As filed with the Securities and Exchange Commission on July 1, 1997
Registration No. 333-26573
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Borg-Warner Security
Corporation
(Exact name of registrant as specified in its charter)
Delaware 7381 13-3408028
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
200 South Michigan Avenue
Chicago, Illinois 60604
(312) 322-8500
(Address and telephone number of registrant's principal executive offices)
Jeffrey P. Bilas, Esq.
Borg-Warner Security Corporation
200 South Michigan Avenue
Chicago, Illinois 60604
(312) 322-8500
(Name, address and telephone number of agent for service)
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Copies to:
Joseph P. Hadley, Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: [ ]
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The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
==============================================================================
FORM S-4
REGISTRATION STATEMENT
Cross-Reference Sheet
Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Item Number and Caption Caption in Prospectus
----------------------- ---------------------
<S> <C> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus................................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................... Additional Information; Inside Front Cover
Page; Outside Back Cover Page
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information........................................ Outside Front Cover Page; Prospectus
Summary; The Company; Risk Factors;
Selected Financial Data
4. Terms of the Transaction................................. Prospectus Summary; Exchange Offer
5. Pro Forma Financial Information.......................... Unaudited Pro Forma Condensed
Consolidated Financial Data
6. Material Contacts with the Company Being Acquired........ Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters............ Not Applicable
8. Interests of Named Experts and Counsel................... Legal Matters
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities........................... Not Applicable
10. Information with Respect to S-3 Registrants.............. Prospectus Summary; Selected Financial
Data; Business; Financial Statements
11. Incorporation of Certain Information by Reference........ Incorporation of Certain Documents by
Reference
12. Information With Respect to S-2 or S-3 Registrants....... Not Applicable
13. Incorporation of Certain Information by Reference........ Not Applicable
14. Information With Respect to Registrants Other than S-3
or S-2 Registrants....................................... Not Applicable
15. Information With Respect to S-3 Companies................ Not Applicable
16. Information With Respect to S-2 or S-3 Companies......... Not Applicable
17. Information With Respect to Companies Other Than S-2
or S-3 Companies......................................... Not Applicable
18. Information if Proxies, Consents or Authorizations Are
to be Solicited.......................................... Not Applicable
19. Information if Proxies, Consents or Authorizations Are
Not to be Solicited, or in an Exchange Offer............. Incorporation of Certain Documents by
Reference
</TABLE>
EXPLANATORY NOTE
This Registration Statement contains a prospectus (the
"Prospectus") relating to the offer (the "Exchange Offer") for all
outstanding 9 5/8% Senior Subordinated Notes Due 2007 (the "Old Notes") of
Borg-Warner Security Corporation (the "Company") in exchange for the
Company's 9 5/8% Series B Senior Subordinated Notes Due 2007 (the "Exchange
Notes"). In addition, this Registration Statement contains a Prospectus
(the "Market-Making Prospectus") relating to certain market-making
activities with respect to the Exchange Notes which may, from time to time,
be carried out by Merrill Lynch, Pierce Fenner & Smith Incorporated
("MLPF&S"). The two prospectuses will be identical in all material
respects except for the front cover page and the Plan of Distribution and
except for the fact that the Market-Making Prospectus will not contain (i)
the information in the Prospectus Summary relating to the Exchange Offer
and the Consequences of Exchanging Old Notes Pursuant to the Exchange
Offer, (ii) the information in the Risk Factors section relating to the
Consequences of Failure to Exchange and Exchange Offer Procedures, (iii)
the information under the caption "Exchange Offer" will be deleted and (iv)
certain conforming changes will be made to delete references to the
Exchange Offer. The Prospectus for the Exchange Offer follows immediately
after this Explanatory Note. Following such Prospectus are the form of
alternative cover page and Plan of Distribution section for the Market-
Making Prospectus and alternative pages covering conforming changes.
PROSPECTUS
- ----------
$125,000,000
Offer to Exchange
9 5/8% Senior Subordinated Notes Due 2007
For Any And All of The Outstanding
9 5/8% Senior Subordinated Notes Due 2007
of
Borg-Warner Security Corporation
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
JULY 23, 1997, UNLESS EXTENDED.
Borg-Warner Security Corporation, a Delaware corporation (the
"Company"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying letter of transmittal (the
"Letter of Transmittal"), to exchange an aggregate of up to $125,000,000
principal amount of its 9 5/8% Senior Subordinated Notes due 2007 (the
"Exchange Notes") which have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a registration statement of
which this Prospectus forms a part, for an identical face amount of the issued
and outstanding 9 5/8% Senior Subordinated Notes due 2007 (the "Old Notes"
and, together with the Exchange Notes, the "Notes") of the Company from the
Holders (as defined herein) thereof in integral multiples of $1,000 (the
"Exchange Offer"). As of the date of this Prospectus, there are $125,000,000
aggregate principal amount of the Old Notes outstanding. The terms of the
Exchange Notes are identical in all respects to the Old Notes, except that the
Exchange Notes have been registered under the Securities Act, and therefore
will not bear legends restricting their transfer and will not contain certain
provisions providing for an increase in the interest rate payable on the Old
Notes under certain circumstances if the Company defaults with respect to its
registration requirements under the Registration Rights Agreement (as defined
herein), which provisions will terminate as to all of the Notes upon the
consummation of the Exchange Offer. The Exchange Notes will be obligations of
the Company evidencing the same indebtedness as the Old Notes, and will be
entitled to the benefits of the same indenture. See "The Exchange Offer."
Interest on the Exchange Notes is payable semi-annually on
March 15 and September 15 of each year, beginning on September 15, 1997. The
Exchange Notes will bear interest from March 24, 1997. Holders of Old Notes
whose Old Notes are accepted for exchange will be deemed to have waived the
right to receive any payment in respect of interest on such Old Notes accrued
from March 24, 1997 to the date of issuance of the Exchange Notes. The
Exchange Notes will mature on March 15, 2007 and may be redeemed at the option
of the Company, in whole or in part, at any time on or after March 15, 2002,
at the redemption prices set forth herein, and, subject to certain limitations
described herein, up to 30% of the original aggregate principal amount of the
Notes may be redeemed at the option of the Company with the net cash proceeds
of one or more Public Equity Offerings (as defined herein), provided that not
less than $87.5 million aggregate principal amount of the Notes remains
outstanding immediately after giving effect to such redemption, at any time
prior to March 15, 2000, at the redemption price of 109.625% of the principal
amount thereof, in each case together with accrued and unpaid interest, if
any, to the date of redemption. Upon a Change of Control (as defined herein),
subject to certain conditions, each holder of the Exchange Notes may require
the Company to purchase such holder's Exchange Notes at 101% of the principal
amount thereof, together with accrued and unpaid interest, if any, to the date
of purchase. See "Description of the Notes."
The Exchange Notes will be unsecured obligations of the Company
subordinated in right of payment and upon liquidation to all existing and
future Senior Indebtedness (as defined herein) of the Company, including
indebtedness under the New Credit Facility (as defined herein), which is
secured by pledges of stock of certain of the Company's subsidiaries. The
Company is a holding company and, accordingly, the Exchange Notes will be
effectively subordinated to all existing and future indebtedness of the
Company's subsidiaries. Subject to certain restrictions contained in the
Company's debt instruments, the Company may incur additional Senior
Indebtedness and the Company's subsidiaries may incur additional indebtedness
in the future. As of December 31, 1996, after giving pro forma effect to the
Loomis Fargo Combination (as defined herein) and the Refinancing (as defined
herein), the aggregate outstanding principal amount of Senior Indebtedness
(exclusive of undrawn letters of credit of approximately $128.8 million) of
the Company would have been approximately $75.1 million and the aggregate
outstanding principal amount of indebtedness (exclusive of obligations in
respect of undrawn letters of credit of approximately $128.8 million) of the
Company's subsidiaries (including guarantees by certain of the Company's
subsidiaries of the Company's obligations under the New Credit Facility) would
have been approximately $83.3 million. As of December 31, 1996, there were
also $150 million aggregate principal amount of the Company's 9 1/8% Notes (as
defined herein) outstanding which will rank pari passu in right of payment and
upon liquidation with the Notes. In addition, the Company has a non-recourse
receivables-backed facility. See "Description of Certain
Indebtedness--Securitization of Receivables."
(Continued on next page)
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See "Risk Factors" for a discussion of certain factors that
should be considered in connection with the Exchange Offer or an investment in
the Exchange Notes.
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THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July 2, 1997
(Continued from previous page)
The Company will not receive any proceeds from the Exchange
Offer. The Company will pay all the expenses incident to the Exchange Offer.
The Exchange Notes are being offered hereunder in order to
satisfy certain obligations of the Company under the Registration Rights
Agreement, dated March 24, 1997, among the Company and the other signatories
thereto (the "Registration Rights Agreement"). The Company has not requested,
and does not intend to request, an interpretation by the staff of the
Commission with respect to whether the Exchange Notes issued pursuant to the
Exchange Offer in exchange for the Old Notes may be offered for sale, resold
or otherwise transferred by any holder without compliance with the
registration and prospectus delivery provisions of the Securities Act. Based
on interpretations by the staff of the Commission set forth in no-action
letters issued to third parties, the Company believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by any holder of such Exchange
Notes, other than broker-dealers which must sell in accordance with the
provisions set forth below and other than any holder that is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act, without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holder's business and such holder has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes. Any holder who tenders in the Exchange Offer for the purpose
of participating in a distribution of the Exchange Notes or who is an
affiliate of the Company may not rely on such interpretations by the staff of
the Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. Each broker-dealer (whether or not it is also an "affiliate" of
the Company) that receives Exchange Notes for its own account in exchange for
Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Company has agreed that it will make this
Prospectus, as amended or supplemented, available to any such broker-dealer
for use in connection with any such resale, and such broker-dealer shall be
required to deliver this Prospectus for a period not exceeding 180 days after
the Expiration Date (as defined herein). See "Plan of Distribution." By
executing the Letter of Transmittal, each holder of Old Notes will represent
to the Company that, among other things, (i) the Exchange Notes acquired
pursuant to the Exchange Offer are being obtained in the ordinary course of
business of the person receiving such Exchange Notes, whether or not such
person is such holder, (ii) neither the holder of Old Notes nor any such other
person has an arrangement or understanding with any person to participate in
the distribution of such Exchange Notes, (iii) if the holder is not a
broker-dealer, or is a broker-dealer but will not receive Exchange Notes for
its own account in exchange for Old Notes, neither the holder nor any such
other person is engaged in or intends to participate in the distribution of
such Exchange Notes and (iv) neither the holder nor any such other person is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or, if such Holder is an "affiliate," that such Holder will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable. If the tendering Holder is a
broker-dealer (whether or not it is also an "affiliate") that will receive
Exchange Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities,
it will be required to acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
Following the consummation of the Exchange Offer, holders of
Old Notes not tendered will not have any further registration rights and the
Old Notes will continue to be subject to certain restrictions on transfer.
