents among financial institutions as a part of the armored transportation
unit. While shipments of non-negotiable financial documents are still a
substantial part of the unit's business, the courier services unit also
delivers small packages, particularly business-to-business shipments of parts,
extremely urgent mail, film, medical and pharmaceutical supplies and other
commodities. The primary focus of the courier service unit is same-day or
next-day service by ground transportation in intrastate and regional
interstate markets. In 1994, approximately 40 percent of the unit's net
service revenues were derived from business involving shipments with a transit
time of eight hours or less. The typical customer ships multiple, time-
critical, small shipments on a daily or weekly basis from one or more
locations to one or more other locations within a 500-mile radius. The Company
may design a customized distribution system initially for one or two large
customers and make available to smaller customers the excess capacity on such
system.
The courier services unit attempts to meet customer needs for secure
transportation through flexible and customized services. Shipments are picked
up and delivered by uniformed courier guards who are trained in security
measures. The unit has developed sophisticated information systems that
provide automated billing, computer-assisted routing and package tracking and
other programs that enhance customer service. The unit is expanding its use of
PonyTrak(TM), an electronic tracking system that uses a hand-held scanner to
record pickup and delivery times, dates and locations by reading package bar
codes. The Company offers services outside of normal business hours that
sometimes require couriers to unlock and enter customer premises and secure
premises when leaving.
The unit employs approximately 6,000 persons. The unit owns approximately
1,400 vehicles and leases the remainder from its employees. The Company
believes such lease arrangements provide a competitive advantage because such
employees tend to provide better customer service, drive more safely and have
a more vested interest in the success of the business.
The courier services unit operates both as a common and contract carrier
and uses a combination of tariffs and shipping contracts to control the
terms, conditions and rates applicable to the transportation of shipments.
Rates are dependent upon many factors, including the weight and type of the
shipped item, the distance and urgency of the shipment and the geographical
location.
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COMPETITION
The guard services unit competes with major national firms, including
Pinkerton's Inc. and The Wackenhut Corporation, and numerous smaller regional
and local companies providing similar services. Competition in the security
guard industry is based on price in relation to the quality of service, the
scope of services performed, the extent and quality of guard supervision,
recruiting and training and name recognition.
The alarm services unit competes with major national firms, including ADT,
Inc., the Protection Securities Division of Honeywell, Inc. and The National
Guardian Corporation, and numerous smaller regional and local companies. ADT,
Inc., which provides primarily residential alarm services, is materially
larger than the Company's alarm services unit. Competition in the alarm
services industry is based on price in relation to the quality of service, the
scope of alarm installation and service, and the level of technological and
engineering sophistication.
The armored transport unit competes with major national firms, including
Brink's Incorporated (a subsidiary of The Pittston Company) and Loomis Armored
Inc., and numerous smaller regional and local companies. On a worldwide basis,
Brink's Incorporated is materially larger than the Company's armored
transportation unit. Competition in the armored transport industry is based
primarily on price in relation to quality of service, the scope of services
performed, quality of cargo insurance and name recognition.
The courier services unit competes with numerous regional and local courier
companies. Competition in the courier industry is based primarily on price in
relation to quality of service and size and configuration of distribution
routes. Because of low barriers to entry in some areas, smaller local
competitors with substantially lower overhead expenses are often able to
compete effectively with the Company for local shipments.
REGULATION
Due to the nature of the Company's business, its operations are subject to
a variety of federal, state, county and municipal laws, regulations and
licensing requirements. The Company believes that its operations are in
substantial compliance with those laws, regulations and requirements.
The Company's guard services operations are subject to a variety of city,
county and state firearm and occupational licensing laws. In addition, many
states have laws requiring training and registration of security officers,
regulating the use of badges, identification cards and uniforms and imposing
minimum bond surety and insurance requirements. Federal legislation has been
introduced relating to security officer qualification and training. Similar
legislation is pending in several states. The Company generally supports the
creation of standards for the industry and does not expect that the
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establishment of such standards will have a material affect on its guard
services operations.
The Company's alarm services operations are subject to regulatory
requirements of federal, state and local authorities. In addition, this unit
relies upon the use of telephone lines to transmit signals, and the cost of
such lines and the type of equipment which may be used are currently regulated
by both federal and state governments. In some instances, the Company
contracts with the local government to permit it to link a customer's business
or home directly into the local police or fire department station for which it
may pay a fee to such local government. As a result of a high incidence of
false alarms in some communities, some local governments have imposed
assessments, fines and penalties on customers based on the number of false
alarms reported, or have restricted police response to systems producing
excessive false alarms.
The Company's armored transport and courier operations are subject to the
regulations of the Interstate Commerce Commission ("ICC") and various state
commerce commissions governing safety and insurance matters. Operations are
conducted both as a common carrier and as a contract carrier under
certificates and permits issued by the ICC. Such operations are also subject
to regulation by federal and state agencies with respect to safety of
employees, operations and equipment, vehicle emissions and underground fuel
storage tanks.
From time to time, in the ordinary course of business, the Company is
subjected to penalties or fines as the result of licensing irregularities or
the misconduct of one or more of its agents or employees. In addition, under
principles of common law, the Company can generally be held liable for acts or
omissions of its agents or employees performed in the course and scope of
their employment. In addition, some states have statutes that expressly impose
on the Company legal responsibility for the conduct of its employees.
RISK MANAGEMENT
The nature of the services provided by the Company potentially exposes it
to greater risks of liability for employee acts, injuries (including workers'
compensation claims) or omissions than may be posed by other service
businesses. See "--Regulation."
The Company often obtains customer indemnification or liability limitations
in its contracts to mitigate this risk exposure. In addition to self-insurance
reserves, the Company carries insurance of various types, including general
liability coverage. The Company obtains such insurance at rates and upon terms
negotiated periodically with various underwriters. The loss experience of the
Company and, to some extent, other protective services companies affects
premium rates charged to the Company. The Company generally maintains
insurance coverage for punitive damages, although the laws of many states
limit or prohibit insurance coverage for liability for punitive damages. The
Company does not believe that limitations on, or the uncertainty of, insurance
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coverage for punitive damages in certain states in which it operates is likely
to be material, based upon the Company's prior experience with punitive
damages claims. The Company also attempts to manage its risk liability through
analysis of customer facilities and transportation routes and employee
screening, training, supervision and evaluation.
EMPLOYEES
The Company's business is labor intensive and, accordingly, is affected by
the availability of qualified personnel and the cost of labor. Although the
protective services industry is characterized generally by high turnover, the
Company believes its experience compares favorably with that of the industry.
The Company has not experienced any material difficulty in employing suitable
numbers of qualified security guards and other employees. The Company
considers its relations with its employees to be generally satisfactory.
The Company is a party to collective bargaining agreements with various
local unions covering approximately 8,836 employees. The collective bargaining
agreements expire at various dates from 1995 to 2000 and relate, among other
things, to wages, hours and conditions of employment. Under section 9(b)(3) of
the National Labor Relations Act, if a union admits to membership, or is
affiliated directly or indirectly with a union that admits to membership,
employees other than guards, an employer of guards can refuse to bargain with
such union and such union cannot be certified as the representative of a unit
of guards. As a result, the Company has in many instances refused to recognize
or withdrawn recognition of labor organizations that admit as members
employees other than guards.
The NLRB has certified various locals of the International Brotherhood of
Teamsters, Chauffeurs, Warehousemen and Helpers of America as the exclusive
collective bargaining representative of certain of its courier services
employees. The unit is engaged in contract negotiations with such
representative. During 1994 such representative called strikes at branches
located in 12 cities. As of the end of 1994, strikes have been abandoned at
all locations with striking employees returning to work.
TRADEMARKS AND PATENTS
The Wells Fargo(R), Pony Express(R) and Burns(R) service marks are
especially important to the Company's business. The Company believes that its
rights in these marks are adequately protected and of unlimited duration.
While the Company has patents it considers to be important to the overall
conduct of its business, it does not consider any particular patent, or group
of related patents, essential to its operations. The Company's 13 United
States patents, which generally relate to the Company's alarm services unit,
expire between 1997 and 2008, and the Company's 18 foreign patents, which
generally relate to the Company's alarm services unit, expire between 1995 and
2009. For both the United States and the foreign patents, their expiration,
individually, and in the aggregate,
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is not expected to have any material effect on the Company's financial
condition or results of operations.
EXECUTIVE OFFICERS
Set forth below are the names, ages, positions and certain other
information concerning the current executive officers of the Company as of
March 1, 1995. On March 27, 1995 the Company announced that J. Joe Adorjan had
been named President and Chief Operating Officer. He is expected to become
Chairman and Chief Executive Officer of the Company after a transition period.
NAME AGE POSITION WITH COMPANY
Donald C. Trauscht..................61 Chairman of the Board, Chief
Executive Officer and President;
Director
Neal F. Farrell.....................60 Executive Vice President;
Director
John D. O'Brien.....................52 Senior Vice President
Timothy M. Wood.....................47 Vice President, Finance
Edwin L. Lewis......................49 Vice President--Law
Mr. Trauscht has been a director of the Company since 1987, Chief Executive
Officer and President of the Company since January 1992 and Chairman of the
Board of Directors since December 1992. He was Chief Operating Officer and
President from September 1991 to January 1992 and Chief Operating Officer and
Vice President from 1990 to 1991; Vice President-Finance and Strategy from
1987 to 1990. He is also a director of Baker Hughes Incorporated, Blue Bird
Corporation, Borg-Warner Automotive, Inc., Esco Electronics Corporation and
Thiokol Corporation.
Mr. Farrell has been Executive Vice President and a director of the Company
since January 1992. He was Vice President, Chief Financial Officer and General
Counsel from 1990 to January 1992; Vice President and General Counsel from
1987 to 1990. He is also a director of Calumet Steel Co.
Mr. O'Brien has been Senior Vice President of the Company since 1993 and
was Vice President of the Company from 1987 to 1993. He is also a director of
Borg-Warner Automotive, Inc.
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Mr. Wood has been Vice President, Finance of the Company since 1994 and was
Vice President and Controller of the Company from 1987 to 1994.
Mr. Lewis has been Vice President--Law of the Company since January 1995.
He was Vice President--Law of the Company's guard services unit from 1991 to
1994 and was Vice President--Law of the Company's alarm services unit from
1983 to 1991.
Each of the executive officers named above was elected by the Board of
Directors to serve in the office indicated until his successor is elected and
qualified.
ITEM 2. PROPERTIES
The Company and its subsidiaries maintain armored transport and courier
terminals, central alarm stations, plants and general offices in various
cities in the United States, Puerto Rico, Canada, the United Kingdom and
Colombia. At December 31, 1994, the guard services unit occupied approximately
319 branch and satellite offices, all but one of which were leased. At
December 31, 1994, the alarm services unit operated 12 central stations (10 of
which are on the same premises as branch offices), of which 6 were leased, 28
additional branch and 48 separate satellite offices, of which 20 branches and
all satellites were leased. At December 31, 1994, the armored services unit
occupied 125 facilities, of which 108 were leased, and 45 of which contained
vaults. At December 31, 1994, the courier services unit occupied approximately
109 branches and satellites, of which all but four were leased. The Company
leases approximately 100,000 square feet of office space in Chicago, Illinois
for its executive offices. The Company believes that its properties are in
good condition and are adequate to meet its current and reasonably anticipated
needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is presently, and is from time to time, subject to claims and
suits arising in the ordinary course of its business. In certain of such
actions, plaintiffs request punitive or other damages that may not be covered
by insurance. In addition, the Company has been subject to claims and suits
relating to certain discontinued operations. The most important of these
legal proceedings are discussed below. The Company believes that the various
asserted claims and litigation in which it is currently involved will not
materially affect its financial position or future operating results, although
no assurance can be given with respect to the ultimate outcome for any such
claim or litigation. The Company believes that it has established adequate
provisions for litigation liabilities in its financial statements in
accordance with generally accepted accounting principles. These provisions
include both legal fees and possible outcomes of legal proceedings (including
the environmental matters discussed below).
Centaur Litigation
Centaur Insurance Company ("Centaur"), a discontinued property and casualty
insurance subsidiary, ceased writing insurance in 1984 and has been operating
under
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rehabilitation since September 1987. Rehabilitation is a process supervised by
the Illinois Director of Insurance to attempt to compromise 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. The foregoing has resulted in one pending lawsuit
against the Company for recovery of alleged damages from the failure of
Centaur to satisfy its reinsurance obligations. Certain former officers and
directors of the Company's current and former subsidiaries have been named as
defendants in such lawsuit and the Company has agreed to indemnify such
individuals. Centaur is not a defendant in this lawsuit against the Company.
Although the Illinois Director of Insurance has not made any claims against
the Company for any of Centaur's liabilities, the Illinois Director of
Insurance has requested, and the Company has agreed to, an extension of the
statute of limitations for any such claims.
As of December 31, 1993, Centaur's total liabilities were $135 million and
its deficit in net worth was $54.7 million, according to financial statements
submitted on behalf of the Illinois Director of Insurance. Such financial
statements were presented on a liquidating basis with assets carried at their
market value or estimated realizable value and liabilities carried at their
present value through the provision of a present value discount. Although
Centaur is a subsidiary of the Company, the Company does not operate Centaur
and has no responsibility for, nor does it participate in the preparation of,
such financial statements. Centaur's financial results, assets and liabilities
are not reflected in the Company's financial statements.
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. Plaintiff
seeks judgment in the amount of the insurance companies' current losses, which
allegedly total approximately $14.2 million, plus a declaratory order that the
Company pay future losses alleged to exceed $66 million. 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 additional current losses totalling more than $9.8 million and
to add a claim for punitive damages in the amount of $270 million.
In 1989, the Company filed a motion to dismiss or stay the action, pending
resolution
14
<PAGE>
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.
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 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.
Environmental Proceedings
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 a
number of 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 affect 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 its financial statements in the aggregate amount of
approximately $12 million (relating to environmental matters with respect to
discontinued operations of the Company). The Company believes that such
provisions for indicated environmental liabilities have been established on a
basis consistent with generally accepted accounting principles. 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 plastics business and General Electric Company
has assumed all of such claims and has not contested its indemnification
obligations. There
15
<PAGE>
is no dollar limitation on the General Electric Company's indemnification
obligations and there are no other material limitations or exclusions with
respect thereto. If any environmental liability claim relating to the
operations of Borg-Warner Automotive, Inc. ("BW-Automotive") is made, the
Company will be indemnified by BW-Automotive. There is no dollar limitation
on BW-Automotive's indemnification obligations and there are no other material
limitations or exclusions with respect thereto.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the security holders of the Company
during the fourth quarter of 1994.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
On January 20, 1993, the Company's Common Stock was listed for trading on
the New York Stock Exchange. Prior to that date, there was no established
public trading market for shares of Common Stock. As of March 14, 1995, there
were approximately 180 holders of record of Common Stock.
The Company has neither paid nor declared any cash dividends on its Common
Stock during the last two years. The payment of dividends by the Company is
subject to certain restrictions under the terms of the Company's indebtedness.
Under the terms of its credit facility, the Company will be permitted to pay
cash dividends with respect to its Common Stock beginning in 1995, subject to
certain limitations and restrictions, including that no event of default under
such facility has occurred and is continuing; that after giving effect to such
dividend the Company meets certain debt and interest coverage ratios; and that
the aggregate amount of dividends be limited to the lesser of (a) 50% of the
Company's consolidated excess cash flow (as defined in the facility) for the
immediately preceding year or (b) $5 million in 1995, $10 million in 1996, $15
million in 1997, $20 million in 1998 and $25 million in 1999.
The Company currently intends to retain earnings for acquisitions, working
capital, capital expenditures, general corporate purposes and reduction of
outstanding indebtedness. Accordingly, the Company does not expect to be able
to nor does it expect to pay cash dividends in the foreseeable future.
16
<PAGE>
High and low sales prices (as reported on the New York Stock Exchange
composite tape) for the Common Stock for each quarter during 1993 and 1994
were:
<TABLE>
<CAPTION>
Quarter ended High Low
------------- ------- -------
<S> <C> <C> <C>
1993 March 31 $22 5/8 $19 5/8
June 30 22 1/4 19 5/8
September 30 22 7/8 18
December 31 20 1/2 18 1/4
1994 March 31 $22 $16 3/8
June 30 16 7/8 10 3/4
September 30 12 3/4 10 5/8
December 31 11 1/8 8 1/4
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the five years ended December 31, 1994,
with respect to the following line items shown under the "Consolidated
Statistical Review" (set forth on page 12) in the Annual Report is
incorporated herein by reference and made a part of this report: Net service
revenues; earnings (loss) from continuing operations; earnings (loss) from
continuing operations per share; total assets and total debt.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Management's Discussion and Analysis of Results of Operations and
Financial Condition (set forth on pages 14 through 19) in the Annual Report
are incorporated herein by reference and made a part of this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements (including the notes thereto) of the
Company (set forth on pages 20 through 40) in the Annual Report are
incorporated herein by reference and made a part of this report. Supplementary
financial information regarding quarterly results of operations (unaudited)
for the years ended December 31, 1994 and 1993 is set forth in Note 14 of the
Notes to Consolidated Financial Statements. For a list of financial statements
and schedules filed as part of this report, see the "Index to Financial
Statements and Financial Statement Schedules."
17
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to directors and nominees for election as
directors of the Company is incorporated herein by reference to the
information under the caption "Election of Directors" on pages 1 through 3 of
the Company's proxy statement for the 1995 annual meeting of stockholders.
Information with respect to executive officers of the Company is set forth in
part I of this report. Information concerning compliance with Section 16(a) of
the Exchange Act is incorporated by reference to the information under the
caption "Section 16(a) Compliance" on page 6 of the Company's proxy statement
for the 1995 annual meeting of stockholders.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to compensation of executive officers and
directors of the Company is incorporated herein by reference to the
information under the captions "Executive Compensation" on pages 7 through 9,
and "Compensation of Directors" on page 4, of the Company's proxy statement
for the 1995 annual meeting of stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership by persons known to the
Company to beneficially own more than five percent of the Company's common
stock, by directors and nominees for director of the Company and by all
directors and executive officers of the Company as a group is incorporated
herein by reference to the information under the caption "Stock Ownership" on
pages 5 and 6 of the Company's proxy statement for the 1995 annual meeting of
stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions
is incorporated herein by reference to the information under the caption
"Certain Relationships and Related Transactions" on pages 12 through 16 of the
Company's proxy statement for the 1995 annual meeting of stockholders.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of the registrant
and its consolidated subsidiaries, set forth on pages 20 through 40 of the
Annual Report, are incorporated herein by reference:
Consolidated Balance Sheet--December 31, 1994 and 1993
Consolidated Statement of Operations--three years ended December 31,
1994
Consolidated Statement of Cash Flows--three years ended December 31,
1994
Consolidated Statement of Stockholders' Equity--three years ended
December 31, 1994
Notes to Consolidated Financial Statements
(a)(2) The following report of independent auditors and financial statement
schedule of the registrant and its consolidated subsidiaries are included
herein:
Report of Deloitte & Touche LLP, independent auditors
II Valuation and Qualifying Accounts
Certain schedules for which provisions are made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore
have been omitted.
(a)(3) The exhibits listed in the "Exhibit Index."
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
three-month period ended December 31, 1994.
19
<PAGE>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------
EXHIBIT INDEX
*3.1 Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992).
*3.2 Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992).
*4.1 Credit Agreement dated as of January 27, 1993 ("Credit
Agreement") among the Company, the lenders party thereto and
the administrative agent named therein (incorporated by
reference to Exhibit 4.3 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992), as amended by
the First Amendment thereto (incorporated by reference to
Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ending June 30, 1994).
*4.2 Credit Agreement dated as of January 27, 1993 ("L/C
Agreement") among the Company, the banks party thereto and the
agent named therein (incorporated by reference to Exhibit 4.4
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992), as amended by the First Amendment thereto
(incorporated by reference to Exhibit 4.2 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ending
June 30, 1994).
*4.3 Indenture dated as of January 15, 1983 by and between Borg-
Warner and Harris Trust & Savings Bank, Trustee, entered into
in connection with the registration of up to $150 million of
debt securities and under which Borg-Warner issued 8% Notes
due April 1, 1996 (incorporated by reference to Exhibit 9(d)
to Registration Statement No. 2-81437).
*4.4 Supplemental Indenture dated as of December 31, 1987 to the
Indenture dated as of January 15, 1983 by and between the
Company and Harris Trust and Savings Bank (incorporated by
B-1
<PAGE>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------
reference to Exhibit 4.7 to the Company's Annual Report on
Form 10-K for the Ten Months ended October 31, 1987).
*4.5 Form of Security for 8% Notes due April 1, 1996 (incorporated
by reference to Exhibit 4.8 to Registration Statement No.
33-53480).
*4.6 Indenture dated as of April 1, 1986 by and between Borg-Warner
and Harris Trust and Savings Bank, entered into in connection
with the registration of up to $150,000,000 of Debt Securities
and Warrants to Purchase Debt Securities for issuance under a
shelf registration on Form S-3 (incorporated by reference to
Registration Statement No. 33-4670).
*4.7 Indenture dated as of May 3, 1993 by and between the Company
and The First National Bank of Chicago (incorporated by
reference to Exhibit 4.1 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1993).
4.8 Second Amendment and Consent to Credit Agreement dated as of
March 15, 1995.
4.9 Fifth Amendment to L/C Agreement dated as of March 15, 1995.
+*10.1 Borg-Warner Security Corporation Directors Stock Appreciation
Rights Plan (incorporated by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1988).
+*10.2 Borg-Warner Security Corporation Retirement Savings Excess
Benefit Plan (incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1988), as amended by Amendment No. 1 thereto
(incorporated by reference to Exhibit 10.16 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1989).
*10.3 Form of Indemnification Agreement dated September 23, 1986
between the Company and Messrs. Farrell, O'Brien, Trauscht and
B-2
<PAGE>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------
Wood (incorporated by reference to Exhibit 10.17 to Borg-
Warner's Annual Report on Form 10-K for the year ended
December 31, 1986).
+*10.4 Borg-Warner Corporation Management Stock Option Plan, as
amended through January 19, 1993 (incorporated by reference to
Exhibit 10.7 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992).
*10.5 Form of Recourse Secured Promissory Note (incorporated by
reference to Exhibit 10.9 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992).
+*10.6 Form of Employment Agreement for Messrs. Farrell, O'Brien,
Trauscht and Wood (incorporated by reference to Exhibit 10.26
to Registration Statement No. 33-15419).
+*10.7 Form of Amendment of Employment Agreement for Messrs. Farrell,
O'Brien, Trauscht and Wood, dated January 19, 1989
(incorporated by reference to Exhibit 10.11 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1988).
+*10.8 Form of Amendment of Employment Agreement for certain
executives of the Company (incorporated by reference to
Exhibits 10.12 and 10.13 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1990).
+ 10.9 Borg-Warner Retirement Savings Plan, as amended through
January 1, 1995.
+ 10.10 Borg-Warner Security Corporation Supplemental Benefits
Compensation Program.
*10.11 Distribution and Indemnity Agreement dated as of January 27,
1993 between the Company and Borg-Warner Automotive, Inc.
(incorporated by reference to Exhibit 10.16 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1992).
B-3
<PAGE>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------
*10.12 Tax Sharing Agreement dated as of January 27, 1993 between the
Company and Borg-Warner Automotive, Inc. (incorporated by
reference to Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992).
*10.13 Benefits Agreement dated as of January 27, 1993 between the
Company and Borg-Warner Automotive, Inc. (incorporated by
reference to Exhibit 10.18 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992).
+*10.14 Borg-Warner Security Corporation 1993 Stock Incentive Plan
(incorporated by reference to Exhibit 10.19 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1992).
*10.15 Service Agreement dated as of December 31, 1992 between the
Company and Borg-Warner Automotive, Inc. (incorporated by
reference to Exhibit 10.20 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992).
10.16 Assignment of Trademarks and License Agreement dated as of
November 2, 1994 between the Company and Borg-Warner
Automotive, Inc.
10.17 Transfer and Administration Agreement dated as of November 21,
1994 among BPS Financial Services, Inc., the Company and
Enterprise Funding Corporation.
*10.18 Consulting Agreement dated as of September 1, 1993 between the
Company and H. Norman Schwarzkopf (incorporated by reference
to Exhibit 10.20 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993).
*10.19 Administrative Services Agreement dated as of January 1, 1994
between the Company and Borg-Warner Automotive, Inc.
(incorporated by reference to Exhibit 10.21 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1993).
B-4
<PAGE>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------
*10.20 Government Relations Agreement dated as of January 1, 1994
between the Company and Borg-Warner Automotive, Inc.
(incorporated by reference to Exhibit 10.22 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1993).
+ 10.21 Borg-Warner Security Corporation Retirement Savings Excess
Benefit Plan, as amended and restated through January 1, 1995.
11 Computation of earnings per share.
13 1994 Annual Report to Stockholders.
21 Subsidiaries of the Company.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
--------------------
* Incorporated by reference.
+ Indicates a management contract or compensatory plan or arrangement
required to be filed pursuant to Item 14(c).
B-5
<PAGE>
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.
BORG-WARNER SECURITY CORPORATION
By /s/ Donald C. Trauscht
----------------------
Donald C. Trauscht
Chairman of the Board, Chief Executive Officer
and President
Date: March 23, 1995
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 INDICATED ON THIS DAY OF MARCH 23, 1995.
Signature Title
--------- ------
/s/ Donald C. Trauscht Chairman of the Board, Chief
---------------------- Executive Officer and President
Donald C. Trauscht and Director (Principal Executive
Officer)
/s/ Timothy M. Wood Vice President, Finance
------------------- (Principal Financial and Accounting
Timothy M. Wood Officer)
/s/ J. Joe Adorjan Director
------------------
J. Joe Adorjan
/s/ James J. Burke, Jr. Director
-----------------------
James J. Burke, Jr.
/s/ Neal F. Farrell Director
-------------------
Neal F. Farrell
<PAGE>
/s/ Albert J. Fitzgibbons, III Director
------------------------------
Albert J. Fitzgibbons, III
/s/ Dale W. Lang Director
----------------
Dale W. Lang
/s/ Robert A. McCabe Director
--------------------
Robert A. McCabe
/s/ Alexis P. Michas Director
--------------------
Alexis P. Michas
/s/ H. Norman Schwarzkopf Director
-------------------------
H. Norman Schwarzkopf
<PAGE>
SCHEDULE II
BORG-WARNER SECURITY CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- ------------------------ -------- --------
Additions
Years Ended December 31, (1) (2)
Balance at Charged to Charged to Balance
Beginning Costs and Other at Close
Description of Period Expenses Accounts Deductions of Period
----------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1992
Allowance for Doubtful Accounts $ 8.1 $ 5.1 $ 0.4 $ 5.4 $ 8.2
====== ====== ====== ====== ======
1993
Allowance for Doubtful Accounts $ 8.2 $ 4.2 $ 0.5 $ 4.1 $ 8.8
====== ====== ====== ====== ======
1994
Allowance for Doubtful Accounts $ 8.8 $ 5.5 $ 1.5 $ 8.1 $ 7.7
====== ====== ====== ====== ======
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Borg-Warner Security Corporation
We have audited the financial statements of Borg-Warner Security Corporation
as of December 31, 1994 and 1993 and for each of the three years in the period
ended December 31, 1994, and have issued our report thereon dated February 10,
1995 (except as to the fourth sentence of the fifth paragraph of Note 5, for
which the date is March 15, 1995); such financial statements and report are
included in the 1994 Annual Report to Stockholders and are incorporated herein
by reference. Our audit also included the financial statement schedule of
Borg-Warner Security Corporation listed in Item 14 of this Annual Report on
Form 10-K. This financial statement schedule is the responsibility of the
Company. Our responsibility is to express an opinion based on our audit. In
our opinion, the financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 10, 1995
<PAGE>
EXHIBIT 4.8
BORG-WARNER SECURITY CORPORATION
SECOND AMENDMENT TO CREDIT AGREEMENT AND CONSENT
This SECOND AMENDMENT TO CREDIT AGREEMENT AND CONSENT (this
"AMENDMENT") is dated as of March 15, 1995 and entered into by and among BORG-
WARNER SECURITY CORPORATION, a Delaware corporation ("COMPANY"), the financial
institutions listed on the signature pages hereof ("LENDERS"), BANK OF AMERICA
ILLINOIS, THE BANK OF NEW YORK and THE BANK OF NOVA SCOTIA, as Lead Managers,
BANKERS TRUST COMPANY, CIBC INC. and NATIONSBANK, N.A. ("CAROLINAS"), as Co-
Agents, and BANKERS TRUST COMPANY, as Administrative Agent for Lenders (in such
capacity, "ADMINISTRATIVE AGENT"), and, for purposes of Section 5 hereof, the
Credit Support Parties (as defined in Section 5 hereof) listed on the signature
pages hereof, and is made with reference to that certain Credit Agreement dated
as of January 27, 1993 by and among Company, Lenders, Lead Managers, Co-Agents
and Administrative Agent, as amended by that certain First Amendment to the
Credit Agreement dated as of June 30, 1994 (such agreement, as so amended, being
referred to herein as the "CREDIT AGREEMENT"). Capitalized terms used herein
without definition shall have the same meanings herein as set forth in the
Credit Agreement.
RECITALS
WHEREAS, Company and Lenders desire to amend the Credit Agreement by
(i) revising the pricing provisions thereof, (ii) amending certain provisions
related to the refinancing of the Senior Notes, (iii) making provision for a
proposed off-balance sheet facility for the alarm services businesses, (iv)
amending certain of the financial covenants contained therein and (v) making
certain other amendments as set forth below; and
WHEREAS, subject to the terms and conditions of this Amendment, Lenders
are willing to agree to such amendments;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 AMENDMENTS TO SECTION 1: DEFINITIONS.
A. ASSET SALE. The definition of "Asset Sale" contained in
subsection 1.1 of the Credit Agreement is hereby amended by deleting clause (B)
therefrom in its entirety and by substituting the following therefor:
1
<PAGE>
"(B) the sale or discount of notes, accounts receivable, contracts,
leases or other receivables to the extent sold or discounted in
connection with the off-balance sheet facilities permitted by
subsections 6.1(vii) and (x) and, in the case of the off-balance sheet
facility permitted by subsection 6.1(x), the sale of related
equipment."
B. BW - OTHER CORPORATION. The definition of "BW-Other Corporation"
contained in subsection 1.1 of the Credit Agreement is hereby amended by
deleting it in its entirety and by substituting the following therefor:
"'BW-Other Corporation' means the direct and indirect subsidiaries
of BW-Other Corporation, a Delaware corporation, prior to its
liquidation into Company, including without limitation Borg-Warner
Equities Corporation, Borg-Warner Equities Corporation of California,
Borg-Warner Equities Corporation of Monterey, Inc., NAL II, Ltd., Borg-
Warner Insurance Holding Corporation and Centaur Insurance Company."
C. NEW DEFINITIONS. Section 1.1 of the Credit Agreement is hereby
further amended by adding thereto the following definitions, which definitions
shall be inserted in proper alphabetical order:
"'Alarm Installation Costs' means the costs allocated to a
subscriber installation in connection with the original installation of
an alarm system, including without limitation all charges for materials
and for the labor associated with such installation.
'Centaur Interest Amount' means, for each period for which the
determination is being made and for each Centaur Settlement Amount for
which such calculation is being made, an amount equal to the interest
expense attributable to such Centaur Settlement Amount for such period,
commencing from the date of payment of such Centaur Settlement Amount
for the first such period, which amount shall be calculated by
utilizing the Prime Rate then in effect for Loans outstanding under
this Agreement (without reference to the Prime Rate Margin).
'Centaur Settlement Amount' means all amounts paid or contributed
by Company to Centaur Insurance Company ("Centaur") or directly or
indirectly paid by Company on behalf of Centaur, in each case on or
after the effective date of the Second Amendment for the purpose of
settling litigation pending against Centaur or against Company but
relating to Centaur or of paying the costs and expenses associated with
such litigation provided that the aggregate amount of all such payments
does not exceed the amount disclosed in writing by Company to Co-Agents
and approved by Co-Agents as of the effective date of the Second
Amendment.
2
<PAGE>
'New Receivables Facility' means an off-balance sheet receivables
financing facility in the amount of not less than $100,000,000, the
terms and conditions of which are satisfactory to Requisite Lenders,
which facility shall be provided by a financial institution
satisfactory to Requisite Lenders, to replace Company's existing off-
balance sheet receivables financing facility with Enterprise Funding
Corporation.
'Second Amendment' means the Second Amendment to Credit Agreement
and Consent dated as of March 15, 1995, by and among Company, Lenders,
Lead Managers, Co-Agents and Administrative Agent."
1.2 AMENDMENTS TO SECTION 2: AMOUNTS AND TERMS OF COMMITMENTS AND
LOANS; NOTES; LETTERS OF CREDIT.
A. RATE OF INTEREST. Subsection 2.2A of the Credit Agreement is
hereby amended by deleting the table contained in the second paragraph thereof
in its entirety and substituting the following therefor:
<TABLE>
<CAPTION>
"Adjusted Interest Prime Rate Eurodollar
Coverage Ratio Margin Rate Margin
-------------- ---------- -----------
<S> <C> <C>
Less than 2.25:1.00 1.50% 2.50%
Equal to or greater than 2.25:1.00 1.25% 2.25%
but less than 2.75:1.00
Equal to or greater than 2.75:1.00 1.00% 2.00%
but less than 3.55:1.00
Equal to or greater than 3.55:1:00 0.75% 1.75%
but less than 4.00:1.00
Equal to or greater than 4.00:1.00
but less than 4.50:1.00 0.50% 1.50%
Equal to or greater than 4.50:1.00 0.25% 1.25%
</TABLE>
provided, however, in the event that Company has not obtained a
commitment letter for the New Receivables Facility by August 15, 1995,
from a financial institution which is, and the terms and conditions of
which commitment letter are, satisfactory to Requisite Lenders, each of
the percentages set forth above for the Prime Rate Margin and the
Eurodollar Rate Margin shall increase by an additional .25%; provided
further in the event that the New Receivables Facility has not been
executed and delivered by the Company and the other parties thereto by
September 15, 1995, each
3
<PAGE>
of the percentages set forth above for the Prime Rate Margin and the
Eurodollar Rate Margin, as such percentages may have been adjusted by
operation of the foregoing proviso, shall increase by an additional
.25%; provided further in the event that the Company has refinanced its
existing receivables facility with Enterprise Funding Corporation with
the proceeds of the New Receivables Facility on or prior to September
30, 1995, commencing as of the date of such refinancing, the rate
increases provided for in the foregoing two provisos shall be
terminated and shall be of no further force or effect."
B. FEES. Subsection 2.3 of the Credit Agreement is hereby amended by
adding the following at the end thereof:
"C. Refinancing Fees. In the event that Company has not obtained a
commitment letter for the New Receivables Facility by July 1, 1995, the
terms and conditions of which are satisfactory to Requisite Lenders,
Company shall pay to Administrative Agent for distribution to each
Lender in proportion to that Lender's Pro Rata Share of the
Commitments, an aggregate fee equal to .50% of the then outstanding
Commitments."
1.3 AMENDMENTS TO SECTION 5: COMPANY'S AFFIRMATIVE COVENANTS.
Subsection 5.10A of the Credit Agreement is hereby amended by deleting
the two provisos contained in the first sentence thereof and by substituting the
following therefor:
"; provided that prior to the effective date of the Second Amendment,
Company may pay such amounts as have been disclosed in writing to the
Co-Agents as of such effective date and thereafter Company may pay the
Centaur Settlement Amount."
1.4 AMENDMENTS TO SECTION 6: COMPANY'S NEGATIVE COVENANTS
A. INDEBTEDNESS. Subsection 6.1 of the Credit Agreement is hereby
amended by:
(1) deleting subclause (y) from clause (iii) thereof in its entirety
and by substituting the following therefor:
"(y) concurrently with any such refinancing, renewal or extension of
the Existing Indebtedness of Company to The Long-Term Credit Bank of
Japan, Ltd. listed in Item 1 of Schedule C annexed hereto prior to its
final scheduled maturity, the Commitments shall be permanently reduced
in an amount equal to the amount of such Existing Indebtedness so
refinanced, renewed or extended; and (z) notwithstanding the foregoing,
in connection
4
<PAGE>
with any refinancing of the Senior Notes, Company may issue up to
$140,000,000 principal amount of such refinancing Indebtedness;";
(2) adding immediately after the phrase "of which" in the fourth line
of clause (vii) thereof the following ", and any modifications, amendments
or supplements thereto,";
(3) deleting the phrase "clauses (i)-(vii)" from clause (viii) thereof
and by substituting "clauses (i)-(vii) and clause (x)" therefor;
(4) deleting the phrase "clauses (i)-(viii)" from clause (ix) thereof
and by substituting "clauses (i)-(viii) and clause (x)" therefor and by
deleting the period at the end of such clause (ix) and by substituting ";
and" therefor; and
(5) by adding a new clause (x) at the end of such subsection 6.1 as
follows:
"(x) Wells Fargo Alarm Services, Inc., BW-Canada Alarm (Wells Fargo)
Corporation, and their respective wholly owned subsidiaries may become
and remain liable with respect to an off-balance sheet facility
providing for the purchase of receivables, contracts, leases and
related equipment from such entities, the terms and conditions of which
facility, and any modifications, amendments or supplements thereto,
shall be satisfactory in form and substance to the Requisite Lenders.".
B. LIENS. Subsection 6.2 of the Credit Agreement is hereby amended
by:
(1) deleting the phrase "Additional Senior Indebtedness" from clause
(ii) thereof and by substituting the following therefor:
"Additional Senior Indebtedness, including the holders of Indebtedness
refinancing the Senior Notes in accordance with subsection 6.1(iii),"
and
(2) deleting the period at the end of clause (vii) thereof and by
substituting "; and" therefor and by adding a new clause (viii) at the end
of such subsection 6.2 as follows:
"(viii) Liens in favor of the purchaser of receivables, contracts,
leases and related equipment from Wells Fargo Alarm Services, Inc., BW-
Canada Alarm (Wells Fargo) Corporation, and their respective
subsidiaries, which Liens are filed with respect to such receivables,
contracts, leases and related equipment in connection with the off-
balance sheet facility permitted under subsection 6.1(x)".
5
<PAGE>
C. INVESTMENTS. Subsection 6.3 of the Credit Agreement is hereby
amended by adding the following at the end of clause 6.3(iii) thereof:
"and Wells Fargo Alarm Services, Inc. and BW-Canada Alarm (Wells Fargo)
Corporation may make and own Investments approved by Requisite Lenders
in financing subsidiaries established for the purpose of purchasing and
selling receivables, contracts, leases and related equipment in
connection with the off-balance sheet facility permitted pursuant to
subsection 6.1(x)".
D. INTEREST COVERAGE RATIO. Subsection 6.6A of the Credit Agreement
is hereby amended by deleting the subsection in its entirety and by substituting
the following therefor:
"A. INTEREST COVERAGE RATIO. Company will not permit the ratio (the
"Interest Coverage Ratio") of (i) Consolidated EBITDA minus the sum of
(x) Consolidated Capital Expenditures plus (y) an amount equal to Alarm
Installation Costs originated during the period for which the
determination is being made which are treated as sales-type leases and
which have not been sold in connection with the off-balance sheet
facility permitted pursuant to subsection 6.1(x) hereof, to (ii)
Consolidated Interest Expense as of the last day of each of the fiscal
quarters shown below for the four consecutive preceding fiscal quarters
ended on such date, to be less than the correlative ratio indicated
below:
<TABLE>
<CAPTION>
PERIOD MINIMUM INTEREST COVERAGE RATIO
------ -------------------------------
Fiscal year ending 1994
-----------------------
<S> <C>
Fourth fiscal quarter 1.60:1.00
Fiscal year ending 1995
-----------------------
First fiscal quarter 1.30:1.00
Second fiscal quarter 1.30:1.00
Third fiscal quarter 1.35:1.00
Fourth fiscal quarter 1.50:1.00
Fiscal year ending 1996
-----------------------
First fiscal quarter 1.50:1.00
Second fiscal quarter 1.55:1.00
Third fiscal quarter 1.60:1.00
Fourth fiscal quarter 1.75:1.00
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Fiscal year ending 1997
-----------------------
First fiscal quarter 1.75:1.00
Second fiscal quarter 1.80:1.00
Third fiscal quarter 1.85:1.00
Fourth fiscal quarter 2.00:1.00
Fiscal year ending 1998
-----------------------
First fiscal quarter 2.00:1.00
Second fiscal quarter 2.05:1.00
Third fiscal quarter 2.10:1.00
Fourth fiscal quarter 2.25:1.00
Fiscal year ending 1999
-----------------------
First fiscal quarter 2.35:1.00
Second fiscal quarter 2.50:1.00
</TABLE>
provided however that for each fiscal quarter in which a Centaur
Settlement Amount is paid by Company and for the immediately succeeding
three fiscal quarters, in calculating Consolidated Interest Expense for
each such fiscal quarter, Company may exclude the Centaur Interest
Amount for such Centaur Settlement Amount for each such fiscal
quarter."
E. LEVERAGE RATIO. Subsection 6.6B of the Credit Agreement is hereby
amended by deleting the table set forth therein for each fiscal quarter,
commencing with the 1994 fourth fiscal quarter, and by substituting the
following therefor:
<TABLE>
<CAPTION>
<S> <C>
"PERIOD MAXIMUM LEVERAGE RATIO
------ ----------------------
Fiscal year ending 1994
-----------------------
Fourth fiscal quarter 3.35:1.00
Fiscal year ending 1995
-----------------------
First fiscal quarter 3.65:1.00
Second fiscal quarter 3.65:1.00
Third fiscal quarter 3.60:1.00
Fourth fiscal quarter 3.35:1.00
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Fiscal year ending 1996
-----------------------
First fiscal quarter 3.35:1.00
Second fiscal quarter 3.20:1.00
Third fiscal quarter 3.00:1.00
Fourth fiscal quarter 2.90:1.00
Fiscal year ending 1997
-----------------------
First fiscal quarter 2.90:1.00
Second fiscal quarter 2.80:1.00
Third fiscal quarter 2.65:1.00
Fourth fiscal quarter 2.50:1.00
Fiscal year ending 1998
-----------------------
First fiscal quarter 2.45:1.00
Second fiscal quarter 2.35:1.00
Third fiscal quarter 2.25:1.00
Fourth fiscal quarter 2.15:1.00
Fiscal year ending 1999
-----------------------
First fiscal quarter 2.00:1.00
Second fiscal quarter 1.80:1.00
</TABLE>
provided however that for each fiscal quarter in which a Centaur
Settlement Amount is paid by Company and for the immediately succeeding
three fiscal quarters, in calculating the amount of Funded Debt for
each such fiscal quarter, Company may exclude such Centaur Settlement
Amount for each such fiscal quarter."
F. CONSOLIDATED NET WORTH. Subsection 6.6C of the Credit Agreement is
hereby amended by deleting the table set forth therein for each fiscal quarter,
commencing with the 1994 fourth fiscal quarter, and by substituting the
following therefor:
<TABLE>
<CAPTION>
"PERIOD MINIMUM CONSOLIDATED NET WORTH
------ ------------------------------
<S> <C>
Fiscal year ending 1994
-----------------------
Fourth fiscal quarter $55,000,000
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Fiscal year ending 1995
-----------------------
<S> <C>
First fiscal quarter 50,000,000
Second fiscal quarter 50,000,000
Third fiscal quarter 55,000,000
Fourth fiscal quarter 60,000,000
Fiscal year ending 1996
-----------------------
First fiscal quarter 60,000,000
Second fiscal quarter 65,000,000
Third fiscal quarter 70,000,000
Fourth fiscal quarter 85,000,000
Fiscal year ending 1997
-----------------------
First fiscal quarter 87,500,000
Second fiscal quarter 90,000,000
Third fiscal quarter 95,000,000
Fourth fiscal quarter 105,000,000
Fiscal year ending 1998
-----------------------
First fiscal quarter 110,000,000
Second fiscal quarter 120,000,000
Third fiscal quarter 125,000,000
Fourth fiscal quarter 130,000,000
Fiscal year ending 1999
-----------------------
First fiscal quarter 145,000,000
Second fiscal quarter 160,000,000
</TABLE>
provided however that in calculating Consolidated Net Worth, Company shall
exclude the effect of any gain related to taking into Consolidated Net Income
any reserves previously established to pay Centaur Settlement Amounts."
G. CONSOLIDATED EBITDA. Subsection 6.6D of the Credit Agreement is
hereby amended by deleting the table set forth therein for each fiscal quarter,
commencing with the 1994 fourth fiscal quarter, and by substituting the
following therefor:
9
<PAGE>
<TABLE>
<CAPTION>
"PERIOD MINIMUM CONSOLIDATED EBITDA
------- ---------------------------
<S> <C>
Fiscal year ending 1994
-----------------------
Fourth fiscal quarter $145,000,000
Fiscal year ending 1995
-----------------------
First fiscal quarter 130,000,000
Second fiscal quarter 130,000,000
Third fiscal quarter 132,500,000
Fourth fiscal quarter 140,000,000
Fiscal year ending 1996
-----------------------
First fiscal quarter 140,000,000
Second fiscal quarter 150,000,000
Third fiscal quarter 160,000,000
Fourth fiscal quarter 160,000,000
Fiscal year ending 1997
-----------------------
First fiscal quarter 162,500,000
Second fiscal quarter 165,000,000
Third fiscal quarter 167,500,000
Fourth fiscal quarter 170,000,000
Fiscal year ending 1998
-----------------------
First fiscal quarter 172,500,000
Second fiscal quarter 175,000,000
Third fiscal quarter 177,500,000
Fourth fiscal quarter 180,000,000
Fiscal year ending 1999
-----------------------
First fiscal quarter 185,000,000
Second fiscal quarter 190,000,000"
</TABLE>
H. CONSOLIDATED CAPITAL EXPENDITURES. Subsection 6.6E of the Credit
Agreement is hereby amended by deleting the text of subsection 6.6E up to but
not including the proviso set forth therein and substituting the following
therefor:
"E. Consolidated Capital Expenditures. Company and its Subsidiaries
shall not permit the sum of (i) Consolidated Capital Expenditures plus (ii)
an
10
<PAGE>
amount equal to 75% of the Alarm Installation Costs originated in such
fiscal year which are sold in connection with the off-balance sheet facility
permitted pursuant to subsection 6.1(x) plus (iii) an amount equal to 100%
of the Alarm Installation Costs originated in such fiscal year which are
treated as sales-type leases which are not sold in connection with the off-
balance sheet facility permitted pursuant to subsection 6.1(x) to exceed in
any fiscal year the amount set forth below for such fiscal year (the
"Capital Expenditure Amount"):
<TABLE>
<CAPTION>
PERIOD CAPITAL EXPENDITURE AMOUNT
------ --------------------------
<S> <C>
Fiscal year ending 1993 $70,000,000
Fiscal year ending 1994 $75,000,000
Fiscal year ending 1995 $55,000,000
Fiscal year ending 1996 $60,000,000
Fiscal year ending 1997 $60,000,000
Fiscal year ending 1998 $60,000,000
Fiscal year ending 1999 $60,000,000
</TABLE>
; provided that for fiscal years commencing on and after January 1,
1996, if the Company's Adjusted Interest Coverage Ratio for such fiscal
year is greater than 2.90 to 1.00 as of December 31, 1995, or as of the
last day of any fiscal year thereafter, the Capital Expenditure Amount
for the immediately succeeding fiscal year, and for each fiscal year
thereafter, shall be increased to $75,000,000;" and
(2) adding the following sentence at the end of subsection 6.6E:
"Notwithstanding the foregoing, in no event shall the Capital
Expenditure Amount for the fiscal year ending December 31, 1995, be
increased by any Unutilized Amount from the fiscal year ending December
31, 1994."
I. ACQUISITIONS. Subsection 6.7(iv) of the Credit Agreement is
hereby amended by deleting it in its entirety and substituting the following
therefor:
"(iv) Company and its Consolidated Subsidiaries may acquire all or
substantially all the business, property or fixed assets of, or stock
or other evidence of beneficial ownership of, any Person engaged in
businesses substantially similar to those conducted by the Company and
its Consolidated Subsidiaries (such asset or stock acquisitions being
herein collectively referred to as "Acquisitions"); provided that the
purchase price (including all assumed liabilities) paid with respect to
Acquisitions made on or after the effective date of the Second
Amendment (A) does not exceed $25,000,000 in the aggregate for all such
Acquisitions or (B) in the event that (x) no Event of Default or
Potential Event of Default has occurred and is continuing, (y) the
ratio of Company's Funded Debt to Consolidated
11
<PAGE>
EBITDA for the immediately preceding four consecutive fiscal quarters
is not greater than 2.50 to 1.00 and (z) the Company's Adjusted
Interest Coverage Ratio for the immediately preceding four consecutive
fiscal quarters is not less than 3.00 to 1.00 (in determining
compliance with clauses (y) and (z) hereof, such calculations shall be
made on a pro forma basis for the period of calculation after giving
effect to the occurrence of the Acquisition on the first day of the
relevant calculation period and after giving effect to all
Indebtedness, including any assumed liabilities, incurred in connection
therewith and calculating interest on any such Indebtedness at a fixed
rate equal to the rate (whether fixed or floating) which such
Indebtedness would bear on the date of determination), does not exceed
$50,000,000 in the aggregate for all such Acquisitions; provided
however in the event that thereafter Company no longer meets the
conditions set forth in clauses (y) and (z), Company shall again be
required to comply with the foregoing clause (A) of this subsection
6.7(iv); provided that no Potential Event of Default or Event of
Default shall occur under this Agreement if the aggregate Acquisitions
then exceed $25,000,000 if such Acquisitions, at the time made, were
permitted under this Agreement; provided further that to the extent
that Company pays all or any portion of the purchase price for an
Acquisition through the issuance of shares of Common Stock, the value
of the shares of such Common Stock shall be deducted from the
calculation of the purchase price payable by Company or its
Consolidated Subsidiaries for such Acquisitions for purposes of
determining compliance with the provisions of this subsection 6.7(iv);
and provided further that any such Person so acquired that constitutes
a Material Subsidiary shall execute counterparts of the Borg-Warner
Subsidiary Guaranty and the Borg-Warner Subsidiary Pledge Agreement as
provided in subsection 5.11; and"
J. SALE OR DISCOUNT OF RECEIVABLES. Subsection 6.9 of the Credit
Agreement is hereby amended by deleting the subsection in its entirety and
substituting the following therefor:
"Company will not, and will not permit any of its Consolidated
Subsidiaries to, directly or indirectly, sell with recourse, or
discount or otherwise sell for less than the face value thereof, notes,
accounts receivable, contracts, leases or other receivables, other than
pursuant to the off-balance sheet facilities permitted under
subsections 6.1(vii) and 6.1(x)."
1.5 AMENDMENT OF EXHIBITS. Exhibit IV to the Credit Agreement is
hereby amended by deleting it in its entirety and by substituting therefor the
form of Compliance Certificate annexed hereto as Annex A.
12
<PAGE>
SECTION 2. CONSENT
A. COMPANY PLEDGE AGREEMENT. Each Lender executing this Amendment
hereby consents to the amendment of the Company Pledge Agreement by a First
Amendment to Pledge Agreement substantially in the form annexed hereto as Annex
B and each such Lender hereby authorizes the Collateral Agent, upon request of
the Company and on such Lender's behalf, to execute and deliver such First
Amendment to Pledge Agreement.
B. INTERCREDITOR AGREEMENT. Each Lender executing this Amendment
hereby consents to the amendment of the Intercreditor Agreement by a First
Amendment to
Intercreditor Agreement substantially in the form annexed hereto as
Annex C and each such Lender hereby authorized the Collateral Agent, upon
request of the Company and on such Lender's behalf, to execute and deliver such
First Amendment to Intercreditor Agreement.
SECTION 3. CONDITIONS TO EFFECTIVENESS
Section 1 and Section 2 of this Amendment shall become effective as of
the date hereof only upon the satisfaction of all of the following conditions
precedent (upon such satisfaction, the "SECOND AMENDMENT EFFECTIVE DATE"):
A. On or before the Second Amendment Effective Date, Company shall
deliver to Lenders (or to Administrative Agent for Lenders with sufficient
originally executed copies, where appropriate, for each Lender) the following,
each, unless otherwise noted, dated the Second Amendment Effective Date:
1. Resolutions of its Board of Directors authorizing and approving the
execution, delivery and performance of this Amendment and of the Agreement
as amended by this Amendment, certified as of the Second Amendment Effective
Date by its secretary or assistant secretary as being in full force and
effect without modification or amendment.
2. Signature and incumbency certificates of its officers executing this
Amendment;
3. Executed copies of this Amendment; and
4. A letter from a responsible officer of the Company with respect to
past and anticipated Centaur Settlement Amounts, which letter shall have
been approved by Co-Agents.
B. On or before the Second Amendment Effective Date, each of the
Borg-Warner Guarantor Subsidiaries shall deliver to Lenders (or to
Administrative Agent
13
<PAGE>
for Lenders with sufficient originally executed copies, where appropriate, for
each Lender) the following, each, unless otherwise noted, dated the Second
Amendment Effective Date:
1. Signature and incumbency certificates of its officers executing
this Amendment; and
2. Executed copies of this Amendment.
C. On or before the Second Amendment Effective Date, each Lender
executing this Amendment shall have received an amendment fee in an amount equal
to such Lender's Pro Rata Share of the Commitments multiplied by 0.25% and each
Co-Agent shall have received a structuring fee in an amount previously agreed
upon by Company and Co-Agents.
D. On or before the Second Amendment Effective Date, Requisite
Lenders shall have delivered to Administrative Agent originally executed copies
of this Amendment.
E. On or before the Second Amendment Effective Date, corresponding
consents and amendments shall have been obtained or made with respect to the
Credit Agreement dated as of January 27, 1993, as amended, among Company, the
financial institutions named therein, and The Long Term Credit Bank of Japan,
Chicago Agency.
F. On or before the Second Amendment Effective Date, all corporate
and other proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by Administrative Agent, acting on behalf of Lenders, and its counsel
shall be satisfactory in form and substance to Administrative Agent and such
counsel, and Administrative Agent and such counsel shall have received all such
counterpart originals or certified copies of such documents as Administrative
Agent may reasonably request.
SECTION 4. COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Amendment and to amend
the Credit Agreement in the manner provided herein, Company represents and
warrants to each Lender that the following statements are true, correct and
complete:
A. CORPORATE POWER AND AUTHORITY. Company 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").
14
<PAGE>
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 Company.
C. NO CONFLICT. The execution and delivery by Company of this
Amendment and the performance by Company of the Amended Agreement do not and
will not (i) violate any provision of any law or any governmental rule or
regulation applicable to Company or any of its Subsidiaries, the Certificate or
Articles of Incorporation or Bylaws of Company or any of its Subsidiaries or any
order, judgment or decree of any court or other agency of government binding on
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 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 Company or any of its Subsidiaries (other than any Liens created under
any of the Loan Documents in favor of Collateral Agent on behalf of Lenders), or
(iv) require any approval of stockholders or any approval or consent of any
Person under any Contractual Obligation of Company or any of its Subsidiaries.
D. GOVERNMENTAL CONSENTS. The execution and delivery by Company of
this Amendment and the performance by Company 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.
E. BINDING OBLIGATION. This Amendment and the Amended Agreement have
been duly executed and delivered by Company and are the legally valid and
binding obligations of Company, enforceable against Company 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 Section 4 of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the Second 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.
15
<PAGE>
SECTION 5. ACKNOWLEDGEMENT AND CONSENT
Company is a party to the Company Pledge Agreement, as amended through
the Second Amendment Effective Date, pursuant to which Company has pledged
certain Collateral to Collateral Agent to secure the Obligations. Each of the
Borg-Warner Guarantor Subsidiaries is a party to the Borg-Warner Subsidiary
Guaranty, as amended through the Second Amendment Effective Date, pursuant to
which each such Borg-Warner Guarantor Subsidiary has guarantied the Obligations.