Tenders of Old Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date. In the event the Company
terminates the Exchange Offer and does not accept for exchange any Old Notes,
the Company will promptly return tendered Old Notes to the Holders thereof.
See "Exchange Offer."
Prior to this Exchange Offer, there has been no public market
for the Exchange Notes. The Company intends to apply for listing of the
Exchange Notes on the New York Stock Exchange. However, there can be no
assurance that an active public market for the Exchange Notes will develop.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO
SEND US A PROXY.
AVAILABLE INFORMATION
The Company is currently subject to the informational
requirements of the Exchange Act and in accordance therewith files periodic
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and information may be inspected and copied at the
Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549; and at the regional offices of the Commission at 7
World Trade Center (13th Floor), New York, New York 10048; and at Suite 1400,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material can be obtained at prescribed rates from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission also maintains an internet "website" at http://www.sec.gov that
contains reports and other information. In addition, such reports, proxy
statements and other information concerning the Company may be inspected at
the offices of the New York Stock Exchange, at 20 Broad Street, New York, New
York 10005.
This Prospectus constitutes a part of a registration
statement (the "Registration Statement") filed by the Company with the
Commission under the Securities Act. As permitted by the rules and
regulations of the Commission, this Prospectus does not contain all of the
information contained in the Registration Statement and the exhibits and
schedules thereto and reference is hereby made to the Registration
Statement and the exhibits and schedules thereto for further information
with respect to the Company and the securities offered hereby. Statements
contained herein concerning the provisions of any documents filed as an
exhibit to the Registration Statement or otherwise filed with the
Commission are not necessarily complete, and in each instance reference is
made to the copy of such document so filed. Each such statement is
qualified in its entirety by such reference. Copies of the Registration
Statement may be examined without charge at the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
and at the web site (http://www.sec.gov.) maintained by the Commission and
at the Commission's Regional Offices located at Seven World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any portion
of the Registration Statement can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE
WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST FROM BORG-WARNER SECURITY
CORPORATION, 200 SOUTH MICHIGAN AVENUE, CHICAGO, ILLINOIS 60604, TELEPHONE
NUMBER (312) 322-8500. IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY JULY 18, 1997.
The following documents filed with the Commission (File No.
1-5529) are incorporated herein by reference: (1) the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996, and (2) the
Company's Current Reports on Form 8-K dated February 7, 1997 and Form 8-K/A
dated February 13, 1997.
All documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the Exchange Offer shall be deemed
to be incorporated by reference into this Prospectus and to be a part hereof
from the date of filing of such documents. Any statement contained herein or
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus
to the extent that a statement contained herein or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein
modified or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each
person to whom a copy of this Prospectus has been delivered, upon written or
oral request of any such person, a copy of any and all of the documents
referred to above which have been or may be incorporated in this Prospectus by
reference, other than exhibits to such documents which are not specifically
incorporated by reference to such documents. Requests for such copies should
be directed to Borg-Warner Security Corporation, 200 South Michigan Avenue,
Chicago, Illinois 60604, telephone number (312) 322-8500.
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS UNDER
"PROSPECTUS SUMMARY", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS", IN ADDITION TO CERTAIN
STATEMENTS CONTAINED ELSEWHERE IN THIS PROSPECTUS, ARE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 AND ARE THUS PROSPECTIVE. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT
TO RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. THE MOST SIGNIFICANT OF SUCH RISKS, UNCERTAINTIES
AND OTHER FACTORS ARE DISCUSSED UNDER THE HEADING "RISK FACTORS", IN THIS
PROSPECTUS, AND HOLDERS OF THE OLD NOTES AND PROSPECTIVE INVESTORS IN THE
EXCHANGE NOTES ARE URGED TO CAREFULLY CONSIDER SUCH FACTORS.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements appearing elsewhere in this
Prospectus or incorporated herein by reference. The pro forma financial
information for 1996 included in this Prospectus gives effect to the Loomis
Fargo Combination and the Refinancing as if they had occurred on January 1,
1996 (in the case of income statement data) or on December 31, 1996 (in the
case of balance sheet data). As used herein, the "Refinancing" means the
completion of the offering of the Old Notes and the establishment of the New
Credit Facility, including application of the proceeds therefrom. See
"Description of Certain Indebtedness--New Credit Facility."
The Company
Borg-Warner Security Corporation ("Borg-Warner" or the
"Company") is the nation's largest provider of security services. The Company
is the nation's largest supplier of contract guard services and is a leading
provider of electronic security services. As a result of its significant
market presence and breadth of product offerings, the Company is well
positioned to service local, multi-location and national accounts and to
provide "Total Security Solutions" to its customers. In 1996, Borg-Warner had
pro forma revenues and EBITDA (as defined herein) of approximately $1.46
billion and $119 million, respectively.
The Company provides guard services, as well as background
screening, contract employment and investigative services, to approximately
14,000 clients in the United States, Canada, the United Kingdom and South
America. The Company services these clients with approximately 73,000
employees in approximately 280 offices under the Wells Fargo[Registered],
Burns[Registered], Globe[Registered] and other service marks. In 1996, the
physical security services unit had revenues of approximately $1.22 billion.
The Company provides integrated electronic security systems,
including intrusion and fire detection, sprinkler and critical industrial
process monitoring, closed circuit television and access control. From its
nationwide system of 12 monitoring centers and 40 service offices, the Company
designs, installs, monitors and services electronic security systems located
on the premises of approximately 83,000 commercial and 43,000 residential
customers in the United States and Canada under the Wells Fargo[Registered]
and Pony Express[Registered] service marks. The Company provides, under the
Bel-Air Patrol trade name, an integrated guard, patrol and alarm service to
approximately 12,000 customers in Bel Air, Beverly Hills and other Los Angeles
communities. In 1996, the electronic security services unit had revenues of
approximately $241 million.
In addition to its core physical and electronic security
service businesses conducted through wholly owned subsidiaries, the Company
has a 49% equity interest in Loomis, Fargo & Co. ("Loomis Fargo"), resulting
from the January 1997 combination of the Company's former subsidiary Wells
Fargo Armored Service Corporation ("Wells Fargo Armored") with Loomis Armored
Inc. (the "Loomis Fargo Combination" ). Loomis Fargo is one of the leading
armored transport companies nationwide and is the largest provider of ATM
services with over 150 branches, approximately 8,700 employees and 2,700
armored vehicles. Loomis Fargo serves all 50 states and Puerto Rico, and is
one of only two armored transport companies in the United States that provides
these services on a nationwide basis.
Business Strategy
The Company's business strategy is to maintain and enhance its position as
the nation's largest provider of security services. The key elements of this
strategy are as follows:
Market Segment Focus. The Company has targeted selected market
segments for increased penetration and development. These markets are
characterized by their growing needs for quality, highly reliable security
services and a willingness to recognize value added service and single point
responsibility for a full range of protective services. Inherent in the
Company's marketing strategy is pricing based on risk-adjusted rates of return
and targeted at improving the Company's overall profitability.
Total Security Solutions. In response to customer demand for
integrated security services with single point responsibility and the trend
toward outsourcing of security management needs, the Company has focused on
providing Total Security Solutions. The Company believes it is well positioned
to effectively and profitably provide Total Security Solutions to
multi-location and national accounts due to its nationwide network of offices
and support facilities. Management believes that the combination of the
Company's electronic and physical security services coupled with its equity
interest in Loomis Fargo provides a significant competitive advantage.
Customer and Employee Retention. Customer and employee
retention are the foundation for the Company's growth and profit
improvement strategies. The Company believes that customer retention is
related to employee retention. Based on extensive customer and employee
needs analysis, the Company has implemented a number of retention
improvement programs. In the physical security services unit, the Company
is establishing regional administrative service centers to improve both
quality and efficiency by standardizing best practices with appropriate
systems support. These improvements include the ability to recruit and
staff jobs promptly, to confirm on-time guard presence as well as adherence
to post requirements, and to communicate incidents to clients in a timely
and effective manner. The Company's electronic security services unit has
implemented programs to upgrade customer installation technology, to
provide enhanced monitoring technology at reduced cost, and to provide
incentives for its sales force to maximize contract renewals. Employee
programs start with recruiting where applicants are not only screened but
also profiled for optimal job assignments. Security officer training
focuses on client orientation, safety, job standards and communication.
The Company also conducts management training programs that emphasize
communication, employee relations and negotiating skills. To support these
efforts, employment "centers of excellence" are being opened to provide
recruiting and training programs. These efforts are reinforced by reward
incentives that recognize exemplary and continuing service to the customer.
Risk Management. The Company believes that significant
improvement in operating results of the business can be attained through
its risk management program. An effective program has been implemented at
national, regional and local levels to reduce workers' compensation costs.