Company and Borg-Warner Guarantor Subsidiaries are collectively referred to
herein as the "CREDIT SUPPORT PARTIES," and the Company Pledge Agreement and
Borg-Warner Subsidiary Guaranty are collectively referred to herein as the
"CREDIT SUPPORT DOCUMENTS."
Each Credit Support Party 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
Credit Support Party hereby confirms that each Credit Support Document to which
it is a party or otherwise bound and all Collateral encumbered thereby will
continue to guaranty or secure, as the case may be, to the fullest extent
possible the payment and performance of all "Obligations," "Guarantied
Obligations" and "Secured Obligations," as the case may be (in each case as such
terms are defined in the applicable Credit Support Document), including without
limitation the payment and performance of all such "Obligations," "Guarantied
Obligations" or "Secured Obligations," as the case may be, in respect of the
Obligations of Company now or hereafter existing under or in respect of the
Amended Agreement and the Notes defined therein.
Each Credit Support Party acknowledges and agrees that any of the
Credit Support Documents 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 Credit Support Party
represents and warrants that all representations and warranties contained in the
Amended Agreement and the Credit Support Documents to which it is a party or
otherwise bound are true, correct and complete in all material respects on and
as of the Second 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.
Each Credit Support Party (other than Company) acknowledges and agrees
that (i) notwithstanding the conditions to effectiveness set forth in this
Amendment, such Credit Support Party 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 Credit Support Party to any future amendments to the Credit
Agreement.
16
<PAGE>
SECTION 6. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
(1) On and after the Second 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.
(2) 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.
(3) 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
Administrative Agent or any Lender under, the Credit Agreement or any of the
other Loan Documents.
B. FEES AND EXPENSES. Company acknowledges that all costs, fees and
expenses as described in subsection 9.3 of the Credit Agreement incurred by
Administrative Agent and its counsel with respect to this Amendment and the
documents and transactions contemplated hereby shall be for the account of
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, THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS. 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.
17
<PAGE>
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.
BORG-WARNER SECURITY CORPORATION
By:____________________________________
Title:_________________________________
WELLS FARGO ALARM SERVICES, INC. (for
purposes of Section 5 only) as a Credit
Support Party
By:____________________________________
Title:_________________________________
WELLS FARGO ARMORED SERVICE CORPORATION
(for purposes of Section 5 only) as a
Credit Support Party
By:___________________________________
Title:________________________________
BW-CANADIAN GUARD CORPORATION (for
purposes of Section 5 only) as a Credit
Support Party
By:___________________________________
Title:________________________________
S-1
<PAGE>
BORG-WARNER PROTECTIVE SERVICES
CORPORATION (for purposes of Section 5
only) as a Credit Support Party
By:___________________________________
Title:________________________________
PONY EXPRESS COURIER CORP. (for purposes
of Section 5 only) as a Credit Support
Party
By:___________________________________
Title:________________________________
BANKERS TRUST COMPANY, INDIVIDUALLY AND
AS CO-AGENT AND AS ADMINISTRATIVE AGENT
By:___________________________________
Title:________________________________
CIBC INC., INDIVIDUALLY AND AS CO-AGENT
By:___________________________________
Title:________________________________
NATIONSBANK, N.A. ("CAROLINAS"),
INDIVIDUALLY AND AS CO-AGENT
By:___________________________________
Title:________________________________
S-2
<PAGE>
BANK OF AMERICA ILLINOIS, INDIVIDUALLY
AND AS LEAD MANAGER
By:___________________________________
Title:________________________________
THE BANK OF NEW YORK, INDIVIDUALLY AND
AS LEAD MANAGER
By:___________________________________
Title:________________________________
THE BANK OF NOVA SCOTIA, INDIVIDUALLY
AND AS LEAD MANAGER
By:___________________________________
Title:________________________________
COMPAGNIE FINANCIERE DE CIC ET DE L'UNION
EUROPEENNE
By:___________________________________
Title:________________________________
By:___________________________________
Title:________________________________
S-3
<PAGE>
DRESDNER BANK AG (CHICAGO AND GRAND
CAYMAN BRANCHES)
By:________________________________
Title:_____________________________
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By:________________________________
Title:_____________________________
THE NIPPON CREDIT BANK, LTD.
By:________________________________
Title:_____________________________
THE NORTHERN TRUST COMPANY
By:________________________________
Title:_____________________________
UNION BANK OF FINLAND LTD. - GRAND
CAYMAN BRANCH
By:________________________________
Title:_____________________________
By:________________________________
Title:_____________________________
S-4
<PAGE>
EXHIBIT 4.9
AMENDMENT NO. 5
This AMENDMENT NO. 5 (this "Amendment") is dated as of March 15, 1995 and
entered into by and among Borg-Warner Security Corporation, a Delaware
corporation (the "Company"), the financial institutions listed on the signature
pages hereof (the "Banks") and THE LONG-TERM CREDIT BANK OF JAPAN, LTD., as
Agent for the Banks (the "Agent") and, for purposes of Section 7 hereof, the
Credit Support Parties (as defined in Section 7 hereof) listed on the signature
pages hereof, and is made with reference to that certain Credit Agreement dated
as of January 27, 1993, as amended as of November 2, 1993, January 24, 1994,
June 30, 1994 and December 14, 1994 (as so amended, the "Credit Agreement"), by
and among the Company, the Banks 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 and the Banks wish to make certain amendments with
respect to the provisions regarding the extension of the Scheduled Commitment
Termination Date, the financial covenants, certain other covenants, Letters of
Credit containing provisions for the automatic increase of their Stated Amounts,
and certain fees, subject to the terms and conditions set forth herein; and
WHEREAS, the Company has requested that the Banks consent to an amendment
of the Company Pledge Agreement;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. NEXT EXTENSION DATE
With regard to any extension of the Scheduled Commitment Termination Date
from January 27, 1997, the next applicable Extension Date under Section 2.1.C of
the Credit Agreement shall be September 30, 1995, and the Company may give an
Extension Notice for such Extension Date by August 31, 1995.
<PAGE>
SECTION 2. AMENDMENTS
Effective as of the Amendment Effective Date (as defined in Section 4
hereof), the Credit Agreement is hereby amended as follows:
(a) Section 2.1.B (Participation Commitments) of the Credit Agreement is
amended by replacing the phrase "its Percentage of the Stated Amount thereof"
with the phrase "its Percentage of the Stated Amount thereof (and of any
automatic increases in such Stated Amount provided for in such Letter of
Credit)".
(b) Section 2.1.C (Extension of Facility) of the Credit Agreement is
amended by
(1) replacing the phrase "not more than 90 days, but not less
than 60 days," in the first sentence of paragraph (a) with the phrase
"not less than 30 days", and
(2) replacing the term "Stated Amount" in paragraph (f) with the
phrase "Stated Amount (including any automatic increases thereof
provided for in such Letter of Credit)".
(c) Section 2.3.A (Issuance Request) of the Credit Agreement is amended so
that the clause (a) thereof reads in its entirety as follows:
"(a) be issued in a Stated Amount which, after giving effect to
any automatic increases provided for in such Letter of Credit and when
added to the then aggregate amount of LC Outstandings, does not exceed
the then Total Commitment Amount; and"
(d) Section 2.3.B (Issuance of Letters of Credit) of the Credit Agreement
is amended by replacing the term "Stated Amount" in the last sentence thereof
with the phrase "Stated Amount (and the amounts and timing of any automatic
increases thereof provided for in such Letter of Credit)" and by adding the
following sentence at the end thereof:
"No Automatically Increasing Letter of Credit shall provide for any
automatic increases in its Stated Amount after the first anniversary of its
Issuance Date."
(e) Section 2.3.F (Deemed Disbursements) of the Credit Agreement is
amended by replacing the phrase in clause (a) thereof "that portion of the LC
Outstandings attributable to the then aggregate amount which is undrawn and
available under all then outstanding Letters of Credit" with the phrase "that
portion
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<PAGE>
of the LC Outstandings attributable to the then aggregate amount which is
undrawn and available (or will be available upon the occurrence of an automatic
increase in Stated Amount) under all then outstanding Letters of Credit".
(f) Section 2.4.D [commitment fee] of the Credit Agreement is amended by
deleting the phrase "of 0.375% per annum" and substituting therefor the phrase
"determined as specified in Section 2.5 hereof".
(g) Section 2.4 (Fees) of the Credit Agreement is further amended by
replacing the period at the end of Section 2.4.E with a semicolon and adding the
following Sections 2.4.F [extension fees], 2.4.G [Automatically Increasing
Letter of Credit commitment fee] and 2.4.H [Refinancing Fees]:
"F. for the account of each Bank that in its sole discretion consents
to the extension of the Scheduled Commitment Termination Date to January
27, 1998, an extension fee in the amount of 0.20% of such Bank's
Participation Commitment, such extension fee to be payable on September 30,
1995 (it being understood and agreed that in the event the Banks in their
sole discretion consent to any further extensions of the Scheduled
Commitment Termination Date, an extension fee mutually agreed to by the
Banks and the Company shall be payable by the Company to the Agent for the
account of the Banks in consideration of each such further extension); and
"G. with respect to each Automatically Increasing Letter of Credit,
for the account of each Bank an Automatically Increasing Letter of Credit
commitment fee (in addition to the commitment fee referred to in Section
2.4.D) of 0.625% per annum on the aggregate amount of prospective automatic
increases in the Stated Amount of such Automatically Increasing Letter of
Credit provided for in such Automatically Increasing Letter of Credit; and
"H. in the event that the Company has not obtained a commitment
letter for the New Receivables Facility by July 1, 1995, the terms and
conditions of which are satisfactory to the Required Banks, then for the
account of each Bank a fee equal to .50% of such Bank's Commitment."
(h) Section 2.5 of the Credit Agreement is amended to read in its entirety
as follows:
"SECTION 2.5 Letter of Credit Fee Rates; Commitment Fee Rates.
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<PAGE>
The letter of credit fee rate and the commitment fee rate for any
fiscal quarter shall be equal to the rate per annum set forth opposite the
Company's Adjusted Interest Coverage Ratio for the twelve-month period
immediately preceding the fiscal quarter for which the determination is
being made.
<TABLE>
<CAPTION>
Adjusted Interest Letter of Commitment
Coverage Ratio Credit Fee Rate Fee Rate
----------------- --------------- ----------
<S> <C> <C>
Less than 2.25:1.00 2.25% 0.50%
Less than 2.75:1.00 2.00% 0.50%
but greater than or
equal to 2.25:1.00
Less than 4.00:1.00 1.75% 0.375%
but greater than or
equal to 2.75:1.00
Equal to or greater than 1.50% 0.375%
4.00:1.00 but less than
4.50:1.00
Equal to or greater than 1.25% 0.375%
4.50:1.00
</TABLE>
Upon delivery of the Compliance Certificate pursuant to Section
5.1(iv) of the Credit Agreement, the letter of credit fee rate and the
commitment fee rate shall automatically be adjusted in accordance with the
Adjusted Interest Coverage Ratio for the 12-month period immediately
preceding the fiscal quarter for which the determination is being made as
set forth in such Compliance Certificate and the table set forth above,
such adjustment to be retroactive to the first day of the fiscal quarter
during which such Compliance Certificate is delivered; provided that any
payment made with respect to a Letter of Credit on other than a Quarterly
Payment Date shall not be adjusted. For purposes of the Quarterly Payment
Date that is the last Business Day of February, at least 15 days prior to
such Quarterly Payment Date, the Company shall deliver to the Agent a good
faith estimate of the Adjusted Interest Coverage Ratio for the 12-month
period ending on the last day of the Company's fourth fiscal quarter, which
estimate shall be used to determine the letter of credit fee rate and the
commitment fee rate. Upon delivery of the Compliance Certificate for such
period, appropriate adjustment of the letter of credit fee rate, the
commitment fee rate and amounts paid shall be made. If the Company fails
to deliver a Compliance Certificate which sets forth the information
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<PAGE>
necessary to determine the Adjusted Interest Coverage Ratio during any
fiscal quarter, the letter of credit fee rate during the fiscal quarter for
which such Compliance Certificate was not delivered shall automatically be
adjusted to 2.25% per annum and the commitment fee rate during such fiscal
quarter shall automatically be adjusted to 0.50% per annum. In the event
that the Company has not obtained a commitment letter for the New
Receivables Facility by August 15, 1995 from a financial institution which
is, and the terms and conditions of which are, satisfactory to the Required
Banks, then each of the percentages set forth above for the Letter of
Credit Fee Rate shall increase by an additional 0.25%. In the event that
the New Receivables Facility has not been executed and delivered by the
Company and the other parties thereto by September 15, 1995, each of the
percentages set forth above for the Letter of Credit Fee Rate, as such
percentages may have been adjusted by operation of the preceding sentence,
shall increase by an additional 0.25%. In the event that the Company has
refinanced its existing receivables facility with Enterprise Funding
Corporation with the proceeds of the New Receivables Facility on or prior
to September 30, 1995, commencing as of the date of such refinancing, the
rate increases provided for in the foregoing two sentences shall be
terminated and of no further force or effect."
(i) Section 5.10.A (BW-Other Corporation) of the Credit Agreement is
amended by deleting the two provisos contained in the first sentence thereof and
by substituting the following therefor: "provided that prior to the effective
date of Amendment No. 5 dated as of March 15, 1995 to this Agreement, the
Company may pay such amounts as have been disclosed in writing to the Agent as
of such effective date and thereafter the Company may pay the Centaur Settlement
Amount."
(j) Section 6.1 (Indebtedness) of the Credit Agreement is amended by:
(1) deleting subclause (y) from clause (iii) thereof in its
entirety and by substituting the following therefor: "(y)
notwithstanding the foregoing, in connection with any refinancing of
the Senior Notes, the Company may issue up to $140,000,000 principal
amount of such refinancing Indebtedness;";
(2) adding immediately after the phrase "of which" in the fourth
line of clause (vii) thereof the following: ", and any modifications,
amendments or supplements thereto,";
-5-
<PAGE>
(3) deleting the phrase "clauses (i)-(vii)" from clause (viii)
thereof and by substituting "clauses (i)-(vii) and clause (x)"
therefor;
(4) deleting the phrase "clauses (i)-(viii)" from clause (ix)
thereof and by substituting "clauses (i)-(viii) and clause (x)"
therefor and by deleting the period at the end of such clause (ix) and
by substituting "; and" therefor; and
(5) adding a new clause (x) at the end of such Section 6.1 as
follows:
"(x) Wells Fargo Alarm Services, Inc., BW-Canada Alarm (Wells
Fargo) Corporation, and their respective wholly owned
subsidiaries may become and remain liable with respect to an off-
balance sheet facility providing for the purchase of receivables,
contracts, leases and related equipment from such entities, the
terms and conditions of which facility, and any modifications,
amendments or supplements thereto, shall be satisfactory in form
and substance to the Required Banks."
(k) Section 6.2 (Liens) of the Credit Agreement is amended by:
(1) deleting the phrase "Additional Senior Indebtedness from
clause (ii) thereof and by substituting the following therefor:
"Additional Senior Indebtedness, including the holders of Indebtedness
refinancing the Senior Notes in accordance with Section 6.1(iii)," and
(2) deleting the period at the end of clause (vii) thereof and by
substituting "; and" therefor and by adding a new clause (viii) after
clause (vii) thereof as follows:
"(viii) Liens in favor of the purchaser of receivables,
contracts, leases and related equipment from Wells Fargo Alarm
Services, Inc., BW-Canada Alarm (Wells Fargo) Corporation, and
their respective subsidiaries, which Liens are filed with respect
to such receivables, contracts, leases and related equipment in
connection with the off-balance sheet facility permitted under
Section 6.1(x)."
-6-
<PAGE>
(l) Section 6.3 (Investments) of the Credit Agreement is amended by adding
the following at the end of clause (iii) thereof: "and Wells Fargo Alarm
Services, Inc. and BW-Canada Alarm (Wells Fargo) Corporation may make and own
Investments approved by the Required Banks in financing subsidiaries established
for the purpose of purchasing and selling receivables, contracts, leases and
related equipment in connection with the off-balance sheet facility permitted
pursuant to Section 6.1(x)".
(m) Section 6.6.A (Interest Coverage Ratio) of the Credit Agreement is
amended by deleting such Section in its entirety and by substituting the
following therefor:
"A. Interest Coverage Ratio. The Company will not permit the ratio
(the "Interest Coverage Ratio") of (i) Consolidated EBITDA minus the sum of
(x) Consolidated Capital Expenditures plus (y) an amount equal to Alarm
Installation Costs originated during the period for which the determination
is being made which are treated as sales-type leases and which have not
been sold in connection with the off-balance sheet facility permitted
pursuant to Section 6.1(x) hereof to (ii) Consolidated Interest Expense as
of the last day of each of the fiscal quarters shown below for the four
consecutive preceding fiscal quarters ended on such date, to be less than
the correlative ratio indicated below:
<TABLE>
<CAPTION>
Minimum Interest
"Period Coverage Ratio
------ ----------------
<S> <C>
"Fiscal year ending 1994
-----------------------
Fourth fiscal quarter 1.60:1.00
Fiscal year ending 1995
-----------------------
First fiscal quarter 1.30:1.00
Second fiscal quarter 1.30:1.00
Third fiscal quarter 1.35:1.00
Fourth fiscal quarter 1.50:1.00
Fiscal year ending 1996
-----------------------
First fiscal quarter 1.50:1.00
Second fiscal quarter 1.55:1.00
Third fiscal quarter 1.60:1.00
Fourth fiscal quarter 1.75:1.00
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Fiscal year ending 1997
-----------------------
<S> <C>
First fiscal quarter 1.75:1.00
Second fiscal quarter 1.80:1.00
Third fiscal quarter 1.85:1.00
Fourth fiscal quarter 2.00:1.00
Fiscal year ending 1998
-----------------------
First fiscal quarter 2.00:1.00
Second fiscal quarter 2.05:1.00
Third fiscal quarter 2.10:1.00
Fourth fiscal quarter 2.25:1.00
Fiscal year ending 1999
-----------------------
First fiscal quarter 2.35:1.00
Second fiscal quarter 2.50:1.00
</TABLE>
provided however that for each fiscal quarter in which a Centaur Settlement
Amount is paid by the Company and for the immediately succeeding three
fiscal quarters, in calculating Consolidated Interest Expense for each such
fiscal quarter, the Company may exclude the Centaur Interest Amount for
such Centaur Settlement Amount for each such fiscal quarter."
(n) Section 6.6.B (Leverage Ratio) of the Credit Agreement is amended by
deleting the table set forth therein for the fiscal years ending 1994 through
1999 and substituting the following therefor:
<TABLE>
<CAPTION>
Maximum
"Period Leverage Ratio
------ --------------
<S> <C>
Fiscal year ending 1994
-----------------------
Fourth fiscal quarter 3.35:1.00
Fiscal year ending 1995
-----------------------
First fiscal quarter 3.65:1.00
Second fiscal quarter 3.65:1.00
Third fiscal quarter 3.60:1.00
Fourth fiscal quarter 3.35:1.00
Fiscal year ending 1996
-----------------------
First fiscal quarter 3.35:1.00
Second fiscal quarter 3.20:1.00
Third fiscal quarter 3.00:1.00
Fourth fiscal quarter 2.90:1.00
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
Fiscal year ending 1997
-----------------------
<S> <C>
First fiscal quarter 2.90:1.00
Second fiscal quarter 2.80:1.00
Third fiscal quarter 2.65:1.00
Fourth fiscal quarter 2.50:1.00
Fiscal year ending 1998
-----------------------
First fiscal quarter 2.45:1.00
Second fiscal quarter 2.35:1.00
Third fiscal quarter 2.25:1.00
Fourth fiscal quarter 2.15:1.00
Fiscal year ending 1999
-----------------------
First fiscal quarter 2.00:1.00
Second fiscal quarter 1.80:1.00
</TABLE>
provided however that for each fiscal quarter in which a Centaur Settlement
Amount is paid by the Company and for the immediately succeeding three
fiscal quarters, in calculating the amount of Funded Debt for each such
fiscal quarter, the Company may exclude such Centaur Settlement Amount for
each such fiscal quarter."
(o) Section 6.6.C (Consolidated Net Worth) of the Credit Agreement is
amended by deleting the table set forth therein for the fiscal years ending 1994
through 1999 and substituting the following therefor:
<TABLE>
<CAPTION>
Minimum Consolidated
"Period Net Worth
------ --------------------
<S> <C>
Fiscal year ending 1994
-----------------------
Fourth fiscal quarter $ 55,000,000
Fiscal year ending 1995
-----------------------
First fiscal quarter 50,000,000
Second fiscal quarter 50,000,000
Third fiscal quarter 55,000,000
Fourth fiscal quarter 60,000,000
Fiscal year ending 1996
-----------------------
First fiscal quarter 60,000,000
Second fiscal quarter 65,000,000
Third fiscal quarter 70,000,000
Fourth fiscal quarter 85,000,000
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Fiscal year ending 1997
-----------------------
<S> <C>
First fiscal quarter 87,500,000
Second fiscal quarter 90,000,000
Third fiscal quarter 95,000,000
Fourth fiscal quarter 105,000,000
Fiscal year ending 1998
-----------------------
First fiscal quarter 110,000,000
Second fiscal quarter 120,000,000
Third fiscal quarter 125,000,000
Fourth fiscal quarter 130,000,000
Fiscal year ending 1999
-----------------------
First fiscal quarter 145,000,000
Second fiscal quarter 160,000,000
</TABLE>
provided however that in calculating Consolidated Net Worth, the Company
shall exclude the effect of any gain related to taking into Consolidated
Net Income any reserves previously established to pay Centaur Settlement
Amounts."
(p) Section 6.6.D (Consolidated EBITDA) of the Credit Agreement is amended
by deleting the table set forth therein for the fiscal years ending 1994 through
1999 and substituting the following therefor:
<TABLE>
<CAPTION>
Minimum Consolidated
"Period EBITDA
------ --------------------
<S> <C>
Fiscal year ending 1994
-----------------------
Fourth fiscal quarter $145,000,000
Fiscal year ending 1995
-----------------------
First fiscal quarter 130,000,000
Second fiscal quarter 130,000,000
Third fiscal quarter 132,500,000
Fourth fiscal quarter 140,000,000
Fiscal year ending 1996
-----------------------
First fiscal quarter 140,000,000
Second fiscal quarter 150,000,000
Third fiscal quarter 160,000,000
Fourth fiscal quarter 160,000,000
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Fiscal year ending 1997
-----------------------
<S> <C>
First fiscal quarter 162,500,000
Second fiscal quarter 165,000,000
Third fiscal quarter 167,500,000
Fourth fiscal quarter 170,000,000
Fiscal year ending 1998
-----------------------
First fiscal quarter 172,500,000
Second fiscal quarter 175,000,000
Third fiscal quarter 177,500,000
Fourth fiscal quarter 180,000,000
Fiscal year ending 1999
-----------------------
First fiscal quarter 185,000,000
Second fiscal quarter 190,000,000"
</TABLE>
(q) Section 6.6.E (Consolidated Capital Expenditures) of the Credit
Agreement is amended by:
(1) deleting the text thereof up to but not including the proviso set
forth therein and substituting the following therefor:
"E. Consolidated Capital Expenditures. The Company and its
Subsidiaries shall not permit the sum of (i) Consolidated Capital
Expenditures plus (ii) an amount equal to 75% of the Alarm
Installation Costs originated in such fiscal year which are sold in
connection with the off-balance sheet facility permitted pursuant to
Section 6.1(x) plus (iii) an amount equal to 100% of the Alarm
Installation Costs originated in such fiscal year which are treated as
sales-type leases which are not sold in connection with the off-
balance sheet facility permitted pursuant to Section 6.1(x) to exceed
in any fiscal year the amount set forth below for such fiscal year
(the "Capital Expenditure Amount"):
<TABLE>
<CAPTION>
Period Capital Expenditure Amount
------ --------------------------
<S> <C>
Fiscal year ending 1993 $70,000,000
Fiscal year ending 1994 $75,000,000
Fiscal year ending 1995 $55,000,000
Fiscal year ending 1996 $60,000,000
Fiscal year ending 1997 $60,000,000
Fiscal year ending 1998 $60,000,000
Fiscal year ending 1999 $60,000,000
</TABLE>
-11-
<PAGE>
; provided that for fiscal years commencing on and after January 1,
1996, if the Company's Adjusted Interest Coverage Ratio for such
fiscal year is greater than 2.90:1.00 as of December 31, 1995, or as
of the last day of any fiscal year thereafter, the Capital Expenditure
Amount for the immediately succeeding fiscal year, and for each fiscal
year thereafter, shall be increased to $75,000,000; and"
(2) adding the following sentence at the end of Section 6.6.E of the
Credit Agreement: "Notwithstanding the foregoing, in no event shall the
Capital Expenditure Amount for the fiscal year ending December 31, 1995, be
increased by any Unutilized Amount from the fiscal year ending December 31,
1994."
(r) Section 6.7 (Restriction on Fundamental Changes) of the Credit
Agreement is amended by deleting clause (iv) thereof in its entirety and
substituting the following therefor:
"(iv) the Company and its Consolidated Subsidiaries may acquire all or
substantially all the business, property, fixed assets of, or stock or
other evidence of beneficial ownership of, any Person engaged in businesses
substantially similar to those conducted by the Company and its
Consolidated Subsidiaries (such asset or stock acquisitions being herein
collectively referred to as "Acquisitions"); provided that the purchase
price (including all assumed liabilities) paid with respect to Acquisitions
made on or after the effective date of Amendment No. 5 dated as of March
15, 1995 hereto (A) does not exceed $25,000,000 in the aggregate for all
such Acquisitions or (B) in the event that (x) no Default or Unmatured
Default has occurred and is continuing, (y) the ratio of the Company's
Funded Debt to Consolidated EBITDA for the immediately preceding four
consecutive fiscal quarters is not greater than 2.50 to 1.00 and (z) the
Company's Adjusted Interest Coverage Ratio for the immediately preceding
four consecutive fiscal quarters is not less than 3.00 to 1.00 (in
determining compliance with clauses (y) and (z) hereof, such calculations
shall be made on a pro forma basis for the period of calculation after
giving effect to the occurrence of the Acquisition on the first day of the
relevant calculation period and after giving effect to all Indebtedness,
including any assumed liabilities, incurred in connection therewith and
calculating interest on any such Indebtedness at a fixed rate equal to the
rate (whether fixed or floating) which such Indebtedness would bear on the
date of determination), does not exceed $50,000,000 in the aggregate for
all such Acquisitions; provided however in the event that thereafter the
Company no longer meets the conditions set forth in
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<PAGE>
clauses (y) and (z), the Company shall again be required to comply with the
foregoing clause (A) of this Section 6.7(iv); provided that no Default or
Unmatured Default shall occur under this Agreement if the aggregate
Acquisitions then exceed $25,000,000 if such Acquisitions, at the time
made, were permitted under this Agreement; provided further that to the
extent that the Company pays all or a portion of the purchase price for an
Acquisition through the issuance of shares of Common Stock, the value of
the shares of such Common Stock shall be deducted from the calculation of
the purchase price payable by the Company or its Consolidated Subsidiaries
for such Acquisition for purposes of determining compliance with this
Section 6.7(iv); and provided further that any such Person so acquired that
constitutes a Material Subsidiary shall execute counterparts of the Borg-
Warner Subsidiary Guaranty and the Borg-Warner Subsidiary Pledge Agreement
as provided in Section 5.11; and"
(s) Section 6.9 (Sale or Discount of Receivables) of the Credit Agreement
is amended to read in its entirety as follows:
"SECTION 6.9. Sale or Discount of Receivables. The Company will not,
and will not permit any of its Consolidated Subsidiaries to, directly or
indirectly, sell with recourse, or discount or otherwise sell for less than
the face value thereof, notes, accounts receivable, contracts, leases or
other receivables, other than pursuant to the off-balance sheet facilities
permitted under Sections 6.1(vii) and 6.1(x)."
(t) Article VII (Defaults) of the Credit Agreement is further amended so
that clause (i)(b) of the first paragraph following Section 7.14 of the Credit
Agreement is replaced with the following: "(b) an amount equal to the maximum
amount that may at any time be drawn under all Letters of Credit then
outstanding (whether or not any beneficiary under any Letter of Credit shall
have presented or be entitled to present, the drafts and other documents
required to draw under such Letter of Credit and including the amount of any
automatic increases in Stated Amounts of Automatically Increasing Letters of
Credit which have not yet occurred)".
(u) Annex I (Defined Terms) to the Credit Agreement is amended so that the
following definitions of "Alarm Installation Costs", "Automatically Increasing
Letter of Credit", "Centaur Interest Amount", "Centaur Settlement Amount", and
"New Receivables Facility" are inserted in the appropriate alphabetical
positions, and the definitions of "BW-Other
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<PAGE>
Corporation", "Contingent Liability", "Extension Date" and "LC Outstandings" are
restated to read in their entirety as follows:
""Alarm Installation Costs" means the costs allocated to a subscriber
installation in connection with the original installation of an alarm
system, including without limitation all charges for materials and for the
labor associated with such installation."
""Automatically Increasing Letter of Credit" means a Letter of Credit
which provides for automatic increase or increases in the Stated Amount of
such Letter of Credit."
""BW-Other Corporation" means the direct and indirect subsidiaries of
BW-Other Corporation, a Delaware corporation, prior to its liquidation into
the Company, including without limitation Borg-Warner Equities Corporation,
Borg-Warner Equities Corporation of California, Borg-Warner Equities
Corporation of Monterey, Inc., NAL II, Ltd., Borg-Warner Insurance Holding
Corporation and Centaur Insurance Company."
""Centaur Interest Amount" means, for each period for which the
determination is being made and for each Centaur Settlement Amount for
which such calculation is being made, an amount equal to the interest
expense attributable to such Centaur Settlement Amount for such period,
commencing from the date of payment of such Centaur Settlement Amount for
the first such period, which amount shall be calculated by utilizing the
"Prime Rate" (as defined in the BT Credit Agreement) then in effect for
loans under the BT Credit Agreement (without reference to the "Prime Rate
Margin" as defined therein)."
""Centaur Settlement Amount" means all amounts paid or contributed by
the Company to Centaur Insurance Company ("Centaur") or directly or
indirectly paid by the Company on behalf of Centaur, in each case on or
after the effective date of Amendment No. 5 dated as of March 15, 1995 to
this Agreement for the purpose of settling litigation pending against
Centaur or against the Company but relating to Centaur or of paying the
costs and expenses associated with such litigation, provided that the
aggregate amount of all such payments does not exceed the amount disclosed
in writing by the Company to the Agent and approved by the Agent as of the
effective date of Amendment No. 5 dated as of March 15, 1995 to this
Agreement."
""Contingent Liability" means the undrawn outstanding portion of the
Stated Amount of a Letter of Credit and, in the case of an Automatically
Increasing Letter of Credit,
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<PAGE>
any automatic increases in such Stated Amount provided for in such Letter
of Credit which have not yet occurred."
""Extension Date" means September 30, 1995 and March 15 of each
subsequent year, beginning with March 15, 1996."
""LC Outstandings" means, on any date, the sum of (i) the maximum
aggregate liability of the Issuers under outstanding Letters of Credit
(determined as if all automatic increases provided for in Automatically
Increasing Letters of Credit have occurred whether or not they have), and
(ii) the aggregate amount of drawings under Letters of Credit for which the
Issuers and the Banks have not been reimbursed by the Company on that
date."
""New Receivables Facility" means an off-balance sheet receivables
financing facility in the amount of not less than $100,000,000, the terms
and conditions of which are satisfactory to the Required Banks, which
facility shall be provided by a financial institution satisfactory to the
Required Banks, to replace the Company's existing off-balance sheet
receivables financing facility with Enterprise Funding Corporation."
(v) The definition of "Asset Sale" contained in Annex I (Defined Terms) to
the Credit Agreement is amended by deleting clause (B) therefrom in its entirety
and replacing it with the following: "(B) the sale or discount of notes,
accounts receivable, contracts, leases or other receivables to the extent sold
or discounted in connection with the off-balance sheet facilities permitted by
Section 6.1(vii) and (x) and, in the case of the off-balance sheet facility
permitted by Section 6.1(x), the sale of related equipment."
(w) Exhibit E (Form of Compliance Certificate) to the Credit Agreement is
amended to read in its entirety in the form of Annex A hereto.
SECTION 3. CONSENTS.
(a) Each Bank executing this Amendment hereby consents to the amendment of
the Company Pledge Agreement by a First Amendment to Pledge Agreement
substantially in the form annexed hereto as Annex B and each such Bank hereby
authorizes the Collateral Agent, upon request of the Company and on such Bank's
behalf, to execute and deliver such First Amendment to Pledge Agreement.
(b) Each Bank executing this Amendment hereby consents to the amendment of
the Intercreditor Agreement by a First Amendment to Intercreditor Agreement
substantially in the form annexed
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<PAGE>
hereto as Annex C and each such Bank hereby authorizes the Collateral Agent,
upon request of the Company and on such Bank's behalf, to execute and deliver
such First Amendment to Intercreditor Agreement.
SECTION 4. CONDITIONS TO EFFECTIVENESS
Section 2 of this Amendment shall become effective as of the date hereof
only upon the satisfaction of all of the following conditions precedent (upon
such satisfaction, the "Amendment Effective Date") prior to March 24, 1995:
(a) On or before the Amendment Effective Date, the Company shall deliver to
the Banks (or to the Agent with sufficient originally executed copies, where
appropriate, for each Bank and its counsel) the following, each, unless
otherwise noted, dated the Amendment Effective Date:
(1) Resolutions of its board of directors authorizing and approving
the execution, delivery and performance of this Amendment and of the Credit
Agreement as amended by this Amendment, certified as of the Amendment
Effective Date by its secretary or assistant secretary as being in full
force and effect without modification or amendment;
(2) Signature and incumbency certificates of its officers executing
this Amendment;
(3) Executed copies of this Amendment;
(4) An opinion of counsel to the Company as to the Amendment in form
and substance satisfactory to the Agent and the Banks; and
(5) A letter from a responsible officer of the Company with respect to
past and anticipated Centaur Settlement Amounts which letter shall have
been approved by the Agent.
(b) On or before the Amendment Effective Date, each of the Borg-Warner
Guarantor Subsidiaries shall deliver to the Banks (or to the Agent with
sufficient originally executed copies, where appropriate, for each Bank and its
counsel) the following, each, unless otherwise noted, dated the Amendment
Effective Date:
(i) Signature and incumbency certificates of its officers executing
this Amendment; and
(ii) Executed copies of this Amendment.
(c) On or before the Amendment Effective Date, each Bank executing this
Amendment shall have received an amendment fee in
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the amount equal to such Bank's Commitment multiplied by 0.30% and the Agent
shall have received an Agent's amendment fee in an amount previously agreed to
by the Company and the Agent.
(d) On or before the Amendment Effective Date, the Required Banks shall
have delivered to the Agent originally executed copies of this Amendment.
(e) On or before the Amendment Effective Date, corresponding consents and
amendments shall have been made to the BT Credit Agreement and such BT Credit
Agreement, as so amended, shall have become effective.
(f) On or before the Amendment Effective Date, all corporate and other
proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by the Agent, acting on behalf of the Banks, and its counsel shall be
satisfactory in form and substance to the Agent and such counsel, and the Agent
and such counsel shall have received all such counterpart originals or certified
copies of such documents as the Agent may reasonably request.
SECTION 5. COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and the Banks to enter into this Amendment and
to amend the Credit Agreement in the manner provided herein, the Company
represents and warrants to the Agent and each Bank that the following statements
are true, correct and complete:
(a) Corporate Power and Authority. The Company 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.
(c) No Conflict. The execution and delivery by the Company of this
Amendment and the performance by the Company 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
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<PAGE>
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 Credit Documents in favor of Collateral Agent on behalf
of the Banks), 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 of
this Amendment and the performance by the Company 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.
(e) Binding Obligation. This Amendment and the Amended Agreement have been
duly executed and delivered by the Company and are the legally valid and binding
obligations of the Company, enforceable against the Company 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 Fifth Amendment Effective Date to the same extent as through 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 a Default.
SECTION 6. MISCELLANEOUS
(a) Reference to and Effect on the Credit Agreement and the other Credit
--------------------------------------------------------------------
Documents.
---------
(1) 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 Credit Documents to the "Credit Agreement",
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<PAGE>
"thereunder", "thereof" or words of like import referring to the Credit
Agreement shall mean and be a reference to the Amended Agreement.
(2) Except as specifically amended by this Amendment, the Credit
Agreement and the other Credit Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(3) 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 Bank under, the Credit Agreement or any of the other Credit
Documents.
(b) Fees and Expenses. The Company acknowledges that all costs, fees and
expenses as described in Section 9.9 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) Counterparts. 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.
(e) Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
SECTION 7. ACKNOWLEDGEMENT AND CONSENT
Each of the Borg-Warner Guarantor Subsidiaries is a party to the Borg-
Warner Subsidiary Guaranty, as amended, pursuant to which each such Borg-Warner
Guarantor Subsidiary has guarantied the Obligations. The Borg-Warner Guarantor
Subsidiaries are collectively referred to herein as the "Credit Support Parties"
and the Borg-Warner Subsidiary Guaranty is referred to herein as the "Credit
Support Documents".
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<PAGE>
Each Credit Support Party hereby acknowledges that it has reviewed the
terms and provisions of this Amendment and consents to the terms hereof. Each
Credit Support Party hereby confirms that each Credit Support Document to which
it is a party or otherwise bound and all Collateral encumbered thereby will
continue to guaranty or secure, as the case may be, to the fullest extent
possible the payment and performance of all "Obligations", "Guarantied
Obligations" and "Secured Obligations", as the case may be (in each case as such
terms are defined in the applicable Credit Support Document), including without
limitation the payment and performance of all such "Obligations", "Guarantied
Obligations" or "Secured Obligations", as the case may be, in respect of the
Obligations of the Company now or hereafter existing under or in respect of the
Credit Agreement.
Each Credit Support Party acknowledges and agrees that any of the
Credit Support Documents to which it is 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 Credit Support Party represents and
warrants that all representations and warranties contained in the Credit
Agreement and the Credit Support Documents to which it is a party or otherwise
bound are true, correct and complete in all material respects on and as of the
date hereof 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.
Each Credit Support Party acknowledges and agrees that (i) such Credit
Support Party is not required by the terms of the Credit Agreement or any other
Credit Document to consent to the amendments of the Credit Agreement effected
pursuant to this Amendment and (ii) nothing in the Credit Agreement, this
Amendment or any other Credit Document shall be deemed to require the consent of
such Credit Support Party to any future amendments to the Credit Agreement.
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<PAGE>
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.
BORG-WARNER SECURITY CORPORATION
By:_____________________________
Title:__________________________
WELLS FARGO ALARM SERVICES, INC.
(for purposes of Section 7 only)
as a Credit Support Party
By:_____________________________
Title:__________________________
WELLS FARGO ARMORED SERVICE
CORPORATION
(for purposes of Section 7 only)
as a Credit Support Party
By:_____________________________
Title:__________________________
BW-CANADIAN GUARD CORPORATION
(for purposes of Section 7 only)
as a Credit Support Party
By:_____________________________
Title:__________________________
BORG-WARNER PROTECTIVE SERVICES
CORPORATION
(for purposes of Section 7 only)
as a Credit Support Party
By:_____________________________
Title:__________________________
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<PAGE>
PONY EXPRESS COURIER CORP.
(for purposes of Section 7 only)
as a Credit Support Party
By:_____________________________
Title:__________________________
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., individually as
a Bank and as Agent
By:_____________________________
Title:__________________________
CAISSE NATIONALE DE CREDIT AGRICOLE
By:_____________________________
Title:__________________________
THE SUMITOMO BANK LIMITED, CHICAGO BRANCH
By:_____________________________
Title:__________________________
U.S. NATIONAL BANK OF OREGON
By:_____________________________
Title:__________________________
BANK OF HAWAII
By:_____________________________
Title:__________________________
THE FUJI BANK, LIMITED
By:_____________________________
Title:__________________________
S-2
<PAGE>
BANK OF NEW YORK
By:_____________________________
Title:__________________________
THE TORONTO-DOMINION BANK
By:_____________________________
Title:__________________________
S-3
<PAGE>
EXHIBIT 10.9
BORG-WARNER RETIREMENT SAVINGS PLAN
(EFFECTIVE AS OF JUNE 1, 1988 AND FURTHER AMENDED AND RESTATED
EFFECTIVE AS OF APRIL 1, 1994 AND JANUARY 1, 1995)
ARTICLE 1. ESTABLISHMENT, TITLE, PURPOSE, INTENT AND EFFECTIVE DATE OF PLAN
--------- ----------------------------------------------------------------
Section 1.01 Establishment, Effective Date and Title of Plan. The Borg-
Warner Retirement Savings Plan (the "Plan") was established for the benefit of
certain employees of the Borg-Warner Security Corporation (the "Corporation")
and its divisions, subsidiaries and affiliates, effective as of June 1, 1988 and
further amended and restated effective as of April 1, 1994 and January 1, 1995.
Section 1.02 Purpose of Plan. The purpose of the Plan is to provide
retirement benefits and a method of long-term savings for Eligible Employees.
Section 1.03 Intent of Plan. The Corporation intends that the Plan, as
the same may be amended from time to time, shall constitute a qualified plan
under the provisions of Section 401(a) and related or successor provisions of
the Code and shall be in full compliance with ERISA. The Corporation intends
that the Plan shall continue to be maintained by it for the above purposes
indefinitely, subject to the rights reserved to the Corporation to amend and
terminate the Plan as set forth below.
ARTICLE 2. DEFINITIONS
--------- -----------
The terms set forth in this Article 2, when used in the Plan, shall have
the following meanings, unless the context clearly requires a different meaning.
Section 2.01 Actual Contribution Percentage. The term "Actual
Contribution Percentage" means a percentage calculated for purposes of Section
6.04 for (a) the group of Eligible Employees who are Highly Compensated
Employees or (b) the group of all other Eligible Employees. For each group
being tested, the Actual Contribution Percentage shall be the average of the
following percentages, which shall be calculated separately for each member of
the group: the sum of the Company Matching Contributions under Section 4.02 and
the After-Tax Contributions under Section 5.04 on behalf of each group member,
divided
<PAGE>
by the Compensation of each group member. For purposes of meeting the test
under Section 6.04, the Employee Benefits Committee may elect for each Plan Year
to include the Before-Tax Contributions for each Participant in the numerator of
each corresponding percentage under this Section 2.01. In addition, a
Participant's similarly calculated actual contribution percentage under any
other Section 401(k) plan of the Company under certain circumstances shall be
included in determining the Actual Contribution Percentage and, under other
circumstances, may at the discretion of the Employee Benefits Committee be
included in determining the Actual Contribution Percentage.
Section 2.02 Actual Deferral Percentage. The term "Actual Deferral
Percentage" means a percentage calculated for purposes of Section 5.10 for (a)
the group of Eligible Employees who are Highly Compensated Employees or (b) the
group of all other Eligible Employees. For each group being tested, the Actual
Deferral Percentage shall be the average of the following percentages, which
shall be calculated separately for each member of the group: the sum of the
Before-Tax Contributions under Sections 5.01 and 5.02 on behalf of each group
member, divided by the Compensation of each group member. A Participant's
actual deferral percentage under any other Section 401(k) plan of the Company
under certain circumstances shall be included in determining the Actual Deferral
Percentage and, under other circumstances, may at the discretion of the Employee
Benefits Committee be included in determining the Actual Deferral Percentage.
Section 2.03 Administrative Services Provider. The term "Administrative
Services Provider" means the person or entity appointed by the Employee Benefits
Committee to provide administrative services to the Plan.
Section 2.04 After-Tax Contributions. The term "After-Tax Contributions"
means the contributions made by a Participant pursuant to Section 5.04. After-
Tax Contributions are not intended to qualify as salary reduction contributions
under Section 401(k) of the Code.
Section 2.05 Authorized Leave of Absence. The term "Authorized Leave of
Absence" means any absence of an Employee on account of time during which no
duties are performed due to vacation, holiday, illness, incapacity, layoff of
less than one year, jury duty, military duty or other leave of absence
authorized by the Company under its applicable personnel practices, administered
in a uniform and nondiscriminatory manner. During an Authorized Leave of
Absence, an Employee shall be given credit for service, provided that he retires
or returns to employment with the Company within the period specified in the
Authorized Leave of Absence.
Section 2.06 Before-Tax Contributions. The term "Before-Tax
Contributions" means the contributions made by a Participant pursuant to
Sections 5.01 and 5.02. Before-Tax Contributions are intended to qualify as
salary reduction contributions under Section 401(k) of the Code.
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Section 2.07 Beneficiary. The term "Beneficiary" means the person,
persons or trust designated under Section 3.04 or Section 11.02, as applicable,
to receive a benefit under the Plan after the death of a Participant.
Section 2.08 Board of Directors. The term "Board of Directors" means the
Board of Directors of Borg-Warner Security Corporation as constituted from time
to time.
Section 2.09 Code. The term "Code" means the Internal Revenue Code of
1986, as amended from time to time.
Section 2.10 Company. The term "Company" means, individually, the
Corporation and the Corporation's divisions, subsidiaries and affiliates which
are participating in the Plan. Divisions of the Corporation shall participate
in the Plan as determined from time to time by the Employee Benefits Committee.
Subsidiaries and affiliates of the Corporation shall participate in the Plan by
taking appropriate corporate action with the consent of the Employee Benefits
Committee.
Section 2.11 Company Matching Contributions. The term "Company Matching
Contributions" means those contributions made by the Company on behalf of
Participants pursuant to Section 4.02.
Section 2.12 Company Retirement Account. The term "Company Retirement
Account" means the account maintained for each Participant showing the aggregate
of the Company Retirement Contributions made on such Participant's behalf
pursuant to Section 4.01 and certain amounts transferred to the Plan pursuant to
Section 7.01, after adjustment for earnings, changes in market valuation,
Forfeitures or distributions, if any. The Vested Portion of a Participant's
Company Retirement Account shall be determined pursuant to Section 2.49.
Section 2.13 Company Retirement Contributions. The term "Company
Retirement Contributions" means those contributions made by the Company on
behalf of Participants pursuant to Section 4.01.
Section 2.14 Compensation. The term "Compensation" means direct
compensation in the form of salary or wages paid to a Participant by the Company
during a Plan Year, including overtime pay, commissions and bonuses, but
excluding reimbursement for education or relocation expenses, severance or
transitional income pay, and other taxable fringe benefits. Other than for
purposes of Sections 6.02 and 19.02, Compensation shall also include Before-Tax
Contributions made by the Company on behalf of a Participant. Effective as of
January 1, 1994, Compensation shall be limited for all Plan purposes to $150,000
of Compensation per Participant, as adjusted by the Secretary of the Treasury
pursuant to Section 401(a)(17) of the Code.
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<PAGE>
For purposes of determining the Actual Contribution Percentage and Actual
Deferral Percentage the term "Compensation" shall have a meaning permitted under
Section 414(s) of the Code and the regulations thereunder, with any such
definitions to be consistently applied for each testing year.
For purposes of Section 2.25, the term "Compensation" shall have the
meaning set forth in Section 414(q)(7) of the Code.
Section 2.15 Corporation. The term "Corporation" means Borg-Warner
Security Corporation, a Delaware corporation, and any successor thereto which
continues the Plan as provided in Section 18.01.
Section 2.16 Effective Date. The term "Effective Date" means June 1,
1988. The Plan was amended and restated effective as of April 1, 1994 and
January 1, 1995.
Section 2.17 Eligible Employee. The term "Eligible Employee" means an
Employee who has completed a Six-Month Period of Service.
Section 2.18 Employee. The term "Employee" means (a) any resident of the
United States who is a common law employee of the Company or (b) any citizen of
the United States who is a common law employee of the Company or a foreign
subsidiary of the Company which subsidiary has entered into an agreement with
the Company under Section 3121(l) of the Code which is in effect, and as to whom
no contributions under a funded plan of deferred compensation are being made by
the Company or any other entity. Notwithstanding the foregoing, an employee who
elected to remain a participant in the Borg-Warner Corporation Retirement Plan
effective as of June 1, 1988 shall be deemed to be an Employee for purposes of
this Section 2.18. If approved by the Employee Benefits Committee, the term
Employee may include a non-U.S. citizen who is employed by the Company outside
of the United States. The term "Employee" also means any leased employee who
performs services for the Company, to the extent required by Section 414(n) or
Section 414(o) of the Code. Any employer contributions to a tax-qualified
retirement plan provided on behalf of such leased employee by the leasing
organization for services provided to the Company shall for all purposes of the
Plan be treated as contributions by the Company.
Effective as of January 1, 1995, the term "Employee" shall exclude all
Highly Compensated Employees or employees who are expected to meet the
definition of a Highly Compensated Employee pursuant to Section 2.25.
The term "Employee" also excludes non-U.S. citizens who are temporarily
transferred to the Company, all agents, consultants and independent contractors,
and any Highly Compensated Employee who has an employment agreement with the
Company and who is provided retirement benefits by the Company, its subsidiaries
or affiliates under any other
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<PAGE>
plan or program. Further, an employee who is employed within a collective
bargaining unit recognized as such by the Company shall not become or remain a
Participant who is eligible to receive any Company Retirement Contribution or
Company Matching Contribution under Article 4 or to make any Before-Tax
Contribution or After-Tax Contribution under Article 5 unless and until mutually
satisfactory agreements have been reached with the union bargaining agent for
coverage of the employees in the bargaining unit represented by the union under
the terms of the Plan, together with such other waivers as the Company may deem
necessary in light of local contractual situations.
Section 2.19 Employee Benefits Committee. The term "Employee Benefits
Committee" means the committee appointed by the Board of Directors to administer
all retirement plans maintained by the Corporation and any division, subsidiary
or affiliate of the Corporation.
Section 2.20 Employee Retirement Account. The term "Employee Retirement
Account" means the account maintained for each Participant showing the aggregate
of the Before-Tax Contributions made on such Participant's behalf pursuant to
Section 5.01 and the Company Matching Contributions made on such Participant's
behalf pursuant to Section 4.02, after adjustment for earnings, changes in
market valuation, Forfeitures or distributions, if any. A Participant shall at
all times have a fully vested nonforfeitable interest in the balance in his
Employee Retirement Account attributable to Before-Tax Contributions. The
Vested Portion of the balance in a Participant's Employee Retirement Account
attributable to Company Matching Contributions shall be determined pursuant to
Section 2.49.
Section 2.21 Employment Commencement Date. The term "Employment
Commencement Date" means the date on which an Employee first performs an Hour of
Service for the Company.
Section 2.22 ERISA. The term "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended from time to time.
Section 2.23 Fiduciaries. The term "Fiduciaries" means the Board of
Directors, the Employee Benefits Committee, the RSP Committee, the Plan
Administrator and the Trustee, but only with respect to the specific
responsibilities of each for Plan or Trust administration, as described and
allocated in Article 15.
Section 2.24 Forfeiture. The term "Forfeiture" means the Unvested Portion
of a Participant's Company Retirement Account and the Unvested Portion of the
balance in a Participant's Employee Retirement Account attributable to Company
Matching Contributions, which will be forfeited by a Participant upon
termination of employment as provided in Section 11.03. Each Forfeiture shall
be applied solely to reduce the amount of Company Retirement Contributions and
Company Matching Contributions otherwise payable by the
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Company. No part of any Forfeiture may be applied to increase the benefits any
Participant otherwise would receive under the Plan.
Section 2.25 Highly Compensated Employee. The term "Highly Compensated
Employee" means each Employee of the Company (for purposes of this Section 2.25
"Company" shall mean Borg-Warner Security Corporation and its divisions,
subsidiaries and affiliates) who, during the Plan Year under consideration (the
"current Plan Year") or the preceding Plan Year:
(a) was at any time a more-than-five-percent (5%) owner of the Company;
(b) received Compensation from the Company in excess of $99,000, as
adjusted by the Secretary of the Treasury pursuant to Section
414(q)(l) of the Code for years beginning after 1994;
(c) received Compensation from the Company in excess of $66,000, as
adjusted by the Secretary of the Treasury pursuant to Section
414(q)(1) of the Code for years beginning after 1994, and was in the
top twenty percent (20%) of Employees (in terms of Compensation
received) for that Plan Year; or
(d) was at any time an officer and received Compensation greater than
fifty percent (50%) of the amount in effect under Section 415(b)(1)(A)
of the Code for that Plan Year.
An Employee who is not described in subsection 2.25(b), (c) or (d) above
for the year preceding the current Plan Year shall not be treated as being
described in subsection 2.25(b), (c) or (d) for the current Plan Year unless the
Employee is one of the 100 Employees paid the greatest Compensation during the
current Plan Year.
For purposes of subsection 2.25(c), the term "Employees" shall not include
any Employees who are excludeable under Section 414(q)(8) of the Code.
For purposes of subsection 2.25(d), no more than 50 Employees (or, if less,
the greater of three Employees or ten percent (10%) of Employees) shall be
treated as officers. However, if all officers of the Company have less
Compensation than the threshold amount stated in subsection 2.25(d) for a
particular Plan Year, the officer with the highest Compensation for such year
shall be treated as described in subsection 2.25(d).
Family members (i.e., an Employee's spouse and lineal ascendants or
descendants, and the spouses of such lineal ascendants or descendants) of a
more-than-five-percent (5%) owner or of a Highly Compensated Employee included
in the group consisting of the ten most Highly Compensated Employees during the
Plan Year shall not be treated as separate
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Employees, and any Compensation paid to such family members shall be treated as
if it were paid to such more-than-five-percent (5%) owner or Highly Compensated
Employee.
A former Employee shall be treated as a Highly Compensated Employee if such
individual was a Highly Compensated Employee when he separated from service or
if such individual was a Highly Compensated Employee at any time after attaining
age 55.
Section 2.26 Hour of Service. The term "Hour of Service" means each hour
for which an Employee is directly or indirectly paid or entitled to payment by
the Company for the performance of services.
Section 2.27 Investment Funds or Funds. The term "Investment Funds" or
"Funds" means, as the context requires, any one or all of the funds provided for
in Article 9.
Section 2.28 Limitation Year. The term "Limitation Year" means, with
respect to the restrictions in Sections 6.02 and 6.03, the Plan Year.
Section 2.29 Local Plan Administrator. The term "Local Plan
Administrator" means the person appointed by the Plan Administrator to
administer the Plan on behalf of a specific division, subsidiary or affiliate of
the Corporation.
Section 2.30 Normal Retirement Date. The term "Normal Retirement Date"
means the last day of the calendar month coincident with or immediately
following the day on which a Participant attains age 65.
Section 2.31 One-Year Period of Severance. The term "One-Year Period of
Severance" means the 12-month period beginning on a Participant's Severance from
Service Date and each successive 12-month period during which the Participant
does not perform an Hour of Service.
Section 2.32 Payroll Period. The term "Payroll Period" means the period
for which the Participant is directly or indirectly paid or entitled to payment
by the Company for the performance of services.
Section 2.33 Participant. The term "Participant" means any Eligible
Employee or former Eligible Employee for whom an RSP Account is maintained under
the Plan.
Section 2.34 Permanent Disability. The term "Permanent Disability" means
the permanent and total incapacity of a Participant to perform the duties of his
employment with the Company by reason of physical or mental impairment, as
determined by the Plan Administrator based upon the written opinion of a
licensed physician approved by it. The Plan Administrator, acting upon the
written advice of such physician, shall determine the date
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<PAGE>
on which the Permanent Disability shall be deemed to exist. Subject to the
provisions of Section 15.11, the final decision of the Plan Administrator with
respect to Permanent Disability shall be conclusive for all purposes of the Plan
and Trust.
Section 2.35 Plan. The term "Plan" means the Borg-Warner Retirement
Savings Plan, as set forth herein and as from time to time amended and in
effect.
Section 2.36 Plan Administrator. The term "Plan Administrator" means the
person or persons appointed to administer the Plan pursuant to Section 15.03.
Section 2.37 Plan Year. The term "Plan Year" means the administrative
year of the Plan and Trust, which is maintained on a January 1 through December
31 basis.