The Company has also established similar programs focused on training and
safety awareness to mitigate employee and general liability claims. Of
equal importance is the Company's policy of pricing business in a manner
that is commensurate with the underlying risks.
Capitalize on Industry Consolidation. The protective services
industry is highly fragmented, consisting of a few national companies and
numerous small and regional companies. The Company believes that customer
demand for full service, financially stable security providers will drive the
protective services industry toward consolidation. The Company believes that
its management is skilled at identifying attractive acquisition candidates and
integrating acquisitions quickly and efficiently. Generally, the Company
acquires the customer base and operations employees of the acquired entity and
integrates the acquired company's operations into the Company's operations.
The Company typically experiences cost savings and productivity gains through
economies of scale and the leverage of the Company's operating systems.
Recent Developments
The Company combined its armored transport business with Loomis
Armored Inc. in January 1997. As consideration for the contribution of
substantially all the assets of Wells Fargo Armored, the Company received a
49% equity interest in Loomis Fargo, and approximately $105 million in cash
(net of transaction expenses, but subject to certain adjustments), and
retained casualty and employee liabilities of Wells Fargo Armored incurred
prior to closing. The Company accounts for its investment in Loomis Fargo
under the equity method. The Loomis Fargo Combination created a leading
armored transportation and ATM services company with broad geographic
coverage. Management of Loomis Fargo believes that upon successful completion
of its consolidation plan, the combined company will realize cost savings.
In the third quarter of 1996, the Company elected to treat its
Pony Express Courier business as a discontinued operation. As a result of this
decision, a non-cash charge of $25 million was incurred to provide for
anticipated future losses and liabilities.
In addition, on March 24, 1997, the Company completed the
Refinancing pursuant to which it offered and sold $125,000,000 aggregate
principal amount of its Old Notes (the "Old Note Offering") and replaced the
credit facility (the "Old Credit Facility") which then consisted of the $225
million revolving credit facility (the "Old Revolving Loan"), the $155 million
letter of credit facility (the "Old LC facility") and the $200 million term
loan maturing in 1998 (the "Old Term Loan") with a new credit facility (the
"New Credit Facility") consisting of up to a $155 million revolving facility
(the "New Revolving Facility"), and up to a $155 million letter of credit
facility subject to an overall limit on the aggregate amount at any time
outstanding under both facilities of $285 million (the "New Credit Facility").
The net proceeds from the Old Note Offering were approximately $120.4 million.
See "Description of Certain Indebtedness--New Credit Facility;--Old Notes."
The Old Note Offering
Old Notes............................ The Old Notes were offered and sold by
the Company in the Old Note Offering
on March 24, 1997, and were
subsequently resold to Qualified
Institutional Buyers (as defined in
Rule 144A under the Securities Act)
pursuant to Rule 144A under the
Securities Act, to a limited number of
institutional investors that are
Accredited Investors (as defined in
Rule 501(a)(1), (2), (3) or (7) under
the Securities Act) and in offshore
transactions complying with Rule 903
or Rule 904 of Regulation S under the
Securities Act.
Exchange Offer
Exchange Notes....................... Up to $125,000,000 aggregate
principal amount of 9 5/8% Series B
Senior Subordinated Notes due 2007
(the "Exchange Notes") of the
Company. The terms of the Exchange
Notes and the Old Notes are
identical in all respects, except
that the offer of the Exchange
Notes will have been registered
under the Securities Act and
therefore, the Exchange Notes will
not be subject to certain transfer
restrictions and registration
rights and related provisions for
an increase in the interest rate
payable on the Old Notes under
certain circumstances if the
Company defaults with respect to
its registration requirements under
the Registration Rights Agreement
applicable to the Old Notes.
Exchange Offer....................... The Company is offering, upon the
terms and subject to the conditions of
the Exchange Offer, to exchange $1,000
principal amount of Exchange Notes for
each $1,000 principal amount of Old
Notes. See "The Exchange Offer" for a
description of the procedures for
tendering Old Notes. In connection
with the Old Note Offering, the
Company entered into the Registration
Rights Agreement (the "Registration
Rights Agreement") dated as of March
24, 1997 among the Company and the
Initial Purchasers (as defined
herein), which grants holders of the
Old Notes certain exchange and
registration rights. The Exchange
Offer is intended to satisfy
obligations of the Company under the
Registration Rights Agreement. The
date of acceptance for exchange of the
Exchange Notes will be the first
business day following the Expiration
Date.
Tenders, Expiration Date; Withdrawal. The Exchange Offer will expire at 5:00
p.m., New York City time, on July
23, 1997, or such later date and
time to which it is extended. The
tender of Old Notes pursuant to the
Exchange Offer may be withdrawn at any
time prior to the Expiration Date.
Any Old Notes not accepted for
exchange for any reasons will be
returned without expense to the
tendering Holder thereof as promptly
as practicable after the expiration or
termination of the Exchange Offer.
Federal Income Tax Consequences...... The exchange pursuant to the Exchange
Offer will not result in any income,
gain or loss to the Holders of the
Notes or the Company for federal
income tax purposes. See "Exchange
Offer--United States Federal Income
Tax Consequences of the Exchange
Offer."
Use of Proceeds...................... There will be no proceeds to the
Company from the issuance of the
Exchange Notes pursuant to the
Exchange Offer.
Exchange Agent....................... The Bank of New York is serving as
Exchange Agent in connection with the
Exchange Offer.
Consequences of Exchanging Old Notes Pursuant to the Exchange Offer
The Company has not requested, and does not intend to request,
an interpretation by the staff of the Commission with respect to whether the
Exchange Notes issued pursuant to the Exchange Offer in exchange for the Old
Notes may be offered for sale, resold or otherwise transferred by any holder
without compliance with the registration and prospectus delivery provisions of
the Securities Act. Based on interpretations by the staff of the Commission
set forth in no-action letters issued to third parties, the Company believes
that Exchange Notes issued pursuant to the Exchange Offer in exchange for Old
Notes may be offered for resale, resold and otherwise transferred by any
holder of such Exchange Notes, other than broker-dealers which must sell in
accordance with the provisions set forth below and other than any holder that
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holder's business and such holder
has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. Any holder who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
or who is an affiliate of the Company may not rely on such interpretations by
the staff of the Commission and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
secondary resale transaction. Each broker-dealer (whether or not it is also
an "affiliate" of the Company) that receives Exchange Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
By executing the Letter of Transmittal, each holder of Old
Notes will represent to the Company that, among other things, (i) the Exchange
Notes acquired pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the person receiving such Exchange Notes,
whether or not such person is such holder, (ii) neither the holder of Old
Notes nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such Exchange Notes, (iii) if the
holder is not a broker-dealer, or is a broker-dealer but will not receive
Exchange Notes for its own account in exchange for Old Notes, neither the
holder nor any such other person is engaged in or intends to participate in
the distribution of such Exchange Notes and (iv) neither the holder nor any
such other person is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act or, if such Holder is an "affiliate," that such
Holder will comply with the registration and prospectus delivery requirements
of the Securities Act to the extent applicable. If the tendering Holder is a
broker-dealer (whether or not it is also an "affiliate") that will receive
Exchange Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities,
it will be required to acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See "Plan of
Distribution". To comply with the securities laws of certain jurisdictions,
it may be necessary to qualify for sale or register the Exchange Notes prior
to offering or selling such Exchange Notes. The Company does not currently
intend to take any action to register or qualify the Exchange Notes for resale
in any such jurisdictions.
Following the consummation of the Exchange Offer, holders of
Old Notes not tendered will not have any further registration rights and the
Old Notes will continue to be subject to certain restrictions on transfer. In
general, the Old Notes may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. Failure
to comply with such requirements in such instance may result in such Holder
incurring liability under the Securities Act for which such Holder is not
indemnified by the Company. See "Exchange Offer--Consequences of Failure to
Exchange."
Summary Description of the Notes
The terms of the Exchange Notes and the Old Notes are identical
in all respects, except that the offer of the Exchange Notes is registered
under the Securities Act and, therefore, the Exchange Notes will not be
subject to certain transfer restrictions, registration rights and related
provisions requiring an increase in the interest rate on the Old Notes under
certain circumstances if the Company defaults with respect to its registration
requirements under the Registration Rights Agreement applicable to the Old
Notes.
Exchange Notes Offered............... Up to $125,000,000 aggregate principal
amount of Exchange Notes of the
Company.
Maturity Date........................ March 15, 2007.
Interest Payment Dates............... March 15 and September 15, beginning
September 15, 1997. The Exchange
Notes will bear interest from March
24, 1997. Holders of Old Notes
whose Old Notes are accepted for
exchange will be deemed to have
waived the right to receive any
payment in respect of interest on
such Old Notes accrued from March
24, 1997 to the date of the
issuance of the Exchange Notes.
Consequently, holders who exchange
their Old Notes for Exchange Notes
will receive the same interest
payment on September 15, 1997 (the
first interest payment date with
respect to the Old Notes and the
Exchange Notes) that they would
have received had they not accepted
the Exchange Offer.
Optional Redemption.................. The Notes may be redeemed at the
option of the Company, in whole or
in part, at any time on or after
March 15, 2002, at the redemption
prices set forth herein together
with accrued and unpaid interest,
if any, to the date of redemption.
In addition, at any time prior to
March 15, 2000, the Company may
redeem up to 30% of the original
aggregate principal amount of the
Notes at a redemption price of
109.625% of the principal amount
thereof (together with accrued and
unpaid interest, if any, to the
date of redemption) with the net
cash proceeds of one or more Public
Equity Offerings (as defined
herein); provided that not less
than $87.5 million aggregate
principal amount of the Notes
remains outstanding immediately
after giving effect to such
redemption. See "Description of
the Notes--Optional Redemption."
Change of Control.................... Upon a Change of Control, subject to
certain conditions, each holder of
the Notes may require the Company
to purchase such holder's Notes at
101% of the principal amount
thereof, together with accrued and
unpaid interest, if any, to the
date of purchase. There can be no
assurance that the Company would
have sufficient cash to purchase
the Notes in the event a Change of
Control occurs. See "Description
of the Exchange Notes--Purchase of
Notes Upon Change of Control."
Ranking.............................. The Exchange Notes will be, and the
Old Notes are, unsecured obligations
of the Company subordinated in right
of payment and upon liquidation to all
existing and future Senior
Indebtedness of the Company, including
indebtedness under the New Credit
Facility. The Company is a holding
company and, accordingly, the Exchange
Notes will be, and the Old Notes are,
effectively subordinated to all
existing and future indebtedness of
the Company's subsidiaries. Subject to
certain restrictions contained in the
terms of the Company's indebtedness,
the Company may incur additional
Senior Indebtedness and the Company's
subsidiaries may incur additional
indebtedness in the future. As of
December 31, 1996, after giving pro
forma effect to the Loomis Fargo
Combination and the Refinancing, the
aggregate outstanding principal amount
of Senior Indebtedness (exclusive of
undrawn letters of credit of
approximately $128.8 million) of the
Company would have been approximately
$75.1 million and the aggregate
outstanding principal amount of
indebtedness (exclusive of obligations
in respect of undrawn letters of
credit of approximately $128.8
million) of the Company's subsidiaries
(including guarantees by certain of
the Company's subsidiaries of the
Company's obligations under the New
Credit Facility) would have been
approximately $83.3 million. In
addition, the Company has a $120
million non-recourse
receivables-backed facility available
on a revolving basis. As of December
31, 1996, there were also $150 million
aggregate principal amount of the
Company's 9 1/8% Notes outstanding
which rank pari passu in right of
payment and upon liquidation with the
Old Notes and will rank pari passu in
right of payment and upon liquidation
with the Exchange Notes. See "Risk
Factors--Subordination of
Notes;--Holding Company Structure,"
"Description of Certain Indebtedness
--Securitization of Receivables" and
"Description of the
Notes--Subordination."
Certain Covenants.................... The indenture governing the Exchange
Notes (the "Indenture") contains
certain restrictive covenants that,
among other things, limit the
ability of the Company and its
subsidiaries to: (i) incur
additional indebtedness; (ii)
create certain liens; (iii) pay
dividends or make investments or
certain other restricted payments;
(iv) engage in mergers,
consolidations or sales of all or
substantially all assets; (v)
engage in certain transactions with
affiliates; (vi) issue or sell
preferred stock of any subsidiary
of the Company; and (vii) create
restrictions on the ability of any
subsidiary of the Company to pay
dividends or make certain other
payments to the Company. All of
these limitations are subject to a
number of important qualifications.
See "Description of the Notes--
Certain Covenants."
Exchange Offer; Registration Rights.. In the event that applicable law or
interpretations of the staff of the
Securities and Exchange Commission
(the "Commission") do not permit
the Company to effect this Exchange
Offer or if certain holders of the
Old Notes notify the Company that
they are not permitted to
participate in, or would not
receive freely transferable
Exchange Notes pursuant to, the
Exchange Offer, or upon the request
of an Initial Purchaser (as defined
herein) under certain
circumstances, the Company will use
its best efforts to cause to become
effective by the 135th day after
the date of original issuance of
the Old Notes (the "Original Issue
Date") a registration statement
(the "Shelf Registration
Statement") with respect to the
resale of the Old Notes and to keep
the Shelf Registration Statement
effective until two years after its
effective date (or until one year
after such effective date if such
Shelf Registration Statement is
filed at the request of such
Initial Purchaser). The interest
rate on the Old Notes is subject to
increase under certain
circumstances if the Company
defaults with respect to its
registration obligations under the
Registration Rights Agreement. See
"Exchange Offer."
Lack of Prior Market for the
Exchange Notes....................... The Exchange Notes are being
offered to holders of the Old Notes.
The Old Notes were resold by the
Initial Purchasers to qualified
institutional buyers as defined in
Rule 144A of the Securities Act and to
a limited number of institutional
accredited investors within the
meaning of Rule 501(a)(1), (2), (3) or
(7) of the Securities Act, and are
eligible for trading in the Private
Offering, Resale and Trading through
the Automated Linkages (PORTAL)
Market. The Exchange Notes will be
new securities for which there is
currently no established trading
market, and none may develop. Although
the Initial Purchasers are making a
market in the Old Notes and have
indicated to the Company that they
currently intend to make a market in
the Exchange Notes, as permitted by
applicable laws and regulations, they
are under no obligation to do so; and
such market-making could be
discontinued at any time without
notice, at the sole discretion of the
Initial Purchasers. In addition, such
market making activities may be
limited during the Exchange Offer and
the pendency of a Shelf Registration
Statement. Accordingly, no assurance
can be given that an active trading
market for the Exchange Notes will
develop or, if such a market develops,
as to the liquidity of such market.
The Company intends to apply for
listing of the Exchange Notes on the
New York Stock Exchange. If the
Exchange Notes, are traded after their
initial issuance, they may trade at a
discount from their initial offering
price, depending upon prevailing
interest rates, the market for similar
securities, the performance of the
Company and certain other factors.
Risk Factors
See "Risk Factors" for a discussion of certain factors which
should be considered in connection with the Exchange Offer or an investment in
the Exchange Notes.
SUMMARY CONSOLIDATED HISTORICAL AND
PRO FORMA FINANCIAL INFORMATION
The following summary Consolidated Financial Information for
the Company for the five years ended December 31, 1996 has been derived
from the Consolidated Financial Statements of the Company for such periods
which have been audited. Such information treats as discontinued
operations for all periods presented Borg-Warner Automotive, Inc. ("BW
Automotive"), which was spun-off in January 1993, and the Company's courier
unit, which has been treated as a discontinued operation since September
1996. The summary Consolidated Financial Information should be read in
conjunction with the Consolidated Financial Statements of the Company and
the notes thereto included elsewhere in this Prospectus.
The pro forma financial information for 1996 has been derived
from the unaudited Pro Forma Financial Data and the related notes thereto
included elsewhere in this Prospectus and gives effect to the Loomis Fargo
Combination and the Refinancing, as if they had occurred on January 1, 1996
(in the case of income statement data) or as of December 31, 1996 (in the case
of balance sheet data).
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------
1996 Pro
1992 1993 1994 1995 1996 Forma
--------------------------------------------------------------------------------
(millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
Statement of Earnings Data:
Net service revenues.................... $1,457.9 $1,592.1 $1,626.8 $1,708.5 $1,711.2 $1,464.9
Cost of services........................ 1,121.8 1,241.2 1,289.4 1,359.3 1,360.2 1,155.7
-------- -------- -------- -------- -------- --------
Gross profit............................ 336.1 350.9 337.4 349.2 351.0 309.2
Selling, general and administrative
expenses.............................. 210.7 187.1 220.2 212.5 210.6 189.9
Depreciation............................ 46.7 50.5 52.8 52.1 47.0 39.9
Amortization of excess of purchase
price over net assets acquired........ 20.2 15.2 14.8 13.4 13.4 11.9
Other income, net(1).................... (17.2) (3.1) (9.8) -- -- (3.8)
-------- -------- -------- -------- -------- --------
Operating income........................ 75.7 101.2 59.4 71.2 80.0 71.3
Non-recurring elimination of excess
purchase price over net assets
acquired(2)........................... -- 250.0 -- -- -- --
Interest expense and finance charges.... 46.4 49.9 48.8 55.9 56.6 44.4
-------- -------- -------- -------- -------- --------
Earnings (loss) before taxes............ 29.3 (198.7) 10.6 15.3 23.4 26.9
Provision (benefit) for income taxes.... (23.6) 19.5 (3.2) 6.9 9.5 9.4
-------- -------- -------- -------- -------- --------
Earnings (loss) from continuing
operations............................ 52.9 (218.2) 13.8 8.4 13.9 17.5
Certain Financial Ratios and Other
Data:
EBITDA(3)............................... 142.6 166.9 127.0 136.7 140.4 119.3
Capital expenditures and investments in
sales-type leases..................... 65.6 62.3 59.4 47.8 40.7 (4) 32.6 (4)
Ratio of EBITDA to interest expense..... 3.1x 3.3x 2.6x 2.4x 2.5x 2.7x
Ratio of earnings to fixed charges(5)... 1.6x 1.9x 1.2x 1.2x 1.4x 1.5x
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1996
-----------------------------
Historical Pro Forma
---------- ---------
(millions of dollars)
<S> <C> <C>
Balance Sheet Data:
Working capital......................................................................... $(11.0) $(19.5)
Total assets............................................................................ 760.8 676.0
Total long-term debt, excluding current maturities(6)................................... 438.2 352.9
Stockholders' equity.................................................................... 41.2 41.2
<FN>
- -------------
(1) For the years ended December 31, 1992, 1993 and 1994 other income
consisted of interest income, gains on asset dispositions and royalty
income. For the pro forma year ended 1996, other income consisted of the
equity in earnings of Loomis Fargo.
(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) EBITDA consists of earnings (loss) before interest expense, minority
interests, income taxes, depreciation, amortization and equity in earnings
of unconsolidated subsidiaries. EBITDA is commonly used to analyze
companies on the basis of operating performance, leverage and liquidity.
While EBITDA should not be construed as a substitute for operating income
or a better measure of liquidity than cash flow from operating activities,
which are determined in accordance with generally accepted accounting
principles, it is included herein to provide additional information with
respect to the ability of the Company to meet future debt service, capital
expenditures and working capital requirements.
(4) Capital expenditures and investments in sales-type leases for the
historical and pro forma year ended December 31, 1996 includes sales-type
leases that were sold to a third party for $10.4 million.