Section 2.38 Reemployment Commencement Date. The term "Reemployment
Commencement Date" means the date on which an Employee first performs an Hour of
Service for the Company after a One-Year Period of Severance.
Section 2.39 Related Employer. The term "Related Employer" means (i) any
trade or business under common control (as defined in Sections 414(b) and (c) of
the Code) with the Company, (ii) members of a controlled group of corporations
(as defined in Section 1563(a) of the Code, applied without regard to Sections
1563(a)(4) and 1563(e)(3)(C) of the Code) of which the Company is also a member,
(iii) any member of an affiliated service group (as defined in Section 414(m) of
the Code) of which the Company is also a member, and/or (iv) any entity required
to be aggregated with the Company pursuant to Section 414(o) of the Code.
Section 2.40 RSP Account. The term "RSP Account" means the Company
Retirement Account, the Employee Retirement Account and/or the Savings Account
maintained for a Participant, as the context requires.
Section 2.41 RSP Committee. The term "RSP Committee" means the
committee, as constituted from time to time, which is appointed to administer
the Plan pursuant to Article 15.
Section 2.42 Savings Account. The term "Savings Account" means the
account maintained for each Participant showing the aggregate of the Before-Tax
Contributions made on such Participant's behalf pursuant to Section 5.02, the
After-Tax Contributions made by the Participant pursuant to Section 5.04 and
certain amounts transferred to the Plan pursuant to Section 7.01, after
adjustment for earnings, changes in market valuation or distributions, if any.
A Participant shall at all times have a fully vested and nonforfeitable interest
in his Savings Account.
-8-
<PAGE>
Section 2.43 Severance from Service Date. The term "Severance from
Service Date" means the date on which an Employee's employment with the Company
is severed, which shall occur on the earlier of: (a) the date on which the
Employee quits, is discharged, retires or dies, or (b) the first day next
following a one-year period during which the Employee remains absent from
employment for any reason other than those specified in (a) above; provided,
however, that if the Employee is on an Authorized Leave of Absence at the end of
such one-year period, his Severance from Service Date shall occur on the
expiration date of such Authorized Leave of Absence unless he returns to active
employment with the Company prior to that date. If an Employee is on an
Authorized Leave of Absence due to a layoff, the Plan Administrator may approve
a Severance from Service Date which shall be the last day worked by the
Employee. Notwithstanding the foregoing, a Severance from Service Date shall
not be deemed to have occurred until the second anniversary of the first day of
an absence from work due to (w) the pregnancy of the Employee, (x) the birth of
a child of the Employee, (y) the placement of a child in connection with the
adoption of the child by the Employee, or (z) the caring for the child by the
Employee during the period immediately following the child's birth or placement
for adoption.
Section 2.44 Six-Month Period of Service. The term "Six-Month Period of
Service" means the period beginning on an Employee's Employment Commencement
Date and ending on the date as of which the Employee completes six consecutive
months of employment with the Company.
Section 2.45 Trust. The term "Trust" means the trust or trusts
established pursuant to Section 14.01.
Section 2.46 Trustee. The term "Trustee" means the trustee or trustees
appointed by the Employee Benefits Committee pursuant to Section 14.02, and any
successor trustee or trustees.
Section 2.47 Unvested Portion. The term "Unvested Portion" means (i) that
portion of the balance in a Participant's Company Retirement Account not
attributable to amounts transferred pursuant to Section 7.01 which is not the
Vested Portion, and (ii) that portion of the balance in a Participant's Employee
Retirement Account attributable to Company Matching Contributions which is not
the Vested Portion.
Section 2.48 Valuation Date. The term "Valuation Date" means a date as of
which each Investment Fund is valued and the RSP Accounts adjusted as provided
in Article 10. Valuation Dates shall be each business day (any day on which the
New York Stock Exchange is open for trading and on which the principal office of
the Administrative Services Provider is open) during the Plan Year.
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<PAGE>
Section 2.49 Vested Portion. The term "Vested Portion" means (a) that
portion of the balance in a Participant's Company Retirement Account, not
attributable to amounts transferred pursuant to Section 7.01, which results from
the application of the following schedule, and (b) that portion of the balance
in a Participant's Employee Retirement Account attributable to Company Matching
Contributions which results from the application of the following schedule:
Years of Vested Service Vested Portion
----------------------- --------------
Less than Five 0%
Five or more 100%
provided, however, that the balance in a Participant's Company Retirement
Account, not attributable to amounts transferred pursuant to Section 7.01, and
the balance in a Participant's Employee Retirement Account attributable to
Company Matching Contributions shall become fully vested and nonforfeitable on
the date on which the Participant suffers a Permanent Disability, the date on
which he attains age 65, provided he is employed by the Company on that date, or
the date of his death, provided he is employed by the Company on that date,
whichever occurs first.
A Participant shall at all times have a fully vested and nonforfeitable
interest in the balance in his Employee Retirement Account attributable to his
Before-Tax Contributions and his Savings Account.
Section 2.50 Year of Vested Service. The term "Year of Vested Service"
means each 12-month period of employment with the Company or with Borg-Warner
Automotive, Inc. or its subsidiaries, divisions and/or affiliates. An Employee
shall be credited with Years of Vested Service based on the time elapsed between
the Employee's Employment Commencement Date and his Severance from Service Date.
However, if an Employee, who is absent from service with the Company, is rehired
before incurring a One-Year Period of Severance, the Employee's period of
absence from service shall be included in his Years of Vested Service. Further,
any period during which an Employee is on an Authorized Leave of Absence or is
employed with a Related Employer shall be included in determining an Employee's
Years of Vested Service.
ARTICLE 3. PARTICIPATION
--------- -------------
Section 3.01 Commencement of Participation. Effective as of April 1,
1994, an Eligible Employee shall become a Participant in the Plan on the first
day of the first Payroll Period immediately following the date the Employee
first satisfies the eligibility requirements
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<PAGE>
of Section 2.17 or as soon as practicable thereafter. Such Eligible Employee,
upon becoming a Participant in the Plan, must submit the appropriate form to the
Local Plan Administrator.
Section 3.02 Participation After One-Year Period of Severance. If a
Participant's employment is terminated for any reason and he subsequently is
reemployed by the Company after incurring a One-Year Period of Severance, he
shall be eligible to become a Participant again on his Reemployment Commencement
Date, provided his prior Years of Vested Service are not disregarded under
subsection 11.05(c). The participation of any Employee whose prior Years of
Vested Service are disregarded under subsection 11.05(c) and who is so
reemployed shall commence when he satisfies the requirements of Section 3.01
after his Reemployment Commencement Date.
Section 3.03 Participation Upon Return From Authorized Leave of Absence.
A Participant on an Authorized Leave of Absence shall resume participation in
the Plan as of the first day of the first Payroll Period immediately following
the date such Participant returns to active employment with the Company or as
soon as practicable thereafter.
Section 3.04 Designation of Beneficiary. A Participant, by written
instrument executed and delivered to the Local Plan Administrator during his
lifetime, shall designate a Beneficiary to whom distribution shall be made in
the event of his death prior to the full receipt of his interest under the Plan.
The designation may be in favor of one or more Beneficiaries, may include
contingent as well as primary designations and named or unnamed trustees under
any will or trust agreement, may apportion the benefits payable in any manner
among the Beneficiaries and shall include the full name and post office address
of each Beneficiary; provided, however, that a married Participant's primary
Beneficiary shall at all times while the Participant is married be his current
spouse only (unless the spouse consents in writing, properly notarized or
witnessed by the Local Plan Administrator, to the Participant naming someone
other than the spouse as a primary Beneficiary and the consent acknowledges the
financial effect of the waiver and further acknowledges the nonspouse
beneficiary(ies), class of beneficiaries or contingent beneficiary(ies) and the
specific form of payment, if any, chosen by the Participant).
Any designation pursuant to this Section 3.04 may be changed or revoked by
the Participant at any time and from time to time by similar instrument in
writing delivered to the Local Plan Administrator on a form provided by the Plan
Administrator. The designation form received and acknowledged most recently by
the Local Plan Administrator shall control as of any date. Subject to the
provisions of Section 12.01, a Beneficiary with rights under the Plan, which
will or may survive such Beneficiary's death, may designate a Beneficiary of
those rights in the same manner and subject to the same limitations applicable
to a Participant, except that the spousal consent requirement shall not apply.
Distribution of any benefits with respect to which a Participant (or a
Beneficiary so entitled) fails effectively to designate a Beneficiary or
successor Beneficiary shall be made as provided in Section 11.02.
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<PAGE>
If concurrent Beneficiaries are named without specifying the proportion of
benefits due to each, distribution shall be made in equal shares to those
Beneficiaries. Any distribution other than to the estate of the person entitled
to make the designation shall not be subject to the claims of creditors of that
person.
Section 3.05 Transfer from and to a Tax-Qualified Defined-Benefit Pension
------------ ------------------------------------------------------------
Plan of the Company.
-------------------
(a) If a participant in a tax-qualified defined-benefit pension plan to
which the Company contributes becomes a Participant eligible to
receive a Company Retirement Contribution pursuant to Section 4.01,
then such Participant shall not accrue any benefit under such tax-
qualified defined-benefit pension plan for service with respect to
which he is eligible to receive a Company Retirement Contribution.
(b) If a Participant ceases to be eligible to receive a Company Retirement
Contribution pursuant to Section 4.01 and participates in any tax
qualified defined-benefit pension plan, the provisions of which would
grant the Participant credit for service for the period during which
he was eligible to receive a Company Retirement Contribution, the
Participant may upon retirement elect under the tax-qualified defined-
benefit pension plan to (i) receive his vested accrued benefit under
the terms of the tax-qualified defined-benefit pension plan and
forfeit the Vested Portion of his Company Retirement Account or (ii)
receive his vested accrued benefit under the tax-qualified defined-
benefit pension plan, reduced by the actuarially equivalent benefit
amount of the Vested Portion of the balance in his Company Retirement
Account (as determined by an actuary selected by the Plan
Administrator), and receive the Vested Portion of the balance in his
Company Retirement Account.
(c) If a Participant transfers the present value of his accrued benefit
under a tax-qualified defined-benefit pension plan maintained by the
Company to the Plan pursuant to Section 7.01 and subsequently ceases
to be an Eligible Employee and participates in a tax-qualified defined
benefit pension plan maintained by the Company, then for purposes of
subsection 3.05(b), such Participant's Company Retirement Account
shall include the amount transferred pursuant to Section 7.01.
Section 3.06 Transfer from Borg-Warner Automotive, Inc. Effective as of
January 27, 1993, if an Employee is transferred to the Corporation from Borg-
Warner Automotive, Inc. or its subsidiaries, divisions or affiliates, ("BWA")
such Employee shall be eligible to participate in the Plan effective as of the
first day of the first Payroll Period immediately following the date the
Employee first satisfies the eligibility requirements of Section 2.17 or
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<PAGE>
as soon as practicable thereafter. If such Employee has already met the
eligibility requirements under Section 2.17, they shall be eligible immediately.
Years of Service with BWA shall be counted as Years of Service for purposes of
Sections 2.17, 2.40 and 4.01.
ARTICLE 4. COMPANY CONTRIBUTIONS
--------- ---------------------
Section 4.01 Amount of Company Retirement Contribution. For each Payroll
Period, subject to the provisions of Sections 6.01, 6.02 and 6.03, the Company
shall make a Company Retirement Contribution to the Participant's Company
Retirement Account which is established by the Trustee on behalf of each
Participant who is an Eligible Employee at any time during such Payroll Period;
provided, however, that no Company Retirement Contribution shall be made to the
Participant's Company Retirement Account on behalf of a Participant who elected
on or before May 16, 1988 to continue participation in the Borg-Warner
Corporation Retirement Plan. Effective as of January 27, 1993, all Years of
Vested Service the Employee accrued with Borg-Warner Automotive, Inc. or its
subsidiaries, divisions and/or affiliates shall be counted for purposes of
calculating the Company Retirement Contribution to the Participant's Company
Retirement Account. The amount of such Company Retirement Contribution shall be
computed on the following basis:
(a) The Company shall make a Company Retirement Contribution to the
Trustee on behalf of each Participant as follows:
<TABLE>
<CAPTION>
Years of Vested % of Compensation under % of Compensation over
Service as of January 1 Social Security Wage Base Social Security Wage Base
----------------------- ------------------------- -------------------------
<S> <C> <C>
Less than or equal to 10 4% 8%
Greater than 10, but less 5% 10%
than or equal to 20
Greater than 20 6% 11.5%
-----------------------------------------------------------------------------------
</TABLE>
(b) The Company shall make an additional Company Retirement Contributions
to the Trustee on behalf of each Participant who (i) participated in a
qualified benefit plan of the Borg-Warner Corporation, subsidiaries,
divisions and affiliates as of May 31, 1988, and (ii) attained age 45
as of December 31, 1988, as follows:
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<PAGE>
<TABLE>
<CAPTION>
Attained Age as of December 31, 1988 Additional Company Retirement Contribution
-------------------------------------- ------------------------------------------
<S> <C>
At least 45 but less than 50 1% of Compensation
Greater than or equal to 50 2% of Compensation
----------------------------------------------------------------------------------
</TABLE>
Section 4.02 Amount of Company Matching Contribution. For each Payroll
Period, subject to the provisions of Sections 6.01, 6.02, 6.03 and 6.04, the
Company shall make a Company Matching Contribution to the Participant's Employee
Retirement Account which is established by the Trustee on behalf of each
Participant who is an Eligible Employee at any time during such Payroll Period,
provided such Participant makes a Before-Tax Contribution to his Employee
Retirement Account during such Payroll Period. The Company Matching
Contribution shall be an amount equal to the Participant's Before-Tax
Contribution which he made to his Employee Retirement Account pursuant to
Section 5.01 during such Payroll Period.
ARTICLE 5. PARTICIPANT CONTRIBUTIONS
--------- -------------------------
Section 5.01 Authorization of Before-Tax Contributions to Employee
Retirement Account. At the time an Eligible Employee becomes a Participant, he
may file an initial written election with the Local Plan Administrator
authorizing the Company to make deductions, for each Payroll Period, from his
Compensation for deposit with the Trustee in the Participant's Employee
Retirement Account in an amount not less than one percent (1%) nor more than
three percent (3%) of his Compensation for such Payroll Period, in whole
multiples of one percent (1%), which shall be characterized as Before-Tax
Contributions. Amounts contributed pursuant to this Section 5.01 shall be
eligible for Company Matching Contributions as described in Section 4.02.
Section 5.02 Authorization of Before-Tax Contributions to Savings Account.
At the time an Eligible Employee becomes a Participant, he may file an initial
written election with the Local Plan Administrator authorizing the Company to
make deductions, for each Payroll Period, from his Compensation for deposit with
the Trustee in the Participant's Savings Account in an amount not less than one
percent (1%) nor more than ten percent (10%) of his Compensation for such
Payroll Period, in whole multiples of one percent (1%), which shall be
characterized as Before-Tax Contributions. Amounts contributed pursuant to this
Section 5.02 shall not be eligible for Company Matching Contributions as
described in Section 4.02.
Section 5.03 Yearly Limitations on Before-Tax Contributions. No
Participant shall be permitted to have Before-Tax Contributions made under the
Plan during any calendar year in excess of $9,240 (reduced by the Participant's
elective deferrals for such year under any other salary reduction arrangement
under Section 401(k) or 403(b) of the Code), adjusted by
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<PAGE>
the cost-of-living factor prescribed by the Secretary of the Treasury pursuant
to Section 402(g)(5) of the Code for years beginning after 1994. Any Before-Tax
Contributions made by the Company on behalf of a Participant in excess of the
$9,240 limit, as adjusted for any calendar year, shall be returned to the
Participant (with earnings attributable thereto) no later than the April 15
following the close of the calendar year to which such excess relates.
Section 5.04 Authorization of After-Tax Contributions to Savings Account.
At the time an Eligible Employee becomes a Participant, he may file an initial
written election with the Local Plan Administrator authorizing the Company to
make deductions, for each Payroll Period, from his Compensation for deposit with
the Trustee in the Participant's Savings Account in an amount not less than one
percent (1%) nor more than ten percent (10%) of his Compensation for such
Payroll Period, in whole multiples of one percent (1%), which shall be
characterized as After-Tax Contributions, provided, however, that the amount the
Eligible Employee may contribute shall be reduced by the percentage amount
contributed by the Eligible Employee pursuant to Section 5.02.
Section 5.05 Deduction of Before-Tax Contributions and After-Tax
Contributions. The Company shall deduct the Participant's Before-Tax
Contributions and After-Tax Contributions from his Compensation and shall
transmit the sums so deducted to the Trustee for investment as provided in
Article 9. Such transmittal shall be made as soon as practicable after the
Administrative Services Provider confirms the information provided by the
Company.
Section 5.06 Change in Rate of Before-Tax Contributions and After-Tax
Contributions. Within the limitations provided in Sections 5.01, 5.02 and 5.04,
a Participant may change the rate of his Before-Tax Contributions and/or After-
Tax Contributions as of the first day of the Payroll Period next following the
completion of the processing of the request.
Section 5.07 Suspension of Before-Tax Contributions and After-Tax
Contributions. A Participant may elect to suspend his Before-Tax Contributions
and/or After-Tax Contributions as of the first day of the Payroll Period next
following the completion of the processing of the request.
Section 5.08 Resumption of Before-Tax Contributions and After-Tax
Contributions. A Participant may elect to resume his Before-Tax Contributions
and/or After-Tax Contributions as of the first day of the Payroll Period next
following the completion of the processing of the request.
Section 5.09 Limitation on Before-Tax Contributions and After-Tax
Contributions to Savings Account. Notwithstanding the foregoing, the aggregate
of a Participant's Before-Tax Contributions to his Savings Account pursuant to
Section 5.02 and his After-Tax Contributions pursuant to Section 5.04 shall not
exceed ten percent (10%) of his Compensation.
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<PAGE>
Section 5.10 Limitation on Amount of Before-Tax Contributions. The
Employee Benefits Committee shall decrease the Before-Tax Contributions made by
certain Participants and shall return the Before-Tax Contributions made by
certain Participants (and income allocable thereto) to the extent necessary to
meet either of the following tests for any Plan Year:
(a) The Actual Deferral Percentage of Eligible Employees who are Highly
Compensated Employees is not more than 1.25 times the Actual Deferral
Percentage of all other Eligible Employees; or
(b) The excess of the Actual Deferral Percentage of Eligible Employees who
are Highly Compensated Employees over the Actual Deferral Percentage
of all other Eligible Employees is not more than two percentage points
and the Actual Deferral Percentage of Eligible Employees who are
Highly Compensated Employees is not more than two times the Actual
Deferral Percentage of all other Eligible Employees.
If neither test (a) or (b) is satisfied for the Plan Year, the Actual
Deferral Percentage of the Highly Compensated Employee(s) with the highest
Actual Deferral Percentage must be reduced to the next highest Actual Deferral
Percentage of any Highly Compensated Employee(s) or, if it would involve less of
a reduction, to the highest Actual Deferral Percentage which allows the Plan to
satisfy test (a) or (b). This reduction must be repeated as many times (for
Highly Compensated Employees with successively lower Actual Deferral
Percentages) as necessary to satisfy test (a) or (b).
Once the permitted Actual Deferral Percentages of Highly Compensated
Employees are determined under the preceding paragraph, the Employee Benefits
Committee shall stop or decrease future Before-Tax Contributions by Highly
Compensated Employees for the rest of the Plan Year, or it may, instead of or in
addition thereto, take the following steps with respect to Before-Tax
Contributions or Company Matching Contributions made for a Highly Compensated
Employee:
(x) First, Before-Tax Contributions to the Participant's Savings Account
and earnings on those contributions shall be returned to him;
(y) Second, Before-Tax Contributions to the Participant's Employee
Retirement Account and earnings on those contributions shall be
returned to him; and
(z) Third, Company Matching Contributions to the Participant's Employee
Retirement Account shall be forfeited.
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<PAGE>
The earnings to be returned under (x) or (y) shall be calculated on a
uniform basis under Reg. (S)1.401(k)-1(f)(4). All returns of contributions and
earnings (including gap earnings) under (x) or (y) shall be made within 2-1/2
months after the end of the Plan Year.
ARTICLE 6. LIMITATIONS ON CONTRIBUTIONS TO THE PLAN
--------- ----------------------------------------
Section 6.01 Limitation on Amount of Company Retirement Contributions and
Company Matching Contributions. Company Retirement Contributions and Company
Matching Contributions made by any party to the Plan which, along with the
Company, is a member of an affiliated group within the meaning of Code Section
1504 (for purposes of this Section 6.01, a "Member") shall be made only on
behalf of Participants who are Eligible Employees of the contributing Member,
and Company Retirement Contributions and Company Matching Contributions shall be
made only from current or accumulated earnings or profits of such Member.
If any Member is prevented from making a contribution which it otherwise
would have made by reason of having no current or accumulated earnings or
profits, or because such earnings or profits are less than the contribution
which it otherwise would have made, then so much of the contribution which such
Member was so prevented from making may be made for the benefit of the
Participants who are Eligible Employees of such Member by any of the other
Members to the extent of each such other Member's current or accumulated
earnings or profits. If the Members do not file a consolidated federal income
tax return, such contribution by each such other Member shall be limited to that
portion of its total current and accumulated earnings or profits remaining after
adjustment for its contributions on behalf of Participants who are its own
Eligible Employees which the total prevented contribution bears to the total
current and accumulated earnings or profits of all such other Members remaining
after adjustment for all contributions on behalf of Participants who are their
own Eligible Employees.
The Corporation may waive the earnings and profits limitation under this
Section 6.01 for any Plan Year. The amount of contributions made by any Member
for a Plan Year shall not exceed the amount deemed to be deductible in computing
the taxable income of such Member (taking into account all contributions under
all of such Member's tax-qualified plans and all privileges and limitations of
carryovers and carryforwards and established by law) for the purpose of
computing taxes on or measured by income under the provisions of the Code and/or
any other laws in effect from time to time.
A contribution which was made by a Member upon a mistake of fact, or
conditioned upon initial qualification of the Plan or upon the deductibility of
the contribution under Section 404 of the Code (all contributions to this Plan
shall be made conditioned on the deductibility of such contributions) shall,
upon a contributing Member's request, be returned
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<PAGE>
to such Member within one year after the payment of the mistaken contribution,
the denial of qualification or the disallowance of the deduction (to the extent
disallowed), which is applicable.
Section 6.02 Maximum Annual Additions to RSP Account. Notwithstanding any
other provision of the Plan, the "total additions" to a Participant's RSP
Account for any Limitation Year shall not exceed an amount equal to the lesser
of:
(a) $30,000 adjusted for each Limitation Year to take into account any
cost-of-living increase provided for that Limitation Year under
Section 415(d) of the Code; or
(b) Twenty-five percent (25%) of the Compensation paid to the Participant
by the Company in the Limitation Year.
For purposes of this Section 6.02 and Section 6.03, the term "total additions"
shall mean, with respect to each Participant for each Limitation Year, the
aggregate of the Company Retirement Contributions, Company Matching
Contributions, Before-Tax Contributions and After-Tax Contributions allocated to
his RSP Account.
If any Participant's total additions exceed the applicable maximum
limitation set forth above, contributions shall be returned to the Participant
or the contributing Company to the extent necessary and in the following
priority:
(v) First, After-Tax Contributions to the Participant's Savings Account
and earnings on those contributions shall be returned to him;
(w) Second, Before-Tax Contributions to the Participant's Savings Account
shall be placed in a suspense account and reallocated to the
Participant's Savings Account in the following year and any earnings
on these Before-Tax Contributions shall be forfeited;
(x) Third, Before-Tax Contributions to the Participant's Employee
Retirement Account shall be placed in a suspense account and
reallocated to the Participant's Employee Retirement Account in the
following year and any earnings on these Before-Tax Contributions
shall be forfeited;
(y) Fourth, Company Matching Contributions to the Participant's Employee
Retirement Account shall be forfeited; and
(z) Fifth, Company Retirement Contributions to the Participant's Company
Retirement Account shall be forfeited.
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<PAGE>
Section 6.03 Participation in More Than One Plan of Company. In the event
that the total additions which otherwise would be credited to a Participant's
account under all tax-qualified defined-contribution plans of the Company for
any Limitation Year exceed the limitations set forth in Section 6.02, the excess
total additions shall be returned to the Participant or the contributing Company
to the extent necessary and in the priority established under subsections
6.02(v), (w), (x), (y) and (z).
In the event a Participant is also a participant in one or more tax-
qualified defined-benefit pension plans of the Company, the sum of such
Participant's defined-benefit plan fraction and defined-contribution plan
fraction, as determined pursuant to Section 415(e) of the Code for any
Limitation Year, shall not exceed 1.0. If the sum of a Participant's defined-
contribution plan and defined-benefit plan fractions otherwise would exceed 1.0
for any Limitation Year, then the total additions which otherwise would be
credited to his accounts under all applicable defined-contribution plans shall
be adjusted pursuant to Section 6.02 and this Section 6.03 to the extent
necessary so that the sum of such fractions does not exceed 1.0. If, after all
such adjustments, the sum of a Participant's defined-contribution plan and
defined-benefit plan fractions would still exceed 1.0, then the benefit which
otherwise would be accrued with respect to such Participant under any applicable
tax-qualified defined-benefit pension plan shall be considered not to have been
accrued and will be limited to the extent necessary so that the sum does not
exceed 1.0.
Section 6.04 Limitation on Amount of Company Matching Contributions and
After-Tax Contributions. For each Plan Year, the Employee Benefits Committee
shall determine whether Company Matching Contributions and After-Tax
Contributions for that Plan Year meet either of the following tests:
(a) The Actual Contribution Percentage of Eligible Employees who are
Highly Compensated Employees is not more than 1.25 times the Actual
Contribution Percentage of all other Eligible Employees; or
(b) The excess of the Actual Contribution Percentage of Eligible Employees
who are Highly Compensated Employees over the Actual Contribution
Percentage of all other Eligible Employees is not more than two
percentage points and the Actual Contribution Percentage of Eligible
Employees who are Highly Compensated Employees is not more than two
times the Actual Contribution Percentage of all other Eligible
Employees.
If neither test (a) or (b) is satisfied for the Plan Year, the Actual
Contribution Percentage of the Highly Compensated Employee(s) with the highest
Actual Contribution Percentage must be reduced to the next highest Actual
Contribution Percentage of any Highly Compensated Employee(s) or, if it would
involve less of a reduction, to the highest Actual Contribution Percentage which
allows the Plan to satisfy test (a) or (b). This reduction must
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<PAGE>
be repeated as many times (for Highly Compensated Employees with successively
lower Actual Contribution Percentages) as necessary to satisfy test (a) or (b).
Once the permitted Actual Contribution Percentages of Highly Compensated
Employees are determined under the preceding paragraph, the Employee Benefits
Committee shall stop or decrease future After-Tax Contributions by Highly
Compensated Employees for the rest of the Plan Year, or it may, instead of or in
addition thereto, return to the Highly Compensated Employee his After-Tax
Contributions to his Savings Account and earnings on those contributions, and
forfeit his Company Matching Contributions to the extent necessary to satisfy
either test (a) or (b).
The earnings to be returned shall be calculated on a uniform basis under
Reg. (S)1.401(m)-1(e)(3). All returns of contributions and earnings (including
gap earnings) shall be made within 2-1/2 months after the end of the Plan Year.
Section 6.05 Limit on Multiple Use of Alternate Limitations. If, for any
Plan Year, the Employee Benefits Committee relies on Sections 5.10(b) and
6.04(b) to pass the relevant limitations in those Sections, the "Relevant
Percentage" must be calculated with respect to Highly Compensated Employees.
For any Plan Year, the Relevant Percentage is the greater of (a) or (b),
calculated as follows:
(a) 1.25 times the greater of the Actual Contribution Percentage or Actual
Deferral Percentage for all Eligible Employees who are not Highly
Compensated Employees, plus the lesser of the Actual Contribution
Percentage or Actual Deferral Percentage for Eligible Employees either
increased by 2% or doubled, whichever is less;
(b) 1.25 times the lesser of the Actual Contribution Percentage or Actual
Deferral Percentage for all Eligible Employees who are not Highly
Compensated Employees, plus the greater of the Actual Contribution
Percentage or Actual Deferral Percentage for Eligible Employees who
are not Highly Compensated Employees either increased by 2% or
doubled, whichever is less.
If the sum of the Actual Contribution Percentage and Actual Deferral
Percentage for all Eligible Employees who are Highly Compensated Employees
exceeds the Relevant Percentage, the Employee Benefits Committee may make
reductions in After-Tax Contributions as described in Section 6.04, Before-Tax
Contributions as described in Section 5.10 or Company Matching Contributions as
described in Section 6.04 until the sum of the Actual Contribution Percentage
and Actual Deferral Percentage for Eligible Employees who are Highly Compensated
Employees no longer exceeds the Relevant Percentage. The
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reductions described in the previous sentence may be made either for all Highly
Compensated Employees or only for all Highly Compensated Employees who make both
Before-Tax Contributions and After-Tax Contributions.
ARTICLE 7. TRANSFER OF AMOUNTS TO/FROM OTHER QUALIFIED PLANS
--------- -------------------------------------------------
Section 7.01 Receipt of Portable Accounts. The RSP Committee may approve
the transfer to the Plan of all or a portion of the assets and liabilities of
any other plan of deferred compensation qualified under Section 401(a) of the
Code; provided, however, that the RSP Committee shall not accept a transfer of
any amount which would cause the Plan to be deemed a "transferee plan" within
the meaning of Section 401(a)(11)(B)(iii) of the Code. Transfers to the Plan
pursuant to this Section 7.01 shall be in the form of a direct trustee-to-
Trustee transfer. Notwithstanding the foregoing, the RSP Committee shall not
accept a transfer of any after-tax contributions. The amounts transferred
pursuant to this Section 7.01 from any tax-qualified defined-benefit pension
plan maintained by the Company shall be credited to the Participant's Company
Retirement Account. In all other cases, any amounts transferred pursuant to
this Section 7.01 shall be credited to the Participant's Savings Account. The
interest of each Participant in that portion of his Company Retirement Account
attributable to amounts transferred pursuant to this Section 7.01, if any, shall
be fully vested and nonforfeitable at all times. In no event shall the Trustee
receive accounts if such receipt or the subsequent administration of such
accounts might subject the Trust assets to tax liability deriving from an
Employee's terminated participation in any other tax-qualified plan.
ARTICLE 8. RSP ACCOUNTS
--------- ------------
Section 8.01 Establishment of RSP Accounts and Statement of Account
Balances. The Trustee shall establish and maintain for each Participant an RSP
Account, which shall consist of a Company Retirement Account, an Employee
Retirement Account and a Savings Account, if applicable. Each RSP Account shall
be invested as provided in Article 9. The Plan Administrator shall provide each
Participant with a statement of the balance in his Company Retirement Account,
Employee Retirement Account and Savings Account not less frequently than once
every Plan Year.
Section 8.02 Nonforfeitability of Certain Accounts. The interest of each
Participant in the balance in his Company Retirement Account attributable to
amounts transferred pursuant to Section 7.01, if any, the balance in his
Employee Retirement Account attributable to Before-Tax Contributions and the
entire balance in his Savings Account shall at all times be fully vested and
nonforfeitable.
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ARTICLE 9. INVESTMENT FUNDS
--------- ----------------
Section 9.01 Establishment of Funds. The Employee Benefits Committee
shall cause the Trustee to establish the following Investment Funds effective as
of April 1, 1994 and such Funds as the Employee Benefits Committee shall
determine in its discretion from time to time. The Employee Benefit's Committee
may in its discretion discontinue the availability of any of the Investment
Funds established under the Plan from time to time.
(a) Investment Contracts Fund
-------------------------
The Investment Contracts Fund (the "IC Fund") seeks to preserve
capital and provide income through investments in investment contracts
with either highly rated insurance companies, major banks or a fund or
funds that invest in investment contracts of insurance companies or
major banks. The IC Fund also invests in short-term investments which
provide liquidity for meeting regular benefit payments, transfers and
other payments. The investment contracts provide that the insurance
company or bank will pay the IC Fund the amount invested plus interest
for a specified period of time.
(b) Putnam U.S. Government Income Trust
-----------------------------------
The Putnam U.S. Government Income Trust seeks a high level of current
income consistent with capital preservation by investing exclusively
in securities backed by the full faith and credit of the United States
government and in repurchase agreements and forward commitments with
respect to such securities.
(c) The George Putnam Fund of Boston
--------------------------------
The George Putnam Fund of Boston seeks to provide a balanced
investment composed of a well-diversified portfolio of stocks and
bonds. It is designed to produce both capital growth and current
income.
(d) The Putnam S&P 500 Index Fund
-----------------------------
The Putnam S&P 500 Index Fund is a collective investment trust that
will invest primarily in publicly traded common stocks either directly
or through collective investment trusts having a similar investment
objective. In addition, for liquidity and hedging purposes, a small
portion of the fund's assets will be invested in high-quality money
market instruments and financial futures contracts. This fund seeks
to mirror the performance of the Standard & Poor's 500 Index.
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(e) Putnam Voyager Fund
-------------------
The Putnam Voyager Fund seeks capital appreciation, primarily from a
portfolio of common stocks. The fund generally invests a significant
portion of its assets in the securities of smaller and newer issuers.
The fund may use "leverage" -- that is, it may borrow money to
purchase additional portfolio securities. The fund may also trade
securities for short-term profits.
Section 9.02 Investment in Funds. Each of the Investment Funds shall be
invested without distinction between principal and income within the investment
directive for that Fund. Pending payment of costs, expenses or anticipated
benefits, or acquisition of investments, the Trustee may hold any portion of the
Investment Funds in obligations issued or fully guaranteed as to payment of
principal or interest by the Federal government or governmental agencies, short-
term demand notes, certificates of deposit, commercial paper, collective trust
funds that invest in short-term investments or any other interest-paying short-
term investment product or in cash, and may deposit any uninvested funds with
any bank selected by the Trustee.
Section 9.03 Investment of RSP Accounts. Each Participant shall have the
right to file an initial written election with the Local Plan Administrator
directing that Company Retirement Contributions, Company Matching Contributions,
Before-Tax Contributions and After-Tax Contributions to his Company Retirement
Account, Employee Retirement Account and Savings Account be invested in
specified multiples of five percent (5%) up to one hundred percent (100%)
thereof, in any one or more of the Investment Funds. A Participant's initial
investment election shall be made by submitting the required form to the Local
Plan Administrator. In the absence of an effective election, one hundred
percent (100%) of the Company Retirement Contributions in a Participant's
Company Retirement Account shall be invested in The George Putnam Fund of
Boston.
Section 9.04 Transfer of RSP Accounts From the Former Investment Funds
(Stock Fund, Bond Fund, Spectrum Fund and Investment Contracts Fund) to the
Investment Funds Pursuant to Section 9.01 of the Plan. Each Participant who had
a balance in their Company Retirement Account, Employee Retirement Account
and/or Savings Account as of March 31, 1994 shall have the right to file a
written election with the Local Plan Administrator directing the value of his
Company Retirement Account, Employee Retirement Account and Savings Account be
invested in any one or more of the Investment Funds established under Section
9.01. Such election shall be effective and such assets shall be transferred
from the former investment funds (the Stock Fund, Bond Fund, Spectrum Fund and
Investment Contracts Fund) to the Investment Funds under Section 9.01 following
the final accounting of the records by the Administrative Services Provider.
If the Participant does not make a written election, the assets in his
Company Retirement Account, Employee Retirement Account and Savings Account that
were invested
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in the Investment Contracts Fund prior to the date of transfer shall be
transferred to the IC Fund, the amount in the Bond Fund shall be invested in the
Putnam U.S. Government Income Trust, the amount in the Spectrum Fund shall be
invested in The George Putnam Fund of Boston, and the amount in the Stock Fund
shall be invested 50% in the Putnam S&P 500 Index Fund and 50% in the Putnam
Voyager Fund.
Section 9.05 Change in Participant's Investment Election of Future
Contributions. Each Participant may elect to change the investment of future
Company Retirement Contributions, Employee Retirement Contributions, Before-Tax
Contributions, and After-Tax Contributions to his Company Retirement Account,
Employee Retirement Account and Savings Account in any multiple of five percent
(5%) of such contributions up to one hundred percent (100%) thereof by
contacting the Administrative Services Provider.
After the Participant's request to change has been processed, future
Company Retirement Contributions, Employee Retirement Contributions, Before-Tax
Contributions, and After-Tax Contributions made to the Participant's Company
Retirement Account, Employee Retirement Account and Savings Account will be
invested, according to the Participant's investment election.
Section 9.06 Change in Participant's Investment Election on the Balance of
the Participant's Account. Each Participant may elect to change the investment
(transfer from one Investment Fund to another) of the balance of the Company
Retirement Contributions, Company Matching Contributions, Before-Tax
Contributions and After-Tax Contributions made to his Company Retirement
Account, Employee Retirement Account and Savings Account in any multiple of five
percent (5%) of such contributions up to one hundred percent (100%) thereof by
contacting the Administrative Services Provider.
A Participant can make transfers among the Investment Funds (move a
percentage of money from one Investment Fund to another) as of the close of
business on any business day, if the request is received by the Administrative
Services Provider by 4:00 p.m. Eastern time. If any request for a transfer is
received after 4:00 p.m. Eastern time, it will be treated as being received the
next business day.
Section 9.07 Limitation of Liability of Fiduciaries. The Fiduciaries
shall not be responsible for any loss, depreciation or diminution in value of
Trust assets invested in accordance with the direction of a Participant. The
Plan is intended to constitute a plan described in Section 404(c) of ERISA, and
Department of Labor Regulation 2550.404(c)-1.
To the extent of such compliance, the Fiduciaries of the Plan may be
relieved of liability with respect to the Participant-directed investments. The
RSP Committee is the Fiduciary responsible for overseeing investments under the
Plan, but has delegated the daily administrative responsibility for implementing
Participant investment instructions to the
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Administrative Services Provider. Also, the Administrative Services Provider is
responsible for providing the following detailed information about the
Investment Funds when requested by a Participant:
- copies of any prospectuses and/or brochures for any Investment Fund;
- copies of any other financial statements and reports provided to the
Pan about an Investment Fund;
- a description of the annual operating expenses of any Investment Fund
and the aggregate annual expenses expressed as a percentage of average
net assets;
- information about the past and current value of shares or units
available in the Investment Funds; and
- the current share or unit value of a Participant's RSP Account.
The RSP Committee has established procedures to protect the confidentiality
of information relating to Participant investments in all the Investment Funds.
Information about any Participant exercise of voting, tender and similar rights
is also subject to these confidentiality procedures. Investment information and
voting instructions from Participants shall not be divulged to anyone, including
the Company or any director, officer, employee or agent of the Company. The
intent is to insure that the Company (and its directors, officers, employees,
agents) cannot determine the instructions given by any Participant. The RSP
Committee is the Fiduciary responsible for insuring that these confidentiality
procedures are followed.
ARTICLE 10. VALUATIONS AND ADJUSTMENTS OF ACCOUNTS
---------- --------------------------------------
Section 10.01 Method of Valuation of RSP Accounts. Notwithstanding any
other provision of the Plan, to the extent that Participants' RSP Accounts are
invested in mutual funds or other assets for which daily pricing is available,
all amounts contributed to the Trust will be invested at the time of their
actual receipt by the Administrative Services Provider and the balance of each
Participant's RSP Account shall reflect the results of such daily pricing from
the time of the actual receipt until the time of distribution. References
elsewhere in the Plan to the investment of contributions "as of" a date other
than that described in this Section 10.01 shall apply only to the extent, if
any, that assets of the Trust are not invested in an asset for which daily
pricing is available.
Section 10.02 Forfeitures. As of the last Valuation Date of each month,
Forfeitures that arose during such month shall be applied to reduce the total
amount the Company
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otherwise is required to contribute pursuant to Sections 4.01 and 4.02 as of the
Valuation Date or subsequent Valuation Date. Any amount applied to reduce a
Company contribution for any Valuation Date in accordance with this Section
10.02 shall be considered a part of the Company's contribution for such Payroll
Period.
Section 10.03 Date of Adjustments. Every adjustment made pursuant to
Section 10.01 and 10.02 shall be considered as having been made on the
applicable Valuation Date. The Employee Benefits Committee's determination of
the net value of the assets of the Trust (which shall be based upon accountings
rendered by the Trustee) and charges or credits to the RSP Accounts shall be
conclusive and binding on all parties having or claiming to have any interest
hereunder.
ARTICLE 11. BENEFITS
---------- --------
Section 11.01 Upon Termination After Full Vesting Except by Reason of
Death. Each Participant whose employment with the Company is terminated on or
after (a) his 65th birthday, (b) the date on which he completes the number of
Years of Vested Service necessary for full vesting or (c) the date on which he
suffers a Permanent Disability, shall be entitled to receive a benefit, to be
distributed as provided in Article 12, equal to the balance in his RSP Account
as of the Valuation Date coinciding with the date on which distribution of
benefits commences.
Section 11.02 Upon Termination by Reason of Death. If a Participant dies,
his Beneficiary shall be entitled to receive a benefit, to be distributed as
provided in Article 12, equal to the balance in the Participant's RSP Account as
of the Valuation Date coinciding with the date on which distribution of benefits
commences. In the event there is no designated Beneficiary living at the death
of the Participant, distribution shall be made as follows:
(a) If the Participant is survived by his spouse, the surviving spouse
shall be treated as the sole designated Beneficiary.
(b) If the Participant is not survived by his spouse and a will of the
Participant is admitted to probate, then as the Participant shall have
specifically directed in such will, and if he shall have made no
specific direction, then as his will shall direct distribution of his
residuary estate.
(c) If the Participant is not survived by his spouse and the Plan
Administrator has no notice that a will of the Participant has been
admitted to probate within 180 days after his death, then to the
heirs-at-law of the Participant, said heirs-at-law and the proportions
they shall respectively be entitled to receive to be
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determined according to the laws of descent and distribution of the
state in which the Participant resided immediately before his death.
Section 11.03 Upon Termination Prior to Full Vesting. Each Participant
whose employment with the Company terminates by reason of resignation or
dismissal prior to completing the number of Years of Vested Service necessary
for full vesting shall be entitled to receive a benefit, to be distributed as
provided in Article 12, equal to the sum of the balance in his Company
Retirement Account attributable to amounts transferred pursuant to Section 7.01,
if any, the balance in his Employee Retirement Account attributable to Before-
Tax Contributions pursuant to Section 5.01 and the entire balance in his Savings
Account as of the Valuation Date, coincident with the date on which distribution
of benefits commences. The Unvested Portion of such Participant's Company
Retirement Account and Employee Retirement Account shall be forfeited pursuant
to Section 10.02.
Section 11.04 Amendment to Vesting Schedule. In the event of an amendment
to the vesting schedule in Section 2.49, each Participant with at least three
Years of Vested Service may elect to continue to have his Vested Portion
computed without regard to such amendment. Such a Participant shall make the
foregoing election no later than the last to occur of the following:
(a) The date which is 60 days after the date on which the amendment is
adopted;
(b) The date which is 60 days after the date on which the amendment
becomes effective; or
(c) The date which is 60 days after the date on which the Participant
receives written notice of the amendment.
Section 11.05 Period of Severance. A Participant's rights and benefits
under the Plan generally shall be determined in accordance with his Years of
Vested Service and the balance in his RSP Account at the time of termination of
service, subject to the following:
(a) If a Participant, who had a vested interest in that portion of the
balance in his Company Retirement Account not attributable to amounts
transferred pursuant to Section 7.01, and that portion of the balance
in his Employee Retirement Account attributable to Company Matching
Contributions when his employment terminated, is reemployed by the
Company, his Years of Vested Service prior to his termination of
employment shall be reinstated.
(b) If a Participant, who had no vested interest in that portion of the
balance in his Company Retirement Account not attributable to amounts
transferred pursuant to Section 7.01, and that portion of the balance
in his Employee Retirement
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Account attributable to Company Matching Contributions when his
employment terminated, is reemployed by the Company before incurring
five consecutive One-Year Periods of Severance, the amounts forfeited
pursuant to Section 11.03 shall be restored to his Company Retirement
Account and Employee Retirement Account as of his Reemployment
Commencement Date and his Years of Vested Service prior to that period
of severance shall be reinstated.
(c) If a Participant had no vested interest in his RSP Account, then the
Years of Vested Service prior to his separation of service will be
disregarded, but only if the number of consecutive one year breaks in
service equals or exceeds the greater of his Years of Vested Service
prior to his separation of service, or five years.
Section 11.06 Suspension of Benefits Upon Reemployment of Participant.
Subject to Sections 12.04(b) or 12.06, a Participant who is receiving
installment payments from the Plan is reemployed by the Company, his installment
payments shall be suspended as of his reemployment, subject to the following
rules:
(a) the Participant must receive a notice (by personal delivery of first-
class mail) during the first month for which his installments are
suspended, with the notice to contain the information required by
Department of Labor Reg. (S)2530.230-3(b)(4);
(b) no installment may be withheld for any month in which the Participant
is credited with less than 40 Hours of Service or receives pay for
fewer than 8 days; and
(c) with his first installment after he is again eligible to receive
benefits under this Article 11, the Participant will receive all his
suspended installments.
ARTICLE 12. DISTRIBUTION OF BENEFITS
---------- ------------------------
Section 12.01 Request for Distribution. A Participant entitled to a
benefit under the Plan may request that his benefit be distributed to him under
one or more of the alternative methods of distribution described in Section
12.02. In the event a Participant dies prior to the commencement of benefits
under the Plan, or after the commencement of benefits but before distribution of
his entire interest under the Plan, the Participant's remaining interest shall
be distributed in such manner as the Participant has elected in writing prior to
his death, or in the absence of such an election, under one or more of the
alternative methods of distribution described in Section 12.02, as the
Beneficiary shall direct. Notwithstanding the foregoing, the
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benefit payable to a Beneficiary of a Beneficiary pursuant to Section 3.04 shall
be distributed in a lump-sum payment.
Section 12.02 Methods of Distribution. Subject to the provisions of
Section 12.01, upon the termination of employment of a Participant for any
reason, distribution shall be made by one of the following methods, or
combination thereof, as the Participant or Beneficiary shall elect on a properly
completed final distribution form submitted to the Plan Administrator or to such
other person designated by the Plan Administrator, except that if the Vested
Portion in the Participant's RSP Account does not exceed $3,500, the Plan
Administrator shall require that distribution be made in one lump-sum payment
without the consent of the Participant or Beneficiary:
(a) Lump-Sum Distribution. Distribution may be made by lump-sum payment;
(b) Installment Distribution. Distribution may be made in approximately
equal installments not less frequently than annually for any definite
period which does not exceed (i) the life or life expectancy of the
Participant or (ii) the joint lives or joint life expectancy of the
Participant and his Beneficiary, whether or not the Beneficiary is his
spouse. The present value of benefits payable to the Participant
during his lifetime shall be more than fifty percent (50%) of the
present value of the total benefits payable to the Participant and his
Beneficiary, determined as of the termination of employment. Subject
to the provisions of Section 12.06, when a Participant's RSP Account
is distributable in periodic installments, it shall not thereafter be
eligible for any Company contributions pursuant to Sections 4.01 and
4.02. In the event distribution of a benefit is made, in whole or in
part, in installments pursuant to this subsection 12.02(b), the
distributee may elect in writing, on a form provided by the Plan
Administrator or by such other person designated by the Plan
Administrator, to accelerate the payment of all or any portion of any
unpaid installments; provided, however, that the distributee may not
make more than two elections to accelerate the payment of any unpaid
installments in any calendar year. The life expectancy used in this
subsection 12.02(b) shall be determined as of the Valuation Date
immediately preceding the later of the Participant's (i) retirement,
or receipt of benefit, or (ii) death, but in no event later than the
required minimum distribution date pursuant to Section 401(a)(9) of
the Code.
(c) Death Before Commencement of Benefits. If a Participant dies before
distribution pursuant to this Section 12.02 has begun, the entire
interest of the Participant's RSP Account shall be distributed within
five years after his death, with the following exceptions:
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(1) If the Participant's Beneficiary is not his surviving spouse, the
entire interest of the Participant may be distributed to the
Beneficiary over a period not exceeding the Beneficiary's life or
life expectancy, provided such payments begin within one year
after the Participant's death.
(2) If the Beneficiary is the surviving spouse, distribution to the
surviving spouse shall begin no later than the later of the date
on which the Participant would have attained age 70-1/2 or the
first anniversary of the Participant's death, and shall be made
over a period not exceeding the life or life expectancy of the
surviving spouse.
(3) If the surviving spouse dies before payments begin, the surviving
spouse shall be treated for the purpose of the rules in this
subsection 12.02(c) as the Participant. If the surviving spouse
dies after payments begin but before the entire interest is
distributed, the entire remaining interest shall be distributed
to the surviving spouse's Beneficiary over a period not exceeding
the surviving spouse's Beneficiary's life or life expectancy,
provided such payments begin within one year after the surviving
spouse's death.
(4) Notwithstanding the foregoing provisions of this subsection
12.02(c), the Beneficiary may elect in writing, on a form
provided by the Plan Administrator or such other person
designated by the Plan Administrator, to accelerate the
distribution of all or any portion of the benefits payable to
him; provided, however, that the Beneficiary may not make more
than two elections to accelerate the distribution of benefits in
any calendar year.
(d) Death After Commencement of Installment Payments. If a Participant
dies after distribution pursuant to subsection 12.02(b) has begun but
before his entire interest is distributed and such distribution is to
be for a period certain not exceeding the life or life expectancy of
the Participant or the joint lives or joint life expectancy of the
Participant and his Beneficiary, the remaining portion shall continue
to be distributed according to that schedule. Notwithstanding the
preceding sentence, the Beneficiary may elect in writing, on a form
provided by the Plan Administrator or such other person designated by
the Plan Administrator, to accelerate the payment of all or any
portion of any unpaid installments; provided, however, that the
Beneficiary may not make more than two elections to accelerate the
payment of any unpaid installments in any calendar year.
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(e) Distribution to Trust for Primary Benefit of a Spouse. In addition to
the requirements under subsections 12.02(c) and (d), if the
Participant's Beneficiary is a trust which qualifies for the Federal
estate tax marital deduction because it is held for the primary
benefit of the Participant's spouse, and if the trustee of that trust
elects to receive distributions from the Plan in installments, then
installment payments for each calendar year commencing upon the death
of the Participant shall be equal to or exceed the greater of (i) the
minimum amount necessary to satisfy the requirements under Section
401(a)(9) of the Code or (ii) the income earned by the Participant's
RSP Account.
If a Participant elects to begin distribution of his RSP Account prior to
his Normal Retirement Date pursuant to this Section 12.02, such election will be
deemed to be consent for purposes of Section 411(a)(11) of the Code.
Section 12.03 Treatment of RSP Account in Installment Distribution. In the
event distribution of a benefit is to be made in periodic installments pursuant
to subsection 12.02(b), (c), (d) or (e), each installment payment shall be
charged to each Investment Fund in the same ratio as the balance in the
Participant's RSP Account invested in that Fund bears to the total balance in
the Participant's RSP Account. The Participant (or Beneficiary, if applicable)
shall continue to have the right to change the investment of the balance in his
Company Retirement Account, Employee Retirement Account and Savings Account
among the Investment Funds pursuant to Section 9.06. The Participant's RSP
Account shall share in all adjustments pursuant to Article 10 until the entire
balance in the Participant's RSP Account is distributed.
Section 12.04 Commencement of Distribution. Subject to the provisions of
Section 12.02:
(a) After a Participant's termination of employment, distributions shall
commence as of any Valuation Date coincident with or next following
the date on which the request is received by the Plan Administrator or
such other person designated by the Plan Administrator, or as soon as
practicable thereafter.
(b) A Participant who has attained age 65 and continues to be employed by
the Company may request that all or any part of the Vested Portion in
his RSP Account be distributed to him in a lump-sum payment as of any
Valuation Date coincident with or next following the date on which
such request is received by the Plan Administrator or as soon as
practicable thereafter. Such Participant shall continue to be an
Eligible Employee for all purposes of the Plan.
Section 12.05 Deferral of Distribution. If the Participant's termination
of employment occurs prior to the date on which he attains age 70-1/2 and the
Vested Portion in his RSP Account is in excess of $3,500, the Participant, by
written notice to the Plan Administrator,
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may defer commencement of distributions, but in no event may the Participant
defer distribution beyond the April 1 of the calendar year following the
calendar year in which he attains age 70-1/2. If a Participant defers
distribution pursuant to this Section 12.05, distributions to him shall commence
as of the Valuation Date following the date to which distribution is deferred or
as soon as practicable thereafter; provided, however, that the Participant shall
request such distribution from the Plan Administrator or from such other person
designated by the Plan Administrator. Any Participant who has deferred receipt
of benefits under the Plan may elect in writing, on a form provided by the Plan
Administrator, or from such other person designated by the Plan Administrator to
accelerate the distribution of all or any portion of the vested balance in his
RSP Account; provided, however, that the Participant may not make more than two
elections to accelerate the distribution of benefits in any calendar year.
Section 12.06 Notice. If a Participant's benefit does not exceed $3,500
and if a distribution of such Participant's benefit is one to which Sections
401(a)(11) and 417 of the Internal Revenue Code do not apply, such distribution
may commence less than 30 days after the notice required under Section 1.411(a)-
11(c) of the Income Tax Regulations is given provided that:
(a) the Plan Administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or not to
elect a distribution (and, if applicable, a particular distribution
option), and
(b) the Participant, after receiving the notice, affirmatively elects a
distribution.
Section 12.07 Distribution Upon Attainment of Age 70-1/2. Distributions
to any Participant whose employment with the Company continues after he has
attained age 70-1/2 shall commence no later than the April 1 of the calendar
year following the calendar year in which he attains age 70-1/2 (or such later
date as may be permitted by law). Any distributions which are made pursuant to
this Section 12.07 shall satisfy the minimum distribution requirements of
Section 401(a)(9) of the Code. Such Participant shall continue to be an
Eligible Employee for all purposes of the Plan.
Section 12.08 Distribution to Alternate Payee Pursuant to Qualified
Domestic Relations Order. If the Plan Administrator receives a domestic
relations order and determines that such order is a qualified domestic relations
order (as described in Section 15.12), benefits payable to the alternate payee
thereunder shall be distributed in [any form permitted by the Plan (as if the
alternate payee were a Participant)] as soon as practicable following the first
Valuation Date after the Plan Administrator receives the alternate payee's
request for such distribution, which request shall be in any form requested by
the Plan Administrator. For
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purposes of this Section 12.08, the terms "alternate payee" and "qualified
domestic relations order" shall have the meanings set forth in Section 414(p) of
the Code.
Section 12.09 Direct Rollovers On or After January 1, 1993. A Distributee
on or after January 1, 1993 may elect, at the time and in the manner prescribed
by the RSP Committee, to have any portion of an Eligible Rollover Distribution
paid directly to an Eligible Retirement Plan specified by the Distributee in a
Direct Rollover. For purposes of this Section the following definitions shall
apply:
(a) Eligible Rollover Distribution: An Eligible Rollover Distribution is
any distribution of all or any portion of the Distributee's RSP
Account, except that an Eligible Rollover Distribution does not
include: (i) any distribution that is one of a series of
substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Distributee or
the joint lives (or joint life expectancies) of the Distributees and
the Distributee's joint annuitant, (ii) any distribution that is one
of a series of payments made for a specified period of ten years or
more, or (iii) any distribution to the extent such distribution is
required under Section 401(a)(9) of the Code.
(b) Eligible Retirement Plan: An Eligible Retirement Plan is an
individual retirement account described in Section 408(a) of the Code,
an individual retirement annuity described in Section 408(b) of the
Code, an annuity plan described in Section 403(a) of the Code, an
annuity plan described in Section 401(a) of the Code, or any qualified
trust described in Section 401(a) of the Code, that accepts the
Distributee's Eligible Rollover Distribution. However, in the case of
an Eligible Rollover Distribution to the surviving spouse, an Eligible
Retirement Plan is an individual retirement account or individual
retirement annuity.