(5) For the purposes of calculating the ratio of earnings to fixed charges,
earnings represent income (loss) before income taxes plus fixed charges.
Fixed charges consist of interest expense on all indebtedness plus the
interest portion of rental expense on noncancelable leases, and
amortization of debt issuance costs and debt discount. The calculation for
the year ended December 31, 1993 excludes the non-recurring elimination of
excess purchase price over net assets acquired.
(6) Total long-term debt does not include amounts available to be drawn under
issued and outstanding letters of credit, which as of December 31, 1996
were $136.3 million ($128.8 million pro forma), or amounts outstanding
under the Company's non-recourse receivables-backed facility, which as of
December 31, 1996 were $120 million.
</TABLE>
RISK FACTORS
In addition to other information set forth in this Prospectus,
prospective investors should carefully consider the risk factors set forth
below before accepting the Exchange Offer or investing in the Exchange Notes.
Indebtedness and Leverage of the Company
The Company has a significant amount of debt. As of December
31, 1996, on a pro forma basis, after giving effect to the Loomis Fargo
Combination and the Refinancing, the Company's total debt would have been
approximately $356.7 million (exclusive of approximately $128.8 million of
undrawn letters of credit) and the Company's stockholders' equity would have
been $41.2 million. Subject to certain restrictions contained in the Company's
debt instruments, the Company may issue additional indebtedness in the future.
See "Description of Certain Indebtedness" and "Description of the Notes."
The degree to which the Company is leveraged could have
important consequences on the Company's operations, including (i) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate purposes or
other purposes may be limited; (ii) a significant portion of the Company's
cash flow from operations must be dedicated to the payment of principal and
interest on its indebtedness, thereby reducing the funds available to the
Company for its operations; (iii) certain of the Company's borrowings are and
will continue to be at variable rates of interest, which could result in
higher interest expenses in the event of increases in interest rates; and (iv)
such indebtedness contains and will contain restrictive financial covenants,
the failure to comply with which may result in an event of default which, if
not cured or waived, could have a material adverse effect on the Company. See
"Description of Certain Indebtedness" and "Description of the Notes."
The Company's ability to make scheduled payments or to
refinance its obligations with respect to its indebtedness depends on its
financial and operating performance, which, in turn, is subject to prevailing
economic conditions and to financial, business and other factors beyond its
control. Although the Company's cash flow from its operations has been
sufficient to meet its debt service obligations, there can be no assurance
that the Company's operating results will continue to be sufficient for
payment of the Company's indebtedness. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Financial Position,
Capital Resources and Liquidity."
The New Credit Facility, the 9 1/8% Note Indenture and the
Indenture contain numerous financial and operating covenants that limit the
discretion of the Company's management with respect to certain business
matters. These covenants place significant restrictions on, among other
things, the ability of the Company to incur additional indebtedness, to create
liens or other encumbrances, to make capital expenditures, acquisitions and
investments, to make certain payments and to sell or otherwise dispose of
assets and merge or consolidate with other entities. See "Description of
Certain Indebtedness--New Credit Facility;--9 1/8% Notes" and "Description of
the Notes--Certain Covenants." The New Credit Facility also requires the
Company to meet certain financial ratios and tests. A failure to comply with
the covenants contained in the New Credit Facility, the 9 1/8% Note Indenture
or the Indenture could result in an event of default under the New Credit
Facility, the 9 1/8% Note Indenture or the Indenture, respectively, which
could permit acceleration of the related debt and acceleration of debt under
other instruments that may contain cross-acceleration or cross-default
provisions. See "Description of Certain Indebtedness--New Credit Facility;--9
1/8% Notes" and "Description of the Notes--Events of Default."
In addition, the Company finances accounts receivable pursuant
to a $120 million non-recourse receivables-backed facility available on a
revolving basis. The revolving period under this facility ends no later than
December 31, 1998 with final payment anticipated in April 1999. If the Company
were not able to extend or replace this facility at or prior to such time, it
might have to incur additional indebtedness to finance its operations. See
"Description of Certain Indebtedness--Securitization of Receivables."
Subordination of Notes
The Exchange Notes will be and the Old Notes are unsecured
obligations of the Company subordinated in right of payment and upon
liquidation to all existing and future Senior Indebtedness of the Company,
including indebtedness under the New Credit Facility. Subject to certain
restrictions contained in the terms of the Company's indebtedness, the
Company may incur additional Senior Indebtedness in the future. As of
December 31, 1996, after giving pro forma effect to the Loomis Fargo
Combination and the Refinancing, the aggregate outstanding principal amount
of Senior Indebtedness (exclusive of undrawn letters of credit of
approximately $128.8 million) of the Company would have been approximately
$75.1 million. As of December 31, 1996, there were also $150 million
aggregate principal amount of the Company's 9 1/8% Notes outstanding which
rank pari passu in right of payment and upon liquidation with the Old Notes
and will rank pari passu in right of payment and upon liquidation with the
Exchange Notes. See "--Holding Company Structure" and "Description of the
Notes--Subordination."
In the event of the liquidation, dissolution, reorganization or
any similar proceeding regarding the Company, the assets of the Company will
be available to pay obligations on the Notes only after the Senior
Indebtedness of the Company has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on all or any of the Notes. The
Old Notes rank and the Exchange Notes will rank pari passu with the Company's
obligations under the 9 1/8% Notes upon the liquidation, dissolution,
reorganization or any similar proceeding regarding the Company. In addition,
the Company may not pay principal of, premium, if any, or interest on the
Notes or purchase, redeem or otherwise retire the Notes, if any principal,
premium, if any, or interest on any Specified Senior Indebtedness (as defined
herein) is not paid when due (whether at final maturity, upon scheduled
installment, acceleration or otherwise) unless such default has been cured or
waived or such Specified Senior Indebtedness has been repaid in full. In
addition, under certain circumstances, if any non-payment default exists with
respect to Specified Senior Indebtedness pursuant to which the maturity
thereof may be accelerated, the Company may not be permitted to make any
payments on the Notes for a specified period of time, unless such default is
cured or waived or such Specified Senior Indebtedness has been repaid in full.
See "Description of the Notes--Subordination."
Holding Company Structure
The Company is a holding company that derives all of its
operating income and cash flow from its subsidiaries. Generally, claims of
creditors of a subsidiary, including trade creditors, secured creditors and
creditors holding indebtedness and guarantees issued by such subsidiary, and
claims of preferred stockholders (if any) of such subsidiary will have
priority with respect to the assets and earnings of such subsidiary over the
claims of creditors of its parent company, except to the extent the claims of
creditors of the parent company are guaranteed by such subsidiary. No
guarantees of the Notes are provided by any person in connection with the
offering of the Exchange Notes and, except to the limited extent provided for
in the Indenture, there will be no guarantees of the Notes in the future. The
Notes, therefore, will be effectively subordinated to creditors (including
trade creditors) and preferred stockholders (if any) of the direct and
indirect subsidiaries of the Company. At December 31, 1996, on a pro forma
basis after giving effect to the Loomis Fargo Combination and the Refinancing,
the aggregate outstanding principal amount of indebtedness (exclusive of
obligations in respect of undrawn letters of credit of approximately $128.8
million) of the Company's subsidiaries (including guarantees by certain of the
Company's subsidiaries of the Company's obligations under the New Credit
Facility) would have been approximately $83.3 million. Although the Indenture
and the Notes contain limitations on the amount of additional indebtedness
that the Company's subsidiaries may incur, under certain circumstances such
indebtedness could be substantial. Moreover, neither the Indenture nor the
Notes imposes any limitation on the incurrence by such subsidiaries of
liabilities that are not considered Indebtedness under the Indenture or the
Notes. See "Description of the Notes--Certain Covenants--Limitation on
Indebtedness."
As a holding company, the Company's operating cash flow and its
ability to service its indebtedness, including the Notes, is dependent upon
the operating cash flow of its subsidiaries and the payment of funds by such
subsidiaries to the Company in the form of loans, dividends or otherwise. The
Company's subsidiaries have no obligation, contingent or otherwise, to pay any
amounts due pursuant to the Notes or to make any funds available therefor.
Asset Encumbrances; Change of Control Offer
In addition to being subordinated to all existing and future
Senior Indebtedness of the Company, the Exchange Notes will not be secured by
any of the Company's assets. The obligations of the Company under the New
Credit Facility are secured by pledges of certain intercompany indebtedness,
all the outstanding stock of certain of the Company's U.S. subsidiaries, 65%
of the outstanding stock of certain of the Company's non-U.S. subsidiaries and
all of the stock of Loomis Fargo owned by the Company. If the Company becomes
insolvent or is liquidated, or if payment of obligations under the New Credit
Facility is accelerated, the lenders under the New Credit Facility would be
entitled to exercise the remedies available to a secured lender under
applicable law and pursuant to such agreement. Accordingly, such lenders will
have a prior claim with respect to such assets. See "Description of Certain
Indebtedness--New Credit Facility."
Upon a Change of Control, the Company is required to offer to
purchase all outstanding Notes. The Company, in such a circumstance, would
also be required to offer to purchase the 9 1/8% Notes. In addition, such a
Change of Control would result in an event of default under the New Credit
Facility, which may result in the acceleration of the Company's obligations
thereunder. In the case of any offer to purchase the outstanding Notes upon a
Change of Control, there can be no assurance that the Company would be able to
repay amounts outstanding under the New Credit Facility or obtain waivers
necessary to consummate a purchase of the Notes. Any such requirement to offer
to purchase outstanding Notes may result in the Company having to refinance
the indebtedness then outstanding under the New Credit Facility and to obtain
the funds necessary to offer to purchase both the Notes and the 9 1/8% Notes.
There can be no assurance that the Company would be able to refinance such
indebtedness or obtain such funds or, if it were to do so, that such
refinancing or such funds would be available on terms favorable to the
Company. See "Description of Certain Indebtedness--New Credit Facility;--9
1/8% Notes" and "Description of the Notes--Purchase of Notes Upon Change of
Control."
Employee Retention and Labor Costs
The Company's business is labor intensive and, accordingly,
is affected by the availability of qualified personnel and the cost of
labor. Contraction of the labor market in the various regions of the
United States where the Company has its principal operations, whether
caused by high economic growth in such regions or any other factors, may
increase the Company's direct costs through higher wages and increased
amounts of unbilled overtime. Employee turnover can result in increased
recruiting, screening and training costs, and affect the quality of service
performed by the Company. In addition, while the Company's customer
agreements typically adjust the billing rate based on changes in any law,
ruling or collective bargaining agreement causing changes in wage rates or
other costs, competitive pricing conditions in the industry may constrain
the Company's ability to adjust its billing rates to reflect such increased
costs. See "Business--Employees."
Liability Claims and Insurance Coverage
The nature of the Company's services 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. The Company carries insurance of various types, including
workers' compensation, automobile and general liability coverage. These
policies include deductibles per occurrence for which the Company is
self-insured. While the Company seeks to maintain appropriate levels of
insurance, there can be no assurance that the Company will avoid significant
future catastrophic claims or adverse publicity related thereto. There can be
no assurance that the Company's insurance will be adequate to cover the
Company's liabilities or that such insurance coverage will remain available at
acceptable costs. A successful claim brought against the Company for which
coverage is denied or which is in excess of its insurance coverage could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Risk Management."
Competition in the Industry
The protective services industry generally is highly fragmented
and very competitive. The Company's physical security services unit competes
in a business environment with low barriers to entry, while the electronic
security services unit competes in a business environment characterized by
relatively high capital investment due to the equipment and technology
required. Consequently, the Company's business is subject to additional
competition and the introduction of new technology or enhancements to existing
technology. Some of the Company's competitors are materially larger than the
Company and have greater access to financial and other resources available to
them. Given the Company's high degree of leverage and the restrictions on
capital spending contained in the New Credit Facility, there can be no
assurance that the Company will be able to maintain levels of spending
required to provide customers with advanced technological equipment. See
"Business--Competition" and "Description of Certain Indebtedness--New Credit
Facility."
Governmental Regulation
Due to the nature of the Company's security services business,
its operations are subject to a variety of federal, state, county and
municipal laws, regulations and licensing requirements. Changes in such laws,
regulations and licensing requirements may constrain the Company's ability to
provide services to customers or increase the costs of such services.
Competitive pricing conditions in the industry may constrain the Company's
ability to adjust its billing rates to reflect such increased costs. See
"Business--Regulation."
Certain Liabilities for Discontinued Operations
The Company and certain of its current and former subsidiaries
have been identified as potentially responsible parties for environmental
cleanups at previously owned or operated sites and at third party hazardous
waste disposal sites and, as such, may be liable for the costs of cleanup and
other remedial activities at these sites or for claims for natural resource or
property damage or injury to human health caused by contamination at such
sites. The Company has discontinued or disposed of a number of businesses in
prior years, including the Company's industrial products business and BWAC
Inc. subsidiary disposed of in 1987, the Company's chemicals and plastics
business disposed of in 1988, the Company's information services segment
disposed of in 1989, the operations of BW Automotive spun-off in 1993 and the
Wells Fargo Armored business contributed to Loomis Fargo in 1997. Pursuant to
the various transaction agreements, certain of the environmental and other
liabilities relating to discontinued or disposed of businesses of the Company
are the responsibility of the Company and others are the responsibility of
other parties to the transactions. The Company has made provisions in its
financial statements for liabilities relating to environmental matters with
respect to discontinued or disposed of operations in the aggregate amount of
approximately $9 million. See "Business--Legal Proceedings."
In addition, in the third quarter of 1996, the Company elected
to treat its courier services unit as a discontinued operation and incurred a
non-cash charge of $25 million to provide for future losses and liabilities.
No assurance can be given that the Company will not incur losses or
liabilities related to its courier services unit in excess of such reserve.
See "Business--Discontinued Operations."
Additionally, Centaur Insurance Company ("Centaur"), a
discontinued property and casualty insurance subsidiary, has been operating
under rehabilitation since September 1987, a process which has resulted in one
pending lawsuit against the Company seeking substantial amounts for recovery
of alleged damages from the failure of Centaur to satisfy its reinsurance
obligations. See "Business--Legal Proceedings."
Although the Company believes that none of these matters will
have a material adverse effect on its financial position or future operating
results, no assurance can be given as to the ultimate outcome with respect to
such liabilities. See "Business--Legal Proceedings."
Control of the Company
Certain affiliates (the "ML Entities") of Merrill Lynch & Co.,
a Delaware corporation ("Merrill Lynch"), control approximately 46% of the
voting power of the Company. See "Principal Shareholders." Accordingly, in the
event the ML Entities vote in concert in connection with matters submitted to
a stockholder vote, such as the election of the Company's Board of Directors,
they may be able to determine the outcome of such matters and control the
direction and future operations of the Company.
A "change of control," as defined in various agreements,
including the New Credit Facility, the 9 1/8% Note Indenture and the
Indenture, would impose substantial financial obligations on the Company and
would require the Company to refinance substantial amounts of its
indebtedness. A "change of control", as defined in the New Credit Facility,
would be an event of default thereunder, permitting the lenders under the New
Credit Facility to accelerate the Company's payment obligations thereunder,
and a "change of control", as defined in the 9 1/8% Note Indenture and the
Indenture, would require the Company to make an offer to purchase all of the
outstanding 9 1/8% Notes and the Notes. See "--Asset Encumbrances; Change of
Control Offer", "Description of Certain Indebtedness--New Credit Facility;--9
1/8% Notes" and "Description of the Notes--Purchase of Notes Upon Change of
Control."
Lack of Prior Market for the Exchange Notes
The Exchange Notes are being offered to the Holders of the Old
Notes. The Old Notes were offered and sold in March 1997 to "Qualified
Institutional Buyers" and to a limited number of other institutional
"Accredited Investors" (as defined in Rule 144A and Rule 501(a) (1), (2), (3)
or (7) under the Securities Act, respectively) and in offshore transactions
complying with Rule 903 or Rule 904 of Regulation S under the Securities Act
and are eligible for trading in the Private Offerings, Resale and Trading
through Automated Linkages ("PORTAL") Market.
The Exchange Notes will be new securities for which there is
currently no established trading market, and none may develop. Although the
Initial Purchasers are making a market in the Old Notes and have indicated to
the Company that they currently intend to make a market in the Exchange Notes,
as permitted by applicable laws and regulations, they are under no obligation
to do so; and such market-making could be discontinued at any time, without
notice, at the sole discretion of the Initial Purchasers. In addition, such
market making activities may be limited during the Exchange Offer and the
pendency of the Shelf Registration Statement. Moreover, if Merrill Lynch,
Pierce, Fenner & Smith Incorporated conducts any market making activities in
respect of the Exchange Notes, it may be required to deliver a "market-making
prospectus" when effecting offers and sales in the Exchange Notes because of
the equity ownership of affiliates of Merrill Lynch (in the aggregate, the ML
Entities control approximately 46% of the voting power of the Company). For
so long as a market-making prospectus is required to be delivered, the ability
of Merrill Lynch, Pierce, Fenner & Smith Incorporated to make a market in the
Exchange Notes may in part be dependent on the ability of the Company to
maintain a current market-making prospectus. Accordingly, no assurance can be
given that an active trading market for the Exchange Notes will develop or, if
such a market develops, as to the liquidity of such market. The Company
intends to apply for listing of the Exchange Notes on the New York Stock
Exchange. If the Exchange Notes, are traded after their initial issuance, they
may trade at a discount from their initial offering price, depending upon
prevailing interest rates, the market for similar securities, the performance
of the Company and certain other factors.
Consequences of Failure to Exchange
Holders of Old Notes who do not exchange their Old Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject
to the restrictions on transfer of such Old Notes as set forth in the
legend thereon. In general, the Old Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to the Securities Act and applicable
state securities laws. The Company does not intend to register the Old
Notes under the Securities Act. The Company believes that, based upon
interpretations contained in letters issued to third parties by the staff
of the SEC, Exchange Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by each Holder thereof (other than a broker-dealer, as set
forth below, and any such Holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities
Act provided that such Exchange Notes are acquired in the ordinary course
of such Holder's business and such Holder has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes. Eligible Holders wishing to accept the Exchange Offer must
represent to the Company in the Letter of Transmittal that (i) the Exchange
Notes acquired pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the person receiving such Exchange Notes,
whether or not such person is such holder, (ii) neither the holder of Old
Notes nor any such other person has an arrangement or understanding with
any person to participate in the distribution of such Exchange Notes, (iii)
if the holder is not a broker-dealer or is a broker-dealer but will not
receive Exchange Notes for its own account in exchange for Old Notes,
neither the holder nor any such other person is engaged in or intends to
participate in a distribution of the Exchange Notes and (iv) neither the
holder nor any such other person is an "affiliate" of the Company within
the meaning of Rule 405 or if such holder is an "affiliate", that such
holder will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. Each broker-
dealer (whether or not it is also an "affiliate,") that receives Exchange
Notes for its own account pursuant to the Exchange Offer must represent
that the Old Notes tendered in exchange therefor were acquired as a result
of market-making activities or other trading activities and must
acknowledge that it will deliver a prospectus in connection with any resale
of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with the resales
of Exchange Notes received in exchange for Old Notes where such Old Notes
were acquired by such broker-dealer as a result of market-making activities
or other trading activities. The Company has agreed that, for a period of
180 days after the Expiration Date (as defined herein), it will make this
Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution." However, to comply with the
securities laws of certain jurisdictions, if applicable, the Exchange Notes
may not be offered or sold unless they have been registered or qualified
for sale in such jurisdiction or an exemption from registration or
qualification is available and is complied with. The Company does not
currently intend to take any action to register or qualify the Exchange
Notes for resale in any such jurisdictions.