(c) Distributee: The term Distributee means, where applicable, the
Participant, the Participant's surviving spouse, and the Participant's
spouse or former spouse who is an alternate payee under a Qualified
Domestic Relations Order, as defined in Section 414(p) of the Code.
(d) Direct Rollover: A Direct Rollover is a payment by the Plan to the
Eligible Retirement Plan specified by the Distributee.
Section 12.10 Loans to Participants. If a signed credit agreement is on
file with the Administrative Services Provider, any "party in interest" (as
defined in Section 3(14) of ERISA) who is either a Participant, or a Beneficiary
entitled to receive a vested benefit under the Plan as a result of the death of
a Participant, may request a loan from the Plan Administrator. The Plan
Administrator may in its discretion to grant a loan to such
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Participant or Beneficiary from the Participant's Savings Account. The loan
will be effective as of the Valuation Date on which the Participant requested a
loan and distributed as soon as reasonably practicable thereafter. Loans are
subject to specific conditions:
(a) The loan is one which is made available to all Participants and
Beneficiaries who are parties in interest on a reasonably equivalent
basis and is not made available to Participants who are Highly
Compensated Employees in an amount greater in proportion to the size
of such Participants' Savings Accounts than that available to other
Participants;
(b) Each loan shall bear a reasonable rate of interest commensurate with
the prime rate quoted in The Wall Street Journal as of the first
business day of each month plus one percentage point. The interest
rate shall apply to all loans issued during that month;
(c) The loan shall be adequately secured by assignment of a portion of the
balance in the Participant's Savings Account in an amount equal to the
principal amount of the loan, but not in excess of fifty percent (50%)
of the balance in the Participant's Savings Account determined as of
the Valuation Date on which the loan is requested;
(d) The minimum amount which may be loaned hereunder at any one time to
any Participant or Beneficiary shall be $500. The maximum amount
which may be loaned hereunder at any one time to any Participant or
Beneficiary shall not exceed the lesser of (i) $50,000 reduced by the
excess (if any) of the highest outstanding balance of all loans to the
Participant or Beneficiary from all tax-qualified plans of the Company
during the 1-year period ending on the day before the date on which
such loan is made, over the outstanding balance of all loans to the
Participant or Beneficiary from all tax-qualified plans of the Company
on the date on which such loan is made, or (ii) fifty percent (50%) of
the balance in the Participant's Savings Account determined as of the
Valuation Date on which the loan is requested;
(e) Refusal of the Plan Administrator or such other person designated by
the Plan Administrator to grant any loan shall not preclude future
applications by the same Participant or Beneficiary, and application
for or acceptance of a loan hereunder shall not of itself be construed
to constitute termination of participation in or waiver of any rights
under the Plan;
(f) All loans granted under the Plan shall be repaid, pursuant to a
written repayment schedule, by payroll deduction (or as otherwise
determined by the Plan Administrator if not paid by payroll deduction)
and shall be evidenced by
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a written promissory note payable to the Trustee. In no event shall
loans be extended for a period of less than six months or greater than
five years. In no event shall more than one loan be extended to a
Participant or Beneficiary hereunder at any one time. Principal and
interest payments by the Participant or Beneficiary shall be at least
monthly on a level amortization basis. Any Participant or Beneficiary
to whom a loan is extended pursuant to this Section 12.10 may elect to
accelerate the repayment of such loan;
(g) In the event of the failure to pay on a timely basis any amount of
either principal or interest which is due under the terms of any loan,
the Trustee, at the direction of the RSP Committee, shall declare the
loan in default and the full amount of the loan due and payable. Upon
declaration of default, the Plan Administrator shall take whatever
action may be lawful to remedy the default. Such action may include
setoff of the remaining balance of the loan against the appropriate
Participant's Savings Account, provided that setoff may not be made
prior to the first date on which any such amount could otherwise have
been distributed pursuant to Article 12. The Plan Administrator may
setoff amounts owed by the Participant or Beneficiary as described in
the preceding sentence without being in violation of Section 16.01.
No Participant or Beneficiary who has once defaulted on a loan
extended hereunder shall be granted any additional loan whatsoever.
In the event a Participant or Beneficiary to whom a loan has been
extended pursuant to this Section 12.10 ceases to be a "party in
interest," the loan shall be deemed to be in default and subject to
the provisions of this subsection 12.10(g);
(h) A separate segregated account shall be established for each
Participant or Beneficiary who is granted a loan pursuant to this
Section 12.10. The segregated account, which shall be part of the
Participant's Savings Account, shall be credited with the amount of
the loan. Segregated accounts shall not share in the dividends,
earnings, losses and gains of the Trust. Each payment of principal
and interest shall be credited to the segregated account in the
Participant's Savings Account and shall be reinvested in the
Investment Funds in the same percentages as the contributions to the
Participant's Savings Account are invested at such time or, if there
are no current contributions to the Participant's Savings Account, in
the percentages in which such contributions were invested immediately
prior to the loan. In the absence of an effective investment
election, each payment of principal and interest shall be credited to
the segregated account in the Participant's Savings Account and shall
be reinvested in The George Putnam Fund of Boston;
(i) Amounts advanced as loans under this Section 12.10 shall not be
considered distributions; and
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(j) Loan distributions shall commence following the Valuation Date in which
the Participant requested a loan or as soon as practicable thereafter.
ARTICLE 13. IN-SERVICE WITHDRAWALS
---------- ----------------------
Section 13.01 Withdrawals from Balance in the Participant's Savings
Account Attributable to After-Tax Contributions and the Company Matching
Contributions and After-Tax Contributions to the Borg-Warner Corporation
Investment Plan Transferred to the Savings Account Pursuant to Section 7.01.
Prior to the termination of his employment with the Company, a Participant may
withdraw as of any Valuation Date, subject to the limitations provided in this
Section 13.01, all or any portion of the balance in his Savings Account
attributable to his (i) After-Tax Contributions, and (ii) the company matching
contributions made on his behalf and any after-tax contributions made by him to
the Borg-Warner Corporation Investment Plan transferred to his Savings Account
pursuant to Section 7.01, by completing the applicable form setting forth the
amount he desires to withdraw to the Plan Administrator or such other person
designated by the Plan Administrator. No Participant will be required to
provide evidence of an immediate and heavy financial need to qualify for a
withdrawal pursuant to this Section 13.01. Any Before-Tax Contributions which
are treated as After-Tax Contributions under Section 2.01 shall be subject to
the withdrawal rules of Section 13.02 and not this Section 13.01.
Section 13.02 Withdrawals from Balance in the Participant's Savings
Account Attributable to Before-Tax Contributions and Amounts Transferred to the
Savings Account Pursuant to Section 7.01 Excluding Company Matching
Contributions and After-Tax Contributions to the Borg-Warner Corporation
Investment Plan Transferred to the Savings Account Pursuant to Section 7.01. If
a Participant has withdrawn the maximum amount permitted by Section 13.01, the
Participant may withdraw as of any Valuation Date, subject to the limitations
provided in this Section 13.02, all or any portion of the balance in his Savings
Account attributable to the Before-Tax Contributions made on his behalf and
amounts transferred to his Savings Account pursuant to Section 7.01 (excluding
the company matching contributions made on his behalf and any after-tax
contributions made by him to the Borg-Warner Corporation Investment Plan
transferred to his Savings Account pursuant to Section 7.01) by making a written
request to the Plan Administrator or such other person as designated by the Plan
Administrator.
A Participant who has not attained age 59-1/2 on or before the date on
which he would otherwise receive a withdrawal pursuant to this Section 13.02
shall be permitted to withdraw all or any portion of the balance in his Savings
Account attributable to the Before-Tax Contributions made on his behalf and
amounts transferred to his Savings Account pursuant to Section 7.01 (excluding
the company matching contributions made on his behalf and any after-tax
contributions made by him to the Borg-Warner Corporation Investment Plan
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transferred to his Savings Account pursuant to Section 7.01), provided the
Participant has submitted satisfactory proof to the Plan Administrator that (i)
a hardship exists, which hardship shall be limited to the Participant's
immediate and heavy financial need, and (ii) such withdrawal is necessary to
satisfy such immediate and heavy financial need.
The determination of the existence of an immediate and heavy financial need
and of the amount necessary to meet the need shall be made by the Plan
Administrator in a nondiscriminatory manner. A distribution will be deemed to
be made on account of an immediate and heavy financial need of the Participant
if the Participant provides evidence satisfactory to the Plan Administrator that
the distribution is on account of:
(a) Medical expenses described in Section 213(d) of the Code previously
incurred by the Participant, the Participant's spouse, or any
dependent of the Participant (as defined in Section 152 of the Code)
or necessary for these persons to obtain medical care as described in
Section 213(d) of the Code;
(b) Purchase (excluding mortgage payments) of a principal residence for
the Participant;
(c) Payment of tuition for and related educational fees for the next
twelve months of post-secondary education for the Participant, his
spouse, children or dependents (as defined in Section 152 of the
Code); or
(d) The need to prevent the eviction of the Participant from his principal
residence or foreclosure on the mortgage of the Participant's
principal residence.
A withdrawal shall be necessary to satisfy a Participant's immediate and
heavy financial need only if all of the following requirements are met:
(w) The amount of the withdrawal is not in excess of the amount of the
immediate and heavy financial need including any Federal, State or
Local taxes or penalties from the withdrawal;
(x) The Participant has obtained all withdrawals, other than hardship
withdrawals, and all nontaxable loans available at the time of the
requested withdrawal under all plans maintained by the Company;
(y) The Before-Tax Contributions and After-Tax Contributions of any
Participant who makes a hardship withdrawal pursuant to this Section
13.02 shall be suspended until the first day of the first Payroll
Period following the end of the 12-month period beginning on the date
the withdrawal is effective; and
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(z) A Participant may not make Before-Tax Contributions during the
calendar year immediately following the calendar year of the hardship
withdrawal in excess of the applicable dollar limit under Section 5.03
for such next calendar year less the amount of such Participant's
Before-Tax Contributions for the calendar year of the hardship
withdrawal.
The maximum amount which a Participant, who has not attained age 59-1/2 on
or before the date on which he would otherwise receive a withdrawal pursuant to
this Section 13.02, may withdraw from the balance in his Savings Account
attributable to Before-Tax Contributions shall be equal to the lesser of the
current balance in his Savings Account attributable to Before-Tax Contributions,
or the balance in his Savings Account attributable to Before-Tax Contributions
as of December 31, 1988 increased by the Before-Tax Contributions made on his
behalf after that date and reduced by any withdrawals pursuant to this Section
13.02 after that date.
A Participant who has attained age 59-1/2 on or before the date on which he
would otherwise receive a withdrawal pursuant to this Section 13.02 shall not be
required to provide evidence of an immediate and heavy financial need to qualify
for a withdrawal from the balance in his Savings Account attributable to the
Before-Tax Contributions made on his behalf and amounts transferred to his
Savings Account pursuant to Section 7.01 (excluding the company matching
contributions made on his behalf and any after-tax contributions made by him to
the Borg-Warner Corporation Investment Plan transferred to his Savings Account
pursuant to Section 7.01). A Participant described in the preceding sentence
shall be permitted to withdraw all or any portion of his Before-Tax
Contributions and amounts transferred to his Savings Account pursuant to Section
7.01 (excluding the company matching contributions made on his behalf and any
after-tax contributions made by him to the Borg-Warner Corporation Investment
Plan transferred to his Savings Account pursuant to Section 7.01), and the
income allocable thereto, including income credited to his Savings Account after
December 31, 1988. Such Participant's Before-Tax Contributions and After-Tax
Contributions shall not be suspended as a result of a withdrawal pursuant to
this Section 13.02.
Section 13.03 Number of Withdrawals and Distribution from Investment
Funds. Each withdrawal shall be made pro rata from the Investment Funds in
which the Participant's Savings Account is invested. A Participant may not make
more than two withdrawals pursuant to Sections 13.01 and 13.02 in any calendar
year.
Section 13.04 Time of Withdrawal. Withdrawals pursuant to Sections 13.01
and 13.02 shall commence following the Valuation Date as of which the withdrawal
is effective or as soon as practicable thereafter.
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ARTICLE 14. THE TRUST
---------- ---------
Section 14.01 Establishment of Trust. All of the assets under the Plan
shall be held as a single trust, to be held, invested and distributed in
accordance with the provisions of the Plan providing benefits to Participants
and their Beneficiaries.
Section 14.02 Appointment of Trustee. The Trust shall be held by a
Trustee appointed by the Employee Benefits Committee, from time to time, under a
trust instrument which shall be approved by the Employee Benefits Committee and
shall constitute part of the Plan.
ARTICLE 15. ADMINISTRATION
---------- --------------
Section 15.01 Allocation of Fiduciary Duties. The Fiduciaries shall have
only those specific powers, duties, responsibilities and obligations as are
expressly given them under the Plan. In general, the Employee Benefits
Committee shall have the sole responsibility for setting or authorizing the
contributions required under the Plan as specified in Article 4, the sole
authority to appoint and remove any Trustee and any member of the RSP Committee
and the sole power to amend or terminate, in whole or in part, the Plan or
Trust. The RSP Committee shall have the sole responsibility for the
administration of the Plan, which responsibility is specifically described in
the Plan and the Trust. The Plan Administrator will have the duties provided
for it in ERISA. The Trustee shall have the sole responsibility for the
administration of the Trust and the management of the assets under the Trust,
all as specifically provided in the Trust. Each Fiduciary warrants that any
directions given, information furnished, or action taken by it shall be in
accordance with the provisions of the Plan and Trust, as the case may be,
authorizing or providing for such direction, information or action.
Furthermore, each Fiduciary may rely upon any such direction, information or
action of another Fiduciary as being proper under this Plan and Trust, and is
not required under the Plan or Trust to inquire into the propriety of any such
direction, information or action, except that each Fiduciary shall not be
relieved from liability for a breach of Fiduciary responsibility by a co-
Fiduciary under Section 405(a) of Title I of ERISA. It is intended under the
Plan and Trust that each Fiduciary shall be responsible for the proper exercise
of its own powers, duties, responsibilities and obligations under this Plan.
Section 15.02 Establishment of RSP Committee. The RSP Committee shall
consist of at least three members who shall be appointed by the Employee
Benefits Committee and who may also be officers, directors, employees, agents or
shareholders of the Company or members of the Employee Benefits Committee. RSP
Committee members may resign by written notice to, or may be removed by, the
Employee Benefits Committee, which shall appoint a successor to fill any vacancy
on the RSP Committee, howsoever caused. The Employee Benefits Committee shall
advise the Trustee in writing of the names of the
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members of the RSP Committee and of any changes which may occur in its
membership from time to time.
Section 15.03 Appointment and Duties of Plan Administrator. The Plan
Administrator shall be appointed by the RSP Committee to serve at the RSP
Committee's discretion and shall exercise such authority and responsibility as
he deems appropriate in order to comply with ERISA and governmental regulations
issued thereunder relating to:
(a) The administration of the Plan;
(b) Reports and notifications to Participants;
(c) Reports to and registration with the Internal Revenue Service;
(d) Annual reports to the Department of Labor; and
(e) Any other actions required by ERISA or the Plan.
Section 15.04 Powers and Duties of RSP Committee. The RSP Committee shall
have such powers as may be necessary to discharge its duties hereunder,
including, but not by way of limitation, the following:
(a) To administer and enforce the Plan, including exclusive powers to
interpret the Plan, to determine and to resolve questions as between
the Company and Participants or Beneficiaries which relate to
eligibility and distributions from the Plan, to remedy possible
ambiguities, inconsistencies or omissions in a manner which does not
discriminate in favor of Highly Compensated Employees, and which
shall, subject to the claims procedure of Section 15.11, be conclusive
and binding upon all persons hereunder, including, without limitation,
Participants, other employees of the Company, Beneficiaries, and
former Participants, and their executors, administrators,
conservators, or heirs;
(b) To prescribe procedures to be followed by Participants or
Beneficiaries filing applications for benefits;
(c) To prepare and distribute, in such manner as the RSP Committee
determines to be appropriate, information explaining the Plan and
Trust;
(d) To receive from the Company and from Participants such information as
shall be necessary for the proper administration of the Plan and
Trust;
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(e) To furnish the Company, upon request, such annual reports with respect
to the administration of the Plan as are reasonable and appropriate;
(f) To receive, review and keep on file (as it deems convenient or proper)
reports of the financial condition, the receipts and disbursements and
the assets of the Trust;
(g) To appoint or employ individuals to assist in the administration of
the Plan and any other agents it deems advisable, including legal
counsel, and such clerical, medical, accounting, auditing, actuarial
and other services as it may require in carrying out the provisions of
the Plan or in connection with any legal claim or proceeding involving
the Plan, to settle, compromise, contest, prosecute or abandon claims
in favor of or against the Plan, and to pay all costs and expenses
related to the above actions from the assets of the Trust; and
(h) To discharge all other duties set forth herein.
The RSP Committee shall have no power to add to, subtract from or modify any of
the terms of the Plan, or to change or add to any benefits provided by the Plan,
or to waive or fail to apply any requirements of eligibility under the Plan. No
member of the RSP Committee shall participate in any action on any matters
involving solely his own rights or benefits as a Participant under the Plan, and
any such matters shall be determined by the other members of the RSP Committee.
Section 15.05 RSP Committee Direction on Payments. The RSP Committee, or
an RSP Committee member designated by the RSP Committee shall direct the Trustee
concerning all payments which shall be made out of the Trust pursuant to the
provisions of the Plan.
Section 15.06 Actions by RSP Committee. The RSP Committee may act at a
meeting or by writing without a meeting, by the vote or assent of a majority of
its members. The RSP Committee may adopt such by-laws and regulations as it
deems desirable for the conduct of its affairs and the administration of the
Plan. A dissenting RSP Committee member who, within a reasonable time after he
has knowledge of any action or failure to act by the majority, registers his
dissent in writing delivered to the other RSP Committee members shall not be
responsible for any such action or failure to act.
Section 15.07 Expenses of RSP Committee. Members of the RSP Committee
shall not receive compensation from the Plan for those services they perform as
RSP Committee members while employed by the Company. Any and all necessary
expenses related to Plan and Trust administration shall be paid from the Trust,
but may be paid by the Company if it so elects.
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Section 15.08 Records of RSP Committee. The RSP Committee shall keep a
record of all of its meetings and shall keep all such books of account, records
and other data as may be necessary or desirable in its judgment for the
administration of the Plan. The RSP Committee shall keep on file, in such form
as it shall deem convenient and proper, all reports of the Trust received from
the Trustee.
Section 15.09 Information from Participant. The Plan Administrator may
require a Participant to complete and file with the Plan Administrator forms
approved by the RSP Committee, and to furnish all pertinent information
requested by such RSP Committee. The RSP Committee may rely upon all such
information so furnished, including the Participant's current mailing address.
Section 15.10 Notification of Participant's Address. Each Participant,
retired Participant and Beneficiary entitled to benefits under the Plan must
file with the Plan Administrator or such other person designated by the Plan
Administrator, in writing, his post office address and each change of post
office address. Any communication, statement or notice addressed to such a
person at this latest post office address as filed with the Plan Administrator
will, on deposit in the United States mail with postage prepaid, be binding upon
such person for all purposes of the Plan, and the Plan Administrator shall not
be obliged to search for, or to ascertain the whereabouts of, any such person.
Section 15.11 Claims Procedure. A Participant or Beneficiary shall file a
claim for benefits under the Plan in writing with the Plan Administrator who
shall process it and approve or disapprove it within 90 days of the date that
the claim is received. If special circumstances arise and the Plan
Administrator cannot process the claim within 90 days, the Plan Administrator
shall notify the claimant that the time for making the decision is extended for
up to 90 additional days. If the Plan Administrator fails to notify the
claimant within the applicable period, the claim is considered denied. If the
Plan Administrator makes a determination to deny benefits to a Participant, the
denial shall be stated in writing and delivered or mailed to the Participant or
Beneficiary. Such notice shall set forth the specific reasons for the denial,
written in a manner that may be understood by the Participant, and shall
describe the steps necessary for appeal. The Participant whose claim for
benefits has been denied shall have a period of 60 days in which to appeal to
the RSP Committee and submit additional information to the RSP Committee. The
RSP Committee shall consider the request at its next scheduled meeting. If the
claim is again denied in writing, the Participant or Beneficiary may request a
hearing within 60 days of the second denial, and the RSP Committee shall afford
a reasonable opportunity for a hearing to any Participant or Beneficiary for a
review of its decision denying the claim, which hearing shall be held within 60
days following receipt of the request. The Claimant shall have an opportunity
to present evidence and appear before the RSP Committee. The RSP Committee
shall review all evidence submitted by the claimant, shall make its decision
regarding the claim within 120 days following the receipt of the request for a
hearing by the claimant and shall provide the
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claimant with a written decision. The decision of the RSP Committee regarding
the claim shall be final and conclusive.
Section 15.12 Qualified Domestic Relations Order Procedure. In the case
of any domestic relations order received by the Plan Administrator, the Plan
Administrator shall promptly notify the Participant and the spouse, former
spouse, child or other alternate payee of the receipt of such order and the
Plan's procedures for determining the qualified status of domestic relations
orders. Within a reasonable period after receipt of such order, the Plan
Administrator shall determine whether such order is a "qualified domestic
relations order" within the meaning of Section 414(p) of the Code. It shall
then notify the Participant and the alternate payee of such determination.
The Plan Administrator shall establish reasonable procedures to determine
the qualified status of domestic relations orders and to administer
distributions under such qualified orders. Such procedures shall be in writing,
shall provide for the notification of each person specified in a domestic
relations order as entitled to payment of benefits under the Plan (at the
address included in the domestic relations order) of such procedures promptly
upon receipt by the Plan Administrator of the domestic relations order and shall
permit an alternate payee to designate a representative for receipt of copies of
notices that are sent to the alternate payee with respect to a domestic
relations order.
During any period in which the issue of whether a domestic relations order
is a qualified domestic relations order is being determined (by the Plan
Administrator, by a court of competent jurisdiction or otherwise), the Plan
Administrator shall cause the Trustee to segregate in a separate account in the
Trust or in an escrow account the amounts which would have been payable to the
alternate payee during such period if the order had been determined to be a
qualified domestic relations order. If within the 18-month period beginning on
the date on which the first payment would be required to be made under the
domestic relations order it is determined that the order is not a qualified
domestic relations order or the question of whether the order is a qualified
domestic relations order is not resolved, the Plan Administrator shall cause the
Trustee to pay the segregated amounts (plus any interest thereon) to the person
or persons who would have been entitled to such amounts if there had been no
order.
Any determination that an order is a qualified domestic relations order
which is made after the close of the 18-month period described in the preceding
paragraph shall be applied prospectively only.
If the Plan Administrator or any Fiduciary acts in accordance with this
Section 15.12 in treating a domestic relations order as being (or not being) a
qualified domestic relations order or taking action under this Section 15.12,
the Plan's obligation to the Participant and each alternate payee shall be
discharged to the extent of any payment made.
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ARTICLE 16. GENERAL PROVISIONS
---------- ------------------
Section 16.01 Nonalienation of Benefits. Except for qualified domestic
relations orders, and as otherwise required under federal law, assignment of
benefits under the Plan or their pledge or encumbrance in any manner shall not
be permitted or recognized under any circumstance, nor shall such benefits be
subject to attachment or other legal process for the debts of any Participant,
former Participant or Beneficiary.
Section 16.02 Payment to Incapacitated Participant or Beneficiary. If the
RSP Committee shall find that a Participant, former Participant or Beneficiary
is unable to care for his affairs because of illness or accident, or is a minor,
or has died, the RSP Committee may direct that any payment due him, unless claim
therefor shall have been made by a duly appointed legal representative, shall be
paid to his spouse, a child, a parent, or other blood relative or to a person
with whom he resides, and any such payment so made shall be in complete
discharge of the liabilities of the Plan therefor.
Section 16.03 Payment Because of Inability to Locate Participant of
Beneficiary. If the Plan Administrator is unable, within three years after any
benefit becomes due under the Plan to a Participant or Beneficiary, to make
payment because the identity and/or whereabouts of such Participant or
Beneficiary cannot be ascertained notwithstanding the mailing of notice to any
last known address or addresses, the Plan Administrator shall make payment of
such benefit as provided in Section 11.02 as though such Participant had died
three years after the date such benefit became due. In the event the payment
cannot be made pursuant to the provisions of Section 11.02 the balance in such
Participant's RSP Account shall be forfeited. If the Participant or Beneficiary
later makes a claim for a benefit under the Plan, and that claim for a benefit
is granted, the amount in the Participant's RSP Account that was forfeited shall
be paid to the Participant or Beneficiary without regard to any subsequent gain
or loss.
Section 16.04 Interest in Fund Governed by Terms of the Plan. No
Participant, former Participant or Beneficiary, or any other person, shall have
any interest in or right under the Plan or in any part of the assets or earnings
thereof held in the Trust except as and to the extent provided in the Plan.
Section 16.05 Trust Sole Source of Benefits. The assets of the Trust
shall be the sole source of all benefits provided for in the Plan. The Company,
the Employee Benefits Committee and the RSP Committee do not in any way
guarantee the assets of the Trust from loss or depreciation as a result of
Participants' investments in the Investment Funds of the Plan.
Section 16.06 Actions by Board of Directors, Employee Benefits Committee
or RSP Committee. Whenever in the administration of the Plan, action by the
Board of Directors, the
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Employee Benefits Committee or the RSP Committee is required with respect to
eligibility or classification of Employees, contributions or benefits, such
action shall be uniform in nature as applied to all persons similarly situated,
and no such action shall be taken which shall discriminate in favor of Employees
who are officers, stockholders or Highly Compensated Employees.
Section 16.07 Plan for Exclusive Benefit of Participant and Beneficiary.
No part of any Company Retirement Contribution or Company Matching Contribution
under Article 4 or of any Before-Tax Contribution or After-Tax Contribution
under Article 5 or of any part of the Trust (other than such part as provided
for under the Plan) shall be used for, or diverted to, purposes other than for
the exclusive benefit of the Participants under the Plan or their Beneficiaries.
Section 16.08 No Contract of Employment. Nothing contained in this Plan
shall be construed as a contract of employment between the Company and any
Employee, or as a right of any Employee to be continued in the employment of the
Company or as a limitation of the right of the Company to discharge any Employee
at any time with or without cause.
Section 16.09 Indemnification of Employee Benefits Committee, RSP
Committee and Plan Administrator. Members of the Employee Benefits Committee,
members of the RSP Committee and the Plan Administrator shall be indemnified by
the Corporation and the Company against any and all liabilities arising by
reason of any act or failure to act made in good faith pursuant to the
provisions of the Plan, including expenses reasonably incurred in the defense of
any claim relating thereto. If the Corporation takes any action to liquidate
under circumstances which require that the Employee Benefits Committee and/or
the RSP Committee remain in existence, the Corporation shall purchase insurance
for each member of the Employee Benefits Committee and the RSP Committee to
cover liability or losses occurring by reason of an act or omission of any such
member, unless the same is determined to be due to acts of gross negligence or
willful misconduct. The expenses incurred for such insurance or indemnification
shall be paid by the Company or Corporation, as applicable, and shall not be
reimbursable under the provisions of the Plan.
Section 16.10 Change in Business. In the event of the sale, dissolution,
merger, consolidation, reorganization or discontinuance of all or any part of
any trade or business of the Company, the RSP Committee, in its sole discretion,
may (a) determine that all or a portion of the affected Employees of the Company
shall no longer be Eligible Employees in the Plan and (b) determine that the
rights of the affected Employees accrued to the date of such sale, dissolution,
merger, consolidation, reorganization or discontinuance shall be nonforfeitable.
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ARTICLE 17. AMENDMENTS AND TERMINATION
---------- --------------------------
Section 17.01 Right to Amend Plan. The Corporation has delegated the
power to amend or modify the Plan in whole or in part to the Employee Benefits
Committee and, through the powers delegated to the Employee Benefits Committee
pursuant to Section 15.01, reserves the right at any time and from time to time
to amend or modify the Plan in whole or in part and either retroactively or
prospectively through a written instrument delivered to the Trustee; provided,
however, that:
(a) Except as expressly provided to the contrary herein, no such amendment
or modification shall authorize or permit any part of the corpus or
income of the Trust to be used for or diverted to purposes other than
for the exclusive benefit of Participants or Beneficiaries, or to
deprive any of them of funds then held for their account;
(b) No amendment or modification shall increase the duties or liabilities
of the Trustee without its written consent; and
(c) Notwithstanding anything herein to the contrary, the Employee Benefit
Committee may make any amendment or modification to the Plan and the
Trust that it deems necessary or appropriate to comply with any
statute or regulation, including requirements for qualification,
exempt status and deductibility of contributions under the Code, and
such amendments or modifications shall have retroactive effect if
necessary or appropriate for such purposes.
Section 17.02 Termination of Plan or Discontinuance of Contributions. It
is the intention of the Corporation to continue the Plan and to make
contributions thereto, but the Corporation reserves the right, through the
powers delegated to the Employee Benefits Committee pursuant to Section 15.01,
to suspend or terminate the Plan at any time and for any reason. In the event
of termination, dissolution, merger, consolidation or reorganization of the
Corporation, where the successor does not continue the Plan in accordance with
Section 18.01, upon partial termination of the Plan with respect to a group of
Participants, upon complete discontinuance of Company contributions under the
Plan or any other termination of the Plan, the interests of the affected
Participants shall become fully vested and their interests shall be
nonforfeitable. There shall be no Company contributions under Article 4 after
the date the Plan terminates. However, the RSP Committee and the Trust shall
remain in existence, and all of the provisions of the Plan (other than the
provisions relating to contributions and Forfeitures), which in the sole opinion
of the RSP Committee are necessary, shall remain in full force and effect.
Section 17.03 Distribution on Termination of Plan. In the event of the
termination or partial termination of the Plan, after payment of all expenses
(including Trustee fees), there
-46-
<PAGE>
shall be distributed to each affected Participant, or to his Beneficiary in the
case of a deceased Participant, in such manner as the RSP Committee shall
direct, a benefit equal to the balance in the Participant's RSP Account, such
balance to be adjusted as provided in Article 10 as of the later of the
Valuation Date on which termination or partial termination occurs or the
Valuation Date coinciding with or immediately preceding the date of
distribution; provided, however, that the RSP Committee and the Trustee shall
not be required to effect such distribution until written evidence of approval
of such termination and distribution has been received from the Internal Revenue
Service. If such benefits shall not exhaust the assets of the Trust, any
remaining assets shall be allocated among the RSP Accounts of continuing
Participants in the same proportion that the balance in each continuing
Participant's RSP Account bears to the aggregate balance in all continuing
Participant's RSP Accounts, and in no event shall such assets revert or inure to
the benefit of the Company. Upon termination, the RSP Committee may authorize
the payment to Participants or Beneficiaries of such amounts in cash or in kind,
with all such assets being measured at their fair market value. The Trustee
shall continue to hold, invest, administer and distribute the assets of the
Trust pursuant to the terms of the Plan until no Trust assets remain in its
hands. If a Participant dies after termination of the Plan and before all of
his interest in the Trust has been paid, the undistributed portion shall be
distributed to his Beneficiary in a lump-sum.
ARTICLE 18. SUCCESSOR CORPORATION, PLAN MERGER, CONSOLIDATION OR TRANSFER OF
---------- ----------------------------------------------------------------
ASSETS
------
Section 18.01 Successor Corporation. In the event of the sale,
dissolution, merger, consolidation or reorganization of the Corporation,
provision may be made by which the Plan will be continued by the successor; and
in that event, such successor shall be substituted for the Corporation under the
Plan. The substitution of the successor shall constitute an assumption of Plan
liabilities by the successor, and the successor shall have all of the powers,
duties and responsibilities of the Corporation under the Plan.
Section 18.02 Plan Merger, Consolidation or Transfer of Assets to Other
Qualified Plans. In the event of any merger or consolidation of the Plan with,
or transfer in whole or in part of the assets and liabilities of the Trust to,
any other plan of deferred compensation maintained or to be established for the
benefit of all or some of the Participants of this Plan, the assets of the Trust
applicable to such Participants shall be transferred to the other trust only if:
(a) Each Participant would (if the other plan then terminated) receive a
benefit immediately after the merger, consolidation or transfer which
is equal to or greater than the benefit he would have been entitled to
receive immediately before the merger, consolidation or transfer (if
the Plan had then terminated);
-47-
<PAGE>
(b) Resolutions of the Board of Directors (as defined in Section 2.07 of
the Plan), and of the Board of Directors of any new successor employer
of the affected Participants, shall authorize such transfer of assets;
and in the case of the new successor employer of the affected
Participants, its resolutions shall include an assumption of
liabilities with respect to such Participants' inclusion in the new
employer's plan; and
(c) Such other plan is qualified under Sections 401(a) and 501(a) of the
Code.
ARTICLE 19. TOP-HEAVY PLAN PROVISIONS
---------- -------------------------
Section 19.01 Top-Heavy Plan Definitions. The definitions relating to
------------- --------------------------
top-heavy plan provisions are as follows:
(a) The term "Top-Heavy Plan" or "Top-Heavy" means the Plan or refers to
the Plan if, as of the Determination Date (as defined in subsection
19.01(b) below), the aggregate balance in the RSP Accounts of Key
Employees (as defined in subsection 19.01(c) below) under the Plan
exceeds sixty percent (60%) of the aggregate balance in the RSP
Accounts of all Employees under the Plan, as determined in accordance
with the provisions of Section 416(g) of the Code. The determination
of whether the Plan is Top-Heavy shall be made after aggregating all
other tax-qualified plans of the Company, if any, which are required
to be aggregated pursuant to Section 416(g)(2) of the Code and after
aggregating any other such plan of the Company which may be taken into
account under the permissive aggregation rules of Section
416(g)(2)(A)(ii) of the Code if such permissive aggregation thereby
eliminates the Top-Heavy status of any plan within such permissive
aggregation group. The Plan is "Super Top Heavy" if, as of the
Determination Date, the Plan would meet the test specified above for
being a Top-Heavy Plan if ninety percent (90%) were substituted for
sixty percent (60%) in each place in which it appears in this
subsection 19.01(a). The plans which are required to be aggregated
include (1) all qualified plans of the Company in which at least one
Key Employee participates and all qualified plans of the Company in
which at least one Key Employee participated which were terminated
within the five-year period ending on the Determination Date, and (2)
all other plans of the Company which enable a plan described in (1) to
meet the requirements of Section 401(a)(4) or Section 410 of the Code.
The plans which are permitted to be aggregated include the plans which
are required to be aggregated plus any plan or plans of the Company
which, when considered as a group with the required aggregation group,
would continue to satisfy the requirements of Sections 401(a)(4) and
410 of the Code. For the purposes of these Top-Heavy
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<PAGE>
provisions, Employees and Key Employees shall include only such
individuals who performed any services for the Company at any time
during the five-year period ending on the Determination Date.
(b) The term "Determination Date," for purposes of determining whether the
Plan is Top Heavy for a particular Plan Year, means the last day of
the preceding Plan Year (or, in the case of the first Plan Year of the
Plan, the last day of the first Plan Year).
(c) The term "Key Employee" means any Participant in the Plan (including a
Beneficiary of such Participant) who at any time during the Plan Year
or any of the four preceding Plan Years is:
(1) An individual who receives as annual Compensation more than 50%
of the dollar limit under Section 415(b)(1)(A) of the Code and
who is an officer of the Company (but in no event shall more than
fifty (50) Employees or, if less, the greater of three or ten
percent (10%) of all Employees be taken into account under this
paragraph (1) as Key Employees);
(2) One of the ten (10) Employees owning (or considered as owning
within the meaning of Section 318 of the Code) both more than a
one-half percent (1/2%) interest and the largest interests in the
Company, provided that such Employee also had Compensation for
that Plan Year exceeding the maximum dollar limitation under
Section 415(c)(1)(A) of the Code in effect for the calendar year
in which the Determination Date falls;
(3) A person owning (or considered as owning within the meaning of
Section 318 of the Code) more than five percent (5%) of the
outstanding stock of the Company or stock possessing more than
five percent (5%) of the total combined voting power of all stock
of the Company; or
(4) A person who receives as annual Compensation from the Company
more than $150,000 and who would be described in paragraph (3) of
this subsection 19.01(c) if one percent (1%) were substituted for
five percent (5%).
For purposes of applying Section 318 of the Code to the provisions of this
subsection 19.01(c), paragraph (C) of Section 318(a)(2) of the Code shall be
applied by substituting five percent (5%) of fifty percent (50%). In addition,
the rules of subsections (b), (c) and (m) of
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<PAGE>
Section 414 of the Code shall not apply for purposes of determining ownership
percentage in the Company under this subsection 19.01(c).
(d) The term "Non-Key Employee" means any Participant in the Plan
(including a Beneficiary of such Participant) who is not a Key
Employee.
Section 19.02 Requirements in Plan Years in Which Plan is Top-Heavy.
Notwithstanding anything herein to the contrary, if the Plan is Top-Heavy as
determined pursuant to Section 416 of the Code for any Plan Year, then the Plan
shall meet the following requirements for any such Plan Year:
(a) Minimum Vesting Requirements. A Participant's vested percentage in
his Company Retirement Contribution Account and that portion of the
balance in his Employee Retirement Account attributable to Company
Matching Contributions under Section 4.02 shall be determined in
accordance with the following schedule and not in accordance with
Section 2.49:
Years of Vested Service Vested Portion
----------------------- --------------
Less than Three 0%
Three or more 100%
In the event that the Top-Heavy Plan ceases thereafter to be Top-
Heavy, each Participant's vested percentage shall again be determined
under Section 2.49, provided that a Participant's vested percentage
shall not be reduced thereby.
(b) Minimum Contribution Requirement. It is intended that the Company
will meet the minimum contribution requirements of Sections 416(c) and
416(h) of the Code by providing the minimum contribution through a
combination of Company Retirement Contributions, Company Matching
Contributions and Before-Tax Contributions for such Plan Year for each
Participant who is a Non-Key Employee, in accordance with whichever of
the following paragraphs in applicable:
(1) If the Company does not maintain a tax-qualified defined-benefit
pension plan, or if the Company maintains such a pension plan in
which no Participant can participate, the minimum contribution
per Participant shall be three percent (3%) of the Participant's
Compensation for the Plan Year;
(2) If the Company maintains a tax-qualified defined-benefit pension
plan in which one or more Participants may participate, and that
pension plan is
-50-
<PAGE>
not Top-Heavy, the minimum contribution per Participant shall be
three percent (3%) of a Participant's Compensation for that Plan
Year; provided, however, that if the Plan is not Super Top-Heavy,
the minimum contribution shall be increased to four percent (4%)
if necessary to avoid the application of Section 416(h)(1) of the
Code (relating to the adjustment of the combined plan
contributions and benefits limitation which would substitute 1.0
for 1.25 in the defined-contribution and benefit plan factors
under Section 415 of the Code) and if such adjusted plan
contributions and benefits limitation would otherwise be exceeded
if such increased minimum contribution were not so increased; and
(3) If the Company maintains a tax-qualified defined-benefit pension
plan in which one or more Participants may participate, and that
pension plan is Top-Heavy, the minimum contribution per
Participant shall be five percent (5%) of the Participant's
Compensation for that Plan Year; provided, however, that if the
Plan is not Super Top-Heavy, the minimum contribution shall be
increased to seven point five percent (7.5%) if necessary to
avoid the application of Section 416(h)(l) of the Code (relating
to the adjustments to the combined plan contributions and
benefits limitation described in paragraph (2) above) and if such
adjusted plan contributions and benefits limitation would
otherwise be exceeded if an increased minimum contribution is not
made.
The minimum Company contribution under this subsection 19.02(b) shall be
allocated to the Participants' RSP Accounts in the necessary amounts and in such
proportions as the RSP Committee shall determine.
The minimum contribution requirements set forth herein shall be reduced in
the following circumstances:
(1) The percentage minimum contribution required hereunder shall in
no event exceed the percentage contribution made for the Key
Employee for whom such percentage is the highest for the Plan
Year after taking into account contributions or benefits under
other qualified plans in this Plan's aggregate group as provided
pursuant to Section 416(c)(2)(B)(ii) of the Code; and
(2) No minimum contribution will be required (or the minimum
contribution will be reduced, as the case may be) for a
Participant for any Plan Year if the Employer maintains another
qualified plan under which a minimum benefit or contribution is
being accrued or made for
-51-
<PAGE>
such Plan Year in whole or in part for the Participant in
accordance with Section 416(c) of the Code.
ARTICLE 20. CONSTRUCTION
---------- ------------
Section 20.01 Plan Administered According to Law. The Plan and the Trust
forming part thereof shall be construed and administered according to the laws
of the State of Illinois to the extent such laws are not preempted by ERISA or
subsequent amendments thereto of any other laws of the United States of America.
Section 20.02 Gender, Number and Context. Words used in the Plan in the
masculine gender shall include the feminine gender, the singular shall include
the plural and the plural shall include the singular, all unless the context
clearly indicates otherwise. The titles of Sections and subsections in this
instrument are included solely for convenience of reference and, if there is any
conflict between the titles and the text, the text shall control.
ARTICLE 21. QUALIFICATION OF PLAN
---------- ---------------------
Section 21.01 Qualification Intended. The Company shall promptly submit
the Plan to the Internal Revenue Service along with all necessary supporting
documents with a request for a determination letter that the Plan meets the
qualification requirements of Section 401(a) of the Code and that the Trust is
exempt from taxation under Section 501(a) of the Code. Any modification or
amendment of the Plan may be made retroactively, if necessary or appropriate, to
qualify or maintain the Plan as a qualified plan meeting the requirements of
Sections 401 and 501 of the Code, ERISA or any other provisions of federal law.
Witness Whereof, the Company has caused this Plan to be signed on this
_____ day of __________________, 1994.
BORG-WARNER SECURITY CORPORATION
By: ____________________________________
Its: Executive Vice President
Attest:
______________________________
Its: _________________________
-52-
<PAGE>
EXHIBIT 10.10
THE BORG-WARNER SECURITY CORPORATION HEADQUARTERS'
--------------------------------------------------
SUPPLEMENTAL BENEFITS COMPENSATION PROGRAM
------------------------------------------
The Borg-Warner Security Corporation Headquarters' Supplemental Benefits
Compensation Program (the "Program"), established January 1, 1995, provides
additional income to employees not eligible to participate in the Borg-Warner
Security Corporation Retirement Savings Plan.
Under the Program, you will receive after-tax cash payments (at least monthly).
As a participant in the Program, you may request that your payments be directed
to Fidelity Investments Life Insurance Company ("Fidelity") to invest in
Fidelity's tax deferred annuity ("TDA"). Supplemental payments are sent to
Fidelity monthly.
ELIGIBILITY
Borg-Warner Security Corporation (the "Company") will determine an employee's
eligibility for the Program: participating employees are those employees who
have completed six consecutive months of service with the Company and are
determined by the Company to be highly compensated -- and as such not eligible
for the Retirement Savings Plan. The Company's determination of who is a highly
compensated employee will be binding and conclusive.
Program participants are:
. any employee previously notified that he or she is eligible to participate in
this Program,
. an employee whose 1994 earnings equal or exceed $66,000 or
. an employee whose base annual salary, when hired, exceeds that amount.
The Company, in accordance with IRS regulations, will adjust these dollar limits
for determining eligibility each year.
You will become a participant in the Program on the January 1 following the date
the Company notifies you of your eligibility. Once you begin participating in
the Program, you remain a participant in the Program -- even if you no longer
meet the definition of a highly compensated employee.
SUPPLEMENTAL PAYMENTS
The amount you receive as supplemental payments under the Program depends on two
factors:
. your years of service, and
. whether you receive the payments as monthly cash compensation or elect
to have the payments remitted directly to your TDA.
The payments are a specified percentage of your earnings, adjusted for taxes.
In calculating your payments, your earnings means your salary received during
the calendar year, including overtime pay, commissions and bonuses, but does not
include reimbursement of education or relocation expenses, severance or
transitional income benefits, or any payments made by the Company under any
option or stock plans, or other taxable fringe benefits. The supplemental
payment is not included in earnings used to calculate your supplemental benefit
1
<PAGE>
payment.
In making your payments, the Company will withhold the appropriate taxes based
upon your current W-4 withholding election. You do not need to make a separate
withholding election with respect to the supplemental payments.
IF YOU ARE AGE 45 OR YOUNGER AS OF THE DATE YOU BECOME ELIGIBLE:
If You Receive Your Supplemental Payments as Cash, the percentage to be used to
calculate your payments is as shown:
<TABLE>
<CAPTION>
=================================================================================================================
YEARS OF SERVICE UNDER SS OVER SS WAGE
AS OF JANUARY 1 WAGE BASE* BASE*
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than or equal to 10 years 6.55% 9.90%
Greater than 10, but less than or equal to 20 years 7.40% 11.58%
Greater than 20 years 8.22% 12.84%
-----------------------------------------------------------------------------------------------------------------
*Social Security Wage Base as indexed for the year ($60,600 in 1994). Note that payment is LESS
APPLICABLE TAXES.
=================================================================================================================
</TABLE>
If You Remit Your Supplemental Payments to your Fidelity TDA, the percentage
used to calculate those payments is:
<TABLE>
<CAPTION>
==================================================================================================================
UNDER SS OVER SS
YEARS OF SERVICE AS OF JANUARY 1 WAGE BASE* WAGE BASE*
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than or equal to 10 years 9.83% 14.86%
Greater than 10, but less than or equal to 20 years 11.08% 17.38%
Greater than 20 years 12.34% 19.27%
------------------------------------------------------------------------------------------------------------------
*Social Security Wage Base as indexed for the year ($60,600 in 1994). Note that payment is LESS
APPLICABLE TAXES.
==================================================================================================================
</TABLE>
2
<PAGE>
IF YOU ARE AGE 46 OR OLDER AS OF THE DATE YOU BECOME ELIGIBLE:
If You Receive Your Supplemental Payments as Cash, the percentage to be used to
calculate your payments is as shown:
<TABLE>
<CAPTION>
==================================================================================================
YEARS OF SERVICE UNDER SS OVER SS WAGE
AS OF JANUARY 1 WAGE BASE* BASE*
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than or equal to 10 years 6.09% 9.17%
Greater than 10, but less than or equal to 20 years 6.86% 10.72%
Greater than 20 years 7.63% 11.88%
--------------------------------------------------------------------------------------------------
The Company makes additional payments if you were: (i) a participant in a
qualified benefit plan of the Company as of May 31, 1988, and (ii) age 45 or
older as of December 31, 1988. This additional payment is:
PLUS: 1.11% of compensation if you were age 45 or older, but less
than age 50 as of 12/31/88
or
2.22% of compensation if you were age 50 or older as of
12/31/88
*Social Security Wage Base as indexed for the year ($60,600 in 1994). Note that payment is LESS
APPLICABLE TAXES.
==================================================================================================
</TABLE>
If You Remit Your Supplemental Payments to your Fidelity TDA, the percentage
used to calculate those payments is:
<TABLE>
<CAPTION>
==================================================================================================
UNDER SS OVER SS
YEARS OF SERVICE AS OF JANUARY 1 WAGE BASE* WAGE BASE*
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than or equal to 10 years 9.13% 13.76%
Greater than 10, but less than or equal to 20 years 10.28% 16.08%
Greater than 20 years 11.44% 17.82%
--------------------------------------------------------------------------------------------------
The Company makes additional payments if you were: (i) a participant in a
qualified benefit plan of the Company as of May 31, 1988, and (ii) age 45 or
older as of December 31, 1988. This additional payment is:
PLUS: 1.16% of compensation if you were age 45 or older, but less
than age 50 as of 12/31/88
or
2.32% of compensation if you were age 50 or older as of
12/31/88
*Social Security Wage Base as indexed for the year ($60,600 in 1994). Note that payment is LESS
APPLICABLE TAXES.
==================================================================================================
</TABLE>
3
<PAGE>
TRANSFERS OF SUPPLEMENTAL PAYMENTS
To encourage you to save your supplemental payments and invest them for future
use, the Company makes it possible for you to invest your payments directly in
your TDA. You are not required to invest your supplemental payments in the
Fidelity TDA; however, the Fidelity TDA is the only product into which the
Company will make direct payments on your behalf.
Since your participation in the Fidelity TDA is entirely voluntary, you must
provide the Company with your written instructions to have your payments sent to
Fidelity. If you do not make this election, you will receive your supplemental
payments in cash on a monthly basis.
It's important that you save for your future. The Program is one way for you to
do so. For further information regarding Fidelity's TDA, please read
"Fidelity's TDA: A Way to Save," available from your Benefits Administrator.
You can also obtain copies of additional information by contacting Fidelity
directly at P.O. Box 1306, Boston, Massachusetts 021049907, (800) 634-9361.
--------------------------------------------------------------------------------
While the Company intends to continue this Program, it does reserve the right to
modify, amend or terminate the Program at any time.
[sbchq1.eh]
4
<PAGE>
For Senior Management, the following formulas apply:
NEAL FARRELL
Wages Under the Social Security Wage Base 13.34%
Wages Over the Social Security Wage Base 19.83%
JOHN O'BRIEN
Wages Under the Social Security Wage Base 13.29%
Wages Over the Social Security Wage Base 20.39%
DON TRAUSCHT
Wages Under the Social Security Wage Base 13.34%
Wages Over the Social Security Wage Base 19.83%
TIM WOOD
Wages Under the Social Security Wage Base 11.42%
Wages Over the Social Security Wage Base 18.33%
5
<PAGE>
EXHIBIT 10.16
ASSIGNMENT OF TRADEMARKS AND LICENSE AGREEMENT
----------------------------------------------
This Agreement is entered into as of the 2nd day of November, 1994, by and
between BORG-WARNER SECURITY CORPORATION (formerly known as Borg-Warner
Corporation), a Delaware corporation having a place of business at 200 South
Michigan Avenue, Chicago, Illinois 60604 ("Security"), and BORG-WARNER
AUTOMOTIVE, INC. (formerly a subsidiary of Borg-Warner Corporation), a Delaware
corporation having a place of business at 200 South Michigan Avenue, Chicago,
Illinois 60604 ("Automotive").
W I T N E S S E T H :
WHEREAS, Security has been for many years and is in the business of
providing a broad range of protective and security services and products,
including, but not limited to guard, alarm, armored transport, ATM maintenance
and servicing, cash management, courier, investigative, pre-employment screening
and mailroom services, and developing, manufacturing, distributing, selling and
servicing fire detection and burglary alarm products.
WHEREAS, Security has been for many years and will continue to be in the
business of, among other things, acquiring and operating other businesses in a
variety of industries.
WHEREAS, for many years, Security has used and is using, by license or
otherwise, in its many businesses various trademarks, service marks, trade names
and trade dress comprised, in whole or in part, of the term "Borg Warner", "B"
and "W" and variations thereof, including but not limited to, the trademarks,
trade names and trade dress identified in Schedules A, B, C and D (the "Borg
Warner Trademarks").
<PAGE>
WHEREAS, Automotive, for many years, was, as a subsidiary of Security, and
currently is, as a separate corporation, primarily in the business of
developing, manufacturing and selling automotive products to original equipment
manufacturers of passenger cars, light trucks and other vehicles, and in the
associated aftermarket, under and in connection with trademarks, service marks,
trade names and trade dress comprised, in whole or in part, of the term "Borg
Warner", "B" and "W" and variations thereof, including but not limited to the
trademarks, service marks and trade names identified in Schedule A (the
"Automotive Trademarks") and Schedule D (the "Base Trademarks").
WHEREAS, Security and Automotive entered into an Amended and Restated
Trademark and Trade Name License Agreement dated as of August 24, 1993 (the
"Automotive License Agreement"), pursuant to which Automotive was licensed the
right to use the Automotive Trademarks and Base Trademarks in connection with
certain products.
WHEREAS, Security has also licensed to Echlin, Inc. the use of some of the
trademarks and trade dress identified in Schedule C (the "Bow Tie Trademarks")
in an agreement dated as of September 1, 1993 (the "Echlin License Agreement").
WHEREAS, Security operates its present business in the Security Field as
defined in Article I and does not plan to expand its business into the
Automotive Field as defined in Article I, but intends to expand its business
into other industries.
WHEREAS, Automotive operates its present business in the Automotive Field
as defined in Article I and does not presently plan to expand its business into
the Security Field as defined in Article I or any other field other than the
Automotive Field.
WHEREAS, substantial differences exist between Security's products and
services and Automotive's products and services; substantial differences exist
in the channels of trade in
-2-
<PAGE>
which Security's and Automotive's respective products and services are marketed,
promoted, advertised and sold; and substantial differences exist in the
consumers and purchasers of Security's products and services and Automotive's
products and services.
WHEREAS, there has been no known actual confusion between Security's
products and services and Automotive's products and services on account of the
similarity of the Borg Warner Trademarks, and no likelihood of confusion is
foreseen.
WHEREAS, subject to the terms and conditions of this Agreement, Automotive
desires to 1) acquire all of Security's right, title and interest in and to all
of the Automotive Trademarks, Bow Tie Trademarks and Base Trademarks in the
Automotive Field, the goodwill associated therewith, and the United States and
foreign Trademark Registrations and Registration Applications therefor; 2)
acquire all of Security's rights and obligations under the Echlin License
Agreement; and 3) terminate the Automotive License Agreement.
WHEREAS, subject to the terms and conditions of this Agreement, Security
desires to 1) assign to Automotive all of its right, title and interest in and
to all of the Automotive Trademarks, Bow Tie Trademarks and Base Trademarks in
the Automotive Field, the goodwill associated therewith, and the United States
and foreign Trademark Registrations and Registration Applications therefor; 2)
assign to Automotive all of its rights and obligations under the Echlin License
Agreement; and 3) terminate the Automotive License Agreement.
NOW, THEREFORE, based on the aforesaid premises, and subject to the terms
and conditions set forth below, the parties agree as follows:
ARTICLE I - DEFINITIONS
-----------------------
1.1) "Automotive Field" means the business of supplying products, components,
accessories and services for the manufacture, service and repair of (a)
vehicles, including without
-3-
<PAGE>
limitation passenger cars, vans, trucks, fork-lift trucks and other
industrial vehicles, off-highway motive equipment, motorcycles and other
recreational vehicles, aircraft, marine vessels, tractors and other
agricultural vehicles, railroad rolling stock and trailers and (b) internal
combustion engines and associated fuel supply or emission control systems
or devices for any application. The "Automotive Field" does not include
monitoring, tracking or servicing of any alarm, signal or security device
installed on any vehicle. The "Automotive Field" includes all such
products, components, accessories and services used on vehicles that also
have an application or use on industrial equipment. The "Automotive Field"
also includes use of promotional items and events associated with the
promotion, marketing and sale of any of the foregoing products, components,
accessories and services.
1.2) "Security Field" means the business of supplying products or services that
provide or enhance security, including but not limited to guard services,
alarm services, armored transport services, ATM maintenance and servicing,
cash management services, courier services, investigative services, pre-
employment screening, mailroom services; developing, manufacturing,
distributing, selling and servicing fire detection and burglary alarms and
products; and monitoring, tracking or servicing of any alarm, signal or
security device installed on any vehicle but does not include the
manufacture or sale of any alarm, signal or security device installed on
vehicles and replacement parts therefor.
ARTICLE II - ASSIGNMENT OF MARKS
--------------------------------
2.1) Security hereby assigns to Automotive all of its right, title and interest
world-wide in and to the Base Trademarks, Automotive Trademarks and Bow Tie
Trademarks in the Automotive Field, together with the goodwill of the
business associated with such marks,
-4-
<PAGE>
and all United States and foreign Registrations and Registration
Applications therefor. Security agrees that it will not challenge or
contest the validity of the Automotive Trademarks, the Bow Tie Trademarks
or Base Trademarks used or licensed by Automotive in the Automotive Field.
2.2) Security retains all right, title and interest world-wide in and to
trademarks and trade names identified in Schedule B (the "Security
Trademarks") and the Base Trademarks other than in the Automotive Field,
together with all goodwill of the business associated with such marks, and
all United States and foreign Registrations and Registration Applications
therefor. Automotive agrees that it will not challenge or contest the
validity of the Security Trademarks or Base Trademarks used or licensed by
Security other than in the Automotive Field.
ARTICLE III - RESTRICTIONS ON USE OF MARKS
------------------------------------------
3.1) Security shall not use or license for use any of the Automotive Trademarks
or Bow Tie Trademarks. Security shall not use or license for use any of
the Security Trademarks, Base Trademarks or any trademarks, service marks,
trade dress and trade names comprised or, in whole or in part, the term
"Borg Warner", "B" and "W" or variations thereof, in the Automotive Field.
Security may adopt, use or license any new trademark, service mark, trade
dress, trade name or the like utilizing, in whole or in part, the term
"Borg Warner", "B" and "W" or variations thereof in any business, industry
or field other than in the Automotive Field except as restricted by law.
3.2) Automotive shall not use or license for use any of the Security Trademarks.
Automotive shall not use or license for use any of the Automotive
Trademarks, the Bow Tie Trademarks, Base Trademarks or any trademarks,
service marks, trade dress and trade
-5-
<PAGE>
names comprised of, in whole or in part, the term "Borg Warner", "B" and
"W" or variations thereof, other than in the Automotive Field. Automotive
may adopt, use or license any new trademark, service mark, trade dress,
trade name or the like, utilizing, in whole or in part, the term "Borg
Warner", "B" and "W" or variations thereof in the Automotive Field except
as restricted by law.
3.3) Automotive may license the Automotive Trademarks, Bow Tie Trademarks, the
Base Trademarks or any other trademark, service mark, trade dress or trade
name comprised of, in whole or in part, the term "Borg Warner", "B" or "W"
or variations thereof for use in the Automotive Field to any entity
provided that for any such license granted after August 24, 1993,
Automotive retains the contractual right to control the products and
services to be produced or provided by such entity under or in connection
with the Automotive Trademarks, the Bow Tie Trademarks or Base Trademarks,
the quality of such products and services, the manner in which such
products and services are marketed and sold, and the manner in which such
trademarks, service marks, trade dress or trade names are displayed and
used.
ARTICLE IV - ASSIGNMENT AND TERMINATION OF LICENSE AGREEMENTS
-------------------------------------------------------------
4.1) Security hereby assigns to Automotive all of its rights, interests and
obligations in, under, and to the Echlin License Agreement and Automotive
hereby assumes all rights, obligations and restrictions of Security
thereunder.
4.2) The Automotive License Agreement is hereby terminated and superseded by
this Agreement.
-6-
<PAGE>
ARTICLE V - PAYMENTS
--------------------
5.1) Upon approval of this Agreement by the Board of Directors of both
Automotive and Security, Automotive shall pay Security $10,000,000.00.
Automotive shall also pay Security any royalties collected by Automotive
from Echlin pursuant to the Echlin License Agreement relating to the sale
of products sold by Echlin under or in connection with the Bow Tie
Trademarks which are attributable to any sales during the period of time
prior to November 1, 1994.
5.2) As additional consideration for the transactions contemplated by this
Agreement, Automotive shall pay Security the sum of $7,500,000.00 within 30
days following the first to occur of:
(i) a "Change in Control" of Automotive;
(ii) the assignment by Automotive or any of its successors or assigns
of, or the entering of an agreement to assign, any of the Automotive
Trademarks, Bow Tie Trademarks, Base Trademarks or any other
trademark, service mark, trade dress or trade name comprised of, in
whole or in part, the term "Borg Warner", "B" or "W" or variations
thereof other than to a "Subsidiary;" or
(iii) the license by Automotive or any of its successors or assigns of,
or the entering of an agreement to license, any of the Automotive
Trademarks, Bow Tie Trademarks, Base Trademarks or any other
trademark, service mark, trade dress or trade name comprised of, in
whole or in part, the term "Borg Warner", "B" or "W" or variations
thereof, other than as provided in paragraph 3.3 of this Agreement.
-7-
<PAGE>
As used herein, a "Change in Control" shall be deemed to have occurred when
(i) more than 50% of Automotive's Board of Directors (the "Board") consists
of individuals who were not members of the Board on August 24, 1993, and
whose election, or nomination for election, was not approved by a vote of
at least 75% of the directors then in the office, who either were directors
on August 24, 1993 or whose election or nomination for election was
previously so approved or (ii) any person or group (within the meaning of
Rule 13d-3 promulgated under the Security Exchange Act of 1934), other than
Merrill Lynch & Co. and its affiliates and members of Automotive's
management on August 24, 1993, shall become or be the owner, directly or
indirectly, beneficially or of record, of shares representing more than 50%
of the aggregate ordinary voting power represented by the issued and
outstanding capital stock of Automotive on a fully diluted basis. As used
herein, "Subsidiary" means any corporation with respect to which Automotive
or one of its Subsidiaries has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors.
ARTICLE VI - ENFORCEMENT OF TRADEMARK RIGHTS
--------------------------------------------
6.1) The parties agree and acknowledge that the enforcement of the Automotive
Trademarks, the Bow Tie Trademarks, Security Trademarks, Base Trademarks
and other trademarks, service marks, trade dress and trade names comprised,
in whole or in part, of the term "Borg Warner", "B" and "W" and variations
thereof by their respective owners, is integral to the maintenance of the
strength, goodwill and value thereof. Security and Automotive shall (i)
maintain a consistent and high level of quality, at least equal to that
which has previously been employed, for the products and services offered
under such marks and (ii) correctly use and properly identify such marks.
-8-
<PAGE>
6.2) Automotive will, at its reasonable discretion and sole expense, register,
maintain and police the Automotive Trademarks, the Bow Tie Trademarks, Base
Trademarks in the Automotive Field, and any trademarks, service marks,
trade dress and trade names comprised, in whole or in part, of the term
"Borg Warner", "B" and "W" and variations thereof, which Automotive
hereafter adopts or uses consistent with Paragraph 3.2 hereof.
6.3) Security will, at its reasonable discretion and sole expense, register,
maintain and police the Security Trademarks, Base Trademarks outside the
Automotive Field, and any trademarks, service marks, trade dress and trade
names comprised, in whole or in part, of the term "Borg Warner", "B" and
"W" and variations thereof, which Security hereafter adopts or uses
consistent with Paragraph 3.1 hereof.
6.4) Each party will promptly provide the other with written notification upon
learning of the use by a third party of a trademark, service mark, trade
dress or trade name that is the same as or substantially similar to any
trademark, service mark, trade dress or trade name comprised, in whole or
in part, of the term "Borg Warner", "B" and "W" or any variation thereof,
used at any time by Security or Automotive (the "Infringing Mark"). Either
party may join any enforcement action initiated by the other party against
any use by any third party of any Infringing Mark, at its sole expense, as
long as joining does not adversely affect the rights of the initiating
party. In any event, each party shall cooperate with the other in any
enforcement action reasonably brought and prosecuted by either party
against any use by any third party of any Infringing Mark, and each party
shall bear its own expenses and costs, including attorneys' fees incurred
in providing such cooperation. In the event damages (or sanctions) are
awarded in any such action,
-9-
<PAGE>
each party shall be responsible for and/or entitled to such damages (or
sanctions) as are proved by or against it.
ARTICLE VII - RELEASE AND INDEMNIFICATION
-----------------------------------------
7.1) Security and Automotive hereby release and forever discharge each other,
and covenant not to sue each other, for and from any and all claims, causes
of action, damages, and liabilities arising from the use of the trademarks,
service marks, trade dress and trade names comprised, in whole or in part,
of the term "Borg Warner", "B" and "W" and variations thereof, as are
permitted under this Agreement.
7.2) Automotive agrees to indemnify and hold Security harmless from and against,
and to defend against, any loss, liability, damage, claim or expense
(including reasonable attorneys' fees and court costs) ("Loss") resulting
from, arising out of, relating to, or caused by (i) Automotive's breach of
any term of this Agreement, (ii) Automotive's use of any trademarks,
service marks, trade dress and trade names comprised, in whole or in part,
of the term "Borg Warner", "B" or "W" or variations thereof, and (iii) the
assignment of rights, interests or obligations herein, provided that
Automotive shall not have any obligation to indemnify Security under this
clause (iii) from and against any Loss that results from, arises out of,
relates to, or is caused by a challenge by any governmental entity or
administrative body.
7.3) Security agrees to indemnify and hold Automotive harmless from and against,
and to defend against, any Loss resulting from, arising out of, relating
to, or caused by (i) Security's breach of any term of this Agreement, and
(ii) Security's use of any trademarks, service marks, trade dress and trade
names comprised, in whole or in part, of the term "Borg Warner", "B" or "W"
or variations thereof.
-10-
<PAGE>
ARTICLE VIII - ARBITRATION
--------------------------
8.1) Any controversy or claim arising out of or relating to this Agreement, or
the breach thereof, shall be settled by arbitration in Chicago, Illinois,
in accordance with the Rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator may be entered into any
court having jurisdiction thereof.
8.2) The arbitrator shall resolve any controversies, disputes or claims in
accordance with the terms of this Agreement interpreted in accordance with
the law of Illinois, and applicable federal law acting always as an
impartial judge without a jury and not as mediator or conciliator.
Depositions may be taken and other discovery obtained during such
arbitration proceedings to the same extent as authorized in civil judicial
proceedings in the State of Illinois. The arbitration award, which may
include equitable relief, shall state in writing the reasons for the award
and, in connection therewith, set for the arbitrator's findings of fact and
conclusions of law.
ARTICLE IX - MISCELLANEOUS PROVISIONS
-------------------------------------
9.1) This Agreement shall be binding upon the parties, their successors and
assigns. This Agreement shall not confer any rights or remedies upon any
person other than the parties and their respective successors and permitted
assigns.
9.2) This Agreement constitutes the entire agreement between Security and
Automotive with respect to the subject matter hereof and no other
representations, oral or otherwise, have been relied upon.
9.3) The parties will execute such other documents as are necessary and
reasonable to effect the purpose of this Agreement.
-11-
<PAGE>
9.4) This Agreement shall be deemed drafted by both parties, and entered into
after review and with advise of counsel.
9.5) The rights and obligations under this Agreement shall not become effective
unless and until approved by the parties' respective Boards of Directors.
9.6) This Agreement shall be governed by and construed in accordance with the
internal laws (and not the law of conflicts) of the State of Illinois and
the applicable federal law of the United States.
9.7) All notices required under this Agreement shall be sent to the attention of
the General Counsel at the respective parties, at the above addresses, or
as otherwise directed by the parties.
9.8) Each party hereto will have all rights and remedies set forth in this
Agreement and all rights and remedies which such parties have been granted
at any time under any other existing agreement or contract and under
applicable law. Any person having rights under this Agreement will be
entitled to enforce such rights specifically, to recover damages by reason
of any breach of this Agreement and to exercise all other rights granted by
law. In the event that either party shall institute any action
specifically to enforce the other party's performance under this Agreement,
such other party agrees to waive the defense that the enforcing party has
an adequate remedy at law and to interpose no opposition, legal or
otherwise, as to the propriety of specific performance as a remedy.
9.9) The obligations and restrictions imposed upon Automotive under this
Agreement, including but not limited to Paragraph 5.2, shall not apply to
the mark or name "BORG & BECK" and equivalents thereof.
-12-
<PAGE>
In witness whereof, the parties have caused this Agreement to be executed
as of the date first above written.
BORG-WARNER SECURITY BORG-WARNER AUTOMOTIVE, INC.
CORPORATION
BY: /s/ Donald C. Trauscht BY: /s/ J. Gordon Amedee
--------------------------- ---------------------------
TYPED NAME: Donald C. Trauscht TYPED NAME: J. Gordon Amedee
------------------- -------------------
TITLE: President TITLE: Chairman
------------------------ ------------------------
-13-
<PAGE>
===============================================================================
TRANSFER AND ADMINISTRATION AGREEMENT
among
ENTERPRISE FUNDING CORPORATION,
as Company
and
BPS FINANCIAL SERVICES, INC.
as Transferor
and
BORG-WARNER SECURITY CORPORATION
as Collection Agent
Dated as of November 21, 1994
===============================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I
DEFINITIONS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1.1 Certain Defined Terms..................................... 1
SECTION 1.2 Other Terms............................................... 23
SECTION 1.3 Computation of Time Periods............................... 23
ARTICLE II
PURCHASES AND SETTLEMENTS
SECTION 2.1 Facility................................................. 24
SECTION 2.2 Transfers; Company Certificate; Eligible Recievables..... 24
SECTION 2.3 Selection of Tranche Periods and Tranche Rates........... 27
SECTION 2.4 Discount, Fees and Other Costs and Expenses.............. 28
SECTION 2.6 Liquidation Settlement Procedures........................ 29
SECTION 2.7 Fees..................................................... 30
SECTION 2.8 Protection of Ownership Interest of the Company.......... 30
SECTION 2.9 Deemed Collections; Application of Payments.............. 32
SECTION 2.10 Payments and Computations, Etc........................... 33
SECTION 2.11 Reports.................................................. 33
SECTION 2.12 Collection Account....................................... 33
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Transferor......... 35
SECTION 3.2 Reaffirmation of Representations and Warranties by the
Transferor............................................. 38
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.1 Conditions to Closing.................................... 42
ARTICLE V
COVENANTS
SECTION 5.2 Negative Covenants....................................... 51
</TABLE>
i
<PAGE>
ARTICLE VI
ADMINISTRATION AND COLLECTIONS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 6.1 Appointment of Collection Agent.......................... 53
SECTION 6.2 Duties of Collection Agent............................... 53
SECTION 6.3 Rights After Designation of New Collection Agent......... 55
SECTION 6.4 Responsibilities of the Transferor....................... 56
ARTICLE VII
TERMINATION EVENTS
SECTION 7.1 Termination Events....................................... 57
SECTION 7.2 Termination.............................................. 61
ARTICLE VIII
INDEMNIFICATION; EXPENSES; RELATED MATTERS
SECTION 8.1 Indemnities by the Transferor............................ 62
SECTION 8.2 Indemnity for Taxes, Reserves and Expenses............... 64
SECTION 8.3 Other Costs, Expenses and Related Matters................ 66
SECTION 8.4 Reconveyance Under Certain Circumstances................. 67
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Term of Agreement........................................ 68
SECTION 9.2 Waivers; Amendments...................................... 68
SECTION 9.3 Notices.................................................. 68
SECTION 9.4 Governing Law; Submission to Jurisdiction; Integration... 70
SECTION 9.5 Severability; Counterparts............................... 71
SECTION 9.6 Successors and Assigns................................... 71
SECTION 9.7 Waiver of Confidentiality................................ 71
SECTION 9.8 Confidentiality Agreement................................ 72
SECTION 9.9 No Bankruptcy Petition Against the Company............... 72
SECTION 9.10 No Recourse Against Stockholders, Officers or Directors.. 72
SECTION 9.11 Characterization of the Transactions Contemplated by the
Agreement; Assignment of Rights Under Receivables
Purchase Agreement..................................... 73
</TABLE>
ii
<PAGE>
EXHIBITS
EXHIBIT A [Reserved]
EXHIBIT B Credit and Collection Policies and Practices
EXHIBIT C List of Lock-Box Banks
EXHIBIT D Form of Lock-Box Agreement
EXHIBIT E Form of Investor Report
EXHIBIT F Form of Transfer Certificate
EXHIBIT G Form of Weekly Report
EXHIBIT H List of Actions and Suits
EXHIBIT I Location of Records and Chief Executive Offices
EXHIBIT J List of Subsidiaries, Divisions and Tradenames
EXHIBIT K Form of Opinion of Counsel for the Transferor
EXHIBIT L Form of Responsible Officer's Certificate
EXHIBIT M Form of Company Certificate
EXHIBIT N Certain Definitions
iii
<PAGE>
TRANSFER AND ADMINISTRATION AGREEMENT
TRANSFER AND ADMINISTRATION AGREEMENT (this "Agreement"), dated as of
November 21, 1994, between BPS FINANCIAL SERVICES, INC., a Delaware corporation,
as transferor (in such capacity, the "Transferor"), BORG-WARNER SECURITY
CORPORATION, a Delaware corporation, as collection agent (in such capacity, the
"Collection Agent"), and ENTERPRISE FUNDING CORPORATION, a Delaware corporation
(the "Company").
PRELIMINARY STATEMENTS
----------------------
WHEREAS, the Transferor may desire to convey, transfer and assign,
from time to time, undivided percentage ownership interests in a pool of certain
billed trade receivables, all monies due or to become due in payment of such
receivables, as well as monies on deposit in certain bank accounts established
under this Agreement, and the Company may desire to accept such conveyance,
transfer and assignment of such undivided percentage ownership interests,
subject to the terms and conditions of this Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
<PAGE>
"Adverse Claim" means a lien, security interest, charge or
encumbrance, or other right or claim in, of or on any Person's assets or
properties in favor of any other Person.
"Administrative Agent" means NationsBank of North Carolina, N.A., as
administrative agent.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. A Person shall be deemed to control another
Person if the controlling Person possesses, directly or indirectly, the power to
direct or cause the direction of the management or policies of the controlled
Person, whether through ownership of voting stock, by contract or otherwise.
"Affiliated Obligor" means any Obligor which is an Affiliate of
another Obligor.
"Aggregate Unpaids" means, at any time, an amount equal to the sum of
(i) the aggregate accrued and unpaid Discount with respect to all Tranche
Periods at such time, (ii) the Net Investment at such time, and (iii) all other
amounts owed (whether due or accrued) hereunder by Transferor to the Company at
such time.
"Arrangement Fee" means the fee payable by the Transferor to the
Administrative Agent pursuant to Section 2.7 hereof, the terms of which are set
forth in the Fee Letter.
"Average Collection Period" means at any time a period of days equal
to the product of (i) a fraction the numerator of which shall be the amount set
forth in the most recent Investor Report as the "Beginning Balance" of the
Receivables and the denominator of which shall be the Collections as set forth
in the most recent Investor Report and (ii) thirty (30).
"Base Rate" or "BR" means, a rate per annum equal to the greater of
(i) the prime rate of interest announced by the Liquidity Provider from time to
time, changing when and as said prime rate changes (such rate
2
<PAGE>
not necessarily being the lowest or best rate charged by the Liquidity Provider)
and (ii) the rate equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day that is a Business
Day, the average of the quotations for such day for such transactions received
by the Liquidity Provider from three Federal funds brokers of recognized
standing selected by it plus 2%.
"Borg-Warner" shall mean Borg-Warner Security Corporation, a Delaware
corporation, and its successors.
"Business Day" means any day excluding Saturday, Sunday and any day on
which banks in New York, New York, Charlotte, North Carolina, Dallas, Texas or
Chicago, Illinois are authorized or required by law to close, and, when used
with respect to the determination of any Eurodollar Rate or any notice with
respect thereto, any such day which is also a day for trading by and between
banks in United States dollar deposits in the London interbank market.
"BR Tranche" means a Tranche as to which Discount is calculated at the
Base Rate.
"BR Tranche Period" means, with respect to a BR Tranche, prior to the
Termination Date, a period of up to 30 days requested by the Transferor and
agreed to by the Company or the Liquidity Provider , as the case may be,
commencing on a Business Day requested by the Transferor and agreed to by the
Company or the Liquidity Provider , as the case may be, and after the
Termination Date, a period of one day. If such BR Tranche Period would end on a
day which is not a Business Day, such BR Tranche Period shall end on the next
succeeding Business Day.
"Capitalized Lease" of a Person means any lease of property by such
Person as lessee which would be capitalized on a balance sheet of such Person
prepared in accordance with generally accepted accounting principles.
"CD Rate" shall mean, with respect to any CD Tranche Period, a rate
which is .75% in excess of a rate
3
<PAGE>
per annum equal to the sum (rounded upward to the nearest 1/100 of 1%) of (A)
the rate obtained by dividing (x) the Certificate of Deposit Rate for such CD
Tranche Period by (y) a percentage equal to 100% minus the stated maximum rate
for all reserve requirements as specified in Regulation D (including without
limitation any marginal, emergency, supplemental, special or other reserves)
that would be applicable during such Tranche Period to a negotiable certificate
of deposit in excess of $100,000, with a maturity approximately equal to such
Tranche Period, of any member bank of the Federal Reserve System plus (B) the
then daily net annual assessment rate (rounded upward, if necessary, to the
nearest 1/100 of 1%) as estimated by the Liquidity Provider for determining the
current annual assessment payable by the Liquidity Provider to the Federal
Deposit Insurance Corporation for insuring such certificates of deposit.
"CD Tranche" means a Tranche as to which Discount is calculated at the
CD Rate.
"CD Tranche Period" means, with respect to a CD Tranche, prior to the
Termination Date, a period of up to one month requested by the Transferor and
agreed to by the Company or the Liquidity Provider, as the case may be,
commencing on a Business Day requested by the Transferor and agreed to by the
Company or the Liquidity Provider, as the case may be, and after the
Termination Date, a period of one day. If such CD Tranche Period would end on a
day which is not a Business Day, such CD Tranche Period shall end on the next
succeeding Business Day.
"Certificate of Deposit Rate" means, with respect to any CD Tranche
Period, the average of the bid rates determined by the Liquidity Provider to be
bid rates per annum, at approximately 10:00 a.m. (New York City time) on the
Business Day before the first day of the CD Tranche Period for which such CD
Rate is to be applicable, of two or more New York certificate of deposit dealers
of recognized standing selected by the Liquidity Provider for the purchase in
New York from the Liquidity Provider at face value of certificates of deposit of
the Liquidity Provider in an aggregate amount approximately comparable to the
amount of the CD Tranche to which such CD Rate is to be applicable and with a
maturi-
4
<PAGE>
ty approximately equal to the applicable CD Tranche Period.
"Closing Date" means November 21, 1994.
"Collateral Agent" means NationsBank of North Carolina, N.A., as
collateral agent for any Liquidity Provider, any Credit Support Provider, the
holders of Commercial Paper and certain other parties.
"Collections" means, with respect to any Receivable, all cash
collections and other cash proceeds of such Receivable, including, without
limitation, all Finance Charges, if any, and cash proceeds of Related Security
with respect to such Receivable.
"Collection Account" means the account, established by the Collateral
Agent, for the benefit of the Company, pursuant to Section 2.12.
"Collection Agent" means at any time the Person then authorized
pursuant to Section 6.1 to service, administer and collect Receivables.
"Commercial Paper" means the promissory notes of the Company issued by
the Company in the commercial paper market.
"Company Certificate" means the certificate issued to the Company
pursuant to Section 2.2 hereof.
"Concentration Factor" means at any time for any Designated Obligor,
(a) 2% of the Outstanding Balance of the Eligible Receivables, or (b) 3% of the
Outstanding Balance of the Eligible Receivables, if the Obligor's senior
unsecured long term debt is rated at least "BBB-" by S&P and "Baa3" by Moody's,
or (c) such other amount determined by the Company in the reasonable exercise of
its good faith judgment and disclosed in a written notice delivered to the
Transferor.
"Consolidated Net Worth" shall have the meaning specified in
Exhibit N.
"Contract" means an agreement, instrument or invoice, pursuant to or
under which an Obligor shall be obligated to pay the Seller for services
rendered.
5
<PAGE>
"CP Rate" means, with respect to any CP Tranche Period, the rate
equivalent to the rate (or if more than one rate, the weighted average of the
rates) at which Commercial Paper having a term equal to such CP Tranche Period
may be sold by any placement agent or commercial paper dealer selected by the
Company, provided, however, that if the rate (or rates) as agreed between any
such agent or dealer and the Company is a discount rate, then the rate (or if
more than one rate, the weighted average of the rates) resulting from the
Company's converting such discount rate (or rates) to an interest-bearing
equivalent rate per annum.
"CP Tranche" means a Tranche as to which Discount is calculated at a
CP Rate.
"CP Tranche Period" means, with respect to a CP Tranche, a period of
days not to exceed 120 days commencing on a Business Day requested by the
Transferor and agreed to by the Company pursuant to Section 2. If such CP
Tranche Period would end on a day which is not a Business Day, such CP Tranche
Period shall end on the next succeeding Business Day.
"Credit and Collection Policy" shall mean the credit and collection
policies and practices, relating to Contracts and Receivables existing on the
date hereof and referred to in Exhibit B attached hereto, as modified from time
to time in compliance with Section 5.2(d).
"Credit Support Agreement" means the agreement between the Company and
the Credit Support Provider evidencing the obligation of the Credit Support
Provider to provide credit support to the Company in connection with the
issuance by the Company of Commercial Paper.
"Credit Support Provider" means the Person or Persons who will provide
credit support to the Company in connection with the issuance by the Company of
Commercial Paper.
"Dealer Fee" means the fee payable by the Transferor to the Collateral
Agent, pursuant to Section 2.4 hereof, the terms of which are set forth in the
Fee Letter.
6
<PAGE>
"Deemed Collections" means any Collections on any Receivable deemed to
have been received pursuant to Section 2.9(a) or (b).
"Defaulted Receivable" means a Receivable: (i) as to which any
payment, or part thereof, remains unpaid for 120 days or more from the billing
date for such Receivable; (ii) as to which an Event of Bankruptcy has occurred
with respect to the Obligor thereof; (iii) which has been identified by the
Transferor or the Collection Agent as uncollectible; or (iv) which, consistent
with the applicable Credit and Collection Policy, should be written off the
Transferor's books as uncollectible.
"Delinquency Ratio" means, the ratio (expressed as a percentage)
computed as of the last day of each calendar month by dividing (i) the aggregate
Outstanding Balance of all Delinquent Receivables as of such date by (ii) the
aggregate Outstanding Balance of all Receivables as of such date less Defaulted
Receivables as of such date.
"Delinquent Receivable" means a Receivable: (i) as to which any
payment, or part thereof, remains unpaid for more than 60 days from the billing
date for such Receivable and (ii) which is not a Defaulted Receivable.
"Designated Financial Officer" means, with respect to any Person, the
controller, treasurer, assistant treasurer or chief financial officer of such
Person.
"Designated Obligor" means, at any time, each Obligor; provided,
however, that any Obligor shall cease to be a Designated Obligor effective three
Business Days following the giving of notice to the Transferor from the Company,
which notice shall contain an explanation in reasonable detail of the reason for
such cessation.
"Dilution Ratio" means, the ratio (expressed as a percentage) computed
as of the last day of each calendar month by dividing (i) the aggregate amount
of credits, rebates, discounts, disputes, warranty claims, repossessed or
returned goods, charge back allowances and other dilutive factors, and any other
billing or other adjustment by the Transferor or the Collection Agent, provided
to Obligors in respect of Receivables during
7
<PAGE>
such calendar month by (ii) the aggregate Outstanding Balance of all Receivables
which arose during the preceding calendar month.
"Discount" means, with respect to any Tranche Period:
(TR x TNI x AD)
--
360
Where:
TR = the Tranche Rate applicable to such Tranche Period.
TNI = the portion of the Net Investment allocated to such Tranche Period.
AD = the actual number of days during such Tranche Period.
provided, however, that no provision of this Agreement shall require the payment
or permit the collection of Discount in excess of the maximum permitted by
applicable law; and provided, further, that Discount shall not be considered
paid by any distribution if at any time such distribution is rescinded or must
be returned for any reason.
"Discount Reserve" means, at any time, an amount equal to:
TD + LY
Where:
TD = the sum of the unpaid Discount and Program Fee for all Tranche
Periods.
LY = the Liquidation Yield
"Early Collection Fee" means, for any Tranche Period (such Tranche
Period to be determined without regard to the last sentence in Section 2.3(a))
during which the portion of the Net Investment that was allocated to such
Tranche Period is reduced, the excess, if any, of (i) the additional Discount
that would have accrued
8
<PAGE>
during such Tranche Period if such reductions had not occurred, minus (ii) the
income, if any, received by the Company from investing the proceeds of such
reductions.
"Eligible Investments" shall mean (a) negotiable instruments or
securities represented by instruments in bearer or registered or in book-entry
form which evidence (i) obligations fully guaranteed by the United States of
America; (ii) time deposits in, or bankers acceptances issued by, any depositary
institution or trust company incorporated under the laws of the United States of
America or any state thereof and subject to supervision and examination by
Federal or state banking or depositary institution authorities; provided,
however, that at the time of investment or contractual commitment to invest
therein, the certificates of deposit or short-term deposits, if any, or long-
term unsecured debt obligations (other than such obligation whose rating is
based on collateral or on the credit of a Person other than such institution or
trust company) of such depositary institution or trust company shall have a
credit rating from Moody's and S&P of at least "P-1" and "A-1", respectively, in
the case of the certificates of deposit or short-term deposits, or a rating not
lower than one of the two highest investment categories granted by Moody's and
by S&P; (iii) certificates of deposit having, at the time of investment or
contractual commitment to invest therein, a rating from Moody's and S&P of at
least "P-1" and "A-1", respectively; (iv) investments in money market funds
rated in the highest investment category or otherwise approved in writing by the
applicable rating agencies, (b) demand deposits in any depositary institution or
trust company referred to in (a)(ii) above, (c) commercial paper (having
original or remaining maturities of no more than 30 days) having, at the time of
investment or contractual commitment to invest therein, a credit rating from
Moody's and S&P of at least "P-1" and "A-1", respectively, (d) Eurodollar time
deposits having a credit rating from Moody's and S&P of at least "P-1" and "A-
1", respectively, and (e) repurchase agreements involving any of the Eligible
Investments described in clauses (a)(i), (a)(iii) and (d) hereof so long as the
other party to the repurchase agreement has at the time of investment therein, a
rating from Moody's and S&P of at least "P-1" and "A-1", respectively.
9
<PAGE>
"Eligible Receivable" means, at any time, any Receivable:
(i) which has been originated by a Seller and as to which the
Seller which originated such Receivable has sold, assigned and
conveyed all of its right title and interest therein the Transferor
pursuant to the Receivables Purchase Agreement and as to which the
Transferor has good title thereto, free and clear of all Adverse
Claims;
(ii) as to which the Transferor or a Seller has satisfied all
obligations to be fulfilled thereunder;
(iii) the Obligor of which is a United States resident, is a
Designated Obligor at the time of the initial creation of an interest
therein hereunder, and is not an Affiliate of any of the parties
hereto (for the avoidance of doubt it is acknowledged that neither
NationsBank Corporation nor Merrill Lynch & Co. or any of their
affiliates should be considered an Affiliate of any of the parties
hereto);
(iv) which, if the Obligor is a government or a governmental
subdivision or agency, no more than (i) 15% of aggregate Outstanding
Balance of Eligible Receivables may be Receivables payable by
municipal governments and (ii) 5% of aggregate Outstanding Balance of
Eligible Receivables may be Receivables payable by the federal
government;
(v) which is not a Defaulted Receivable at the time of the
initial creation of an interest of the Company therein;
(vi) which is not a Delinquent Receivable at the time of the
initial creation of an interest of the Company therein;
(vii) which relates to services which have been performed and
have been billed and which, according to the Contract related
thereto, are required to be paid in full upon receipt by the Obligor
of the billing notice therefor;
10
<PAGE>
(viii) which is an "eligible asset" as defined in Rule 3a-7
under the Investment Company Act of 1940, as amended;
(ix) a purchase of which with the proceeds of Commercial Paper
would constitute a "current transaction" within the meaning of
Section 3(a)(3) of the Securities Act of 1933, as amended;
(x) which is an "account" or "general intangible" within the
meaning of Article 9 of the UCC of all applicable jurisdictions;
(xi) which is denominated and payable only in United States
dollars in the United States;
(xii) which, arises under a Contract that together with the
Receivable related thereto, is in full force and effect and
constitutes the legal, valid and binding obligation of the related
Obligor enforceable against such Obligor in accordance with its terms
and is not subject to any offset, counterclaim or other defense at
such time;
(xiii) which, together with the Contract related thereto, does
not contravene in any material respect any laws, rules or regulations
applicable thereto (including, without limitation, laws, rules and
regulations relating to truth in lending, fair credit billing, fair
credit reporting, equal credit opportunity, fair debt collection
practices and privacy) and with respect to which no part of the
Contract related thereto is in violation of any such law, rule or
regulation in any material respect if such violation would impair the
collectibility of such Receivable or would adversely affect the
Company's interest in such Receivable;
(xiv) which (A) satisfies all applicable requirements of the
Credit and Collection Policy and (B) complies with such other non-
arbitrary credit related criteria and requirements as the Company may
from time to time specify to the Transferor following five days'
notice;
11
<PAGE>
(xv) which was generated in the ordinary course of a Seller's
business and which is subject to a valid sale and assignment from the
Seller to the Transferor under the Receivables Purchase Agreement;
and
(xvi) the Obligor of which has been directed to make all
payments to a specified account with respect to which there shall be
a Lock-Box Agreement in effect.
"Estimated Maturity Period" means, at any time, the period, rounded
upward to the nearest whole number of days, equal to the weighted average days
until due of the Receivables as calculated by the Collection Agent in good faith
and set forth in the most recent Investor Report, such calculation to be based
on the assumptions that (a) each Receivable within a particular aging category,
(as set forth in the Investor Report) will be paid on the last day of such aging
category and (b) the last day of the last such aging category coincides with the
last date on which any Outstanding Balance of any Receivables would be written
off as uncollectible or charged against any applicable reserve or similar
account in accordance with the objective requirements of the Credit and
Collection Policy and the Transferor's normal accounting practices applied on a
basis consistent with those reflected in the Transferor's financial statements,
provided, however, that if the Company shall reasonably disagree with any such
calculation, the Company may recalculate the Estimated Maturity Period, and such
recalculation, in the absence of manifest error, shall be conclusive.
"Eurodollar Rate" means, with respect to any Eurodollar Tranche Period, a
rate which is .625% in excess of a rate per annum equal to the sum (rounded
upwards, if necessary, to the next higher 1/100 of 1%) of (A) the rate obtained
by dividing (i) the applicable LIBOR Rate by (ii) a percentage equal to 100%
minus the reserve percentage used for determining the maximum reserve
requirement as specified in Regulation D (including, without limitation, any
marginal, emergency, supplemental, special or other reserves) that is applicable
to the Liquidity Provider during such Eurodollar Tranche Period in respect of
eurocurrency or eurodollar funding, lending or liabilities (or, if more than one
percentage shall be so applicable, the daily average of such per-
12
<PAGE>
centage for those days in such Eurodollar Tranche Period during which any such
percentage shall be applicable) plus (B) the then daily net annual assessment
rate (rounded upwards, if necessary, to the nearest 1/100 of 1%) as estimated by
the Liquidity Provider for determining the current annual assessment payable by
the Liquidity Provider to the Federal Deposit Insurance Corporation in respect
of eurocurrency or eurodollar funding, lending or liabilities.
"Eurodollar Tranche" means a Tranche as to which Discount is
calculated at the Eurodollar Rate.
"Eurodollar Tranche Period" means, with respect to a Eurodollar
Tranche, prior to the Termination Date, a period of up to one month requested by
the Transferor and agreed to by the Company or the Liquidity Provider , as the
case may be, commencing on a Business Day requested by the Transferor and agreed
to by the Company; provided, however, that if such Eurodollar Tranche Period
would expire on a day which is not a Business Day, such Eurodollar Tranche
Period shall expire on the next succeeding Business Day; provided, further, that
if such Eurodollar Tranche Period would expire on (a) a day which is not a
Business Day but is a day of the month after which no further Business Day
occurs in such month, such Eurodollar Tranche Period shall expire on the next
preceding Business Day or (b) a Business Day for which there is no numerically
corresponding day in the applicable subsequent calendar month, such Eurodollar
Tranche Period shall expire on the last Business Day of such month.
"Event of Bankruptcy", with respect to any Person, shall mean (i) that
such Person shall generally not pay its debts as such debts become due or shall
admit in writing its inability to pay its debts generally or shall make a
general assignment for the benefit of creditors; or any proceeding shall be
instituted by or against such Person seeking to adjudicate it as bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee or other similar official for it or any substantial part of its property
or (ii) if such Person is a corporation, such Person or
13
<PAGE>
any Subsidiary shall take any corporate action to authorize any of the
actions set forth in the preceding clause (i).
"Fee Letter" means the letter agreement dated the date hereof between
the Transferor and the Company, as amended, modified or supplemented from time
to time.
"Finance Charges" means, with respect to a Contract, any finance,
interest, late or similar charges owing by an Obligor pursuant to
such Contract.
"Guaranty" of a Person means any agreement by which such Person
assumes, guarantees, endorses, contingently agrees to purchase or provide funds
for the payment of, or otherwise becomes liable upon, the obligation of any
other Person, or agrees to maintain the net worth or working capital or other
financial condition of any other Person or otherwise assures any other creditor
of such other Person against loss, including, without limitation, any comfort
letter, operating agreement or take-or-pay contract and shall include, without
limitation, the contingent liability of such Person in connection with any
application for a letter of credit.
"Incremental Transfer" means a Transfer which is made pursuant to
Section 2.2(a).
"Indebtedness" of a Person means such Person's (i) obligations for
borrowed money, (ii) obligations representing the deferred purchase price of
property other than accounts payable arising in the ordinary course of such
Person's business on terms customary in the trade, (iii) obligations, whether or
not assumed, secured by liens or payable out of the proceeds or production from
property now or hereafter owned or acquired by such Person, (iv) obligations
which are evidenced by notes, acceptances, or other instruments, (v) Capitalized
Lease obligations and (vi) obligations for which such Person is obligated
pursuant to a Guaranty.
"Indemnified Amounts" has the meaning specified in Section 8.1.
"Indemnified Parties" has the meaning specified in Section 8.1.
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<PAGE>
"Interest Coverage Ratio" shall have the meaning specified in Section
7.1(n).
"Investor Report" means a report, in substantially the form of Exhibit
E or in such other form as is mutually agreed to by the Transferor and the
Company, furnished by the Collection Agent to the Company and the Administrative
Agent pursuant to Section 2.11.
"Law" shall mean any law (including common law), constitution,
statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree or
award of any Official Body.
"Leverage Ratio" shall have the meaning specified in Section 5.3.
"LIBOR Rate" shall mean, with respect to any Eurodollar Tranche
Period, the rate at which deposits in dollars are offered to the Liquidity
Provider in the London interbank market at approximately 11:00 a.m. (London
time) two Business Days before the first day of such Eurodollar Tranche Period
in an amount approximately equal to the Eurodollar Tranche to which the
Eurodollar Rate is to apply and for a period of time approximately equal to the
applicable Eurodollar Tranche Period.
"Liquidation Yield" means, at any time, an amount equal to:
(RVF x LBR x NI) x (EM x 1.5)
----------
360
Where:
RVF = the Rate Variance Factor.
LBR = the Base Rate which is applicable to the liquidation period
of the Net Investment at such time.
NI = the Net Investment.
EM = the Estimated Maturity Period of the Receivables.
15
<PAGE>
"Liquidity Provider Agreement" means the agreement between the Company
and the Liquidity Provider evidencing the obligation of the Liquidity Provider
to provide liquidity support to the Company in connection with the issuance by
the Company of Commercial Paper.
"Liquidity Provider" means the Person or Persons who will provide
liquidity support to the Company in connection with the issuance by the Company
of Commercial Paper.
"Lock-Box Account" means an account maintained by the Collection Agent
at a Lock-Box Bank for the purpose of receiving Collections from Receivables.
"Lock-Box Agreement" means an agreement among the Collateral Agent,
the Collection Agent and a Lock-Box Bank in substantially the form of Exhibit D
hereto.
"Lock-Box Bank" means each of the banks set forth in Exhibit C hereto
and such banks as may be added thereto or deleted therefrom pursuant to Section
2.8.
"Loss/Dilution Percentage" means, on any day, the greater of (i) the
sum of (a) 6 times the highest Loss-to-Liquidation Ratio for any calendar month
over the 12 calendar months preceding the then current month, and (b) 2 times
the highest Dilution Ratio for any calendar month over the preceding 12 calendar
months, and (c) 10% and (ii) 22 percent.
"Loss/Dilution Reserve" means, on any day, an amount equal to:
LP x (NI + DR + SFR)
Where:
LP = the Loss/Dilution Percentage at the close of
business of the Collection Agent on such day.
NI = the Net Investment at the close of business of
the Collection Agent on such day.
DR = the Discount Reserve at the close of business
of the Collection Agent on such day.
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<PAGE>
SFR = the Servicing Fee Reserve at the close of business of
the Collection Agent on such day.
Notwithstanding the foregoing, the Loss/Dilution Reserve shall at all times be
at least equal to $16,000,000.
"Loss-to-Liquidation Ratio" means the ratio (expressed as a
percentage) computed as of the last day of each calendar month by dividing (i)
the aggregate Outstanding Balance of all Receivables which became Defaulted
Receivables during such period by (ii) the aggregate amount of Collections
received by the Collection Agent during such period.
"Maximum Net Investment" means $130,000,000.
"Maximum Percentage Factor" means 100%.
"Moody's" means Moody's Investors Service, Inc.
"Net Investment" means the sum of the amounts paid to the Transferor
for each Incremental Transfer less the aggregate amount of Collections received
and applied by the Company to reduce such Net Investment pursuant to Section 2.6
or Section 2.9; provided that the Net Investment shall be restored in the amount
of any Collections so received and applied if at any time the distribution of
such Collections is rescinded or must otherwise be returned for any reason.
"Net Receivables Balance" means at any time the Outstanding Balance of
the Eligible Receivables at such time reduced by the sum of (i) the aggregate
amount by which the Outstanding Balance of all Eligible Receivables of each
Designated Obligor exceeds the Concentration Factor for such Designated Obligor,
plus (ii) the aggregate Outstanding Balance of all Eligible Receivables which
are Defaulted Receivables, plus (iii) the aggregate Outstanding Balance of all
Eligible Receivables which are Delinquent Receivables, plus (iv) the aggregate
Outstanding Balance of all Eligible Receivables due from each of the top ten
Obligors (that is, those Obligors which together with their Affiliates have the
ten largest Eligible Receivable balances) with respect to which 15% or more of
such Obligor's Receivables are Defaulted Receivables.
17
<PAGE>
"Obligor" means a Person obligated to make payments for the provision
of goods and services pursuant to a Contract.
"Official Body" shall mean any government or political subdivision or
any agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitrator, in
each case whether foreign or domestic.
"Other Transferor" means any Person other than the Transferor that has
entered into a receivables purchase agreement or transfer and administration
agreement with the Company.
"Outstanding Balance" of any Receivable at any time means the then
outstanding principal amount thereof including any accrued and outstanding
Finance Charges related thereto.
"Percentage Factor" means the percentage computed at any time of
determination as follows:
NI + LR + DR + SFR
-------------------
NRB
Where:
NI = the Net Investment at the time of such computation.
LR = the Loss/Dilution Reserve at the time of such computation.
DR = the Discount Reserve at the time of such computation.
SFR = the Servicing Fee Reserve at the time of such computation.
NRB = the Net Receivables Balance at the time of such computation.
Notwithstanding the foregoing computation, the Percentage Factor shall
not exceed one hundred percent (100%).
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<PAGE>
"Person" means any corporation, natural person, firm, joint venture,
partnership, trust, unincorporated organization, enterprise, government or any
department or agency of any government.
"Potential Termination Event" means an event which but for the lapse
of time or the giving of notice, or both, would constitute a Termination Event.
"Proceeds" means "proceeds" as defined in Section 9-306(1) of the UCC.
"Program Fee" means the fee payable by the Transferor to the Company
pursuant to Section 2.7 hereof, the terms of which are set forth in the Fee
Letter.
"Purchased Interest" means the interest in the Receivables acquired by
the Liquidity Provider through purchase pursuant to the terms of the Liquidity
Provider Agreement.
"Rate Variance Factor" means the number, computed from time to time in
good faith by the Company, that reflects the largest potential variance (from
minimum to maximum) in selected interest rates over a period of time selected by
the Company from time to time, set forth in a written notice by the Company to
the Transferor and the Collection Agent.
"Receivable" means the indebtedness owed upon creation to the Seller
by any Obligor under a Contract whether constituting an account, chattel paper,
instrument or general intangible, arising in connection with the provision of
services by the Seller, and includes the right to payment of any Finance Charges
and other obligations of such Obligor with respect thereto. Notwithstanding the
foregoing, once a Receivable has been deemed collected pursuant to Section 2.9
hereof, it shall no longer constitute a Receivable hereunder.
"Receivables Purchase Agreement" means that certain Amended and
Restated Receivables Purchase Agreement dated as November 21, 1994 between the
Seller and the Transferor.
"Records" means all Contracts and other documents, books, records and
other information (including,
19
<PAGE>
without limitation, computer programs, tapes, discs, punch cards, data
processing software and related property and rights) maintained with respect to
Receivables and the related Obligors.
"Related Security" means with respect to any Receivable:
(i) all security interests or liens and property subject thereto
from time to time, if any, purporting to secure payment of such
Receivable, whether pursuant to the Contract related to such
Receivable or otherwise, together with all financing statements
signed by an Obligor describing any collateral securing such
Receivable;
(ii) all guarantees, insurance or other agreements or
arrangements of any kind from time to time supporting or securing
payment of such Receivable whether pursuant to the Contract related
to such Receivable or otherwise; and
(iii) all Records.
"Section 8.2 Costs" has the meaning specified in Section 8.2(d).
"Seller" shall mean, collectively, Borg-Warner and the other
originators named in the Receivables Purchase Agreement, together with their
successors as permitted in the Receivables Purchase Agreement.
"Servicing Fee" shall mean the fee payable by the Company to the
Collection Agent, with respect to a Tranche, in an amount equal to 1% per annum
on the amount of the Net Investment allocated to such Tranche pursuant to
Section 2.3. Such fee shall accrue from the date of the initial purchase of an
ownership interest in the Receivables to the later of the Termination Date or
the date on which the Net Investment is reduced to zero. On or prior to the
Termination Date such fee shall be payable only from Collections pursuant to,
and subject to the priority of payments set forth in, Section 2.5. After the
Termination Date such fee shall be payable only from Collections pursuant to,
and subject to the priority of payments set forth in, Section 2.6.
20
<PAGE>
"Servicing Fee Reserve" means at any time the sum of an amount equal
to the product of (A) the aggregate Outstanding Balance of the Receivables at
such time multiplied by the Servicing Fee percentage and (B) a fraction having
as the numerator, the sum of (x) the Estimated Maturity Period multiplied by 1.5
plus (y) 30 and the denominator of which is 360.
"Standard & Poor's" or "S&P" means Standard & Poor's Ratings Group.
"Subsidiary" of a Person means any corporation more than 50% of the
outstanding voting securities of which shall at any time be owned or controlled,
directly or indirectly, by such Person or by one or more Subsidiaries of such
Person or any similar business organization which is so owned or controlled.
"Termination Date" means the earliest of (i) that Business Day
designated by the Transferor to the Company as the Termination Date at any time
following 30 days' written notice to the Company, (ii) the date of termination
of the commitment of (A) the Liquidity Provider under the Liquidity Provider
Agreement or (B) the Credit Support Provider under the Credit Support Agreement,
(iii) the day on which a Termination Event occurs pursuant to Section 7.1, or
(v) November 20, 1997.
"Termination Event" means an event described in Section 7.1.
"Tranche" means a portion of the Net Investment allocated to a Tranche
Period pursuant to Section 2.3.
"Tranche Period" means a CP Tranche Period, a BR Tranche Period, a CD
Tranche Period or a Eurodollar Tranche Period.
"Tranche Rate" means either the CP Rate, the Base Rate, the CD Rate or
the Eurodollar Rate.
"Transaction Costs" has the meaning specified in Section 8.3(a).
"Transfer" means a conveyance, transfer and assignment by the
Transferor to the Company of an undi-
21
<PAGE>
vided percentage ownership interest in Receivables hereunder.
"Transfer Certificate" has the meaning given to it in Section 2.2(a).
"Transfer Date" means, with respect to each Transfer, the Business Day
on which such Transfer is made.
"Transfer Price" means with respect to any Incremental Transfer, the
amount paid to the Transferor by the Company as described in the Transfer
Certificate.
"Transferred Interest" means, at any time of determination, an
undivided percentage ownership interest in (i) each and every then outstanding
Receivable, (ii) all Related Security with respect to each such Receivable,
(iii) all Collections with respect thereto, and (iv) other Proceeds of the
foregoing, equal to the Percentage Factor at such time, and only at such time
(without regard to prior calculations). The Transferred Interest in each
Receivable, together with Related Security and Collections with respect thereto,
shall at all times be equal to the Transferred Interest in each other
Receivable, together with Related Security and Collections. To the extent that
the Transferred Interest shall decrease as a result of a recalculation of the
Percentage Factor, the Company shall be considered to have reconveyed to the
Transferor an undivided percentage ownership interest in each Receivable,
together with Related Security and Collections, in an amount equal to such
decrease such that in each case the Transferred Interest in each Receivable
shall be equal to the Transferred Interest in each other Receivable.
"UCC" means, with respect to any state, the Uniform Commercial Code as
from time to time in effect in such state.
"Unused Facility Fee" means the fee payable by the Transferor to the
Company pursuant to Section 2.7 hereof, the terms of which are set forth in the
Fee Letter.
"Weekly Report" means a report in substantially the form of Exhibit G
hereto (with such modification as may be mutually agreed to by the Transferor
and the Company) prepared and furnished by the Collection Agent
22
<PAGE>
to the Administrative Agent, pursuant to Section 2.11, setting forth the Net
Receivable Balance and the calculation of the Percentage Factor.
SECTION 1.2 Other Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles. All terms used in Article 9 of the UCC in the State of
New York, and not specifically defined herein, are used herein as defined in
such Article 9.
SECTION 1.3 Computation of Time Periods. Unless otherwise stated in
this Agreement, in the computation of a period of time from a specified date to
a later specified date, the word "from" means "from and including" and the words
"to" and "until" each means "to but excluding."
23
<PAGE>
ARTICLE II
PURCHASES AND SETTLEMENTS
SECTION 2.1 Facility. Upon the terms and subject to the conditions
herein set forth the Transferor may, at its option, convey, transfer and assign
to the Company, and the Company shall accept such conveyance, transfer and
assignment from the Transferor, without recourse except as provided herein,
undivided percentage ownership interests in the Receivables, together with
Related Security and Collections with respect thereto, from time to time.
SECTION 2.2 Transfers; Company Certificate; Eligible Receivables (a)
Incremental Transfers. Upon the terms and subject to the conditions herein set
forth the Transferor may, at its option, convey, transfer and assign to the
Company, and the Company shall accept such conveyance, transfer and assignment
from the Transferor, without recourse except as provided herein, undivided
percentage ownership interests in the Receivables, together with Related
Security and Collections with respect thereto (each, an "Incremental Transfer")
from time to time prior to the occurrence of a Termination Date for an aggregate
Transfer Price not to exceed the Maximum Net Investment; provided that the
Company shall not accept any such transfer if it is unable to obtain funds
therefor in the commercial paper market or under the Liquidity Provider
Agreement. The Transferor shall by notice given by telefax offer to convey,
transfer and assign to the Company undivided percentage ownership interests in
the Receivables at least two (2) Business Days prior to the proposed date of
transfer. Each such notice shall specify the desired Transfer Price (which
shall be at least $1,000,000 or integral multiples of $1,000,000 in excess
thereof) and the desired date of such Incremental Transfer, together with the
desired Tranche Period (or range) related thereto as required by Section 2.3.
The Company if it accepts such offer shall accept such offer to convey, transfer
and assign undivided percentage ownership interests by notice given to the
Transferor by telephone or telefax. Each notice of proposed Transfer shall be
irrevocable and binding on the Transferor and the Transferor shall indemnify the
Company against any loss or expense incurred by the Company, either directly or
24
<PAGE>
through the Liquidity Provider Agreement as a result of any failure by the
Transferor to complete such Incremental Transfer including, without limitation,
any loss (including loss of anticipated profits) or expense incurred by the
Company, either directly or pursuant to the Liquidity Provider Agreement, by
reason of the liquidation or reemployment of funds acquired by the Company or
the Liquidity Provider (including, without limitation, funds obtained by issuing
commercial paper or promissory notes or obtaining deposits as loans from third
parties) for the Company to fund such Incremental Transfer.
On the date of the initial Incremental Transfer, the Company shall
deliver written confirmation to the Transferor of the Transfer Price, the
Tranche Period(s) and the Tranche Rate(s) relating to such Transfer and the
Transferor shall deliver to the Company the Transfer Certificate in the form of
Exhibit F hereto (the "Transfer Certificate"). The Company shall indicate the
amount of the initial Incremental Transfer together with the date thereof on the
grid attached to the Transfer Certificate. On the date of each subsequent
Incremental Transfer, the Company shall send written confirmation to the
Transferor of the Transfer Price, the Tranche Period(s), the Transfer Date and
the Tranche Rate(s) applicable to such Incremental Transfer. The Company shall
indicate the amount of the Incremental Transfer together with the date thereof
as well as any decrease in the Net Investment on the grid attached to the
Transfer Certificate. The Transfer Certificate shall evidence the Incremental
Transfers. Following each Incremental Transfer, the Company shall deposit to
the Transferor's account at the location indicated in Section 9.3, in
immediately available funds, an amount equal to the Transfer Price for such
Incremental Transfer.
(b) Reinvestment Transfers. On each Business Day occurring after the
initial Incremental Transfer hereunder and prior to the Termination Date, the
Transferor hereby agrees to convey, transfer and assign to the Company, and in
consideration of Transferor's agreement to maintain at all times prior to the
Termination Date a Net Receivables Balance in an amount at least sufficient to
maintain the Percentage Factor at an amount not greater than the Maximum
Percentage Factor, the Company hereby agrees to purchase from the Transferor
undivided percentage ownership interests in each and
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every Receivable, together with Related Security and Collections with respect
thereto, to the extent that Collections are available for such Transfer in
accordance with Section 2.5, such that after giving effect to such Transfer, (i)
the amount of the Company's Net Investment at the close of the Company's
business on such Business Day shall be equal to the amount of the Company's Net
Investment at the close of the Company's business on the Business Day
immediately preceding such Business Day plus the Transfer Price of any
Incremental Transfer made on such day, if any, and (ii) the Company's
Transferred Interest in each Receivable, together with Related Security and
Collections with respect thereto, shall be equal to its Transferred Interest in
each other Receivable, together with Related Security and Collections with
respect thereto.
(c) All Transfers. Each Transfer shall constitute a purchase of
undivided percentage ownership interests in each and every Receivable, together
with Related Security and Collections with respect thereto, then existing, as
well as in each and every Receivable, together with Related Security and
Collections with respect thereto, which arises at any time after the date of
such Transfer. The Company's aggregate undivided percentage ownership interest
in the Receivables, together with Related Security and Collections with respect
thereto, shall equal the Percentage Factor in effect from time to time.
(d) Company Certificate. The Transferor shall issue to the Company
the Company Certificate, in the form of Exhibit M, on or prior to the date
hereof.
(e) Percentage Factor. The Percentage Factor shall be calculated by
the Collection Agent on the day of the initial Incremental Transfer hereunder.
Thereafter, until the Termination Date, the Collection Agent shall daily
recompute the Percentage Factor and report such recomputations to the Company
weekly in the Weekly Report or as requested by the Company. The Percentage
Factor shall remain constant from the time as of which any such computation or
recomputation is made until the time as of which the next such recomputation
shall be made, notwithstanding any additional Receivables arising, any
Incremental Transfer made pursuant to Section 2.2(a) or any reinvestment
Transfer made pursuant to Section
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2.2(b) and 2.5 during any period between computations of the Percentage Factor.
The Percentage Factor, as calculated at the close of business on the Business
Day immediately preceding the Termination Date, shall remain constant at all
times thereafter until such time as the Company shall have received the
Aggregate Unpaids, at which time the Percentage Factor shall be recomputed in
accordance with Section 2.6.
SECTION 2.3 Selection of Tranche Periods and Tranche Rates.