In the event the Exchange Offer is consummated, the Company
will not be required to register the transfer of the Old Notes under the
Securities Act or any applicable securities laws. In such event, holders of
Old Notes seeking liquidity in their investment would have to rely on
exemptions to the registration requirements under such laws. The Old Notes
currently may be sold to "Qualified Institutional Buyers" and to a limited
number of other institutional "Accredited Investors" (as defined in Rule 144A
and Rule 501(a) (1), (2), (3) or (7) under the Securities Act, respectively)
and in offshore transactions complying with Rule 903 or Rule 904 of Regulation
S under the Securities Act or pursuant to another available exemption under
the Securities Act without registration under the Securities Act. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, the
reduction in the principal amount of Old Notes outstanding could have an
adverse effect upon, and increase the volatility of the market price for, the
untendered and tendered but unaccepted Old Notes
Exchange Offer Procedures
To participate in the Exchange Offer, and avoid the
restrictions on Old Notes, each Holder of Old Notes must transmit a
properly completed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to the Bank of New York (the
"Exchange Agent") at the address set forth below under "Exchange Agent" on
or prior to the Expiration Date. In addition, (i) certificates for such
Old Notes must be received by the Exchange Agent along with the Letter of
Transmittal, (ii) a timely confirmation of a book-entry transfer (a "Book-
Entry Confirmation") of such Old Notes, if such procedure is available,
into the Exchange Agent's account at The Depository Trust Company (the
"Book-entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to
the Expiration Date or (iii) the Holder must comply with the guaranteed
delivery procedures. See "The Exchange Offer."
CAPITALIZATION
The following table sets forth the historical capitalization
of the Company as of December 31, 1996 and the pro forma capitalization of
the Company as of such date after giving effect to the Loomis Fargo
Combination and the Refinancing. The column headed "Actual" should be read
in conjunction with the historical financial statements of the Company,
including the related notes thereto, appearing elsewhere in this Prospectus
and the column headed "Pro Forma" should be read in conjunction with the
unaudited Pro Forma Financial Data, including the related notes thereto,
appearing elsewhere in this Prospectus.
As of December 31, 1996
---------------------------
Actual Pro Forma
------ ---------
(millions of dollars)
Cash and cash equivalents............ $ 17.8 $ 17.8
====== ======
Short-term debt:
Notes payable....................... $4.4 $3.8
====== ======
Long-term debt:(1)
Old Revolving Loan.................. $ 86.8 $ --
Old Term Loan(2).................... 196.8 --
New Revolving Facility.............. -- 75.1
9 1/8% Senior Subordinated Notes.... 149.2 149.2
Notes............................... -- 124.2
Other long-term debt................ 5.4 4.4
------ ------
438.2 352.9
------ ------
Stockholders' equity:
Common stock........................ 0.2 0.2
Other stockholders' equity.......... 41.0 41.0
------ ------
41.2 41.2
------ ------
Total capitalization.............. $479.4 $394.1
====== ======
- -----------
(1) Long-term debt does not include amounts available to be drawn under
issued and outstanding letters of credit, which as of December 31, 1996
were $136.3 million ($128.8 million pro forma), or amounts outstanding
under the Company's non-recourse receivables-backed facility, which as
of December 31, 1996 were $120 million. See "Description of Certain
Indebtedness."
(2) In January 1997, the principal amount outstanding under the Old Term Loan
was reduced with the proceeds from the Loomis Fargo Combination.
SELECTED FINANCIAL DATA
Set forth below is certain selected historical consolidated
financial data for the Company as of and for the five fiscal years ended
December 31, 1996. The selected historical consolidated financial data as of
and for the five fiscal years indicated were derived from the financial
statements of the Company which were audited by Deloitte & Touche LLP,
independent auditors, and treat as discontinued operations for all periods
presented BW Automotive, which was spun-off in January 1993, and the Company's
courier unit, which has been treated as a discontinued operation since
September 1996. The selected historical financial data set forth below should
be read in conjunction with the Consolidated Financial Statements of the
Company and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1992 1993 1994 1995 1996
----------------------------------------------------------------
(millions of dollars)
<S> <C> <C> <C> <C> <C>
Statement of Earnings Data:
Net service revenues..................... $1,457.9 $1,592.1 $1,626.8 $1,708.5 $1,711.2
Cost of services......................... 1,121.8 1,241.2 1,289.4 1,359.3 1,360.2
-------- -------- -------- -------- --------
Gross profit............................. 336.1 350.9 337.4 349.2 351.0
Selling, general and administrative
expenses............................... 210.7 187.1 220.2 212.5 210.6
Depreciation............................. 46.7 50.5 52.8 52.1 47.0
Amortization of excess of purchase
price over net assets acquired......... 20.2 15.2 14.8 13.4 13.4
Other income, net (1).................... (17.2) (3.1) (9.8) -- --
-------- -------- -------- -------- --------
Operating income......................... 75.7 101.2 59.4 71.2 80.0
Non-recurring elimination of excess
purchase price over net assets
acquired (2)........................... -- 250.0 -- -- --
Interest expense and finance charges..... 46.4 49.9 48.8 55.9 56.6
-------- -------- -------- -------- --------
Earnings (loss) before taxes............. 29.3 (198.7) 10.6 15.3 23.4
Provision (benefit) for income taxes..... (23.6) 19.5 (3.2) 6.9 9.5
-------- -------- -------- -------- --------
Earnings (loss) from continuing
operations............................. 52.9 (218.2) 13.8 8.4 13.9
Certain Financial Ratios and Other
Data:
EBITDA (3)............................... 142.6 166.9 127.0 136.7 140.4
Capital expenditures and investments in
sales-type leases...................... 65.6 62.3 59.4 47.8 40.7 (4)
Ratio of EBITDA to interest expense...... 3.1x 3.3x 2.6x 2.4x 2.5x
Ratio of earnings to fixed charges (5)... 1.6x 1.9x 1.2x 1.2x 1.4x
Balance Sheet Data:
Working capital.......................... $(62.9) $(37.3) $(27.9) $(6.9) $(11.0)
Total assets............................. 1,742.7 773.5 811.6 838.5 760.8
Total long-term debt, excluding current
maturities (6)......................... 714.1 443.6 450.2 480.9 438.2
Stockholders' equity..................... 676.7 27.5 43.8 49.7 41.2
<FN>
- ------------
(1) For the years ended December 31, 1992, 1993 and 1994 other income
consisted of interest income, gains on asset dispositions and royalty
income.
(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) EBITDA consists of earnings (loss) before interest expense, minority
interests, income taxes, depreciation, amortization and equity in
earnings of unconsolidated subsidiaries. EBITDA is commonly used to
analyze companies on the basis of operating performance, leverage and
liquidity. While EBITDA should not be construed as a substitute for
operating income or a better measure of liquidity than cash flow from
operating activities, which are determined in accordance with
generally accepted accounting principles, it is included herein to
provide additional information with respect to the ability of the
Company to meet future debt service, capital expenditures and working
capital requirements.
(4) Capital expenditures and investments in sales-type leases for the year
ended December 31, 1996 includes sales-type leases that were sold to a
third party for $10.4 million.
(5) For the purposes of calculating the ratio of earnings to fixed
charges, earnings represent income (loss) before income taxes plus
fixed charges. Fixed charges consist of interest expense on all
indebtedness plus the interest portion of rental expense on
noncancelable leases, and amortization of debt issuance costs and debt
discount. The calculation for the year ended December 31, 1993
excludes the non-recurring elimination of excess purchase price over net
assets acquired.
(6) Total long-term debt does not include amounts available to be drawn under
issued and outstanding letters of credit, which as of December 31, 1996
were $136.3 million, or amounts outstanding under the Company's
non-recourse receivables-backed facility, which as of December 31, 1996
were $120 million.
</TABLE>
PRO FORMA FINANCIAL DATA (UNAUDITED)
The following unaudited Pro Forma Financial Data are based on
the historical financial statements of the Company and reflect the Loomis
Fargo Combination and the Refinancing. The accompanying unaudited Pro Forma
Consolidated Statement of Operations for the year ended December 31, 1996
gives effect to the transactions referred to above as if they had been
consummated on January 1, 1996. The unaudited Pro Forma Consolidated Balance
Sheet at December 31, 1996 gives effect to the transactions referred to above
as if they had been consummated as of that date.
While the Company anticipates that it will recognize a gain
from the sale of Wells Fargo Armored unit's net assets, the ultimate gain is
subject to potential purchase price adjustments and other contingencies, the
amounts of which have not been finalized at this time. However, the Company
does not anticipate that the gain will be material, and the Company does not
expect any material nonrecurring charges or credits to result from the Loomis
Fargo Combination.
The unaudited Pro Forma Financial Data is intended for
informational purposes only and is not necessarily indicative of the future
results of operations or financial position of the Company had the
transactions described above occurred on the indicated dates or been in effect
for the periods presented.
The unaudited Pro Forma Financial Data and the accompanying
notes should be read in conjunction with the historical Consolidated Financial
Statements of the Company, including the related notes thereto, appearing
elsewhere in this Prospectus.