(a) At all times hereafter, but prior to the occurrence of a
Termination Event, the Transferor shall, subject to the Company's approval and
the limitations described below, request Tranche Periods and allocate a portion
of the Net Investment to each selected Tranche Period, so that the aggregate
amounts allocated to outstanding Tranche Periods at all times shall equal the
Net Investment. The Transferor shall give the Company irrevocable notice by
telephone of the new requested Tranche Period(s) at least two (2) Business Days
prior to the expiration of any then existing Tranche Period; provided, however,
that the Company may select, in its sole discretion, any such new Tranche Period
if (i) the Transferor fails to provide such notice on a timely basis or (ii) the
Company determines, in its sole discretion, that the Tranche Period requested by
the Transferor is unavailable or for any reason commercially undesirable. The
Company confirms that it is its intention to allocate all or substantially all
of the Net Investment to one or more CP Tranche Periods; provided that the
Company may determine, from time to time, in its sole discretion, that funding
such Net Investment by means of one or more CP Tranche Periods is not desirable
for any reason. If the Liquidity Provider acquires a Purchased Interest with
respect to the Receivables pursuant to the terms of the Liquidity Provider
Agreement, the Liquidity Provider may exercise the right of selection granted to
the Company hereby. The Tranche Rate applicable to any such Purchased Interest
may be the BR Rate, the CD Rate or the Eurodollar Rate, as determined by the
Liquidity Provider. In the case of any Tranche Period outstanding upon the
occurrence of a Termination Event, such Tranche Period shall end on the date of
such occurrence.
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(b) At all times on and after the occurrence of a Termination Event,
the Company or the Liquidity Provider, as applicable, shall select all Tranche
Periods and Tranche Rates applicable thereto.
SECTION 2.4 Discount, Fees and Other Costs and Expenses.
Notwithstanding the limitation on recourse under Section 2.1, the Transferor
shall pay, as and when due in accordance with this Agreement, all fees
hereunder, Discount, all amounts payable pursuant to Article VIII hereof, if
any, and the Servicing Fee. On the last day of each Tranche Period the
Transferor shall pay to the Company an amount equal to the accrued and unpaid
Discount for such Tranche Period together with an amount equal to the discount
accrued on the Company's Commercial Paper notes to the extent such notes were
issued in order to fund the Transferred Interest in an amount in excess of the
Transfer Price of an Incremental Transfer. The Transferor shall pay to the
Company, on each day on which Commercial Paper is issued by the Company, the
Dealer Fee. Discount shall accrue with respect to each Tranche on each day
occurring during the Tranche Period related thereto. Nothing in this Agreement
shall limit in any way the obligations of the Transferor to pay the amounts set
forth in this Section 2.4.
SECTION 2.5 Non-Liquidation Settlement and Reinvestment Procedures.
On each day after the date of any Incremental Transfer but prior to the
Termination Date, the Collection Agent shall out of the Percentage Factor of
Collections received on or prior to such day and not previously applied or
accounted for: (i) set aside and hold in trust for the Company (or deposit into
the Collection Account if so required pursuant to Section 2.12) an amount equal
to all Discount and the Servicing Fee accrued through such day and not so
previously set aside or paid and (ii) apply the balance of such Percentage
Factor of Collections remaining after application of Collections as provided in
clause (i) of this Section 2.5 to the Transferor, for the benefit of the Company
to the purchase of additional undivided percentage interests in each Receivable
pursuant to Section 2.2(b). On the last day of each Tranche Period, from the
amounts set aside as described in clause (i) of the first sentence of this
Section 2.5, the Collection Agent shall deposit
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to the Company's account, an amount equal to the accrued and unpaid Discount for
such Tranche Period and shall deposit to its account an amount equal to the
accrued and unpaid Servicing Fee for such Tranche Period. As provided in Section
6.2(b), the Collection Agent shall remit to the Transferor, as soon as
practicable after receipt, such portion of Collections not allocated to the
Company.
SECTION 2.6 Liquidation Settlement Procedures. If on the Termination
Date, the Percentage Factor is greater than the Maximum Percentage Factor, then
the Transferor shall immediately pay to the Company from previously received
Collections, an amount equal to the amount such that, when applied in reduction
of the Net Investment, will result in a Percentage Factor less than or equal to
the Maximum Percentage Factor. Such amount shall be applied by the Company to
the reduction of the Net Investment of Tranche Periods selected by the Company.
On the Termination Date and on each day thereafter, the Collection Agent shall
set aside and hold in trust for the Company (or deposit into the Collection
Account if so required pursuant to Section 2.12) the Percentage Factor of all
Collections received on such day. On the Termination Date, the Collection Agent
shall deposit to the Company's account any remaining amounts set aside pursuant
to Section 2.5(i) above. On the last day of each Tranche Period to occur on or
after the Termination Date, the Collection Agent shall deposit to the Company's
account, the amounts set aside pursuant to the preceding sentence, together with
any remaining amounts set aside pursuant to Section 2.5(i) prior to the
Termination Date but not to exceed the sum of (i) the accrued Discount for such
Tranche Period, (ii) the portion of the Net Investment allocated to such Tranche
Period, and (iii) the aggregate of all other amounts then owed (whether due or
accrued) hereunder by Transferor to the Company. On such day, the Collection
Agent shall deposit to its account, from the amounts set aside pursuant to the
preceding sentence which remain after payment in full of the aforementioned
amounts, the accrued Servicing Fee for such Tranche Period. If there shall be
insufficient funds on deposit for the Collection Agent to distribute funds in
payment in full of the aforementioned amounts, the Collection Agent shall
distribute funds first, in payment of the accrued Discount, second, in payment
of all fees and expenses payable to the Company hereunder, third, if the
Transferor is not the Collection Agent, to the Collection Agent's account, in
payment of the Servicing Fee payable to the Collection Agent, fourth, in
reduction of the Net
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Investment allocated to such Tranche Period, fifth, in payment of all other
amounts payable to the Company and sixth, if the Transferor is the Collection
Agent, to its account as Collection Agent, in payment of the Servicing Fee
payable to the Transferor as Collection Agent. Following the date on which the
Net Investment has been reduced to zero, all accrued Discount and Servicing Fees
have been paid in full and all other Aggregate Unpaids have been paid in full,
(i) the Collection Agent shall recompute the Percentage Factor, (ii) the Company
shall be considered to have reconveyed to the Transferor any interest in the
Receivables (including the Transferred Interest), (iii) the Collection Agent
shall pay to Transferor any remaining Collections set aside and held by the
Collection Agent pursuant to the second sentence of this Section 2.6 and (iv)
the Company shall execute and deliver to the Transferor, at the Transferor's
expense, such documents or instruments as are necessary to terminate the
Company's interest in the Receivables. Any such documents shall be prepared by
or on behalf of the Transferor.
SECTION 2.7 Fees. Notwithstanding any limitation on recourse
contained in this Agreement, the Transferor shall pay the following non-
refundable fees:
(a) On the last day of each month, to the Company,the Program
Fee and the Unused Facility Fee.
(b) On the date of execution hereof, to the Administrative Agent,
the Arrangement Fee.
SECTION 2.8 Protection of Ownership Interest of the Company.
(a) The Transferor agrees that from time to time, at its expense, it
will promptly execute and deliver all instruments and documents and take all
actions as may be necessary or as the Company may reasonably request in order to
perfect or protect the Transferred Interest or to enable the Company to exercise
or enforce any of its rights hereunder. Without limiting the foregoing, the
Transferor will, upon the request of the Company, in order to accurately reflect
this purchase and sale transaction, execute and file such financing or
continuation statements or amendments thereto or assignments thereof (as
permitted pursuant to Section 9.6
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hereof) as may be requested by the Company and mark its master data processing
records and other documents with a legend describing the purchase by the Company
of the Transferred Interest. The Transferor shall, upon request of the Company,
obtain such additional search reports as the Company shall request. To the
fullest extent permitted by applicable law, the Company shall be permitted to
sign and file continuation statements and amendments thereto and assignments
thereof without the Transferor's signature. Carbon, photographic or other
reproduction of this Agreement or any financing statement shall be sufficient as
a financing statement. The Transferor shall neither change its name, identity
or corporate structure (within the meaning of Section 9-402(7) of the UCC as in
effect in the States of New York and Illinois) nor relocate its chief executive
office or any office where Records are kept unless it shall have: (i) given the
Company at least thirty (30) days prior notice thereof and (ii) prepared at
Transferor's expense and delivered to the Company all financing statements,
instruments and other documents necessary to preserve and protect the
Transferred Interest or requested by the Company in connection with such change
or relocation. Any filings under the UCC or otherwise that are occasioned by
such change in name or location shall be made at the expense of Transferor.
(b) The Collection Agent shall cause the Sellers to instruct all
Obligors to cause all Collections to be deposited directly with a Lock-Box Bank.
Any Lock-Box Account maintained by a Lock-Box Bank pursuant to the related Lock-
Box Agreement shall be under the ownership and control of the Collateral Agent.
The Collection Agent shall be permitted to give instructions to the Lock-Box
Banks for so long as either a Collection Agent default or any other Termination
Event has not occurred hereunder. The Collection Agent shall not add any bank
as a Lock-Box Bank to those listed on Exhibit C unless such bank has entered
into a Lock-Box Agreement. The Collection Agent shall not terminate any bank as
a Lock-Box Bank unless the Administrative Agent shall have received fifteen (15)
days' prior notice of such termination. If the Transferor or the Collection
Agent receives any Collections or the Transferor is deemed to receive any
Collections pursuant to Section 2.9, the Transferor or the Collection Agent, as
applicable, shall imme-
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diately, but in any event within forty-eight (48) hours of receipt, remit such
Collections to a Lock-Box Account.
SECTION 2.9 Deemed Collections; Application of Payments. (a) If on
any day the Outstanding Balance of a Receivable is either (x) reduced as a
result of any defective, rejected or returned goods or services, any cash
discount, credit, rebate, allowance or other dilution factor, any billing
adjustment or other adjustment, or (y) reduced or canceled as a result of a
setoff or offset in respect of any claim by any Person (whether such claim
arises out of the same or a related transaction or an unrelated transaction),
the Transferor shall be deemed to have received on such day a collection of such
Receivable in the amount of such reduction or cancellation and the Transferor
shall pay to the Collection Agent an amount equal to such reduction or
cancellation and such amount shall be applied by the Collection Agent as a
Collection in accordance with Section 2.5 or 2.6, as applicable. The Net
Investment shall be reduced by the amount of such payment actually received by
the Company.
(b) If on any day any of the representations or warranties in Article
III is no longer true with respect to a Receivable, the Transferor shall be
deemed to have received on such day a Collection of such Receivable in full and
the Transferor shall on such day pay to the Collection Agent an amount equal to
the aggregate Percentage Factor of the Outstanding Balance of such Receivable
and such amount shall be allocated to the Company and applied by the Collection
Agent as a Collection allocable to the Transferred Interest in accordance with
Section 2.5 or 2.6, as applicable. The Net Investment shall be reduced by the
amount of such payment actually received by the Company.
(c) Any payment by an Obligor in respect of any indebtedness owed by
it to the Transferor shall, except as otherwise specified by such Obligor or
otherwise required by contract or law and unless otherwise instructed by the
Company, be applied as a Collection of any Receivable of such Obligor included
in the Transferred Interest (starting with the oldest such Receivable) to the
extent of any amounts then due and payable thereunder before being applied to
any other receivable or other indebtedness of such Obligor.
SECTION 2.10 Payments and Computations, Etc. All amounts to be paid
or deposited by the Transferor or
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the Collection Agent hereunder shall be paid or deposited in accordance with the
terms hereof no later than 1:00 p.m. (New York City time) on the day when due in
immediately available funds; if such amounts are payable to the Company they
shall be paid or deposited in accordance with the instructions of the
Administrative Agent, until otherwise notified by the Company. The Transferor
shall, to the extent permitted by law, pay to the Company upon demand, interest
on all amounts not paid or deposited when due to the Company hereunder at a rate
equal to 2% per annum plus the Base Rate. All computations of discount, interest
and all per annum fees hereunder shall be made on the basis of a year of 360
days for the actual number of days (including the first but excluding the last
day) elapsed. Any computations of amounts payable by the Transferor hereunder to
the Company, the Liquidity Provider or the Credit Support Provider shall be
binding absent manifest error.
SECTION 2.11 Reports. (a) Prior to the 18th day of each month, the
Collection Agent shall prepare and forward to the Administrative Agent (i) an
Investor Report as of the end of the last day of the immediately preceding month
and (ii) if requested by the Company or the Administrative Agent, a listing by
Obligor of all Receivables together with an aging of such Receivables. The
Collection Agent shall prepare and provide to the Administrative Agent such
other information as the Company or the Administrative Agent may reasonably
request.
(b) Beginning on Wednesday November 30, 1994, and on each Wednesday
of each week thereafter, prior to 12:00 noon (New York City time), the
Collection Agent shall deliver to the Administrative Agent a Weekly Report
setting forth the Net Receivable Balance, calculated on the basis of the most
recent information available from the Collection Agent's master servicing
records (which information shall not be more than three (3) Business Days old),
and the calculation of the Percentage Factor as of the preceding day.
SECTION 2.12 Collection Account. There shall be established on the
day of the initial Incremental Transfer hereunder and maintained, for the
benefit of the Company, with the Collateral Agent, a segregated account
(the "Collection Account"), bearing a designation clearly indicating that the
funds deposited therein are held for
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the benefit of the Company. The Collection Agent shall remit daily within forty-
eight hours of receipt to the Collection Account all Collections received with
respect to any Receivables; provided, however, the Collection Agent shall be
permitted to make payments to the Company on the last day of each Tranche Period
instead of depositing funds into the Collection Account on a daily basis for so
long as, and only for so long as no Collection Agent default and no other
Termination Event has occurred hereunder. Funds on deposit in the Collection
Account (other than investment earnings) shall be invested by the Collateral
Agent in Eligible Investments that will mature so that such funds will be
available prior to the last day of each successive Tranche Period following such
investment. All interest and earnings (net of losses and investment expenses) on
funds on deposit in the Collection Account shall be retained in the Collection
Account and be available to make any payments required to be made hereunder
(including Discount) to the Company. On the date on which the Net Investment is
zero and all amounts payable hereunder have been paid to the Company, any funds
remaining on deposit in the Collection Account shall be paid to the Transferor.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Transferor. The
Transferor represents and warrants to the Company that:
(a) Corporate Existence and Power. The Transferor is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate power and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business in each jurisdiction in which its business is now conducted.
(b) Corporate and Governmental Authorization; Contravention. The
execution, delivery and performance by the Transferor of this Agreement, the
Receivables Purchase Agreement, the Fee Letter, the Company Certificate and the
Transfer Certificate are within the Transferor's corporate powers, have been
duly authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official (except as
contemplated by Section 2.8), and do not contravene, or constitute a default
under, any provision of applicable law or regulation or of the Certificate of
Incorporation or Bylaws of the Transferor or of any agreement, judgment,
injunction, order, decree or other instrument binding upon the Transferor or
result in the creation or imposition of any lien on assets of the Transferor or
any of its Subsidiaries (except as contemplated by Section 2.8).
(c) Binding Effect. Each of this Agreement, the Receivables Purchase
Agreement, the Fee Letter and the Company Certificate constitutes and the
Transfer Certificate upon payment by the Company of the Transfer Price set forth
therein will constitute the legal, valid and binding obligation of the
Transferor, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws affecting the rights of
creditors.
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(d) Perfection. Immediately preceding each Transfer hereunder, the
Transferor shall be the owner of all of the Receivables, free and clear of all
liens, encumbrances, security interests, preferences or other security
arrangement of any kind or nature whatsoever. On or prior to each Transfer and
each recomputation of the Transferred Interest, all financing statements and
other documents required to be recorded or filed in order to perfect and protect
the Transferred Interest against all creditors of and purchasers from the
Transferor will have been duly filed in each filing office necessary for such
purpose and all filing fees and taxes, if any, payable in connection with such
filings shall have been paid in full (except to the extent that such perfection
may be governed by any federal or state law relating to the perfection of an
interest in any Receivable owed by the federal government or a municipality).
(e) Accuracy of Information. All written information heretofore
furnished by the Transferor (including without limitation, the Investor Reports,
the Weekly Reports, any other reports delivered pursuant to Section 2.11 or as
part of the Company's due diligence process and the Transferor's financial
statements) to the Company or the Administrative Agent for purposes of or in
connection with this Agreement or any transaction contemplated hereby is, and
all such information hereafter furnished by the Transferor to the Company or the
Administrative Agent will be, true and accurate in every material respect, on
the date such information is stated or certified.
(f) Tax Status. The Transferor has filed all tax returns (federal,
state and local) required to be filed and has paid or made adequate provision
for the payment of all taxes, assessments and other governmental charges.
(g) Action, Suits. Except as set forth in Exhibit H, there are no
actions, suits or proceedings pending, threatened, or to the knowledge of the
Transferor, probable of assertion, against or affecting the Transferor or its
properties, in or before any court, arbitrator or other body, which question the
validity of the transactions contemplated by this Agreement or which may,
individually or in the aggregate, be reasonably
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expected to have a material adverse effect on the financial condition of the
Transferor or materially adversely affect the ability of Transferor to perform
its obligations under this Agreement or the Receivables Purchase Agreement.
(h) Use of Proceeds. No proceeds of any Transfer will be used by the
Transferor to acquire any security in any transaction which is subject to
Section 13 or 14 of the Securities Exchange Act of 1934, as amended.
(i) Place of Business. The chief place of business and chief
executive office of the Transferor are located at the address of the Transferor
indicated in Section 9.3 hereof and the offices where the Transferor keeps all
its Records, are located at the address(es) described on Exhibit I or such other
locations notified to the Company in accordance with Section 2.8 in
jurisdictions where all action required by Section 2.8 has been taken and
completed.
(j) Good Title. Upon each Transfer and each recomputation of the
Transferred Interest, the Company shall acquire a valid and perfected first
priority undivided percentage ownership interest to the extent of the
Transferred Interest or a first priority perfected security interest in each
Receivable that exists on the date of such Transfer and recomputation and in the
Related Security and Collections with respect thereto free and clear of any
Adverse Claim.
(k) Tradenames, Etc. As of the date hereof: (i) the Transferor's
chief executive office is located at the address for notices set forth in
Section 9.3 hereof; (ii) the Transferor has only the subsidiaries and divisions
listed on Exhibit J hereto; and (iii) the Transferor has, since its formation in
1992, operated only under the tradenames identified in Exhibit J hereto, and,
since formation, has not changed its name, merged with or into or consolidated
with any other corporation or been the subject of any proceeding under Title 11,
United States Code (Bankruptcy).
(l) Nature of Receivables. Each Receivable included as an "Eligible
Receivable" in any computation or certification required or delivered hereunder
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did, at such time, in fact, satisfy the definition of "Eligible Receivable".
(m) Coverage Requirement. The Percentage Factor does not exceed
the Maximum Percentage Factor.
(n) Credit and Collection Policy. Since September 27, 1994, there
have been no material changes in the Credit and Collection Policy; since such
date, no material adverse change has occurred in the overall rate of collection
of the Receivables.
(o) No Termination Event. No event has occurred and is continuing
and no condition exists that, with the giving of notice and/or the passage of
time, would constitute a Termination Event.
(p) Not an Investment Company. The Transferor is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
or is exempt from all provisions of such Act.
(q) ERISA. The Transferor is in compliance in all material respects
with ERISA and no lien in favor of the Pension Benefit Guaranty Corporation on
any of the Receivables shall exist.
(r) Receivables. Each Receivable represents all or part of the
sales price of services rendered by the Seller.
Any document, instrument, certificate or notice delivered to the
Company hereunder shall be deemed a representation and warranty by the
Transferor.
SECTION 3.2 Reaffirmation of Representations and Warranties by the
Transferor. On each day that a Transfer is made hereunder, the Transferor, by
accepting the proceeds of such Transfer, whether delivered to the Transferor
pursuant to Section 2.2(a) or Section 2.5, shall be deemed to have certified
that all representations and warranties described in Section 3.1 are correct on
and as of such day as though made on and as of such day. Each Incremental
Transfer shall be subject to the further condition precedent that prior to the
date of such Incremental Transfer, the Collection Agent shall have delivered to
the Administrative Agent, in form and
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substance satisfactory to the Administrative Agent, a completed Weekly Report
dated within two (2) days prior to the date of such Incremental Transfer,
together with a listing by Obligor, if requested, and such additional
information as may be reasonably requested by the Administrative Agent; and the
Transferor shall be deemed to have represented and warranted that such
conditions precedent have been satisfied.
SECTION 3.3 Representations and Warranties of Borg-Warner. Borg-
Warner, as Collection Agent, represents and warrants to the Company that:
(a) Corporate Existence and Power. Borg-Warner is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate power and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business in each jurisdiction in which its business is now conducted.
(b) Corporate and Governmental Authorization; Contravention. The
execution, delivery and performance by Borg-Warner of this Agreement is within
Borg-Warner's corporate powers, has been duly authorized by all necessary
corporate action, requires no action by or in respect of, or filing with, any
governmental body, agency or official (except as contemplated by Section 2.8),
and do not contravene, or constitutes a default under, any provision of
applicable law or regulation or of the Certificate of Incorporation or Bylaws of
Borg-Warner or of any agreement, judgment, injunction, order, decree or other
instrument binding upon Borg-Warner or result in the creation or imposition of
any lien on assets of Borg-Warner or any of its Subsidiaries (except as
contemplated by Section 2.8).
(c) Binding Effect. This Agreement constitutes the legal, valid and
binding obligation of Borg-Warner, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, moratorium or other similar laws
affecting the rights of creditors.
(d) Accuracy of Information. All written information heretofore
furnished by Borg-Warner to the Company or the Administrative Agent for purposes
of or in connection with this Agreement or any transaction contem-
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plated hereby is, and all such information hereafter furnished by Borg-Warner,
as Collection Agent, to the Company or the Administrative Agent will be, true
and accurate in every material respect, on the date such information is stated
or certified.
(e) Tax Status. Borg-Warner has filed all tax returns (federal,
state and local) required to be filed and has paid or made adequate provision
for the payment of all taxes, assessments and other governmental charges.
(f) Action, Suits. Except as set forth in Exhibit H, there are no
actions, suits or proceedings pending, or to the knowledge of Borg-Warner,
threatened, against or affecting Borg-Warner or any Affiliate of Borg-Warner or
their respective properties, in or before any court, arbitrator or other body,
which question the validity of the transactions contemplated by this Agreement
or the Receivables Purchase Agreement, or which may, individually or in the
aggregate, be reasonably expected to have a material adverse effect on the
financial condition of Borg-Warner and its Subsidiaries taken as a whole or
materially adversely affect the ability of Borg-Warner to perform its
obligations under this Agreement or the Receivables Purchase Agreement.
(g) Place of Business. The chief place of business and chief
executive office of each Seller are located at the address of each Seller
indicated in Exhibit I and the offices where each Seller keeps all its Records,
are located at the address(es) described on Exhibit I or such other locations
notified to the Company in accordance with Section 2.8 in jurisdictions where
all action required by Section 2.8 has been taken and completed.
(h) Tradenames, Etc. As of the date hereof: (i) each Seller's chief
executive office is located at the address set forth in Exhibit I; (ii) each
Seller has only the subsidiaries listed on Exhibit J hereto; and (iii) each
Seller has, since the date four months prior to the date hereof, operated only
under the tradenames identified in Exhibit J hereto, and, since the date four
months prior to the date hereof, has not changed its name, merged with or into
or consolidated with any other corporation or been the subject of any
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proceeding under Title 11, United States Code (Bankruptcy), except as disclosed
in Exhibit J hereto.
(i) [Reserved]
(j) Credit and Collection Policy. Since September 27, 1994, there
have been no material changes in the Credit and Collection Policy; since such
date, no material adverse change has occurred in the overall rate of collection
of the Receivables.
(k) Collections and Servicing. Since June 30, 1994, there has been
no material adverse change in the ability of Borg-Warner to service and collect
the Receivables.
(l) No Termination Event. No event has occurred and is continuing
and no condition exists that, with the giving of notice and/or the passage of
time, would constitute a Termination Event.
(m) ERISA. Borg-Warner is in compliance in all material respects
with ERISA and no lien in favor of the Pension Benefit Guaranty Corporation on
any of its assets shall exist.
(n) Lock-Box Accounts. The names and addresses of all the Lock-Box
Banks, together with the account numbers of the Lock-Box Accounts at such Lock-
Box Banks, are specified in Exhibit C hereto (or at such other Lock-Box Banks
and/or with such other Lock-Box Accounts as have been notified to the Collateral
Agent and for which Lock-Box Agreements have been executed in accordance with
Section 2.8(b) and delivered to the Administrative Agent). All Obligors have
been instructed to make payment to a Lock-Box Account and only Collections are
deposited into the Lock-Box Accounts.
Any document, instrument, certificate or notice delivered by Borg-
Warner to the Company hereunder shall be deemed a representation and warranty by
Borg-Warner.
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ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.1 Conditions to Closing. On or prior to the date of
execution hereof, the Transferor shall deliver to the Company the following
documents, instruments and fees all of which shall be in a form and substance
acceptable to the Company:
(a) A copy of the Resolutions of the Board of Directors of the
Transferor certified by its Secretary or any Assistant Secretary approving the
Agreement and the other documents to be delivered by the Transferor hereunder.
(b) The Articles of Incorporation of the Transferor certified by the
Secretary of State or other similar official of the Transferor's jurisdiction of
incorporation.
(c) A Good Standing Certificate for the Transferor issued by the
Secretary of State or a similar official of the Transferor's jurisdiction of
incorporation and certificates of qualification as a foreign corporation issued
by the Secretaries of State or other similar officials of each jurisdiction when
such qualification is material to the transactions contemplated by this
Agreement.
(d) A Certificate of the Secretary or any Assistant Secretary of the
Transferor certifying (i) the names and signatures of the officers authorized on
its behalf to execute this Agreement, the Company Certificate, the Transfer
Certificate, the Fee Letter and any other documents to be delivered by it
hereunder (on which certificates the Company may conclusively rely until such
time as the Company shall receive from the Transferor a revised certificate
meeting the requirements of this clause (d)(i)) and (ii) a copy of its By-Laws.
(e) A copy of the Resolutions of the Board of Directors of the
Collection Agent certified by its Secretary or any Assistant Secretary approving
the Agreement and the other documents to be delivered by the Collection Agent
hereunder.
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(f) The Articles of Incorporation of the Collection Agent certified
by the Secretary of State or other similar official of the Collection Agent's
jurisdiction of incorporation.
(g) A Good Standing Certificate for the Collection Agent issued by
the Secretary of State or a similar official of the Collection Agent's
jurisdiction of incorporation and certificates of qualification as a foreign
corporation issued by the Secretaries of State or other similar officials of
each jurisdiction when such qualification is material to the transactions
contemplated by this Agreement.
(h) A Certificate of the Secretary or any Assistant Secretary of the
Collection Agent certifying (i) the names and signatures of the officers
authorized on its behalf to execute this Agreement, the Company Certificate, the
Transfer Certificate, the Fee Letter and any other documents to be delivered by
it hereunder (on which certificates the Company may conclusively rely until such
time as the Company shall receive from the Collection Agent a revised
certificate meeting the requirements of this clause (d)(i)) and (ii) a copy of
its By-Laws.
(i) A copy of the Resolutions of the Board of Directors of each
Seller certified by its Secretary or any Assistant Secretary approving the
Agreement and the other documents to be delivered by each Seller hereunder.
(j) The Articles of Incorporation of each Seller certified by the
Secretary of State or other similar official of each Seller's jurisdiction of
incorporation.
(k) A Good Standing Certificate for each Seller issued by the
Secretary of State or a similar official of each Seller's jurisdiction of
incorporation and certificates of qualification as a foreign corporation issued
by the Secretaries of State or other similar officials of each jurisdiction when
such qualification is material to the transactions contemplated by this
Agreement.
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(l) A Certificate of the Secretary or any Assistant Secretary of each
Seller certifying (i) the names and signatures of the officers authorized on its
behalf to execute this Agreement, the Company Certificate, the Transfer
Certificate, the Fee Letter and any other documents to be delivered by it
hereunder (on which certificates the Company may conclusively rely until such
time as the Company shall receive from each Seller a revised certificate meeting
the requirements of this clause (d)(i)) and (ii) a copy of its By-Laws.
(m) [Reserved]
(n) Copies of proper financing statements (Form UCC-3), if any,
necessary to terminate all security interests and other rights of any person in
Receivables previously granted by Transferor.
(o) Certified copies of request for information or copies (Form UCC-
11) (or a similar search report certified by parties acceptable to the Company)
dated a date reasonably near the date of the initial Incremental Transfer
listing all effective financing statements which name the Transferor (under its
present name and any previous name) as debtor and which are filed in
jurisdictions in which the filings were made pursuant to item (l) above together
with copies of such financing statements (none of which shall cover any
Receivables or Contracts).
(p) Executed copies of the Lock-Box Agreements.
(q) An opinion of Mr. Neal Farrell, general counsel of Borg-Warner,
covering certain of the corporate matters set forth in Exhibit K hereto.
(r) An opinion of Kirkland & Ellis, special counsel to the
Transferor, Borg-Warner and the Seller, covering certain of the corporate
matters set forth in Exhibit K hereto and certain insolvency matters.
(s) A certificate of the Transferor in substantially the form of
Exhibit L hereto executed by the Secretary or Assistant Secretary of the
Transferor.
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(t) A computer tape setting forth all Receivables and the Outstanding
Balances thereon and such other information as the Company may reasonably
request.
(u) An executed copy of the Fee Letter.
(v) The Transferor Certificate, duly executed by the Transferor.
(w) The Company Certificate, duly executed by the Transferor and
appropriately completed.
(x) The Arrangement Fee in accordance with Section 2.7(b).
(y) An Investor Report for October 31, 1994.
(z) An executed copy of the Receivables Purchase Agreement.
(aa) Such other documents as the Company shall reasonably
request.
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ARTICLE V
COVENANTS
SECTION 5.1 Affirmative Covenants. At all times from the date hereof
to the later to occur of (i) the Termination Date or (ii) the date on which the
Company's Transferred Interest shall be equal to zero, unless the Company shall
otherwise consent in writing:
(a) Financial Reporting. The Transferor and Borg-Warner will
maintain, for itself and each Subsidiary, a system of accounting established and
administered in accordance with generally accepted accounting principles, and
Borg-Warner (or, in the case of the first sentence of clause (iii), clause (iv),
and the second sentence of clause (vii), the Transferor) will furnish to the
Administrative Agent:
(i) Annual Reporting. Within ninety (90) days after the close
of each of its fiscal years, audited financial statements, prepared in
accordance with generally accepted accounting principles on a consolidated
basis for itself and its Subsidiaries, including balance sheets as of the
end of such period, related statements of operations, shareholder's equity
and cash flows, accompanied by an audit report of a nationally recognized
firm of independent certified public accountants (or such other firm of
independent certified public accountants acceptable to the Administrative
Agent) which report shall be unqualified as to going concern and scope of
audit and shall state that such consolidated financial statements present
fairly the financial position of Borg-Warner and its Subsidiaries as at the
dates indicated and the results of their operations and their cash flow for
the periods indicated is in conformity with GAAP and that the examination
had been made in accordance with generally accepted auditing standards.
(ii) Quarterly Reporting. Within forty-five (45) days after the
close of the first three quarterly periods of each of its fiscal years,
for itself and its
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Subsidiaries, consolidated unaudited balance sheets as at the close of each
such period and consolidated related statements of operations,
shareholder's equity and cash flows for the period from the beginning of
such fiscal year to the end of such quarter, all certified by its
Designated Financial Officer.
(iii) Compliance Certificate. Concurrently with the delivery by
Borg-Warner of the financial statements required hereunder, a compliance
certificate signed by its Designated Financial Officer stating that no
Termination Event or Potential Termination Event exists, or if any
Termination Event or Potential Termination Event exists, stating the nature
and status thereof. Together with the financial statements hereunder, a
compliance certificate signed by a Designated Financial Officer of Borg-
Warner showing the computation of, and showing compliance with, each of the
quarterly financial tests set forth in Section 7.1(m), (n) and (o).
(iv) Notice of Termination Events or Potential Termination
Events. As soon as possible and in any event within two (2) days after the
occurrence of each Termination Event or each Potential Termination Event, a
statement of the Designated Financial Officer of the Transferor setting
forth details of such Termination Event or Potential Termination Event and
the action which the Transferor proposes to take with respect thereto.
(v) Change in Credit and Collection Policy and Debt Ratings.
Within ten (10) days after the date any material change in or amendment to
the Credit and Collection Policy is made, a copy of the Credit and
Collection Policy then in effect indicating such change or amendment.
Within five (5) days after the date of any change in Borg-Warner's public
or private debt ratings, if any, a written certification of Borg-Warner's
public and private debt ratings after giving effect to any such change.
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(vi) Credit and Collection Policy. Upon request by the Company,
a complete copy of the Credit and Collection Policy then in effect.
(vii) Other Information. Prompt written notice thereof in the
event that any Subsidiary of Borg-Warner becomes a Material Subsidiary (as
that term is defined in Exhibit N hereto); and such other information
including non-financial information) as the Administrative Agent may from
time to time reasonably request.
(b) Conduct of Business. The Transferor will and Borg-Warner will
(x) carry on and conduct its business in substantially the same manner and in
substantially the same or related fields of enterprise as it is presently
conducted and do all things necessary to remain duly incorporated, validly
existing and in good standing as a domestic corporation in its jurisdiction of
incorporation and (y) maintain all requisite authority to conduct its business
in each jurisdiction in which its business is conducted.
(c) Compliance with Laws. The Transferor will and Borg-Warner will
comply in all material respects with all laws, rules, regulations, orders,
writs, judgments, injunctions, decrees or awards to which it may be subject.
(d) Furnishing of Information and Inspection of Records. The
Transferor will furnish to the Company from time to time such information with
respect to the Receivables as the Company may reasonably request, including,
without limitation, listings identifying the Obligor and the Outstanding Balance
for each Receivable. Upon at least two (2) Business Days prior notice, the
Transferor and Borg-Warner will during regular business hours permit the
Company, or its agents or representatives, (i) to examine and make copies of and
abstracts from all Records and (ii) to visit the offices and properties of the
Transferor and Borg-Warner for the purpose of examining such Records, and to
discuss matters relating to Receivables or the Transferor's or Borg-Warner's
performance hereunder with any of the officers, employees or independent public
accountants of the Transferor or Borg-Warner having knowledge of such matters.
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(e) Keeping of Records and Books of Account. The Transferor and
Borg-Warner (consistent with its role as Collection Agent) will maintain and
implement administrative and operating procedures (including, without
limitation, an ability to recreate records evidencing Receivables in the event
of the destruction of the originals thereof), and keep and maintain, all
documents, books, records and other information reasonably necessary or
advisable for the collection of all Receivables (including, without limitation,
records adequate to permit the daily identification of each new Receivable and
all Collections of and adjustments to each existing Receivable). The Transferor
and Borg-Warner will give the Company notice of any material change in the
administrative and operating procedures referred to in the previous sentence.
(f) Performance and Compliance with Receivables and Contracts. The
Transferor and Borg-Warner will at their expense timely and fully perform and
comply with all material provisions, covenants and other promises required to be
observed by it under the Contracts related to the Receivables.
(g) Credit and Collection Policies. Borg-Warner will comply in all
material respects with the Credit and Collection Policy in regard to each
Receivable and the related Contract.
(h) Collections. The Transferor and Borg-Warner shall instruct all
Obligors to cause all Collections to be deposited directly to a Lock-Box
Account.
(i) Collections Received. The Transferor and Borg-Warner shall hold
in trust, and deposit, immediately, but in any event not later than forty-eight
(48) hours of its receipt thereof, to a Lock-Box Account all Collections
received from time to time by them (including without limitation all Collections
deemed to have been received by the Transferor under Section 2.9).
(j) Sale Treatment. The Transferor shall report the transactions
contemplated by the Agreement on its financial statements as a sale of the
Transferred Interest to the Company.
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(k) Separate Business. The Transferor shall at all times (a) to the
extent the Transferor's office is located in the offices of Borg-Warner or any
Affiliate of Borg-Warner, pay fair market rent for its executive office space
located in the offices of Borg-Warner or any Affiliate of Borg-Warner, (b)
maintain the Transferor's books, financial statements, accounting records and
other corporate documents and records separate from those of Borg-Warner or any
other entity, (c) not commingle the Transferor's assets with those of Borg-
Warner or any other entity; (d) act solely in its corporate name and through its
own authorized officers and agents, (e) make investments directly or by brokers
engaged and paid by the Transferor or its agents (provided that if any such
agent is an Affiliate of the Transferor it shall be compensated at a fair market
rate for its services), (f) separately manage the Transferor's liabilities from
those of Borg-Warner or any Affiliates of Borg-Warner and pay its own
liabilities, including all administrative expenses, from its own separate
assets, and (g) pay from the Transferor's assets all obligations and
indebtedness of any kind incurred by the Transferor. The Transferor shall abide
by all corporate formalities, including the maintenance of current minute books,
and the Transferor shall cause its financial statements to be prepared in
accordance with generally accepted accounting principles in a manner that
indicates the separate existence of the Transferor and its assets and
liabilities. The Transferor shall (i) pay all its liabilities, (ii) not assume
the liabilities of Borg-Warner or any Affiliate of Borg-Warner, and (iii) not
guarantee the liabilities of Borg-Warner or any Affiliate of Borg-Warner. The
officers and directors of the Transferor (as appropriate) shall make decisions
with respect to the business and daily operations of the Transferor independent
of and not dictated by any controlling entity.
(l) Corporate Documents. The Transferor shall only amend, alter,
change or repeal Articles Third, Fourth(b), Sixth, and the last paragraph of
Article Tenth of its Certificate of Incorporation as in effect on the date
hereof with the prior written consent of the Administrative Agent.
SECTION 5.2 Negative Covenants. During the term of this Agreement,
unless the Company shall otherwise consent in writing:
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(a) No Sales, Liens, Etc. Except as otherwise provided herein,
neither the Transferor or Borg-Warner will sell, assign (by operation of law or
otherwise) or otherwise dispose of, or create or suffer to exist any Adverse
Claim upon (or the filing of any financing statement) or with respect to, any
inventory or goods (other than sales in the ordinary course of business), the
sale of which may give rise to a Receivable or any Receivable or related
Contract, or upon or with respect to any account which concentrates in a Lock-
Box Bank to which any Collections of any Receivable are sent, or assign any
right to receive income in respect thereof.
(b) No Extension or Amendment of Receivables. Except as otherwise
permitted in Section 6.2, neither the Transferor nor Borg-Warner will extend,
amend or otherwise modify the terms of any Receivable, or amend, modify or waive
any term or condition of any Contract related thereto.
(c) No Amendment of Receivables Purchase Agreement. The Transferor
shall not amend or otherwise modify the Receivables Purchase Agreement without
the prior written consent of the Company.
(d) No Change in Business or Credit and Collection Policy. Neither
the Transferor nor Borg-Warner will make any change in the character of its
business or in the Credit and Collection Policy (in the case of Borg-Warner),
which change would, in either case, impair the collectibility of any Receivable.
(e) Sale of Assets, Etc. Neither the Transferor nor Borg-Warner will
sell, lease or transfer all or substantially all of its assets to any other
person.
(f) Change in Payment Instructions to Obligors. Neither the
Transferor nor any Seller nor the Collection Agent will add or terminate any
bank as a Lock-Box Bank or any account as a Lock-Box Account to or from those
listed in Exhibit C hereto or make any change in its instructions to Obligors
regarding payments to be made to any Lock-Box Account, unless (i) such
instructions are to deposit such payments to another existing Lock-Box Account
or (ii) the Administrative Agent shall have
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received written notice of such addition, termination or change at least 30 days
prior thereto and the Administrative Agent shall have received a Lock-Box
Agreement executed by each new Lock-Box Bank or an existing Lock-Box Bank with
respect to each new Lock-Box Account, as applicable.
(g) Deposits to Lock-Box Accounts. Neither the Transferor nor Borg-
Warner will deposit or otherwise credit, or cause or permit to be so deposited
or credited, to any Lock-Box Account cash or cash proceeds other than
Collections of Receivables.
(h) Change of Name, Etc. The Transferor will not change its name,
identity or structure or its chief executive office, unless at least 10 days
prior to the effective date of any such change the Transferor delivers to the
Collateral Agent (i) UCC financing statements, executed by the Transferor
necessary to reflect such change and to continue the perfection of the Company's
ownership interests or security interests in the Receivables and (ii) the Lock-
Box Agreements and, in the case of the Lock-Box Agreements, the Lock-Box Banks
necessary to reflect such change and to continue to enable the Collateral Agent
to exercise its rights contained in Section 2.8.
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ARTICLE VI
ADMINISTRATION AND COLLECTIONS
SECTION 6.1 Appointment of Collection Agent. The servicing,
administering and collection of the Receivables shall be conducted by such
Person (the "Collection Agent") so designated from time to time in accordance
with this Section 6.1. Until the Company gives notice to Borg-Warner of the
designation of a new Collection Agent, Borg-Warner is hereby designated as, and
hereby agrees to perform the duties and obligations of, the Collection Agent
pursuant to the terms hereof. The Company may, upon the occurrence of a
Collection Agent default or any other Termination Event designate as Collection
Agent any Person (including itself) to succeed Borg-Warner or any successor
Collection Agent, on the condition in each case that any such Person so
designated shall agree to perform the duties and obligations of the Collection
Agent pursuant to the terms hereof. After the occurrence of a Termination
Event, the Company may notify any Obligor of the Transferred Interest. The
Collection Agent may delegate to any Affiliate any portion of its obligation
hereunder in the ordinary course of its business; provided that no such
delegation shall relieve the Collection Agent of any liability hereunder.
SECTION 6.2 Duties of Collection Agent.
(a) The Collection Agent shall take or cause to be taken all such
action as may be necessary or advisable to collect each Receivable from time to
time, all in accordance with applicable laws, rules and regulations, with
reasonable care and diligence, and in accordance with the Credit and Collection
Policy. Each of the Transferor and the Company hereby appoints as its agent the
Collection Agent, from time to time designated pursuant to Section 6.1, to
enforce its respective rights and interests in and under the Receivables, the
Related Security and the Contracts. The Collection Agent shall set aside for
the account of the Transferor and the Company their respective allocable shares
of the Collections of Receivables in accordance with Sections 2.5 and 2.6. The
Collection Agent shall segregate and deposit to the Company's account the
Company's allocable share of Collections of Receivables when required pursuant
to
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Article II hereof. So long as no Termination Event shall have occurred and be
continuing, the Collection Agent may, in accordance with the Credit and
Collection Policy, adjust the Outstanding Balance of a Receivable as the
Transferor may determine to be appropriate to maximize Collections thereof;
provided, however, that such adjustment shall not alter the status of such
Receivable as a Delinquent Receivable or a Defaulted Receivable. The Transferor
shall deliver to the Collection Agent and the Collection Agent shall hold in
trust for the Transferor and the Company in accordance with their respective
interests, all Records which evidence or relate to Receivables or Related
Security. Notwithstanding anything to the contrary contained herein, the
Company shall have the absolute and unlimited right to direct the Collection
Agent (whether the Collection Agent is the Transferor or any other Person) to
commence or settle any legal action to enforce collection of any Receivable or
to foreclose upon or repossess any Related Security; provided that no such
direction may be given unless a Termination Event has occurred and is continuing
hereunder.
(b) The Collection Agent shall hold for the benefit of the Transferor
Collections received minus the Percentage Factor of such Collections. On the
last day of each Tranche Period, the Collection Agent shall deduct from such
Collections and pay to the Company in reduction of the Net Investment any
amounts due under Section 2.9 hereof and unpaid from the Transferor and turn the
remainder of such Collections over to the Transferor. In addition, the
Collection Agent shall, as soon as practicable following receipt thereof, turn
over to the Transferor any collections of any indebtedness of any Obligor which
is not a Receivable. If Borg-Warner is not the Collection Agent, the Collection
Agent, by giving three Business Days' prior written notice to the Company, may
revise the percentage used to calculate the Servicing Fee so long as the revised
percentage will not result in a Servicing Fee that exceeds 110% of the
reasonable and appropriate out-of-pocket costs and expenses of such Collection
Agent incurred in connection with the performance of its obligations hereunder
as documented to the reasonable satisfaction of the Company. The Collection
Agent, if other than the Transferor, shall as soon as practicable upon demand,
deliver to the Transferor all Records in its possession which evidence or relate
to indebtedness of an Obligor which is not a Receivable.
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(c) On or before 90 days after the end of each fiscal year of the
Collection Agent, beginning with the fiscal year ending December 31, 1994, the
Collection Agent shall cause a firm of independent public accountants (who may
also render other services to the Collection Agent or the Transferor) to furnish
a report to the Company to the effect that they have (i) compared the
information contained in the Investor Reports delivered during such fiscal year
with the information contained in the Contracts and the Collection Agent's
records and computer systems for such period, and that, on the basis of such
examination and comparison, such firm is of the opinion that the information
contained in the Investor Reports reconciles with the information contained in
the Contracts and the Collection Agent's records and computer system and that
the servicing of the Receivables has been conducted in compliance with this
Agreement, (ii) confirmed the Net Receivables Balance as reported on each
Investor Report and Weekly Report delivered during such fiscal year, and (iii)
verified that the Receivables treated by the Collection Agent as Eligible
Receivables in fact satisfied the requirements of the definition thereof
contained herein except, in each case for (a) such exceptions as such firm shall
believe to be immaterial (which exceptions need not be enumerated) and (b) such
other exceptions as shall be set forth in such statement.
(d) Notwithstanding anything to the contrary contained in this
Article VI, the Collection Agent shall have no obligation to collect, enforce or
take any other action described in this Article VI with respect to any
Receivable that is not included in the Transferred Interest other than to
deliver to the Transferor the Collections and documents with respect to any such
Receivable as described in Section 6.2(b).
SECTION 6.3 Rights After Designation of New Collection Agent. At any
time following the designation of a Collection Agent (other than Borg-Warner)
pursuant to Section 6.1:
(i) The Company may direct that payment of all amounts payable
under any Receivable be made directly to the Company or its designee.
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(ii) Borg-Warner shall, at the Company's request and at Borg-
Warner's expense, give notice of the Company's interest in the Receivables
to each Obligor and direct that payments be made directly to the Company or
its designee.
(iii) Borg-Warner shall, at the Company's request, (A) assemble
all of the Records, and shall make the same available to the Company at a
place selected by the Company or its designee, and (B) segregate all cash,
checks and other instruments received by it from time to time constituting
Collections of Receivables in a manner acceptable to the Company and shall,
promptly upon receipt, remit all such cash, checks and instruments, duly
endorsed or with duly executed instruments of transfer, to the Company or
its designee.
(iv) Upon the occurrence and during the continuation of a
Termination Event, the Transferor hereby authorizes the Company to take any
and all steps in the Transferor's name and on behalf of the Transferor
necessary or desirable, in the determination of the Company, to collect all
amounts due under any and all Receivables, including, without limitation,
endorsing the Transferor's name on checks and other instruments
representing Collections and enforcing such Receivables and the related
Contracts.
SECTION 6.4 Responsibilities of the Transferor. Anything herein to
the contrary notwithstanding, the Transferor shall (i) perform all of its
obligations under the Contracts related to the Receivables to the same extent as
if interests in such Receivables had not been transferred hereunder and the
exercise by the Company of its rights hereunder shall not relieve the Transferor
from such obligations and (ii) pay when due any taxes, including without
limitation, any sales taxes payable in connection with the Receivables and their
creation and satisfaction. The Company shall not have any obligation or
liability with respect to any Receivable or related Contracts, nor shall it be
obligated to perform any of the obligations of the Transferor thereunder.
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ARTICLE VII
TERMINATION EVENTS
SECTION 7.1 Termination Events. The occurrence of any one or more of
the following events shall constitute a Termination Event:
(a) (i) the Collection Agent or Transferor shall fail to
perform or observe any term, covenant or agreement hereunder (other than as
referred to in clause (ii) of this Section 7.1(a)) and such failure shall
remain unremedied for ten (10) days, or (ii) either the Collection Agent,
any Seller or the Transferor shall fail to make any payment or deposit to
be made by it hereunder or under the Receivables Purchase Agreement when
due or the Collection Agent shall fail to observe or perform any term,
covenant or agreement on the Collection Agent's part to be performed under
Section 2.8(b) hereof; or
(b) any representation, warranty, certification or statement
made by the Transferor or the Collection Agent in this Agreement or by any
Seller in the Receivables Purchase Agreement or in any other document
delivered pursuant hereto or thereto shall prove to have been incorrect in
any material respect when made or deemed made; provided that with respect
to any representation, warranty, certification or statement made pursuant
to Section 3.1(m) which shall prove to have been incorrect in any material
respect when made or deemed made, a Termination Event shall occur if such
representation, warranty, certification or statement remains incorrect for
more than one (1) day; or
(c) the Transferor or Borg-Warner, shall default in the
performance of any payment or undertaking (other than those covered by
clause (a) above) (i) to be performed or observed by it under Sections
5.1(a)(iv), 5.1(a)(v), 5.1(b)(x), 5.1(f), 5.1(g), 5.1(h), 5.1(i), 5.1(k),
5.1(l), 5.2(a), (c), (d), (e), (f) or (h)(ii) hereof or under Sections
7.1(e), 7.1(g), 7.1(h), 7.3(a), 7.3(c), 7.3(d), 7.3(e), 7.3(f) or 8.2(a) of
the Receivables Purchase Agreement or (ii) to be performed or observed
under any other provision hereof or under the Receivables Purchase
Agreement and such default in the
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case of this clause (ii) shall continue for ten (10) days; or
(d) (i) failure of Borg-Warner or any of its Subsidiaries to pay
when due (x) any principal or interest on any Indebtedness (as such term is
defined in Exhibit N hereto) in an individual principal amount of
$4,000,000 or items of Indebtedness with an aggregate principal amount of
$8,000,000 or more or (y) any Contingent Obligation (as such term is
defined in Exhibit N hereto) in an individual principal amount of
$4,000,000 or more or Contingent Obligations with an aggregate principal
amount of $8,000,000 or more, in each case beyond the end of any period
prior to which the obligee is prohibited from accelerating payment
thereunder; or (ii) breach or default of Borg-Warner or any of its
Subsidiaries with respect to any other material term of (x) any evidence of
any Indebtedness in an individual principal amount of $4,000,000 or more or
items of Indebtedness with an aggregate principal amount of $8,000,000 or
more or any Contingent Obligation in an individual principal amount of
$4,000,000 or more or Contingent Obligations with an aggregate principal
amount of $8,000,000 or more; (y) any loan agreement, mortgage, indenture
or other agreement relating thereto, if the effect of such failure, default
or breach is to cause, or to permit the holder or holders of that
Indebtedness or Contingent Obligation (or a trustee on behalf of such
holder or holders) then to cause, that Indebtedness or Contingent
Obligation to become or be declared due prior to its stated maturity (or
the stated maturity of any underlying obligation, as the case may be); or
(e) any Event of Bankruptcy shall occur with respect to the
Transferor, the Collection Agent, any Seller or any Material Subsidiary (as
such term is defined in Exhibit N hereto) of Borg-Warner; or
(f) the Transferor shall, for any reason, fail to have a valid
ownership interest in the Receivables at the time of Transfer, or the
Company shall, for any reason, fail to have a valid and perfected first
priority security interest in the Receivables; or
(g) either of the Transferor, Borg-Warner or any Seller shall
enter into any transaction or merger whereby it is not the surviving
entity; provided however,
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that if such transaction or merger involves Borg-Warner, and the Company's
written approval is obtained for the assumption by a Subsidiary of Borg-
Warner of Borg-Warner's obligations hereunder in its individual capacity
and under the Receivables Purchase Agreement as a Seller, such event shall
not constitute a Termination Event; provided further, that any Seller may
merge or consolidate with another Seller; provided further, that any Seller
(other than Borg-Warner) may voluntarily liquidate and convey all or
substantially all of its assets to another Seller; and provided further,
that any Seller may be acquired by merger or otherwise by another Person if
the Net Receivables Balance calculated solely by reference to Receivables
originated by such Seller constitutes less than 10% of the aggregate Net
Receivables Balance, and all Receivables generated by such Seller are
removed upon such a sale from the aggregate Net Receivables Balance (upon
such acquisition, such Seller shall be removed from, and shall no longer be
a party to, the Receivables Purchase Agreement) without causing a
Termination Event, such sale shall not constitute a Termination Event; or
(h) any material adverse change in the operations of any Seller,
Borg-Warner, the Transferor or the Collection Agent shall occur or any
other event shall occur which materially affects any Seller's, Borg-
Warner's, the Transferor's or the Collection Agent's ability to either
collect the Receivables or to perform under this Agreement or the
Receivables Purchase Agreement; or
(i) the Percentage Factor as calculated in any Weekly Report
exceeds the Maximum Percentage Factor; or
(j) the Dilution Ratio, averaged for three consecutive months,
exceeds 1.5%; or
(k) the Loss to Liquidation Ratio, averaged for three
consecutive months, exceeds 1.5%; or
(l) the Delinquency Ratio, averaged for three consecutive
months, exceeds 10%; or
(m) Borg-Warner permits the ratio of (x) Funded Debt to (y)
Consolidated EBITDA (as such terms are defined in Exhibit N hereto) over
any four consecutive
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<PAGE>
fiscal quarter period to be greater than the ratio set forth below for the
respective fiscal quarter (such quarter being the last fiscal quarter in
such four fiscal quarter period):
<TABLE>
<CAPTION>
<S> <C>
Fourth Quarter, 1994 3.40 to 1.0
First Quarter, 1995 3.40 to 1.0
Second Quarter, 1995 3.30 to 1.0
Third Quarter, 1995 3.20 to 1.0
Fourth Quarter, 1995 3.20 to 1.0
First Quarter, 1996 3.10 to 1.0
Second Quarter, 1996,
and each
quarter thereafter, 3.00 to 1.0; or
</TABLE>
(n) Borg-Warner permits the ratio of (x) Consolidated EBITDA
minus Consolidated Capital Expenditures to (y) Consolidated Interest
Expense (as such terms are defined in Exhibit N hereto) over any four
consecutive fiscal quarter period to be less than the ratio set forth below
for the respective fiscal quarter (such quarter being the last fiscal
quarter in such four fiscal quarter period):
<TABLE>
<CAPTION>
<S> <C>
Fourth Quarter, 1994 1.60 to 1.0
First Quarter, 1995 1.60 to 1.0
Second Quarter, 1995 1.60 to 1.0
Third Quarter, 1995 1.60 to 1.0
Fourth Quarter, 1995,
and each quarter
thereafter, 1.75 to 1.0; or
</TABLE>
(o) Borg-Warner's Consolidated Net Worth at (i) the fiscal year
ended December 31, 1994 shall be less than $50 million and (ii) the end of
each fiscal quarter thereafter shall be less than the sum of (x) 50% of
Consolidated Net Income (such number not to be less than zero) for such
fiscal quarter plus (y) 100% of any subsequent equity issue plus (z) the
minimum amount of Consolidated Net Worth as calculated for the immediately
preceding fiscal quarter; or
(p) Borg-Warner's senior unsecured debt is rated below B- by
Standard & Poor's or B3 by Moody's, or its subordinated unsecured debt is
rated below CCC+ by Standard & Poor's or CCC1 by Moody's.
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<PAGE>
SECTION 7.2 Termination. (a) If a Termination Event occurs, the
Company may, by notice to the Transferor, declare all outstanding Tranche
Periods to be ended and designate the Base Rate plus 2% to be applicable to the
Net Investment.
(b) In addition, if any Termination Event occurs the Company and the
Collateral Agent shall have all of the rights and remedies provided to a secured
creditor or a purchaser of accounts under the UCC by applicable law in respect
thereto.
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<PAGE>
ARTICLE VIII
INDEMNIFICATION; EXPENSES; RELATED MATTERS
SECTION 8.1 Indemnities by the Transferor. Without limiting any other
rights which the Company may have hereunder or under applicable law, the
Transferor hereby agrees to indemnify the Company, the Liquidity Provider and
the Credit Support Provider and any permitted assigns and their respective
officers, directors and employees (collectively, "Indemnified Parties") from and
against any and all damages, losses, claims, liabilities, costs and expenses,
including reasonable attorneys' fees (which such attorneys may be employees of
the Liquidity Provider, the Credit Support Provider or the Company) and
disbursements (all of the foregoing being collectively referred to as
"Indemnified Amounts") awarded against or incurred by any of them arising out of
or as a result of this Agreement or the ownership, either directly or
indirectly, by the Company of the Transferred Interest excluding, however, (i)
Indemnified Amounts to the extent resulting from gross negligence or willful
misconduct on the part of an Indemnified Party or (ii) recourse (except as
otherwise specifically provided in this Agreement) for uncollectible
Receivables. Without limiting the generality of the foregoing, the Transferor
shall indemnify each Indemnified Party for Indemnified Amounts relating to or
resulting from:
(i) reliance on any representation or warranty made by the
Transferor (or any officers of the Transferor) under or in connection with
this Agreement, any Investor Report or any other information or report
delivered by the Transferor pursuant hereto, which shall have been false or
incorrect in any material respect when made or deemed made;
(ii) the failure by the Transferor to comply with any applicable
law, rule or regulation with respect to any Receivable or the related
Contract, or the nonconformity of any Receivable or the related Contract
with any such applicable law, rule or regulation;
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<PAGE>
(iii) the failure to vest and maintain vested in the Company an
undivided percentage ownership interest, to the extent of the Transferred
Interest, in the Receivables included in the Transferred Interest, free and
clear of any Adverse Claim;
(iv) the failure to file, or any delay in filing, financing
statements, continuation statements, or other similar instruments or
documents under the UCC of any applicable jurisdiction or other applicable
laws with respect to any Receivable included in the Transferred Interest
and the failure to perfect the Company's interest in the Receivables
including any such failure in respect of any Receivable the Obligor of
which is the federal government or a municipality;
(v) any dispute, claim, offset or defense (other than discharge
in bankruptcy) of the Obligor to the payment of any Receivable included in
the Transferred Interest (including, without limitation, a defense based on
such Receivable or the related Contract not being legal, valid and binding
obligation of such Obligor enforceable against it in accordance with its
terms), or any other claim resulting from the sale of merchandise or
services related to such Receivable or the furnishing or failure to furnish
such merchandise or services;
(vi) any failure of Borg-Warner, as Collection Agent, to perform
its duties or obligations in accordance with the provisions of Article VI;
or
(vii) any products liability claim or personal injury or
property damage suit or other similar or related claim or action of
whatever sort arising out of or in connection with merchandise or services
which are the subject of any Receivable;
provided, however, that if the Company enters into agreements for the purchase
of interests in receivables from
one or more Other Transferors, the Company shall allocate such Indemnified
Amounts which are in connection with the Liquidity Provider Agreement, the
Credit Support Agreement or the credit support furnished by the Credit Support
Provider to the Transferor and each Other Trans-
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<PAGE>
feror; and provided, further, that if such Indemnified Amounts are attributable
to the Transferor and not attributable to any Other Transferor, the Transferor
shall be solely liable for such Indemnified Amounts or if such Indemnified
Amounts are attributable to Other Transferors and not attributable to the
Transferor, such Other Transferors shall be solely liable for such Indemnified
Amounts.
SECTION 8.2 Indemnity for Taxes, Reserves and Expenses. (a) If after
the date hereof, the adoption of any Law or bank regulatory guideline or any
amendment or change in the interpretation of any existing or future Law or bank
regulatory guideline by any Official Body charged with the administration,
interpretation or application thereof, or the compliance with any directive of
any Official Body (in the case of any bank regulatory guideline, whether or not
having the force of Law):
(i) shall subject any Indemnified Party to any tax, duty or
other charge with respect to this Agreement, the Transferred Interest, the
Receivables or payments of amounts due hereunder, or shall change the basis
of taxation of payments to any Indemnified Party of amounts payable in
respect of this Agreement, the Transferred Interest, the Receivables or
payments of amounts due hereunder or its obligation to advance funds under
the Liquidity Provider Agreement or the credit support furnished by the
Credit Support Provider or otherwise in respect of this Agreement, the
Transferred Interest or the Receivables (except for changes in the rate of
general corporate, franchise, net income or other income tax imposed on
such Indemnified Party by the jurisdiction in which such Indemnified
Party's principal executive office is located);
(ii) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve
System) against assets of, deposits with or for the account of, or credit
extended by, any Indemnified Party or shall impose on any Indemnified Party
or on the United States
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<PAGE>
market for certificates of deposit or the London interbank market
any other condition affecting this Agreement, the Transferred Interest, the
Receivables or payments of amounts due hereunder or its obligation to
advance funds under the Liquidity Provider Agreement or the credit support
provided by the Credit Support Provider or otherwise in respect of this
Agreement, the Transferred Interest or the Receivables; or
(iii) imposes upon any Indemnified Party any other expense
(including, without limitation, reasonable attorneys' fees and expenses,
and expenses of litigation or preparation therefor in contesting any of the
foregoing) with respect to this Agreement, the Transferred Interest, the
Receivables or payments of amounts due hereunder or its obligation to
advance funds under the Liquidity Provider Agreement or the credit support
furnished by the Credit Support Provider or otherwise in respect of this
Agreement, the Transferred Interests or the Receivables,
and the result of any of the foregoing is to increase the cost to such
Indemnified Party with respect to this Agreement, the Transferred Interest, the
Receivables, the obligations hereunder, the funding of any purchases hereunder,
the Liquidity Provider Agreement or the Credit Support Agreement, by an amount
deemed by such Indemnified Party to be material, then, within ten (10) days
after demand by the Company, the Transferor shall pay to the Company such
additional amount or amounts as will compensate such Indemnified Party for such
increased cost or reduction.
(b) If any Indemnified Party shall have determined that after the
date hereof, the adoption of any applicable Law or bank regulatory guideline
regarding capital adequacy, or any change therein, or any change in
the interpretation thereof by any Official Body, or any directive regarding
capital adequacy (in the case of any bank regulatory guideline, whether or not
having the force of law) of any such Official Body, has or would have the effect
of reducing the rate of return on capital of such Indemnified Party (or its
parent) as a conse-
65
<PAGE>
quence of such Indemnified Party's obligations hereunder or with respect hereto
to a level below that which such Indemnified Party (or its parent) could have
achieved but for such adoption, change, request or directive (taking into
consideration its policies with respect to capital adequacy) by an amount deemed
by such Indemnified Party to be material, then from time to time, within ten
(10) days after demand by the Company, the Transferor shall pay to the Company
such additional amount or amounts as will compensate such Indemnified Party (or
its parent) for such reduction.
(c) The Company will promptly notify the Transferor of any event of
which it has knowledge, occurring after the date hereof, which will entitle an
Indemnified Party to compensation pursuant to this Section. A notice by the
Company claiming compensation under this Section and setting forth the
additional amount or amounts to be paid to it hereunder shall be conclusive in
the absence of manifest error. In determining such amount, the Company may use
any reasonable averaging and attributing methods.
(d) Anything in this Section 8.2 to the contrary notwithstanding, if
the Company enters into agreements for the acquisition of interests in
receivables from one or more Other Transferors, the Company shall allocate the
liability for any amounts under this Section 8.2 ("Section 8.2 Costs") to the
Transferor and each Other Transferor; and provided, further, that if such
Section 8.2 Costs are attributable to the Transferor and not attributable to any
Other Transferor, the Transferor shall be solely liable for such Section 8.2
Costs or if such Section 8.2 Costs are attributable to Other Transferors and not
attributable to the Transferor, such Other Transferors shall be solely liable
for such Section 8.2 Costs.
SECTION 8.3 Other Costs, Expenses and Related Matters. (a) The
Transferor agrees, upon receipt of a written invoice, to pay or cause to be
paid, and to save the Company and the Administrative Agent harmless against
liability for the payment of, all reasonable out-of-pocket expenses (including,
without limitation, attorneys', accountant's and other third parties' fees and
expenses, any filing fees and expenses incurred by officers or employees of the
Company) incurred by or on
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<PAGE>
behalf of the Company and the Administrative Agent (i) in connection with the
negotiation, execution, delivery and preparation of this Agreement and any
documents or instruments delivered pursuant hereto and the transactions
contemplated hereby (including, without limitation, the perfection or protection
of the Transferred Interest) and (ii) from time to time (a) relating to any
amendments, waivers or consents under this Agreement, (b) arising in connection
with the Company's or its agent's enforcement or preservation of rights
(including, without limitation, the perfection and protection of the Transferred
Interest under this Agreement), or (c) arising in connection with any audit,
dispute, disagreement, litigation or preparation for litigation involving this
Agreement (all of such amounts, collectively, "Transaction Costs").
(b) Transferor shall pay the Company on demand any Early Collection
Fee due on account of the reduction of a Tranche on a day prior to the last day
of its Tranche Period.
SECTION 8.4 Reconveyance Under Certain Circumstances. Transferor
agrees to accept the reconveyance from the Company of the Transferred Interest
if the Company notifies Transferor of a material breach of any representation or
warranty made or deemed made pursuant to Article III of this Agreement and
Transferor shall fail to cure such breach within 15 days (or, in the case of the
representations and warranties in Sections 3.1(d) and 3.1(j), 3 days) of such
notice. The reconveyance price shall be paid by the Transferor to the Company
in immediately available funds on such 15th day (or 3rd day, if applicable) in
an amount equal to the Aggregate Unpaids.
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<PAGE>
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Term of Agreement. This Agreement shall terminate
following the Termination Date when the Net Investment has been reduced to zero,
all accrued Discount has been paid in full and all other Aggregate Unpaids have
been paid in full; provided, however, that (i) the rights and remedies of the
Company with respect to any representation and warranty made or deemed to be
made by Transferor pursuant to this Agreement, (ii) the indemnification and
payment provisions of Article VIII, and (iii) the agreement set forth in Section
9.9, shall be continuing and shall survive any termination of this Agreement.
SECTION 9.2 Waivers; Amendments. No failure or delay on the part of
the Company in exercising any power, right or remedy under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or remedy preclude any other further exercise thereof or the
exercise of any other power, right or remedy. The rights and remedies herein
provided shall be cumulative and nonexclusive of any rights or remedies provided
by law. Any provision of this Agreement may be amended if, but only if, such
amendment is in writing and is signed by the Transferor and the Company.
SECTION 9.3 Notices. Except as provided below, all communications and
notices provided for hereunder shall be in writing (including bank wire, telex,
telecopy or electronic facsimile transmission or similar writing) and shall be
given to the other party at its address or telecopy number set forth below or at
such other address or telecopy number as such party may hereafter specify for
the purposes of notice to such party. Each such notice or other communication
shall be effective (i) if given by telecopy, when such telecopy is transmitted
to the telecopy number specified in this Section and confirmation is received,
(ii) if given by mail 3 Business Days following such posting, or (iii) if given
by any other means, when received at the address specified in this Section.
However, anything in this Section to the contrary notwithstanding, the
Transferor hereby authorizes
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<PAGE>
the Company to effect Transfers, Tranche Period and Tranche Rate selections
based on telephonic notices made by any Person which the Company in good faith
believes to be acting on behalf of the Transferor. The Transferor agrees to
deliver promptly to the Company a written confirmation of each telephonic notice
signed by an authorized officer of Transferor. However, the absence of such
confirmation shall not affect the validity of such notice. If the written
confirmation differs in any material respect from the action taken by the
Company, the records of the Company shall govern absent manifest error.
If to the Company:
Enterprise Funding Corporation
c/o Merrill Lynch Money Markets Inc.
World Financial Center--South Tower
225 Liberty Street
New York, New York 10218
Telephone: (212) 236-7200
Telecopy: (212) 236-7584
(with a copy to the Administrative Agent)
If to the Transferor:
BPS Financial Services, Inc.
200 South Michigan Avenue
Chicago, Illinois 60604
Telephone: (312)322-8500
Telecopy: (312)322-8712
Payment Information:
Bank of America Illinois
ABA #071000039
Account #71-79669
If to the Collection Agent:
Borg-Warner Security Corporation
200 South Michigan Avenue
Chicago, Illinois 60604
Attention: Scott R. Veldman
Telephone: (312) 322-8722
Telephone: (312) 322-8712
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If to the Collateral Agent:
NationsBank of North Carolina, N.A.
NationsBank Corporate Center--7th Floor
Charlotte, North Carolina 28255
Attention: Michelle M. Heath--
Investment Banking
Telephone: (704) 386-7922
Telecopy: (704) 388-9169
If to the Administrative Agent:
NationsBank of North Carolina, N.A.
NationsBank Corporate Center--7th Floor
Charlotte, North Carolina 28255
Attention: Michelle M. Heath--
Investment Banking
Telephone: (704) 386-7922
Telecopy: (704) 388-9169
SECTION 9.4 Governing Law; Submission to Jurisdiction; Integration.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. THE TRANSFEROR HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN THE CITY OF NEW
YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. The Transferor hereby
irrevocably waives, to the fullest extent it may effectively do so, any
objection which it may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum. Nothing in
this Section 9.4 shall affect the right of the Company to bring any action or
proceeding against the Transferor or its property in the courts of other
jurisdictions.
(b) This Agreement contains the final and complete integration of all
prior expressions by the parties hereto with respect to the subject matter
hereof and shall constitute the entire Agreement among the parties hereto with
respect to the subject matter hereof superseding all prior oral or written
understandings.
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SECTION 9.5 Severability; Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
Agreement. Any provisions of this Agreement which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 9.6 Successors and Assigns.
(a) This Agreement shall be binding on the parties hereto and their
respective successors and assigns; provided, however, that the Transferor may
not assign any of its rights or delegate any of its duties hereunder without the
prior written consent of the Company. No provision of this Agreement shall in
any manner restrict the ability of the Company to assign, participate, grant
security interests in, or otherwise transfer any portion of the Transferred
Interest.
(b) The Transferor hereby agrees and consents to the assignment by
the Company from time to time of all or any part of its rights under, interest
in and title to this Agreement and the Transferred interest to any Liquidity
Provider. In addition, the Transferor hereby agrees and consents to the
complete assignment by the Company of all of its rights under, interest in and
title to this Agreement and the Transferred Interest to the Collateral Agent.
SECTION 9.7 Waiver of Confidentiality. The Transferor hereby consents
to the disclosure of any non-public information with respect to it received by
the Company or the Administrative Agent to any of the Company, any nationally
recognized rating agency rating the Company's commercial paper, the
Administrative Agent, the Liquidity Provider or the Credit Support Provider in
relation to this Agreement (only if such non-public information is accompanied
by a statement that such
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Person agrees, by receipt of such information, to maintain the confidentiality
of such information).
SECTION 9.8 Confidentiality Agreement. The Transferor hereby agrees
that it will not disclose the contents of this Agreement, the Fee Letter or any
other proprietary or confidential information of the Company, the Collateral
Agent, the Administrative Agent, the Liquidity Provider or the Credit Support
Provider to any other Person except (i) its auditors and attorneys, employees or
financial advisors (other than any commercial bank) and any nationally
recognized rating agency, provided such auditors, attorneys, employees,
financial advisors or rating agencies are informed of the highly confidential
nature of such information or (ii) as otherwise required by applicable law or
order of a court of competent jurisdiction or (iii) to the extent such
information is otherwise publicly available.
SECTION 9.9 No Bankruptcy Petition Against the Company. The
Transferor hereby covenants and agrees that, prior to the date which is one year
and one day after the payment in full of all outstanding Commercial Paper or
other indebtedness of the Company, it will not institute against, or join any
other Person in instituting against, the Company any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other similar proceeding
under the laws of the United States or any state of the United States.
SECTION 9.10 No Recourse Against Stockholders, Officers or Directors.
No recourse under any obligation, covenant or agreement of the Company contained
in this Agreement shall be had against Merrill Lynch Money Markets Inc. (or any
affiliate thereof), or any stockholder, officer or director of the Company, as
such, by the enforcement of any assessment or by any legal or equitable
proceeding, by virtue of any statute or otherwise; it being expressly agreed and
understood that this Agreement is solely a corporate obligation of the Company,
and that no personal liability whatever shall attach to or be incurred by
Merrill Lynch Money Markets Inc. (or any affiliate thereof), or the
stockholders, officers or directors of the buyer, as such, or any of them, under
or by reason of any of the obligations, covenants or agreements of the Company
contained in this Agreement, or implied therefrom, and that any and all personal
liabili-
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ty for breaches by the Company of any of such obligations, covenants or
agreements, either at common law or at equity, or by statute or constitution, of
Merrill Lynch Money Markets Inc. (or any affiliate thereof) and every such
stockholder, officer or director is hereby expressly waived as a condition of
and consideration for the execution of this Agreement.
SECTION 9.11 Characterization of the Transactions Contemplated by the
Agreement; Assignment of Rights Under Receivables Purchase Agreement. It is the
intention of the parties that the transactions contemplated hereby constitute
the sale of the Transferred Interest, conveying good title thereto free and
clear of any Adverse Claims to the Company and that the Transferred Interest not
be part of the Transferor's estate in the event of an insolvency. If,
notwithstanding the foregoing, the transactions contemplated hereby should be
deemed a financing, the parties intend that the Transferor shall be deemed to
have granted to the Company, and the Transferor hereby grants to the Company, a
first priority perfected security interest in all of the Transferor's right,
title and interest in, to and under the Receivables, together with Related
Security and Collections with respect thereto, and together with all of the
Transferor's rights under the Receivables Purchase Agreement with respect to the
Receivables and with respect to any obligations thereunder of the Sellers with
respect to the Receivables, and that this Agreement shall constitute a security
agreement under applicable law. The Transferor hereby assigns to the Company
all of its rights under the Receivables Purchase Agreement with respect to the
Receivables and with respect to any obligations thereunder of the Sellers with
respect to the Receivables. The Transferor agrees that neither it nor the
Collection Agent shall give any consent or waiver required or permitted to be
given under the Receivables Purchase Agreement without the prior consent of
either the Company or the Administrative Agent.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Transfer and Administration Agreement as of the date first written above.
ENTERPRISE FUNDING CORPORATION,
as Company
By: -------------------------
Name:
Title:
BPS FINANCIAL SERVICES, INC.
as Transferor
By: -------------------------
Name:
Title:
BORG-WARNER SECURITY CORPORATION,
individually and as Collection Agent
By: _______________________
Name:
Title:
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EXHIBIT N
---------
The following terms used in Article VII shall have the following
meanings:
"Asset Sale" means the sale, lease, assignment or other transfer for
value by Company or any of its Subsidiaries to any Person, whether in a single
transaction or a series of related transactions (other than to Company or any of
its Subsidiaries) of (i) any of the stock of any of Company's Subsidiaries; (ii)
all or substantially all of the assets of any division or line of business of
Company or any of its Subsidiaries; or (iii) any other assets or rights
(including, without limitation, any assets that do not constitute substantially
all of the assets or rights of any division or line of business of Company or
any of its Subsidiaries) having a book value or market value in excess of
$2,000,000 or more, other than in each case (A) the sale in the ordinary course
of business of personal property held for resale in the ordinary course of
business of Company or any of its Subsidiaries, (B) the sale or discount of
receivables permitted pursuant to subsection 6.9 of the Credit Agreement, and
(C) the Spin-Off.
"Automotive" means Borg-Warner Automotive, Inc.
"Borg-Warner Subsidiaries" means the Subsidiaries of Company which are
listed on Schedule A annexed hereto, as such Schedule may be supplemented from
time to time as mutually agreed upon by Borg-Warner and the Administrative
Agent.
"BW-Other Corporation" means BW-Other Corporation, a Delaware
corporation and a wholly-owned direct Subsidiary of Company, and all of its
Subsidiaries, including without limitation Borg-Warner Equities Corporation and
Centaur Insurance Company.
"Capital Lease", as applied to any Person, means any lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person.
N-1
<PAGE>
"Company" means Borg-Warner Security Corporation.
"Consolidated Capital Expenditures" means, for any period, the
aggregate of all expenditures (whether in cash or accrued as liabilities) by
Company and its Consolidated Subsidiaries during such period that, in conformity
with GAAP, are included or required to be included in the property, plant or
equipment reflected in the consolidated balance sheet of Company and its
Consolidated Subsidiaries.
"Consolidated EBITDA" means, for any period, the sum of the amounts
for such period of (i) Consolidated Net Income excluding extraordinary items,
(ii) provisions for taxes based on income, (iii) Consolidated Interest Expense,
(iv) to the extent Consolidated Net Income has been reduced thereby,
amortization expense, depreciation expense and other non-cash expenses, and (v)
other non-cash items reducing Consolidated Net Income less non-cash items
increasing Consolidated Net Income, all as determined on a consolidated basis
for Company and its Consolidated Subsidiaries in conformity with GAAP.
"Consolidated Interest Expense" means, for any period, total interest
expense (including that portion attributable to Capital Leases in accordance
with GAAP) of Company and its Consolidated Subsidiaries on a consolidated basis
with respect to all outstanding Indebtedness of Company and its Consolidated
Subsidiaries, including, without limitation, all commissions, discounts and
other fees and charges owed with respect to letters of credit and with respect
to any sale, discount or other financing of receivables and net costs under any
interest rate agreements.
"Consolidated Net Income" means, for any period, the net income (or
loss) of Company and its Consolidated Subsidiaries on a consolidated basis for
such period taken as a single accounting period determined in conformity with
GAAP; provided that there shall be excluded (i) the income (or loss) of any
Person (other than a Subsidiary of Company) in which any other Person (other
than Company or any of its Subsidiaries) has a joint interest, except to the
extent of the amount of dividends or other distributions actually paid to
Company or any of its Subsidiaries by such Person during such period, (ii) the
income (or
N-2
<PAGE>
loss) of any Person accrued prior to the date it becomes a Subsidiary of Company
or is merged into or consolidated with Company or any of its Subsidiaries or
that Person's assets are acquired by Company or any of its Subsidiaries, (iii)
the income of any Subsidiary of Company to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary of that income
is not at the time permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary, and (iv) any after-tax gains or losses
attributable to Asset Sales or returned surplus assets of any Pension Plan.
"Consolidated Net Worth" means, as at any date of determination, the
sum of the capital stock and additional paid-in capital plus retained earnings
(or minus accumulated deficit) of Company and its Consolidated Subsidiaries on a
consolidated basis calculated in conformity with GAAP, excluding all effects of
foreign currency exchange adjustments under FASB No. 52.
"Consolidated Subsidiaries" means all Subsidiaries of Company other
than BW-Other Corporation and those Subsidiaries of Company whose principal
place of business is located in Latin America that are not consolidated with
Company as of the date of this Agreement.
"Contingent Obligation", as applied to any Person, means any direct or
indirect liability, contingent or otherwise, of that Person (i) with respect to
any indebtedness, lease, dividend or other obligation of another if the primary
purpose or intent thereof by the Person incurring the Contingent Obligation is
to provide assurance to the obligee of such obligation of another that such
obligation of another will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such obligation
will be protected (in whole or in part) against loss in respect thereof, (ii)
with respect to any letter of credit issued for the account of that Person or as
to which that Person is otherwise liable for reimbursement of drawings, or (iii)
under Currency Agreements or Interest Rate Agreements. Contingent Obligations
shall include, without limitation, (a) the direct or indirect guaranty,
endorsement (otherwise than for collection or deposit in the ordinary course of
business), co-making, discounting with
N-3
<PAGE>
recourse or sale with recourse by such Person of the obligation of another, and
(b) any liability of such Person for the obligations of another through any
agreement (contingent or otherwise) (x) to purchase, repurchase or otherwise
acquire such obligation or any security therefor, or to provide funds for the
payment or discharge of such obligation (whether in the form of loans, advances,
stock purchases, capital contributions or otherwise), (y) to maintain the
solvency or any balance sheet item, level of income or financial condition of
another, or (z) to make take-or-pay or similar payments if required regardless
of non-performance by any other party or parties to an agreement, if in the case
of any agreement described under subclauses (x) or (y) of this sentence the
primary purpose or intent thereof is as described in the preceding sentence.
The amount of any Contingent Obligation shall be equal to the amount of the
obligation so guaranteed or otherwise supported.
"Credit Agreement" means the Credit Agreement dated as of January 27,
1993, as it may be amended, supplemented or otherwise modified from time to
time.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect
Company or any of its Consolidated Subsidiaries against fluctuations in currency
values.
"Employee Benefit Plan" means any "employee benefit plan" as defined
in Section 3(3) of ERISA which is, or was at any time, maintained or contributed
to by any Loan Party or any of its ERISA Affiliates.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time and any successor statute.
"ERISA Affiliate", as applied to any Person, means (i) any corporation
which is a member of a controlled group of corporations within the meaning of
Section 414(b) of the Internal Revenue Code of which that Person is a member;
(ii) any trade or business (whether or not incorporated) which is a member of a
group of trade or businesses under common control within the meaning of Section
414(c) of the Internal Revenue Code of which that Person is a member; and (iii)
any member of an affiliated
N-4
<PAGE>
service group within the meaning of Section 414(m) or (o) of the Internal
Revenue Code of which that Person, any corporation described in clause (i) above
or any trade or business described in clause (ii) above is a member. On and
after the Spin-Off, Automotive and its Subsidiaries shall not be ERISA
Affiliates with respect to events occurring after the Spin-Off unless the
Company is liable under the Code or ERISA with respect to such event.
"Funded Debt", as applied to any Person, means all indebtedness of
that Person that by its terms or by the terms of any instrument, or agreement
relating thereto matures more than one year from, or is directly renewable or
extendable at the option of the debtor to a date more than one year from
(including an option of the debtor under a revolving credit or similar agreement
obligating the lender or lenders to extend credit over a period of one year or
more from), the date of the creation thereof.
"GAAP" means, subject to the limitations on application thereof set
forth in subsection 1.2 of the Credit Agreement, generally accepted accounting
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession, that are applicable to the circumstances
as of the date of determination.
"Indebtedness", as applied to any Person, means (i) all indebtedness
for borrowed money, whether or not evidenced by a promissory note, draft or
similar instrument, (ii) that portion of obligationS with respect to Capital
Leases that is properly classified as a liability on a balance sheet in
conformity with GAAP, (iii) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed money,
(iv) any obligation owed for all or any part of the deferred purchase price of
property or services, which purchase price is (y) due more than six months from
the date of incurrence of the obligation in respect thereof, or (z) evidenced by
a note or similar written instrument, and (v) all indebtedness secured by any
Lien on any property or asset owned or held by that Person regardless
N-5
<PAGE>
of whether the indebtedness secured thereby shall have been assumed by that
Person or is nonrecourse to the credit of that Person.
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement designed to protect Company or any of its Subsidiaries
against fluctuations in interest rates; provided that the calculation of
payments for early termination shall be made on a reasonable basis in accordance
with customary industry practices; and provided further that all such payments
(guarantied and unguaranteed) shall constitute Indebtedness.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
"Lender" and "Lenders" means the persons identified as "Lenders" and
listed on the signature pages of the Credit Agreement, together with their
successors and permitted assigns.
"Lien" means any lien, mortgage, deed of trust, deed to secure debt,
pledge, security interest, charge or encumbrance of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
"Loan Parties" means the Company and the Borg-Warner Subsidiaries,
collectively.
"Material Subsidiary" means (i) each Subsidiary of Borg-Warner
identified as a "Material Subsidiary" on Schedule A annexed hereto; (ii) any
other Subsidiary of Borg-Warner now existing or hereafter acquired or formed by
Borg-Warner which (x) for the most recent fiscal year of Borg-Warner commencing
on or after January 1, 1994 accounted for more than 3% of the consolidated
revenues of Borg-Warner, or (y) as at the end of such fiscal year, was the owner
of more than 3% of the consolidated assets, all as shown on the consolidated
financial statements of Borg-Warner for such fiscal year; and (iii) any other
Subsidiary mutually agreed upon by Borg-Warner and the Administrative Agent, or
so designated by Borg-Warner by an
N-6
<PAGE>
Officers' Certificate delivered to the Administrative Agent.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 3(37) of ERISA to which Company or any of its ERISA Affiliates is
contributing or ever has contributed or to which Company or any of its ERISA
Affiliates has, or ever has had, an obligation to contribute.
"Pension Plan" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code
or Section 302 of ERISA.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof.
"Spin-Off" means a tax-free reorganization in which Company pays to
its shareholders a stock dividend consisting of all of the outstanding shares of
Automotive.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof.
N-7
<PAGE>
EXHIBIT 10.21
BORG-WARNER SECURITY CORPORATION
RETIREMENT SAVINGS EXCESS BENEFIT PLAN
(AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 1995)
1. Purpose of the Plan
-------------------
The Borg-Warner Security Corporation Retirement Savings Plan (the "RSP")
was established by Borg-Warner Security Corporation (the "Corporation") to
provide its employees with a method of long-term savings. The Borg-Warner
Security Corporation Retirement Savings Excess Benefit Plan (the "RSEBP") was
established to provide benefits to certain employees whose participation in and
benefits under the RSP were limited by provisions in the Internal Revenue Code
of 1986, as amended (the "Code"), including, without limitation, Sections
401(a)(17), 401(k)(3), 401(m), 402(j) and 415 of the Code. Effective as of
January 1, 1995 the RSEBP was amended and restated.
2. Definitions
-----------
For purposes of this RSEBP, the use of terms defined in the RSP shall have
the same meaning when used herein, and the following terms, when used herein,
shall have the following meanings, unless, in either case, the context clearly
indicates otherwise.
2.01 Participant. The term "Participant" means any person for which a
Supplementary Company Retirement Account and/or Supplementary Employee
Retirement Account was maintained as of January 1, 1995.
<PAGE>
2.02 Beneficiary. The term "Beneficiary" means the person, persons or a
trust, designated in writing by the Participant, to whom a distribution shall be
made in the event of his death prior to the full receipt of his interest under
the RSEBP.
2.03 Plan Year. The term "Plan Year" means the accounting year of the
RSP, which is maintained on a January 1 through December 31 basis.
2.04 Supplementary Company Retirement Account. The term "Supplementary
Company Retirement Account" means the account maintained for a Participant
adjusted as determined under Section 5 hereof.
2.05 Supplementary Employee Retirement Account. The term "Supplementary
Employee Retirement Account" means the account maintained for a Participant
adjusted as determined under Section 5 hereof.
2.06 Valuation Date. The term "Valuation Date" means the last day of each
calendar month and such other dates as so designated by the Committee.
3. Administration
--------------
This RSEBP shall be administered by a committee which may be the Employee
Benefits Committee established by the Corporation to administer the RSP (the
"Committee"). The Committee shall administer the RSEBP in a manner consistent
with the administration of the RSP as from time to time amended and in effect,
except that this RSEBP shall be administered as an unfunded plan which is not
intended to meet the qualification requirements of Section 401 of the Code. The
Committee shall have full power and authority to interpret and construe this
RSEBP and the Committee's administration, interpretations and construction
-2-
<PAGE>
thereof, and actions thereunder, including the amount or recipient of any
payment to be made therefrom, shall be binding and conclusive on all persons for
all purposes.
4. Distribution of Benefits
------------------------
4.01 Except as provided herein, distributions from a Participant's
Supplementary Company Retirement Account and his Supplementary Employee
Retirement Account shall be made only when, and if, the Participant is entitled
to benefits under the RSP, and shall be made as determined by the Committee in
its sole and complete discretion.
4.02 No in-service withdrawals or Participant loans are available under
the RSEBP. The Committee, within its sole and complete discretion, is
empowered to accelerate the payment of a Participant's Supplementary Company
Retirement Account balance and his Supplementary Employee Retirement Account
balance, to the extent vested, to such Participant or his Beneficiary, whether
before or after the Participant's termination of service, in the event of
unanticipated emergencies caused by events beyond the control of the Participant
or his Beneficiary which would result in severe financial hardship to the
individual if early withdrawal were not permitted, with the amount of the early
withdrawal limited to the amount necessary to meet the emergency.
4.03 The Committee may also accelerate payments in the event of changes in
the tax laws or accounting principles adversely affecting the RSEBP and its
effect on the Corporation, the Participants or their Beneficiaries. Nothing
contained herein shall enable the Committee to accelerate payments because of
the financial condition of the Corporation.
4.04 Effective as of January 1, 1995, if the value of a Participant's
Supplemental Company Retirement Account and Supplemental Employee Retirement
Account, in the
-3-
<PAGE>
aggregate as of December 31, 1994 was less than $5,000, the Committee in its
discretion can require that a lump sum distribution be made to the Participant
without his or her consent.
5. Investments
-----------
As of each Valuation Date, for each Participant, the Corporation shall
credit the Participant's Supplementary Company Retirement Account and
Supplementary Employee Retirement Account for the period ending on the Valuation
Date to reflect (i) earnings or expenses and recognized gains or losses of the
Investment Contracts Fund since the preceding Valuation Date and (ii) any
adjustments reflecting a revaluation in the total fair market value of the
Investment Contracts Fund that have been made by the Trustee under the RSP.
6. Participant's Rights
--------------------
6.01 All benefits payable under this RSEBP to or on behalf of Participants
who were employed by the Corporation shall be paid from the general assets of
the Corporation and all benefits payable to or on behalf of Participants who
were employed by any Company which has adopted this RSEBP shall be paid from the
general assets of such Company. The Corporation may, in its sole discretion,
establish a separate fund or account to make payments of benefits to a
Participant or his Beneficiary or Beneficiaries hereunder. If the Corporation
in its sole discretion, establishes such a fund or account, no Participant, his
Beneficiary or Beneficiaries, or any other person shall have, under any
circumstances, any interest whatever in any particular property or assets of the
Corporation by virtue of this RSEBP, and the rights of the Participant, his
Beneficiary or Beneficiaries or any other person who may claim a right to
receive benefits under this RSEBP shall be no greater than the rights of a
general unsecured creditor of the Corporation. The Participant shall not be
entitled to any payments
-4-
<PAGE>
from the trust fund maintained under the RSP on the basis of any benefits to
which he may be entitled under this RSEBP.
6.02 Except as required for Federal income tax withholding purposes or
pursuant to a "qualified domestic relations order" under Section 401(a)(13) of
the Code, assignment of benefits under the RSEBP or their pledge or encumbrance
in any manner shall not be permitted or recognized under any circumstances, nor
shall such benefits be subject to attachment or other legal process for the
debts (including payments for alimony or support) of any Participant, former
Participant or Beneficiary. This Section shall not apply to any default or
indebtedness to the Corporation.
6.03 If the Committee shall find that a Participant, former Participant or
Beneficiary is unable to care for his affairs because of illness or accident, or
is a minor, or has died, the Committee may direct that any payment due him,
unless claim therefor shall have been made by a duly appointed legal
representative, shall be paid to his spouse, a child, a parent or other blood
relative or to a person with whom he resides, and any such payment so made shall
be in complete discharge of the liabilities of RSEBP therefor.
6.04 Subject to all applicable laws relating to unclaimed property, if the
Committee mails by registered or certified mail, postage prepaid, to the last
known address of a Participant or Beneficiary, a notification that he is
entitled to a distribution hereunder, and if the notification is returned by the
United States Postal Service as being undeliverable because the addressee cannot
be located at the address indicated and if the Committee has no knowledge of
such Participant's or Beneficiary's whereabouts within 3 years from the date the
notification was mailed, or if within 3 years from the date the notification was
mailed to such
-5-
<PAGE>
Participant or Beneficiary he does not respond thereto by informing the
Committee of his whereabouts, then, and in either of said events, upon the
December 31 coincident with or next succeeding the third anniversary of the
mailing of such notification, the undistributed amount in the Supplementary
Company Retirement Account of such Participant or Beneficiary shall be paid to
the person or persons who would have been entitled to take such share in the
event of the death of the Participant or Beneficiary whose whereabouts are
unknown, assuming that such death occurred as of the December 31 coincident with
or next succeeding the third anniversary of the mailing of such notification.
6.05 No Participant, former Participant or Beneficiary or any other person
shall have any interest in or right under the RSEBP in any part of the assets or
earnings held in the RSP Trust or in any other trust established by the
Corporation.
6.06 Whenever in the administration of the RSEBP action is required, such
action shall be uniform in nature as applied to all persons similarly situated,
and no such action shall be taken which shall discriminate in favor of Employees
who are officers, shareholders or highly compensated Employees.
6.07 Any action by the Committee pursuant to the provisions of the RSEBP
may be evidenced by written instrument executed by any person authorized by the
Committee to take such action, and any fiduciaries shall be fully protected in
acting in accordance with any such written instrument received by them.
6.08 In case any provisions of this RSEBP shall be held unlawful or
invalid for any reason, the illegality or invalidity shall not affect the
remaining parts, and the RSEBP shall be construed and enforced as if the
unlawful or invalid provisions had never been inserted.
-6-
<PAGE>
6.09. Any claim for benefit under the RSEBP shall be administered in
accordance with Section 2(f) of the Borg-Warner Security Corporation Retirement
Savings Excess Benefit Plan Trust.
7. Amendment and Discontinuance
----------------------------
The Committee may at any time amend or discontinue this RSEBP. However, if
this RSEBP should be amended and discontinued, the Corporation shall be liable
for any benefits accrued under this RSEBP as of the date of such action for
Participants who are or have been employed by the Corporation. Such accrued
benefits shall be the vested portion of the Participant's Supplementary Company
Retirement Account balance as of such date of amendment or discontinuance which
each Participant or his Beneficiary or Beneficiaries is receiving under this
RSEBP or, with respect to Participants who are in the employment of the
Corporation on such date, which each such Participant would have received as of
such date under this RSEBP if his employment had terminated as of the date of
amendment or discontinuance.
8. Restriction on Assignment
-------------------------
The benefits provided hereunder are intended for the personal security of
persons entitled to payment under this RSEBP and are not subject in any manner
to the debts or other obligations of the persons to whom they are payable. The
interest of any Participant or his Beneficiary or Beneficiaries may not be sold,
transferred, assigned, or encumbered in any manner, either voluntarily or
involuntarily, and any attempt so to anticipate, alienate, sell, transfer,
assign, pledge, encumber, or charge the same shall be null and void; neither
shall the benefits hereunder be liable for or subject to the debts, contracts,
liabilities, engagements, or
-7-
<PAGE>
torts of any person to whom such benefits or funds are payable, nor shall they
be subject to garnishment, attachment, or other legal or equitable process, nor
shall they be an asset in bankruptcy.
If a Participant or any other person entitled to a benefit under this RSEBP
becomes bankrupt or makes an assignment for the benefit of creditors or in any
way suffers a lien or judgment against his personal assets, or in any way
attempts to anticipate, alienate, sell, assign, pledge, encumber or charge a
benefit, right or account, then such benefits, right or account in the
discretion of the Committee may cease and terminate.
9. Continued Employment
--------------------
Nothing contained in this RSEBP shall be construed as conferring upon a
Participant the right to continue in the employment of the Corporation or any
Company in any capacity or as otherwise affecting the employment relationship.
10. Liability of the Committee
--------------------------
No member of the Committee shall be liable for any loss unless resulting
from his own fraud or willful misconduct, and no member shall be personally
liable upon or with respect to any agreement, act, transaction or omission
executed, committed or suffered to be committed by himself as a member of the
Committee or by any other member, agent, representative or employee of the
Committee. The Committee and any individual member of the Committee and any
agent thereof shall be fully protected in relying upon the advice of the
following professional consultants or advisors employed by the Corporation or
the Committee: any attorney insofar as legal matters are concerned, any
accountant insofar as accounting matters are concerned, and any actuary insofar
as actuarial matters are concerned.
-8-
<PAGE>
11. Indemnification
---------------
The Corporation hereby indemnifies and agrees to hold harmless and
indemnify the members of the Committee and all directors, officers, and
employees of the Corporation against any and all parties whomsoever, and all
losses therefrom, including without limitation, costs or defense and attorneys'
fees, based upon or arising out of any act or omission relating to, or in
connection with this RSEBP other than losses resulting from such person's fraud
or willful misconduct.
12. Termination of Service for Dishonesty
-------------------------------------
If a Participant's service with the Corporation is terminated because of
dishonest conduct injurious to the Corporation or if dishonest conduct injurious
to the Corporation committed by a Participant is determined by the Corporation
within one year after his service with the Corporation is terminated, the
Committee may terminate such Participant's remaining interest and benefits under
this RSEBP.
The dishonest conduct committed by a Participant that is injurious to the
Corporation shall be determined and decided by the Committee only after a full
investigation of such alleged dishonest conduct and an opportunity has been
given the Participant to appear before the Committee to present his case. The
decision made by the Committee in such cases shall be final and binding on all
Participants and other persons affected by such decision.
-9-
<PAGE>
13. Binding on the Corporation, Company, Participants and Their Successors
----------------------------------------------------------------------
This RSEBP shall be binding upon and inure to the benefit of the
Corporation which has adopted this RSEBP, their successors and assigns and the
Participants and their heirs, executors, administrators, and duly appointed
legal representatives.
14. Law Governing
-------------
This RSEBP shall be construed in accordance with and governed by the laws
of the State of Illinois.
-10-
<PAGE>
EXHIBIT 11
BORG WARNER SECURITY CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Years Ended December 31, 1992, 1993, and 1994
Shares used in computation of per share earnings
(Thousands)
1992 1993 1994
------ ------ ------
Average common shares outstanding 18,847 22,272 22,893
Common stock equivalents 800 586 277
------ ------ ------
Shares used for computation of per share earnings 19,647 22,858 23,170
====== ====== ======
<PAGE>
CONSOLIDATED STATISTICAL REVIEW
The following table sets forth selected financial information for Borg-Warner
Security Corporation (the "Company"). Such information is derived from the
audited financial statements of the Company and treats Borg-Warner Automotive,
Inc. ("BW-Automotive"), which was spun off in January 1993 (the "Spin-Off"), as
discontinued operations. The selected financial data should be read in
connection with the 1994 consolidated financial statements and accompanying
notes.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------------------------------
(millions of dollars, except share data) 1990 1991 1992 1993 1994
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net service revenues $1,413.8 $1,555.4 $1,620.6 $1,764.6 $1,792.9
Provision (benefit) for income taxes (1) 5.6 9.4 (19.7) 22.2 (3.0)
Earnings (loss) from continuing operations (2) 20.3 25.2 57.7 (215.1) 13.1
Earnings (loss) from continuing operations per share $1.02 $1.28 $2.94 ($9.41) $0.56
Average common shares outstanding in thousands (3) 19,940 19,698 19,647 22,858 23,170
BALANCE SHEET DATA
(at end of period)
-------------------------------------------------------------------------------------------------------------------
Net assets of discontinued BW-Automotive operations $ 742.2 $ 743.5 $ 728.2 $ -- $ --
Total assets 1,891.0 1,866.3 1,758.1 790.5 830.3
Total debt 897.3 872.9 746.6 457.5 468.5
Stockholders' equity 659.0 668.3 676.7 27.5 43.8
</TABLE>
<TABLE>
<CAPTION>
STOCK PRICES
1994 quarters First Second Third Fourth
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High $22 $16-7/8 $12-3/4 $11-1/8
Low $16-3/8 $10-3/4 $10-5/8 $8-1/4
1993 quarters First Second Third Fourth
-------------------------------------------------------------------------------------------------------------------
High $22-5/8 $22-1/4 $22-7/8 $20-1/2
Low $19-5/8 $19-5/8 $18 $18-1/4
</TABLE>
(1) Effective January 1, 1991 the Company changed its method of accounting for
income taxes to conform to SFAS 109. Income taxes for the years ended
December 31, 1992 and 1994 reflect certain adjustments related to changes in
tax bases. See Note 11 to the Consolidated Financial Statements.
(2) Following the Spin-Off of BW-Automotive, $250 million of excess purchase
price over net assets acquired not directly attributed to the protective
services business was written off as a charge to earnings in the first
quarter of 1993.
(3) The average common shares outstanding include 3,795,000 shares sold through
an initial public offering on January 27, 1993.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview
The Company's protective services business is divided into four business units:
guard services, alarm services, armored services and courier services. The
Company's consolidated net service revenue increased 2% in 1994 and 9% in 1993.
The primary source of the 1994 increase was internal growth, while the primary
source of the 1993 revenue increase was acquisitions, principally in the guard
unit. Operating profit, which is pretax earnings before interest expense and
unallocated corporate expenses, decreased 30% in 1994 following a 4% increase
in 1993.
For several years competitive market conditions have limited the Company's
ability to increase prices. In 1994 each of the Company's units continued to
experience price pressure and higher direct costs, which has adversely affected
margins.
Historically, the Company has grown through acquisitions. In 1994 the price/
cost pressures facing the Company and the entire protective services industry
made acquisitions less attractive. While the Company will continue to pursue
acquisitions when attractive opportunities arise, each unit intends to focus on
internal growth through greater customer retention, expanded service offerings
and greater selling efforts. At the same time, each unit will continue its
efforts to reduce costs, including applying technology to improve customer
service.
Results of Operations
The following table sets forth the net service revenues and operating profit for
each unit for the three years ended December 31, 1994:
Year Ended December 31,
--------------------------------------------------------------------------------
(millions of dollars) 1992 1993 1994
--------------------------------------------------------------------------------
Net service revenues:
Guard $1,098.0 $1,198.0 $1,209.4
Alarm 203.5 213.2 206.2
Armored 156.4 180.9 211.2
Courier 162.7 172.5 166.1
--------------------------------------------------------------------------------
Total $1,620.6 $1,764.6 $1,792.9
================================================================================
Operating profit:
Guard $55.4 $58.5 $54.5
Alarm 29.7 31.1 14.9
Armored 10.6 13.3 6.7
Courier 10.3 7.4 1.1
--------------------------------------------------------------------------------
Total $106.0 $110.3 $77.2
================================================================================
Guard services
Guard service revenue increased slightly in 1994, following a 9% increase in
1993. The 1994 increase was due to internal growth and improved customer
retention. The primary source of revenue growth in 1993 was acquisitions,
particularly the acquisition of certain assets of Security Bureau, Inc. in
December 1992.
Operating profit for the guard unit declined slightly from 1992 to 1994
as competitive market conditions placed downward pressure on prices and margins.
In certain geographic areas the unit is experiencing 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.
14
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The guard unit was reorganized in February 1994 by combining the
administrative functions and establishing nine regional offices. The Company
expects that the guard market will remain competitive in 1995. The unit will
seek to increase revenue through customer retention and expanded service
offerings. The Company will seek to improve gross margins by selected price
increases and controlling costs, including through improved guard recruitment,
retention and training to control unbilled overtime costs. The Company will
continue to focus on technological developments aimed at improving performance
and customer retention.
Alarm services
Alarm service revenue decreased 3% in 1994, following a 5% increase in 1993.
Revenues from key commercial, banking and defense industry customers have
declined due to consolidation occurring in those industries. In addition,
customer cancellation rates were above targeted levels during the period. In
1993 revenue included a one-time supplemental billing. There were no special
billings in 1994.
Operating profit for the alarm unit declined 52% in 1994, following a 5%
increase in 1993. The 1994 decline was due to reduced revenues over a largely
fixed cost base. In addition, the Company has invested in systems to improve
service quality and other costs are increasing. Intense price competition has
also applied downward pressure on operating margins in 1994 and 1993.
The alarm unit was reorganized in November 1994 by establishing nine regional
offices. The Company expects that the regional offices will manage most of the
administrative functions of the alarm unit, while branch offices devote full
attention to sales and service issues. Because the commercial market has
constrained price increases for monitoring services, the alarm unit intends to
focus on customer retention to increase revenue and improve margins. Programs to
improve customer retention include pursuing technological advancements and
providing consistent, high quality, responsive service. The unit will attempt to
diversify its largely commercial customer base by continuing its efforts to
penetrate the residential security market.
Armored services
Armored service revenue increased 17% in 1994, following a 16% increase in 1993.
The 1994 increase resulted primarily from acquisitions, including the
acquisition of the assets of Shields Business Machines, Inc., an ATM servicer in
January, and from increased volume in the ATM service and cash management
operations. The traditional armored transport business has been adversely
affected by consolidation in the banking industry. To counter this, the unit has
expanded into additional areas of service, including ATM and cash management
services.
Operating profit for the armored unit declined 50% in 1994, following a
25% increase in 1993. During 1994 an escalating rate of violent attacks against
armored car and ATM servicing personnel increased security costs and insurance
premiums. The rate of cargo losses attributable to external theft in 1994
increased substantially from historical levels. In addition, increases in
direct labor costs and administrative expenses have eroded margins.
To offset the impact of the increased security and insurance costs resulting
from the higher cargo losses, the armored unit has increased prices and expanded
its programs to reduce cargo losses. Such programs include lowering the profile
of the unit's vehicles, increasing security training, improving security
measures through technology and route structure and eliminating certain high-
risk services. The unit's risk management department coordinates efforts with
local and federal law enforcement authorities to investigate all cargo losses.
In addition, the unit is attempting to reduce costs by integrating the field
operations of the ATM cash replenishment business with the armored cash delivery
business.
15
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Courier services
Courier service revenue decreased 4% in 1994, following a
6% increase in 1993. The 1994 decrease resulted primarily from the work
stoppage initiated by the International Brotherhood of Teamsters during the
third quarter. The unit's traditional business of transporting non-negotiable
financial documents among financial institutions also has been adversely
affected by consolidation in the banking industry. Such business is subject to
severe competitive price pressure. The unit has increased emphasis on
time-sensitive delivery of small packages and commodities.
Operating profit for the courier unit declined significantly in 1994,
following a 28% decline in 1993. The 1994 decline was due principally to the
reduced revenues and increased costs associated with the labor unrest, while the
1993 decline was due primarily to competitive price pressure. The courier unit
will seek to improve operating margins in future periods through increased
operating efficiencies and increased market penetration in the package delivery
business.
Foreign
The percentage of the Company's revenues in 1994 derived from non-U.S.
operations, primarily guard services, was 6% in 1994 and 1993, compared with 7%
in 1992. The Company operates in Canada, the United Kingdom and Colombia.
Operating margins also declined slightly from 1992 to 1994.
Other Earnings Factors
General corporate expenses increased to $26.5 million in 1994 from $4.8 million
in 1993, and were $37.3 million in 1992. Corporate expenses for 1994 include an
increase of approximately $25 million over 1993 related to non-cash accruals for
self-insurance reserves and, to a lesser extent, other corporate allowances. The
decrease in operating expenses in 1993 from 1992 was due to lower amortization
of excess purchase price over net assets acquired, greater corporate
headquarters expense reimbursement received from BW-Automotive and a favorable
settlement of a corporate liability.
Amortization of excess purchase price over net assets acquired was $16.1
million and $16.5 million in 1994 and 1993, respectively, down from $21.4
million in 1992 due to the non-recurring elimination of excess purchase price of
$250 million. This was recorded in the first quarter of 1993 to eliminate excess
purchase price which was not directly related to the protective services
operations.
Other income in 1994 included a gain of $9.9 million related to the sale of
trademarks and other rights to BW-Automotive. Gains on the sale of various
assets in 1993 and 1992 were $1.9 million and $6.5 million, respectively. Other
income in 1992 also included a gain of $7.5 million related to the collection of
a partially reserved receivable.
Interest expense in 1994 was $50.4 million compared with $51.5 million and
$47.9 million in 1993 and 1992, respectively. The improved terms resulting from
the Company's 1993 restructuring were offset by higher interest rates. In 1992
interest expense was net of an allocation to BW-Automotive based on its relative
capital investment to the Company's total capital investment.
The Company's effective tax rates have varied significantly from the federal
tax rate. Despite reported income before taxes, the Company recorded a net
income tax benefit in 1992 and 1994 primarily because of adjustments to deferred
income taxes of $30.6 million and $7.0 million, respectively. These adjustments
resulted from changes in the tax bases of certain assets and liabilities as a
result of sales and settlements. In 1993 the Company had a $22.2 million
provision for income taxes despite a pre-tax loss of $192.9 million primarily
due to a $250
16
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
million non-deductible charge to eliminate excess purchase price. Excluding the
impact of the foregoing items, the Company's effective tax rate would have been
29%, 39% and 40% in 1992, 1993 and 1994, respectively.
Discontinued Operations
The loss from discontinued operations in 1992 and 1993 reflects the results of
BW-Automotive operations up to the time of the Spin-Off in January 1993. These
results include an allocation of corporate headquarters and interest expenses.
Results for 1992 also include a pre-tax charge of approximately $28 million
related to excess capacity at various BW-Automotive facilities.
Extraordinary Items
Earnings for 1993 reflect a loss of $9.1 million, net of tax, from the early
extinguishment of $216.7 million principal amount of 13% Junior Subordinated
Discount Debentures and $15.2 million principal amount of 12.75% Senior
Subordinated Debentures. Earnings for 1992 reflect a $7.1 million loss, net of
tax, from the early extinguishment of $155 million principal amount of the
Company's 13% Junior Subordinated Discount Debentures and $58 million principal
amount of the Company's 14% Senior Subordinated Discount Debentures.
Cumulative Effect of Initial Application of
New Accounting Standards
The Company adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," effective January 1, 1993, and elected immediate
recognition of the $15 million obligation. The cumulative effect was a charge of
$8.3 million, net of tax.
In the fourth quarter of 1993, the Company changed the method of selecting
the rate used to discount the retained portion of insurance costs related to its
various deductible policies. The Company previously used a rate based on its
overall cost of capital. Consistent with the Securities and Exchange Commission
Staff Accounting Bulletin No. 92, the rate was changed to a rate based on risk-
free monetary asset yields for securities with similar maturities. This change
resulted in a reduction in the discount rate from 10% to 4%. The cumulative
effect of this change was a charge of $9.4 million, net of tax.
Neither of the above changes in accounting had a material impact on earnings
from continuing operations in the respective years of implementation.
Impact of Recapitalization on Operations
The impact of the 1993 restructuring on the results of operations for 1992 and
1993 is reflected on a pro forma basis in the Pro Forma Financial Information
(Unaudited) contained in the Notes to Consolidated Financial Statements. On a
pro forma basis, after making the adjustments for interest and amortization, as
well as the elimination of non-recurring gains and expenses, earnings before
taxes for 1992 would have been $46.9 million. Pro forma earnings before taxes
for 1993 were $57.1 million after removing the non-recurring elimination of
excess purchase price of $250.0 million.
17
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition and Liquidity
Current liabilities exceeded current assets at December 31, 1994 and 1993 due to
the sale of receivables with the proceeds used to reduce long-term debt. The
outstanding balance of sold receivables was $112 million and $124 million at
December 31, 1994 and 1993, respectively. Receivables at December 31, 1993 also
included $10.7 million for refundable income taxes. 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 at as low a level as is operationally feasible
to minimize related carrying costs.
During 1994, net cash provided by operating activities increased slightly to
$54.0 million from $52.3 million in 1993. The current year included a $3.2
million tax refund and a $22.0 million increase in receivables primarily due to
lower sales under the Company's receivable transfer facility. The prior year
reflected the settlement of certain liabilities (including an $8 million payment
relating to the Company's former Centaur operation) and costs associated with
the 1993 restructuring.
Historically, the Company's capital expenditures, principally for vehicles
and subscribers' installations, have been at a rate slightly in excess of
depreciation. Capital expenditures were $70.2 million, $68.8 million and $67.0
million in 1992, 1993 and 1994, respectively. Pursuant to the terms of the
Company's amended credit facilities, capital expenditures are limited to $55
million in 1995. The Company does not have any material commitments for capital
expenditures and believes that it will be able to continue to invest in its
business as required, within the limits set forth under its amended credit
facilities.
From time to time, the Company makes acquisitions of companies in the
protective services industry. Cash expenditures for businesses acquired (which
were not included in the Company's capital expenditures) were $34.7 million,
$4.8 million and $9.0 million in 1992, 1993 and 1994, respectively. While the
Company will continue to pursue acquisitions when attractive opportunities
arise, it intends to focus on internal growth through greater customer
retention, expanded service offerings and greater selling efforts.
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 it
revolving credit and letter of credit facilities resulting from 1994 financial
performance, the Company has obtained waivers and amendments. In June 1994 the
Company amended such credit facilities, principally to reduce pricing and amend
covenants related to leverage, fixed charge coverage and net worth. In December
1994 the Company negotiated waivers to certain financial covenants under such
facilities. In March 1995 the Company again amended such facilities, principally
to change pricing and amend covenants related to earnings, leverage, fixed
charge coverage, net worth, capital expenditures and acquisitions.
18
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
In November 1994 the Company replaced its previous $150 million receivables
purchase facility with a $130 million receivables transfer facility. The new
facility provided more favorable pricing than the prior facility and altered,
among other things, eligibility and reserve requirements. In connection with the
renegotiation of financial covenants required to be maintained by such facility,
the Company has agreed to increase reserve requirements and certain other
changes. In addition, the maturity date of such facility has been changed to
September 30, 1995 from November 1997. The Company has begun discussions with
other financial institutions concerning the replacement of the existing accounts
receivable facility. Any amendment or replacement of such facility will require
the consent of the Company's lenders under its amended credit facilities.
The Company anticipates that the $100 million principal amount of 8% notes
due 1996 will require refinancing. The Company has conducted preliminary
discussions concerning borrowings under private or public debt facilities to
refinance such debt.
Although there can be no assurance, the Company expects that it will be able
to replace its accounts receivable facility and refinance its outstanding 8%
notes.
The Company believes that the various asserted claims and litigation in which
it is currently involved will not materially affect its financial position or
future operating results, although no assurance can be given with respect to the
ultimate outcome for any such claim or litigation. The Company believes that it
has established adequate provisions for litigation liabilities in its financial
statements in accordance with generally accepted accounting principles. These
provisions include both legal fees and possible outcomes of legal proceedings.
Further information concerning such claims and litigation is contained in Note 6
of the Notes to Consolidated Financial Statements.
19
<PAGE>
Borg-Warner Security Corporation
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------------------------------------------
(millions of dollars, except per share) 1992 1993 1994
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net service revenues $1,620.6 $1,764.6 $1,792.9
Cost of services 1,258.9 1,390.3 1,437.3
Selling, general and administrative expenses 220.1 197.0 231.2
Depreciation 51.5 55.3 57.6
Amortization of excess purchase price over net assets acquired 21.4 16.5 16.1
Other income, net -- Note 10 (17.2) (3.1) (9.8)
Non-recurring elimination of excess purchase price over net assets acquired - 250.0 -
Interest expense and finance charges 47.9 51.5 50.4
------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before taxes 38.0 (192.9) 10.1
Provision (benefit) for income taxes -- Note 11 (19.7) 22.2 (3.0)
------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations 57.7 (215.1) 13.1
Loss from discontinued operations (12.1) (1.5) -
------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before extraordinary items and cumulative effect of accounting change 45.6 (216.6) 13.1
Extraordinary items:
Loss from early extinguishment of debt, net of tax effects ($4.2 million
benefit in 1992 and $5.3 million benefit in 1993) -- Note 5 (7.1) (9.1) -
Cumulative effect of initial application of new accounting standards -- Note 1 - (17.7) -
------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 38.5 ($243.4) $ 13.1
========================================================================================================================
Earnings (loss) per common share:
Continuing operations $ 2.94 $ (9.41) $ 0.56
Discontinued operations (0.61) (0.07) -
Extraordinary items (0.37) (0.40) -
Cumulative effect of initial application of new accounting standards - (0.77) -
------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per share $ 1.96 ($10.65) $ 0.56
========================================================================================================================
</TABLE>
(See accompanying notes to financial statements)
20
<PAGE>
Borg-Warner Security Corporation
Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------------------------
(millions of dollars) 1993 1994
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
----------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 11.2 $ 15.8
Receivables, net 82.7 106.7
Inventories 10.8 12.2
Other current assets 23.5 24.8
----------------------------------------------------------------------------------------------------------
Total current assets 128.2 159.5
Property, plant and equipment
Land and buildings 53.0 50.7
Machinery and equipment 98.3 79.3
Subscribers' installations 353.2 365.2
Capital leases 44.4 37.0
Construction in progress 3.4 5.5
----------------------------------------------------------------------------------------------------------
552.3 537.7
Less accumulated depreciation 261.0 242.6
----------------------------------------------------------------------------------------------------------
Net property, plant and equipment 291.3 295.1
Net excess purchase price over net assets acquired 288.8 286.5
Deferred tax asset, net 37.4 50.8
Other assets 44.8 38.4
----------------------------------------------------------------------------------------------------------
Total other assets 371.0 375.7
----------------------------------------------------------------------------------------------------------
$790.5 $830.3
==========================================================================================================
Liabilities and Stockholders' Equity
----------------------------------------------------------------------------------------------------------
Notes payable $ 10.7 $ 14.5
Accounts payable and accrued expenses 171.8 181.8
----------------------------------------------------------------------------------------------------------
Total current liabilities 182.5 196.3
Long-term debt 446.8 454.0
Other long-term liabilities 133.7 136.2
Capital stock:
Common stock, issued 22,235,700 shares in 1993 and 22,435,700 shares in 1994 0.2 0.2
Series I non-voting common stock, issued 2,720,000 shares - -
Capital in excess of par value 28.2 30.9
Retained earnings 15.9 29.7
Notes receivable -- management stock purchase (1.8) (1.0)
Cumulative translation adjustment 1.3 (0.5)
----------------------------------------------------------------------------------------------------------
43.8 59.3
Treasury common stock, at cost, 2,151,108 shares in 1993 and 2,237,344 shares in 1994 (16.3) (15.5)
----------------------------------------------------------------------------------------------------------
Total stockholders' equity 27.5 43.8
----------------------------------------------------------------------------------------------------------
$790.5 $830.3
==========================================================================================================
</TABLE>
(See accompanying notes to financial statements)
21
<PAGE>
Borg-Warner Security Corporation
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------------------------
(millions of dollars) 1992 1993 1994
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating:
Continuing operations:
Net earnings (loss) $ 57.7 ($215.1) $ 13.1
Adjustments to reconcile net earnings (loss) to net cash flows
provided by continuing operations:
Non-cash charges to earnings:
Depreciation and amortization 72.9 71.8 73.7
Non-recurring elimination of excess purchase price over net assets acquired - 250.0 -
Amortization of debt discounts 31.8 2.0 2.1
Changes in assets and liabilities:
(Increase) in receivables (20.1) (4.7) (22.0)
(Increase) decrease in other current assets (4.6) 2.1 (1.1)
Increase (decrease) in accounts payable and accrued expenses 13.9 (0.4) 10.0
Net change in other long-term assets and liabilities (6.7) (38.9) (11.1)
Gain on sales of businesses and other assets (37.1) (1.8) (8.5)
-------------------------------------------------------------------------------------------------------------
Net cash flows provided by continuing operations 107.8 65.0 56.2
Discontinued operations:
Net loss (12.1) (1.5) -
Other cash flows related to discontinued operations 15.2 (11.2) (2.2)
-------------------------------------------------------------------------------------------------------------
Net cash flows provided by (used in) discontinued operations 3.1 (12.7) (2.2)
-------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 110.9 52.3 54.0
Investing:
Capital expenditures (70.2) (68.8) (67.0)
Payments related to businesses acquired (34.7) (4.8) (9.0)
Proceeds from sales of fixed and other assets 181.0 5.7 16.9
-------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 76.1 (67.9) (59.1)
Financing:
Net (decrease) increase in notes payable (16.0) (19.3) 3.8
Increases in long-term debt 102.6 149.5 77.7
Reductions in long-term debt (31.6) (189.3) (72.6)
Net proceeds from the issuance of common stock - 63.5 -
Cash outflows related to early extinguishment of debt (224.5) (246.4) -
BW-Automotive repayment/assumption of Company indebtedness - 249.9 -
Sales of treasury common stock 3.7 3.2 0.8
Purchases of treasury common stock (13.5) (0.1) -
-------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (179.3) 11.0 9.7
Effect of exchange rate changes on cash and cash equivalents (1.2) - -
-------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 6.5 (4.6) 4.6
Cash and cash equivalents at beginning of year 9.3 15.8 11.2
-------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 15.8 $ 11.2 $ 15.8
=============================================================================================================
Supplemental cash flow information:
Interest paid $ 48.9 $ 61.1 $ 46.0
Income taxes paid (refunded) 26.4 21.3 (3.2)
</TABLE>
(See accompanying notes to financial statements)
22
<PAGE>
Borg-Warner Security Corporation
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Years Ended December 31, 1992 1993 1994
-------------------------------------------------------------------------------------------------------------------
(millions of dollars, except share data) Shares Amount Shares Amount Shares Amount
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common Stock
Beginning balance 20,000,700 $ 0.2 20,000,700 $ 0.2 24,955,700 $ 0.2
Shares issued in initial public offering - - 3,795,000 - - -
Conversion of Series I non-voting shares
to common shares - - 1,160,000 - 200,000 -
-------------------------------------------------------------------------------------------------------------------
Balance at December 31 20,000,700 0.2 24,955,700 0.2 25,155,700 0.2
===================================================================================================================
Capital in Excess of Par Value
Beginning balance 195.4 187.3 28.2
Shares issued in initial public offering - 63.5 -
Shares issued under stock option and
related plans (8.1) (2.1) 0.2
Spin-Off of BW-Automotive - (230.0) -
Tax benefit from trust distribution and
exercise of stock options - 9.5 2.5
-------------------------------------------------------------------------------------------------------------------
Balance at December 31 187.3 28.2 30.9
-------------------------------------------------------------------------------------------------------------------
Retained Earnings
Beginning balance 496.4 520.6 15.9
Net earnings (loss) 38.5 (243.4) 13.1
Spin-Off of BW-Automotive - (259.9) -
Adjustment for deferred pension experience loss (14.3) (1.4) 0.7
-------------------------------------------------------------------------------------------------------------------
Balance at December 31 520.6 15.9 29.7
-------------------------------------------------------------------------------------------------------------------
Notes receivable--management stock purchase
Beginning balance (2.2) (2.1) (1.8)
Net activity 0.1 0.3 0.8
-------------------------------------------------------------------------------------------------------------------
Balance at December 31 (2.1) (1.8) (1.0)
-------------------------------------------------------------------------------------------------------------------
Cumulative Translation Adjustment
Beginning balance 20.5 9.3 1.3
Spin-Off of BW-Automotive - (7.7) -
Cumulative translation adjustment (11.2) (0.3) (1.8)
-------------------------------------------------------------------------------------------------------------------
Balance at December 31 9.3 1.3 (0.5)
-------------------------------------------------------------------------------------------------------------------
Investment Valuation Allowance
Beginning balance (5.1) - -
Baker Hughes, Inc. investment value adjustment 5.1 - -
-------------------------------------------------------------------------------------------------------------------
Balance at December 31 0.0 0.0 0.0
-------------------------------------------------------------------------------------------------------------------
Treasury Stock
Beginning balance 1,164,400 (36.9) 1,188,316 (38.6) 2,151,108 (16.3)
Acquired shares 397,331 (13.5) 6,083 (0.1) - -
Shares issued under stock option and
related plans (373,415) 11.8 (203,291) 3.2 (113,764) 0.8
Conversion of Series I non-voting shares
to common shares - - 1,160,000 - 200,000 -
Spin-Off of BW-Automotive - - - 19.2 - -
-------------------------------------------------------------------------------------------------------------------
Balance at December 31 1,188,316 (38.6) 2,151,108 (16.3) 2,237,344 (15.5)
===================================================================================================================
Total Stockholders' Equity $676.7 $ 27.5 $ 43.8
===================================================================================================================
</TABLE>
(See accompanying notes to financial statements)
23
<PAGE>
Borg-Warner Security Corporation
Notes to Consolidated Financial Statments
Note 1 Summary of Accounting Policies
The following paragraphs briefly describe significant accounting policies.
Certain 1992 and 1993 amounts have been reclassified to conform with the 1994
presentation. Prior to an initial public offering in January 1993, the name of
the Company was changed from Borg-Warner Corporation to Borg-Warner Security
Corporation.
Principles of consolidation
The consolidated financial statements include all significant subsidiaries. In
January 1993 the Company distributed to its shareholders ("Spin-Off") all of the
stock of Borg-Warner Automotive, Inc. ("BW-Automotive"). Therefore, BW-
Automotive is treated as a discontinued operation for all periods presented.
(See Note 3).
Cash and cash equivalents
Cash and cash equivalents consists primarily of cash and certificates of deposit
with original maturities of three months or less.
Inventories
Inventories are valued at the lower of cost or market. Cost of substantially all
inventories is determined by the first-in, first-out (FIFO) method.
Property, plant and equipment and depreciation
Property, plant and equipment is valued at cost less accumulated depreciation.
Expenditures for maintenance, repairs and renewals of relatively minor items are
generally charged to expense as incurred. Renewals of significant items are
capitalized.
Depreciation is computed generally on a straight-line basis over the
estimated useful lives of related assets. The costs of alarm subscribers'
installations are capitalized and depreciated over useful lives ranging from
8-15 years.
Income taxes
Income taxes are determined using the liability method, under which deferred tax
assets and liabilities are determined based on the differences between the
financial accounting and tax basis of assets and liabilities. Deferred tax
assets or liabilities at the end of each period are determined using the
currently enacted tax rate expected to apply to taxable income in the periods in
which the deferred tax asset or liability is expected to be settled or realized.
(See Note 11).
Retirement benefit plans
A number of eligible salaried and hourly employees participate in contributory
or noncontributory defined benefit or defined contribution plans. Funding policy
is based upon independent actuarial valuations and is within the limits required
by ERISA for U.S. defined benefit plans.
The benefits provided to certain salaried employees covered under various
defined benefit plans are based on years of service and final average pay and
utilize the projected unit credit method for cost allocation. The benefits
provided to certain hourly employees under various defined benefit plans are
based on years of service and utilize the unit credit method for cost
allocation.
A number of employees in the U.S. participate in defined contribution
plans. Depending on the plan, contributions by the Company or its subsidiaries
sponsoring the plans are based on the employees' salary, age, years of service,
and/or a fixed schedule. These contributions are charged to earnings as they
are made to the various plans.
Postretirement benefits
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("SFAS 106") and elected immediate recognition of the $15.0 million
obligation and recorded a charge of $8.3 million (net of the related income tax
benefit of $5.1 million) or $0.37 per share to reflect the cumulative effect of
the change in accounting for periods prior to 1993. This new standard requires
that the expected cost of retiree health benefits be charged to expense during
the years that the employees render service rather than the Company's past
practice of recognizing these costs on a cash basis.
24
<PAGE>
Borg-Warner Security Corporation
Notes to Consolidated Financial Statements, continued
Casualty insurance liabilities
The Company has accrued a discounted liability for the retained portion of
insurance costs related to its various deductible policies. This insurance
liability is determined by the Company based on claims filed and an estimate of
claims incurred but not yet reported. Consistent with Securities and Exchange
Commission Staff Accounting Bulletin Number 92, in 1993 the Company changed the
method of selecting the discount rate from an overall cost of capital based rate
to a rate based on risk-free monetary asset yields for securities with similar
maturities. This change resulted in a reduction in the discount rate from 10% to
4% and a change in method of estimating the future cash flows related to this
obligation. The cumulative effect was a charge to earnings of $9.4 million (net
of applicable taxes of $6.0 million) or $0.40 per share. This amount, included
in "Cumulative effect of initial application of new accounting standards" in the
Statement of Operations, was recorded in the fourth quarter of 1993. This
accounting change did not have a material impact on earnings from continuing
operations. In 1994 the discount rate used to value the future obligation was
increased to 7%.
Amortization of excess purchase price over net assets acquired
Excess purchase price over net assets acquired is being amortized on a straight-
line basis over five to forty years, with the majority being amortized over
forty years. The Company periodically reviews its operations to determine
whether there has been a diminution in value of its excess purchase price over
net assets acquired. If the review indicates a decline in the carrying value,
the Company would adjust the amortization accordingly.
Intercompany allocations and transactions with BW-Automotive
Interest expense through the Spin-Off date has been allocated to the
discontinued BW-Automotive operations on the basis of BW-Automotive's relative
capital investment. Interest and taxes paid as shown on the Consolidated
Statement of Cash Flows include the amounts related to both the continuing
operations and discontinued BW-Automotive operations. Costs incurred at
corporate headquarters in 1992 have been charged to BW-Automotive on the basis
of a calculation of the estimated cost incurred related solely to the BW-
Automotive operations. Such cost was charged to BW-Automotive in 1993 and 1994
based on a service agreement with the Company. Income taxes have been allocated
to the BW-Automotive operations based on a calculation of the BW-Automotive
operations' relative share of the combined operations' income taxes. To the
extent the BW-Automotive operations operated at a loss, the tax benefit of such
a loss was limited to the amount offset by the profits for the rest of the
Company for that year. In those taxing jurisdictions in which the BW-Automotive
operations operate independent of the Company's other units, taxes have been
calculated independently on such operations. The Company and BW-Automotive have
entered into a tax sharing agreement which calls for BW-Automotive to pay the
Company for any operating loss carryforward apportioned to it as part of the
Spin-Off at such time as the benefits related to such carryforward are realized
by BW-Automotive.
Revenue recognition
Revenue is recognized at the time services are provided. In certain
circumstances this can result in revenue recognition prior to customer billing
and revenue deferral from advance billings.
Earnings per common share
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 that may be issued in the future upon exercise of
certain stock options.
25
<PAGE>
Borg-Warner Security Corporation
Notes to Consolidated Financial Statements, continued
Note 2-Balance Sheet Information
Detailed balance sheet data are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------
(millions of dollars) 1993 1994
---------------------------------------------------------------
<S> <C> <C>
Receivables:
Customers $78.4 $111.6
Refundable income taxes 10.7 -
Other 2.4 2.8
--------------------------------------------------------------
91.5 114.4
Less allowance for losses 8.8 7.7
--------------------------------------------------------------
Net receivables $82.7 $106.7
==============================================================
Accounts payable and accrued expenses:
Trade payables $23.1 $29.8
Payroll and related 53.2 57.7
Casualty insurance 40.5 43.9
Interest 8.3 7.6
Liabilities to former shareholders 11.5 10.5
Deferred income 11.3 11.2
Other 23.9 21.1
--------------------------------------------------------------
Total accounts payable and accrued expenses $171.8 $181.8
==============================================================
</TABLE>
In November 1994, the Company replaced its previous $150 million receivables
purchase facility with a $130 million receivables transfer facility expiring
September 1995. The outstanding balance of receivables sold to the transfer
facility at December 31, 1994 was $112 million, compared with $124 million sold
at December 31, 1993. Receivables are sold without recourse to the Company.
Selling, general and administrative expenses include provisions for losses on
receivables of $4.4 million in 1992, $3.7 million in 1993, and $5.5 million in
1994. Receivables are recorded at expected realizable value, net of allowances.
Accumulated amortization related to capital leases amounted to $23.5 million
at December 31, 1993 and $15.6 million at December 31, 1994. Accumulated
amortization related to excess of purchase price over net assets acquired
amounted to $75.3 million at December 31, 1993 and $78.5 million at December 31,
1994.
Trade payables include checks outstanding in excess of bank deposits in
the Company's central disbursement accounts, since arrangements with the banks
do not call for reimbursement until checks are presented for payment. Such
amounts were $3.8 million at December 31, 1993 and $18.3 million at December
31, 1994.
The non-current portion of the casualty insurance liability, included in other
long-term liabilities, was $32.8 million and $44.2 million at December 31, 1993
and 1994, respectively. The total discounted insurance accrual, including the
portion reflected in accounts payable and accrued liabilities, was $73.3 million
and $88.1 million at December 31, 1993 and 1994, respectively. The estimated
aggregate undiscounted insurance liability was $81.0 million and $99.6 million
at December 31, 1993 and 1994, respectively.
26
<PAGE>
Borg-Warner Security Corporation
Notes to Consolidated Financial Statements, continued
Note 3-Discontinued Operations
On January 27, 1993 all of the outstanding common stock of BW-Automotive was
distributed to the Company's stockholders. Following the distribution, the
Company does not have any operations apart from the protective services
business. Therefore, the remaining $250 million of excess of purchase price over
net assets acquired not directly attributed to the protective services business
was written off as a charge to earnings in the first quarter of 1993.
BW-Automotive has been treated as discontinued in the consolidated financial
statements for all periods presented, and previously reported results have been
restated. Net revenues for previously consolidated BW-Automotive operations were
$926.0 million and $66.5 million for 1992 and 1993, respectively. Net losses
from the discontinued BW-Automotive operations were $12.1 million and $1.5
million, for 1992 and 1993, respectively. The revenues and net loss for 1993 are
for the period from January 1 to January 27, 1993.
BW-Automotive earnings reflect allocated interest of $44.8 million and $3.1
million in 1992 and 1993, respectively. BW-Automotive income tax expense of $2.7
million for 1992 and a $0.4 million benefit in 1993 have been calculated based
on BW-Automotive's share of combined operations and participation in
consolidated returns. BW-Automotive earnings also reflect a charge for costs
incurred at corporate headquarters of $4.2 million in 1992. This charge was
based on the estimated costs incurred related solely to the BW-Automotive
operations.
The Company and BW-Automotive have entered into agreements to provide for the
allocation of certain corporate overhead expenses. During 1993 and 1994, BW-
Automotive paid the Company $8.6 million and $2.8 million, respectively, for
office space and services rendered under the agreements. BW-Automotive also paid
the Company $1 million in 1993 under a Trademark and Trade Name License
Agreement. In 1994 BW-Automotive paid $10 million to the Company for the
purchase of certain trademarks and other rights. In 1993 the Company paid BW-
Automotive $1.2 million under a tax sharing agreement related to settlement of
1992 federal income tax liabilities.
Note 4-Commitments
The Company is committed to pay rents on non-cancelable leases with terms
exceeding one year. Rental amounts committed in future years are summarized at
December 31, 1994 as follows:
(millions of dollars)
------------------------------------------------------------------------------
Fiscal Operating Leases Capital Leases Total
------------------------------------------------------------------------------
1995 $20.0 $11.3 $31.3
1996 16.8 7.6 24.4
1997 12.6 2.7 15.3
1998 8.6 0.8 9.4
1999 5.5 0.6 6.1
2000 and after 5.7 4.4 10.1
------------------------------------------------------------------------------
Total $69.2 $27.4 $96.6
==============================================================================
Total rental expense amounted to $20.4 million in 1992, $25.3 million in 1993
and $25.6 million in 1994. Future capital lease rental payments include
executory costs of $1.0 million, interest expense of $4.2 million and principal
payments of $22.2 million. The 1995 principal payments of $9.2 million are
included in notes payable.
27
<PAGE>
Borg-Warner Security Corporation
Notes to Consolidated Financial Statements, continued
Note 5-Notes Payable and Long-Term Debt
The following is a summary of notes payable and long-term debt which reflects
all borrowings of the Company and its consolidated subsidiaries.
<TABLE>
<CAPTION>
Debt December 31, 1993 December 31, 1994
----------------------------------------------------------------------------------------------------
(millions of dollars) Current Long-Term Current Long-Term
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bank borrowings (at an average rate of
4.4% in 1993 and 5.4% in 1994) $ -- $119.7 $ -- $88.0
Bank revolving commitment loan
due through 1999 (at an average rate of
6.9% in 1993 and 7.6% in 1994) -- 65.0 -- 105.2
8% notes (face amount of $100 million
due 1996) -- 95.5 -- 97.5
Unsecured notes (at an average rate of
10.4% in 1993 and 5.9% in 1994) 1.8 0.9 5.3 1.3
Capital lease liability (at an average rate
of 9.5% in 1993 and 9.2% in 1994) 8.9 16.8 9.2 13.0
91/8% senior subordinated notes (face
amount of $150 million due 2003) -- 148.9 -- 149.0
----------------------------------------------------------------------------------------------------
Total notes payable and long-term debt $10.7 $446.8 $14.5 $454.0
====================================================================================================
</TABLE>
Maturities of long-term debt, including unamortized discount of $3.5 million,
are as follows: 1996, $118.1 million; 1997, $55.3 million; 1998, $87.6 million;
1999, $43.0 million; and after 1999, $153.5 million.
At December 31, 1994, the Company had a $190 million bank revolving credit
facility, available until 1999. The committed amount under this facility reduces
semi-annually during the remaining commitment period. Available future
commitments at December 31 are as follows: 1995, $166 million; 1996, $138
million; 1997, $95 million; and 1998, $43 million. Unused commitments at
December 31, 1994 were $84.8 million. Included in long-term debt at December 31,
1994 is $38.0 million of borrowings under short-term bank lines which are
supported by the unutilized portion of the revolving credit facility and are
therefore classified as long-term debt.
Interest under the revolving credit facility is charged at various prime-and
LIBOR-based interest rate options. Compensating cash balances are not required
but facility fees and commitment fees are paid under the revolving credit
agreement.
The revolving credit facility contains numerous financial and operating
covenants including, among others, covenants requiring the Company to maintain
certain financial ratios and restricting its ability to incur additional
indebtedness, to create or permit to exist certain liens or to pay dividends. In
addition, the Company pledged the stock of certain of its subsidiaries under
this agreement.
In June 1994, the Company amended its revolving credit and letter of credit
facilities, principally to reduce pricing and amend covenants related to
leverage, fixed charge coverage and net worth tests. In December 1994, the
Company negotiated waivers to certain financial covenants under its credit
facilities. There was no impact to the Company's liquidity as a result of the
revised covenant limits, and the Company was in compliance with all applicable
covenants at December 31, 1994. In March 1995, the Company amended its credit
facilities principally to change pricing and to amend covenants related to
earnings, leverage, fixed charge coverage, net worth, capital expenditures and
acquisitions.
In May 1993, the Company issued $150 million principal amount of 91/8% senior
subordinated debentures due 2003, discounted to yield 91/4%. Interest is payable
semi-annually. These notes are unsecured and subordinated as to right of payment
to other borrowings. The notes may be redeemed on or after May 1, 1998 at
various premiums.
28
<PAGE>
Borg-Warner Security Corporation
Notes to Consolidated Financial Statements, continued
In 1993, a net of tax loss of $9.1 million was realized as an extraordinary
item. This loss related to the redemption of $216.7 million principal amount of
13% Junior Subordinated Discount Debentures and $15.2 million principal amount
of 12-3/4% Senior Subordinated Debentures.
A net of tax loss of $7.1 million was realized as an extraordinary item in
1992 related to the redemption of $155.0 million principal amount of 13% Junior
Subordinated Discount Debentures and $58.2 million principal amount of 14%
Senior Subordinated Discount Debentures.
Note 6-Contingent Liabilities
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
an aggregate of $24 million for current losses, $66 million for future losses
and $270 million for 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.
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 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 plastics 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 obligations and
29
<PAGE>
Borg-Warner Security Corporation
Notes to Consolidated Financial Statements, continued
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.
The Company has guaranteed borrowings of $2.0 million of affiliates and
discontinued operations as of December 31, 1994.
Note 7-Retirement Benefits
The Company has various defined benefit and defined contribution plans which
cover eligible employees.
Retirement benefit expense amounted to $4.0 million, $4.8 million and $5.8
million in 1992, 1993 and 1994, respectively. This expense includes
postretirement life insurance and medical benefits of $1.0 million, $0.4 million
and $0.2 million for 1992, 1993 and 1994, respectively. Also included are
defined contribution plan expenses of $1.6 million, $1.4 million and $1.6
million in 1992, 1993 and 1994, respectively.
The following table sets forth the funded status of the defined benefit plans:
<TABLE>
<CAPTION>
Funded Status December 31, 1993 December 31, 1994
--------------------------------------------------------------------------------------
(millions of dollars) Over Under Over Under
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $40.1 $44.4 $37.8 $39.5
Non-vested benefits 0.9 1.8 1.1 1.9
--------------------------------------------------------------------------------------
Accumulated benefit obligations 41.0 46.2 38.9 41.4
Effect of projected future compensation levels 7.5 - 5.1 -
--------------------------------------------------------------------------------------
Projected benefit obligation 48.5 46.2 44.0 41.4
Plan assets at fair value 45.0 30.9 44.4 27.9
--------------------------------------------------------------------------------------
Assets in excess of (less than) projected benefit
obligation (3.5) (15.3) 0.4 (13.5)
Unrecognized net loss 11.5 11.6 6.4 10.2
Unrecognized prior service cost (2.0) 3.4 (1.9) 3.0
--------------------------------------------------------------------------------------
Net asset (liability) before minimum liability 6.0 (0.3) 4.9 (0.3)
Adjustment required to recognize
minimum liability - (15.0) - (13.2)
--------------------------------------------------------------------------------------
Net asset (liability) on balance sheet $6.0 ($15.3) $4.9 ($13.5)
======================================================================================
</TABLE>
Assets held in trust for the defined benefit plans are comprised of marketable
equity and fixed income securities.
Net periodic pension expense for the defined benefit plans was comprised as
follows:
Year Ended December 31,
----------------------------------------------------------------------------
(millions of dollars) 1992 1993 1994
----------------------------------------------------------------------------
Service cost $2.0 $2.2 $3.0
Interest cost 4.2 6.7 6.7
Actual return on assets (4.3) (8.5) 1.1
Net amortization and deferrals (0.5) 2.6 (6.9)
----------------------------------------------------------------------------
Net periodic pension cost $1.4 $3.0 $3.9
============================================================================
30
<PAGE>
Borg-Warner Security Corporation
Notes to Consolidated Financial Statements, continued
The Company's assumptions used as of December 31, 1992, 1993 and 1994 in
determining the pension cost and pension liability shown above were as
follows:
<TABLE>
<CAPTION>
(percent) 1992 1993 1994
--------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 8.5 7.5 8.5
Rate of salary progression 4.5 4.0 4.0
Long-term rate of return on assets 9.5-10 9.5-10 9.5
</TABLE>
The Company also has postretirement benefits covering certain existing and
former employees, including employees of certain businesses which have been
divested by the Company. The Company adopted SFAS 106 on January 1, 1993, which
resulted in an after-tax charge of $8.3 million and is included on the
Statement of Operations under the caption "Cumulative effect of initial
application of new accounting standards." In 1993, SFAS 106 did not have a
material impact on the Company's results from continuing operations. The
liabilities for these benefits as of December 31, 1994 and 1993 are $12.9
million and $14.7 million, respectively, and are included in "Other long-term
liabilities." The discount rate used in determining this liability was 8.5% and
assumed medical expense increases of 9.5% per year for 1995 grading to 5.5% per
year by 1999.
Note 8--Stock Options and Management
Stock Purchases
Stock Option Plan
The Company has two plans which authorize the grant of options to purchase
3,000,000 shares of the Company's common stock. All options granted to date
carry exercise prices ranging from $5.00 to $21.19 per share. These prices
correspond to the fair market value (as defined in the plans) of the Company's
common stock at the time of grant.
In 1992, 1993 and 1994 there were no options canceled or converted.
Common shares under option for the years ended December 31, 1992, 1993 and
1994 are summarized as follows:
<TABLE>
<CAPTION>
Number of Shares Aggregate Option Price
-----------------------------------------------------------------------------------------------
(shares in thousands, dollars in millions) 1992 1993 1994 1992 1993 1994
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares under option at January 1 1,541 1,339 1,472 $12.6 $13.9 $19.9
Granted 251 385 593 4.1 8.0 9.7
Exercised (372) (203) (114) (1.9) (1.3) (1.1)
Forfeited (81) (49) (108) (0.9) (0.7) (1.8)
-----------------------------------------------------------------------------------------------
Shares under option at end
of period 1,339 1,472 1,843 $13.9 $19.9 $26.7
===============================================================================================
Options exercisable 954 907 881
=====================================================================
Shares available for future grants 8 172 186
=====================================================================
</TABLE>
Of the 1,843,465 options outstanding at December 31, 1994, 880,989 are presently
exercisable and the remaining 962,476 will vest over the next three-year period
based upon periods of employment.
In connection with the Spin-Off, each outstanding option was exchanged for (i)
an adjusted option to purchase the same number of post-Spin-Off shares of common
stock at a price equal to 50% of the pre-Spin-Off exercise price, and (ii) an
option to purchase the same number of shares of common stock of BW-Automotive at
a price equal to 50% of the pre-Spin-Off exercise price. Thus, the exercise
price of an option held prior to the Spin-Off equals the sum of the exercise
prices of the two options for which it was exchanged.
Notes Receivable--Management
Stock Purchase
Included among the Company's equity holders are members of management. Purchases
of shares by management have been funded in part by loans from the Company.
These loans, which totalled approximately $1.8 million at December 31, 1993 and
$1.0 million at December 31, 1994, bear interest of approximately 6% and are
offset against stockholders' equity in the Consolidated Balance Sheets at such
dates.
31
<PAGE>
Borg--Warner Security Corporation
Notes to Consolidated Financial Statements, continued
Note 9-Business Segment Information
The Company's operations have been classified into four business segments:
guard, alarm, armored and courier services. The guard segment provides contract
security officers to patrol client facilities, monitor electronic systems and
control public and employee access. The alarm segment primarily designs,
installs, monitors and services sophisticated electronic security systems and
fire and intrusion detection systems. The armored segment transports currency,
securities and other valuables. Additionally, this segment provides full-service
automated teller machine operations and cash management services such as deposit
verification and currency processing. The courier segment provides
transportation of time-sensitive, non-negotiable financial documents and small
packages.
Intersegment sales are not significant. Operating profit by business segment
represents total revenues less operating expenses, depreciation and
amortization, and excludes interest income, interest expense, income taxes and
net unallocated corporate expenses.
Identifiable assets are those assets employed in each segment's operation,
including an allocated value to each segment of cost in excess of net assets
acquired. Corporate assets consist principally of cash and cash equivalents,
certain corporate receivables and other assets.
Summarized financial information by business segment for 1992, 1993 and 1994
is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
(millions of dollars) 1992 1993 1994
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales:
Guard services $1,098.0 $1,198.0 $1,209.4
Alarm services 203.5 213.2 206.2
Armored services 156.4 180.9 211.2
Courier services 162.7 172.5 166.1
-----------------------------------------------------------------------------
Total net sales $1,620.6 $1,764.6 $1,792.9
=============================================================================
Operating profit:
Guard services $55.4 $58.5 $54.5
Alarm services 29.7 31.1 14.9
Armored services 10.6 13.3 6.7
Courier services 10.3 7.4 1.1
-----------------------------------------------------------------------------
Total operating profit 106.0 110.3 77.2
-----------------------------------------------------------------------------
Corporate expenses (37.3) (4.8) (26.5)
Other income 17.2 3.1 9.8
Interest expense (47.9) (51.5) (50.4)
Non-recurring elimination of excess purchase
price over net assets acquired - (250.0) -
-----------------------------------------------------------------------------
Earnings (loss) before taxes 38.0 (192.9) 10.1
Tax (provision) benefit 19.7 (22.2) 3.0
-----------------------------------------------------------------------------
Earnings (loss) from continuing operations $57.7 ($215.1) $13.1
=============================================================================
Depreciation:
Guard services $6.5 $7.0 $7.4
Alarm services 33.6 36.5 38.0
Armored services 6.0 6.7 7.0
Courier services 4.8 4.7 4.8
Corporate 0.6 0.4 0.4
-----------------------------------------------------------------------------
Total depreciation $51.5 $55.3 $57.6
=============================================================================
</TABLE>
32
<PAGE>
Borg-Warner Security Corporation
Notes to Consolidated Financial Statements, continued
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
(millions of dollars) 1992 1993 1994
----------------------------------------------------------------
<S> <C> <C> <C>
Amortization of excess purchase price
over net assets acquired:
Guard services $9.0 $11.5 $11.1
Alarm services 2.6 2.2 2.3
Armored services 1.0 1.3 1.3
Courier services 1.4 1.3 1.3
Corporate 7.4 0.2 0.1
----------------------------------------------------------------
Total amortization $21.4 $16.5 $16.1
================================================================
Capital expenditures:
Guard services $7.5 $6.8 $8.6
Alarm services 46.1 49.8 44.6
Armored services 12.0 5.7 6.2
Courier services 4.6 6.5 7.6
----------------------------------------------------------------
Total capital expenditures $70.2 $68.8 $67.0
================================================================
Identifiable assets:
Guard services $228.4 $235.0
Alarm services 340.0 361.2
Armored services 76.1 90.4
Courier services 39.4 46.3
Corporate 106.6 97.4
----------------------------------------------------------------
Total identifiable assets $790.5 $830.3
================================================================
</TABLE>
Note 10--Other Income, Net
Items included in other income consist of:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
(millions of dollars) 1992 1993 1994
----------------------------------------------------------------
<S> <C> <C> <C>
Interest income $1.3 $0.2 $0.1
Gain on sales of assets, net 6.5 1.9 8.5
Other, including dividend income 9.4 1.0 1.2
----------------------------------------------------------------
Total $17.2 $3.1 $9.8
================================================================
</TABLE>
In 1992, other income includes a $7.5 million gain on the settlement of a note
related to a prior divestiture. In 1994, gain on sales of assets includes a $9.9
million gain on the sale of certain trademarks and other rights to BW-
Automotive.
33
<PAGE>
Borg-Warner Security Corporation
Notes to Consolidated Financial Statements, continued
Note 11-Income Taxes
Earnings (loss) before income taxes from continuing operations and provision
(benefit) for income taxes consist of:
<TABLE>
<CAPTION>
1992 1993 1994
-----------------------------------------------------------------------------------------------------------
(millions of dollars) U.S. Non-U.S. Total U.S. Non-U.S. Total U.S. Non-U.S. Total
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) before
income taxes $32.2 $5.8 $38.0 ($197.4) $ 4.5 ($192.9) $7.4 $2.7 $10.1
===========================================================================================================
Income taxes:
Current:
Federal/Foreign $0.6 $3.7 $4.3 $4.1 $1.6 $5.7 $3.8 $1.7 $5.5
State 5.0 - 5.0 3.0 - 3.0 0.9 - 0.9
-----------------------------------------------------------------------------------------------------------
5.6 3.7 9.3 7.1 1.6 8.7 4.7 1.7 6.4
Deferred (21.0) - (21.0) 13.5 - 13. 5 (9.4) - (9.4)
-----------------------------------------------------------------------------------------------------------
(15.4) 3.7 (11.7) 20.6 1.6 22.2 (4.7) 1.7 (3.0)
Business tax credits (8.0) - (8.0) - - - - - -
-----------------------------------------------------------------------------------------------------------
Provision (benefit) for
income taxes ($23.4) $3.7 ($19.7) $20.6 $1.6 $22.2 ($4.7) $1.7 ($3.0)
===========================================================================================================
</TABLE>
The analysis of the variance of income taxes as reported from income taxes
computed at the U.S. statutory federal income tax rate for continuing operations
is as follows:
(millions of dollars) 1992 1993 1994
------------------------------------------------------------------------------
Income taxes at U.S. statutory rate of 34%
in 1992, and 35% in 1993 and 1994 $12.9 ($67.5) $3.5
Increases (decreases) resulting from:
Non-recurring elimination of excess
purchase price over net assets acquired - 87.5 -
Change in tax basis (30.6) - (7.0)
State income taxes 4.1 2.0 0.6
Business tax credits, net (8.0) - -
Impact of AMT generated tax liability 2.7 - -
Non-temporary differences (2.1) 0.2 1.0
Net operating loss carryforward benefit (0.8) - -
Other, net 2.1 - (1.1)
------------------------------------------------------------------------------
Income taxes reported ($19.7) $22.2 ($3.0)
==============================================================================
Following are the gross components of the deferred tax (asset) liability as of
December 31, 1993 and 1994:
(millions of dollars) 1993 1994
-----------------------------------------------------------------------
Deferred tax liabilities $96.8 $88.0
Deferred tax assets $76.9 $73.9
Net operating loss carryforward 18.5 20.9
Tax credit carryforwards 55.0 55.8
Valuation allowance (16.2) (11.8)
-----------------------------------------------------------------------
$134.2 $138.8
-----------------------------------------------------------------------
($37.4) ($50.8)
=======================================================================
34
<PAGE>
Borg-Warner Security Corporation
Notes to Consolidated Financial Statements, continued
Significant elements of the gross deferred tax liability at December 31, 1993
and 1994 were as follows:
(millions of dollars) 1993 1994
--------------------------------------------------------------------------------
Excess of financial accounting basis over tax basis:
Fixed assets $52.8 $54.6
Investments 12.8 13.1
Significant elements of the gross deferred tax asset at December 31, 1993 and
1994 were as follows:
(millions of dollars) 1993 1994
--------------------------------------------------------------------------------
Pension liabilities $8.0 $5.4
Liabilities for casualty insurance 28.6 34.9
Liabilities related to discontinued operations 13.0 13.2
Deferred tax assets for future benefits of tax credit carryforwards at
December 31, 1993 and 1994 were as follows:
(millions of dollars) 1993 1994
--------------------------------------------------------------------------------
General business credit $21.5 $26.5
Minimum tax credit 26.8 27.0
Foreign tax credit 6.7 2.3
The foreign tax credit carryforward has been fully considered in the
valuation allowance at both December 31, 1993 and 1994 while an additional
allowance of $9.5 million at both December 31, 1993 and 1994 has been
established against the other credits.
The general business credit carryforward will expire in years 2004-2009,
the net operating loss carryforward will expire in 2009, while the minimum tax
credit can be carried forward indefinitely.
Note 12--Capital Stock
The following table summarizes the Company's capital stock at December 31,
1993 and 1994:
December 31,
-----------------------------------------------------------------------------
(thousands of shares) 1993 1994
-----------------------------------------------------------------------------
Common stock, $.01 par value:
Authorized 50,000.0 50,000.0
Issued 22,235.7 22,435.7
Outstanding 21,444.6 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 1,360.0 1,160.0
Preferred stock, $.01 par value:
Authorized 5,000.0 5,000.0
Issued and outstanding - -
35
<PAGE>
Borg-Warner Security Corporation
Notes to Consolidated Financial Statements, continued
Note 13--Fair Value of Financial Instruments
The methods and assumptions used to estimate the fair value of each class of
financial instrument are as follows:
Cash and cash equivalents, receivables, notes payable and accounts payable
The carrying amounts approximate fair value because of the short maturity of
these instruments.
Long-term debt
The carrying amounts of the Company's bank borrowings under its short-term bank
lines and revolving credit agreement approximate fair value because the interest
rates are reset periodically to reflect current market rates. The fair values of
the Company's other long-term debt either approximate carrying value or are
estimated based on quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same remaining maturities.
The carrying amounts and fair values of long-term debt at December 31, 1993
and 1994 are as follows:
December 31,
---------------------------------------------------------------
(millions of dollars) 1993 1994
---------------------------------------------------------------
Carrying amount $430.0 $441.0
Fair value 440.1 419.3
Letters of credit
The Company utilizes third-party letters of credit to guarantee certain self-
insurance activities. The letters of credit reflect fair value as a condition of
their underlying purpose and are subject to fees competitively determined in the
marketplace. The contract value/fair value of the letters of credit at December
31, 1993 and 1994 was $144.1 million and $130.7 million, respectively. To
monitor the counterparties' ability to perform, these letters of credit are only
executed with major financial institutions, and full performance is anticipated.
36
<PAGE>
Borg-Warner Security Corporation
Notes to Consolidated Financial Statements, continued
Note 14--Interim Financial Information (Unaudited)
The following information includes all adjustments, consisting only of normal
recurring items, which the Company considers necessary for a fair presentation
of 1993 and 1994 interim results of operations.
<TABLE>
<CAPTION>
1993 Quarter Ended 1994 Quarter Ended
-----------------------------------------------------------------------------------------------------------------------------------
(millions of dollars, except per share) March 31 June 30 Sept. 30 Dec. 31 Year 1993 March 31 June 30 Sept. 30 Dec. 31 Year 1994
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net service revenues $425.5 $431.6 $437.6 $469.9 $1,764.6 $439.1 $444.1 $450.7 $459.0 $1,792.9
Cost of services 334.3 338.9 341.5 375.6 1,390.3 349.6 354.6 361.0 372.1 1,437.3
Selling, general and
administrative expenses 51.8 48.1 50.1 47.0 197.0 52.7 51.4 52.8 74.3 231.2
Depreciation 13.3 13.7 14.1 14.2 55.3 14.3 14.3 14.4 14.6 57.6
Amortization of excess purchase
price over net assets acquired 4.0 4.1 4.2 4.2 16.5 4.1 4.2 4.0 3.8 16.1
Other income (0.8) (0.1) (1.0) (1.2) (3.1) (0.5) (0.4) (0.2) (8.7) (9.8)
Non-recurring elimination of
excess purchase price over
net assets acquired 250.0 - - - 250.0 - - - - -
Interest expense and finance
charges 12.4 14.1 12.9 12.1 51.5 11.9 12.3 13.0 13.2 50.4
-----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before taxes (239.5) 12.8 15.8 18.0 (192.9) 7.0 7.7 5.7 (10.3) 10.1
Provision (benefit) for income taxes 4.0 4.9 6.4 6.9 22.2 2.8 3.1 2.3 (11.2) (3.0)
-----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from
continuing operations (243.5) 7.9 9.4 11.1 (215.1) 4.2 4.6 3.4 0.9 13.1
Loss from discontinued operations (1.5) - - - (1.5) - - - - -
-----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before extra-
ordinary items and cumulative
effect of accounting change (245.0) 7.9 9.4 11.1 (216.6) 4.2 4.6 3.4 0.9 13.1
Extraordinary items:
Loss from early extinguishment
of debt (6.6) - (2.5) - (9.1) - - - - -
Cumulative effect of initial
application of new
accounting standards (8.3) - - (9.4) (17.7) - - - - -
-----------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) ($259.9) $7.9 $6.9 $1.7 ($243.4) $4.2 $4.6 $3.4 $0.9 $13.1
===================================================================================================================================
Earnings (loss) per common share:
Continuing operations ($11.06) $0.34 $0.40 $0.48 ($9.41) $0.18 $0.20 $0.15 $0.03 $0.56
Discontinued operations (0.07) - - - (0.07) - - - - -
Extraordinary items (0.30) - (0.10) - (0.40) - - - - -
Cumulative effect of initial
application of new
accounting standards (0.37) - - (0.40) (0.77) - - - - -
-----------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per share ($11.80) $0.34 $0.30 $0.08 ($10.65) $0.18 $0.20 $0.15 $0.03 $0.56
===================================================================================================================================
</TABLE>
37
<PAGE>
Borg-Warner Security Corporation
Notes to Consolidated Financial Statements, continued
Note 15-Pro Forma Financial Information (Unaudited)
The following pro forma financial information of the Company consists of Pro
Forma Consolidated Statements of Operations for the years ended December 31,
1993 and 1992. There is no Pro Forma Condensed Consolidated Balance Sheet
because the Consolidated Balance Sheet already reflects all transactions for
which pro forma adjustments have been made. The Pro Forma Consolidated Statement
of Operations for the year ended December 31, 1993 was prepared to illustrate
the results of operations in the absence of the non-recurring elimination of
excess purchase price. There is no adjustment to interest expense because the
additional interest paid for the period prior to the Spin-Off was offset by the
allocation of interest to the discontinued automotive operations. There is no
tax impact because the elimination of excess purchase price was not deductible
for federal income tax purposes. The Pro Forma Consolidated Statement of
Operations for the year ended December 31, 1992 was prepared to illustrate the
estimated effects of (a) the Spin-Off and resulting elimination of amortization
of excess purchase price not directly attributed to the protective services
business, (b) the adjustment to interest expense and finance charges for the
repayment of debt from the proceeds of the Baker Hughes transaction, the effect
of the Spin-Off, the public offering and the refinancing of bank indebtedness,
(c) adjustment of corporate expenses to reflect the Company on a stand-alone
basis, (d) elimination of certain non-recurring transactions, principally
related to asset dispositions, and (e) the tax effect of the foregoing. Average
shares outstanding for both periods were adjusted as if the shares had been
issued at the beginning of the periods. The Pro Forma Consolidated Statements of
Operations for the years ended December 31, 1993 and 1992 were prepared as if
such transactions had occurred at the beginning of the periods presented. The
historical information contained in such statements reflects the treatment of
BW-Automotive as a discontinued operation. The adjustments are based upon
currently available information and upon certain assumptions that the Company
believes are reasonable in the circumstances. The pro forma information does not
purport to represent what the Company's results of operations would actually
have been if such transactions had occurred on such date or at the beginning of
periods indicated or to project the Company's results of operations at any
future date or for any future period.
The Pro Forma Consolidated Statements of Operations and accompanying notes
should be read in conjunction with the historical Consolidated Financial
Statements appearing elsewhere in this report.
38
<PAGE>
Borg-Warner Security Corporation
Notes to Consolidated Financial Statements, continued
Pro Forma Consolidated Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1993
---------------------------------------------------------------------------------------
(millions of dollars, except per share) Historical Adjustments Pro Forma
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net service revenues $1,764.6 $1,764.6
Cost of services 1,390.3 1,390.3
Selling, general and administrative expenses 197.0 197.0
Depreciation 55.3 55.3
Amortization of excess purchase price over net
assets acquired 16.5 16.5
Other income (3.1) (3.1)
Non-recurring elimination of excess purchase price 250.0 $(250.0)(a) --
Interest expense and finance charges 51.5 51.5
---------------------------------------------------------------------------------------
Earnings (loss) before income taxes (192.9) 250.0 57.1
Provision for income taxes 22.2 22.2
---------------------------------------------------------------------------------------
Earnings (loss) from continuing operations $ (215.1) $ 250.0 $ 34.9
=======================================================================================
Earnings (loss) per share from continuing operations $ (9.41) $ 10.91 $ 1.50
=======================================================================================
Average shares outstanding (in millions) 22.9 0.4 23.3
=======================================================================================
</TABLE>
Pro Forma Consolidated Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1992
---------------------------------------------------------------------------------------
(millions of dollars, except per share) Historical Adjustments Pro Forma
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net service revenues $1,620.6 $1,620.6
Cost of services 1,258.9 1,258.9
Selling, general and administrative expenses 220.1 $(19.1)(c) 201.0
Depreciation 51.5 51.5
Amortization of excess purchase price over net
assets acquired 21.4 (7.3)(a) 14.1
Other income (17.2) 16.2 (d) (1.0)
Interest expense and finance charges 47.9 1.3 (b) 49.2
---------------------------------------------------------------------------------------
Earnings before income taxes 38.0 8.9 46.9
Provision (benefit) for income taxes (19.7) 36.1 (e) 16.4
---------------------------------------------------------------------------------------
Earnings (loss) from continuing operations $ 57.7 $(27.2) 30.5
=======================================================================================
Earnings (loss) per share from continuing operations $ 2.94 $(1.64) $ 1.30
=======================================================================================
Average shares outstanding (in millions) 19.6 3.8 23.4
=======================================================================================
</TABLE>
39
<PAGE>
Borg-Warner Security Corportion
Notes to Consolidated Financial Statements, continued
The following table sets forth the Statement of Operations adjustments by period
individually and summarizes the totals shown in the adjustment column on the Pro
Forma Consolidated Statements of Operations:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------------
1992 1993
----------------------------------------------------------------------------------------------
(millions of dollars) Amount Letter Amount Letter
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Selling, general and administrative expenses:
Eliminate non-recurring expenses including
headquarters cost ($19.1) (c)
Amortization of excess purchase price (7.3) (a)
Eliminate non-recurring elimination of excess
purchase price ($250.0) (a)
Other income:
Eliminate non-recurring gains on sales 14.3 (d)
Eliminate BHI dividend 1.9 (d)
----------------------------------------------------------------------------------------------
16.2
Interest expense and finance charges 1.3 (b)
Provision for income taxes 36.1 (e)
</TABLE>
40
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Borg-Warner Security Corporation
We have audited the consolidated balance sheets of Borg-Warner Security
Corporation and subsidiaries as of December 31, 1993 and 1994 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Borg-Warner Security Corporation
and subsidiaries at December 31, 1993 and 1994 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 1, the Company changed its method of accounting for
postretirement benefits other than pensions and the method of selecting the
discount rate to discount its casualty insurance liabilities in 1993.
Sig. of Deloitte & Touche LLP
Deloitte & Touche LLP
Chicago, Illinois
February 10, 1995, except as to the fourth sentence of the fifth paragraph of
Note 5, for which the date is March 15, 1995.
41
<PAGE>
EXHIBIT 21
% Owned
Subsidiary By Parent
---------- ---------
Baker Insurance Company (Illinois) 100
Borg-Warner Equities Corporation (Delaware) 100
Borg-Warner Equities Corporation of California (California) 100
Borg-Warner Equities of Monterey, Inc. (California) 100
Borg-Warner Insurance Holding Corporation (Delaware) 100
Centaur Insurance Company (Illinois) 100
NAL II, Ltd. (Delaware) 100
Borg-Warner International Corporation (Delaware) 100
Borg-Warner Protective Services Corporation (Delaware) 100
Borg-Warner Information Services, Inc. (Delaware) 100
Burns International Security Services, Inc. (American Samoa) 100
Burns Special Services, Inc. (Delaware) 100
Wells Fargo Guard Service, Inc. of Florida (Florida) 100
Wells Fargo Guard Services, Inc. (Delaware) 100
Wells Fargo Special Services, Inc. (Delaware) 100
BW - Canada Alarm (Wells Fargo) Corporation (Delaware) 100
Wells Fargo Alarm Services of Canada Limited (Ontario) 100
Pony Express Residential Security Ltd. (Canada) (Provincial) 100
BW - Canadian Guard Corporation (Delaware) 100
Burns International Security Services, Ltd. (Ont.) (Ontario) 100
Les Services de Protection Burns International Ltee. (Quebec) 97
BW - Colombia Guard Corporation (Delaware) 100
Newerco, Inc. (Delaware) 100
BII, Inc. (Delaware) 100
Seguridad Burns de Colombia, S.A. (Colombia) 99
<PAGE>
The William J. Burns International Detective Agency, Inc. (Delaware) 100
BW - U.K. Guard Corporation (Delaware) 100
Burns International Security Services, Ltd. (U.K.) (United Kingdom) 100
Globe Aviation Services Corporation (Delaware) 100
Globe Airport Security Services, Inc. (Delaware) 100
Globe Aviation Services Corporation of Puerto Rico (Delaware) 100
Globe Aviation Services of Canada, Limited (Ontario) 100
Pony Express Courier Corp. (Delaware) 100
Pony Express Courier Corporation of Texas (Texas) 100
Pyro Chem, Inc. (New Jersey) 100
Wells Fargo Alarm Services, Inc. (Delaware) 100
BPS Financial Services, Inc. (Delaware) 100
BW-Chemicals Corporation 100
Wells Fargo Armored Service Corporation (Delaware) 100
Wells Fargo Armcar, Inc. (Ontario) 100
Wells Fargo Armored Service Corporation of Puerto Rico (Tennessee) 100
Wells Fargo Armored Service Corporation of Texas (Texas) 100
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement
on Form S-8 (No. 33-23046) and the Registration Statement on Form S-3
(No. 33-60294) of our reports dated February 10, 1995 and February 10, 1995
(except as to the fourth sentence of the fifth paragraph of Note 5, for which
the date is March 15, 1995) appearing in and incorporated by reference,
respectively, in the Annual Report on Form 10-K for the year ended December 31,
1994 filed by Borg-Warner Security Corporation.
DELOITTE & TOUCHE LLP
Chicago, Illinois
March 30, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 15,800
<SECURITIES> 0
<RECEIVABLES> 114,400
<ALLOWANCES> 7,700
<INVENTORY> 12,200
<CURRENT-ASSETS> 159,500
<PP&E> 537,700
<DEPRECIATION> 242,600
<TOTAL-ASSETS> 830,300
<CURRENT-LIABILITIES> 196,300
<BONDS> 454,000
<COMMON> 200
0
0
<OTHER-SE> 43,600
<TOTAL-LIABILITY-AND-EQUITY> 830,300
<SALES> 0
<TOTAL-REVENUES> 1,792,900
<CGS> 0
<TOTAL-COSTS> 1,437,300
<OTHER-EXPENSES> 73,700
<LOSS-PROVISION> 5,500
<INTEREST-EXPENSE> 50,400
<INCOME-PRETAX> 10,100
<INCOME-TAX> (3,000)
<INCOME-CONTINUING> 13,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,100
<EPS-PRIMARY> 0.560
<EPS-DILUTED> 0.560
</TABLE>