BORG-WARNER SECURITY CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1996
(millions of dollars)
<TABLE>
<CAPTION>
Pro Forma
Adjustments for
the Loomis Pro Forma
Fargo Adjustments for
Historical Combination (a) the Refinancing Pro Forma
---------- --------------- ----------------- ---------
<S> <C> <C> <C> <C>
Net service revenues..................... $1,711.2 $(246.3) $1,464.9
Cost of services......................... 1,360.2 (204.5) 1,155.7
Selling, general and
administrative expenses.................. 210.6 (20.7) 189.9
Depreciation............................. 47.0 (7.1) 39.9
Amortization of excess purchase
price over net assets acquired.......... 13.4 (1.5) 11.9
Other income............................. -- 3.8 (e) -- 3.8
Interest expense and
finance charges......................... 56.6 (9.1)(b) (3.1)(c) 44.4
-------- ------- ------ --------
Earnings before income taxes............. 23.4 0.4 3.1 26.9
Provisions for income taxes.............. 9.5 (1.3)(d) 1.2 (d) 9.4
-------- ------- ------ --------
Earnings from continuing operations...... $ 13.9 $ 1.7 $ 1.9 $ 17.5
======== ======= ====== ========
See Notes to Pro Forma Condensed Consolidated Financial Statements
</TABLE>
BORG-WARNER SECURITY CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1996
(millions of dollars)
<TABLE>
<CAPTION>
Pro Forma
Adjustments for
the Loomis Pro Forma
Fargo Adjustments for
Historical Combination (f) the Refinancing Pro Forma
---------- --------------- --------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents................. $17.8 $ -- $ 17.8
Receivables, net.......................... 100.4 (28.7) 71.7
Inventories............................... 12.1 (1.8) 10.3
Other current assets...................... 36.8 11.3 (g) 48.1
----- -------- ------
Total current assets................... 167.1 (19.2) 147.9
Property, plant and equipment,
at cost................................... 442.6 (76.5) 366.1
Less accumulated depreciation............. 239.5 (45.6) 193.9
----- -------- ------
Net property, plant and equipment...... 203.1 (30.9) 172.2
Net excess purchase price
over net assets acquired................. 237.2 (27.4) 209.8
Deferred tax asset, net................... 46.8 (5.1) 41.7
Net assets of discontinued operations..... 12.6 -- 12.6
Other assets.............................. 94.0 (7.9)(e) $5.7(h) 88.4
------ ------ ---- ------
Total assets........................... $760.8 $(90.5) $5.7 $672.6
====== ====== ==== ======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Notes payable............................. $4.4 $(0.6) $3.8
Accounts payable and
accrued expenses......................... 173.7 (10.1) 163.6
------ ------ ------
Total current liabilities.............. 178.1 (10.7) 167.4
Long-term debt............................ 438.2 (91.0)(g) $5.7(i) 352.9
Other long-term liabilities............... 103.3 11.2 (j) 114.5
Capital stock:
Common stock............................. 0.2 0.2
Series I non-voting common stock......... -- --
Capital in excess of par value............ 29.0 29.0
Retained earnings......................... 20.6 20.6
Notes receivable--management
stock purchase........................... (0.3) (0.3)
Cumulative translation adjustment......... 0.5 0.5
------ ------ ---- ------
50.0 50.0
Treasury common stock..................... (8.8) (8.8)
------ ------ ---- ------
Total stockholders' equity............. 41.2 41.2
------ ------ ---- ------
Total liabilities and
stockholders' equity.................. $760.8 $(90.5) $5.7 $676.0
====== ====== ==== ======
See Notes to Pro Forma Condensed Consolidated Financial Statements
</TABLE>
BORG-WARNER SECURITY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) To eliminate the historical revenues and expenses of Wells Fargo Armored.
(b) Reflects the decrease in interest expense related to the reduction in
the Company's borrowings under the Old Term Loan and Old Revolving Loan
as a result of cash proceeds received by the Company from the Loomis
Fargo Combination. The interest expense adjustment was computed using
the average interest rates for the respective periods. Such rates were
used because management believes these rates would not have been
materially different if the facilities had been negotiated by the
Company on a stand-alone basis without Wells Fargo Armored.
(c) Reflects the decrease in interest expense as a result of lower average
interest rates on borrowings under the New Credit Facility and the
Notes as compared to the Old Term Loan and Old Revolving Loan together
with lower amortization of financing costs.
(d) To record the estimated income tax effect for the pro forma adjustments.
(e) To recognize, under the equity method, the Company's 49% interest in the
pro forma earnings and net assets of Loomis Fargo.
(f) To eliminate the sold assets and liabilities of Wells Fargo Armored.
(g) To eliminate debt retired with proceeds received from the Loomis Fargo
Combination. Cash proceeds from the Loomis Fargo Combination, net of
transaction and related expenses, were approximately $105 million and were
applied as follows: decrease in borrowings under the Old Term Loan, $80
million; decrease in borrowings under the Old Revolving Loan, $10 million;
and increase in interest-bearing cash deposits under the non-recourse
receivables-backed facility, $15 million.
(h) Reflects capitalized financing fees and expenses incurred in connection
with the Refinancing.
(i) To reflect incremental indebtedness incurred in the Refinancing.
(j) For anticipated expenses incurred as a direct result of the Loomis Fargo
Combination and for purchase price adjustments in connection therewith.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition
and results of operations should be read in conjunction with the Consolidated
Financial Statements of the Company and the notes thereto and other data and
information appearing elsewhere in this Prospectus.
General
The Company provides a broad range of protective services
through its physical and electronic security service businesses. The Company's
physical security services unit is the nation's largest provider of contract
security personnel with approximately 73,000 employees serving approximately
14,000 customers in the United States, Canada, the United Kingdom and South
America. The Company's electronic security services unit is a leading full
service provider of electronic security services, including intrusion and fire
detection, sprinkler and critical industrial process monitoring, closed
circuit television and access control. The electronic security unit serves
approximately 126,000 customers with approximately 2,200 employees.
The Company believes that the security industry has experienced
and will continue to experience significant changes in the future. Increased
outsourcing of security management needs, customer demand for single point
responsibility, financial stability of security providers and improved quality
and reliability of services are factors driving the trend toward Total
Security Solutions. Through its ability to offer both physical and electronic
security services and access to transportation security services, the Company
believes it is well positioned to effectively and profitably provide customers
with the Total Security Solutions they desire.
Based on the industry trends and customer demands, as well as
the desire to reduce its capital requirements, the Company has focused its
resources on the core electronic and physical security services businesses. As
a result, in the third quarter of 1996, the Company elected to treat its
courier services unit as discontinued, incurring a non-cash charge of $25
million, or earnings per share equivalent of $1.06, to provide for anticipated
future losses and liabilities. Also, the Company combined its armored
transport business with Loomis Armored Inc. in January 1997. The combined
company, known as Loomis, Fargo & Co., is owned 51% by the former Loomis
shareholders and 49% by the Company. The combination created a leading armored
transportation and ATM services company with broad geographic coverage. This
transaction allowed the Company to reduce its total debt, including under the
non-recourse receivables-backed facility, by $105 million.
On March 24, 1997, the Company completed the Refinancing
pursuant to which it offered and sold $125,000,000 aggregate principal amount
of its Old Notes (the "Old Note Offering") and replaced the Old Term Loan, the
Old Revolving Loan and the Old LC Facility with a New Credit Facility. The
New Credit Facility consists of up to a $155 million New Revolving Facility
and up to a $155 million New LC Facility, subject to an overall limit on the
aggregate amount at any time outstanding under both facilities of $285
million. The net proceeds from the Old Note Offering were approximately
$120.4 million. See "Description of Certain Indebtedness--New Credit
Facility;--Old Notes."
In 1995 the Company began recognizing certain long-term alarm
service contracts as sales-type leases rather than operating leases. Revenue
and costs under sales-type leases are recognized immediately based on the
present value of all payments under the lease contract. Under operating
leases, revenue and costs are recognized ratably over the lease term.
Results of Operations
The following table sets forth consolidated operating results
as a percentage of total revenues for the historical periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1994 1995 1996
----- ------ ------
<S> <C> <C> <C>
Net service revenues................................... 100.0% 100.0% 100.0%
Cost of services....................................... 79.3 79.6 79.5
----- ----- -----
Gross profit........................................... 20.7 20.4 20.5
Selling, general and administrative expenses........... 13.5 12.4 12.3
Depreciation........................................... 3.2 3.0 2.7
----- ----- -----
Operating profit....................................... 4.0% 5.0% 5.5%
===== ===== =====
</TABLE>
Year Ended December 31, 1996 Compared to Year Ended December
31, 1995
Total revenues increased to $1,711.2 million in 1996 from
$1,708.5 million in 1995, an increase of $2.7 million or 0.2%. Physical
security services revenues increased to $1,223.8 million in 1996 from
$1,222.8 million in 1995, an increase of $1.0 million or 0.1%. Revenue was
essentially flat primarily due to management's decision to prune low margin
and higher risk business during the year. Electronic security services
revenues decreased to $241.1 million in 1996 from $254.7 million in 1995, a
decrease of $13.6 million or 5.3%. In 1995 the Company began recognizing
certain long-term alarm service contracts as sales-type leases rather than
operating leases. This change increased revenues by approximately $24.3
million in 1996 and $38.5 million in 1995. Excluding the impact of sales-
type lease accounting, electronic security services revenues were
essentially flat in 1996 primarily due to management's decision to
implement investment and pricing controls. Armored services total revenues
increased to $246.3 million in 1996 from $231.0 million in 1995, an
increase of $15.3 million or 6.6%. This increase was principally due to
higher volume in ATM services.
Gross profit increased to $351.0 million in 1996 from $349.2
million in 1995, an increase of $1.8 million or 0.5%. Gross profit margin
increased slightly to 20.5% in 1996 from 20.4% in 1995 primarily due to the
Company's commitment to improved contract profitability and internal
productivity improvement programs which offset increased costs.
Selling, general, and administrative expenses decreased to
$210.6 million in 1996 from $212.5 million in 1995, a decrease of $1.9 million
or 0.9%. As a percent of total revenues, selling, general, and administrative
expenses decreased to 12.3% in 1996 from 12.4% in 1995. This decrease was
principally due to continued cost reduction efforts, partially offset by
increased investments in training and recruiting of employees and in
information systems.
Depreciation expenses decreased to $47.0 million in 1996 from
$52.1 million in 1995, a decrease of $5.1 million or 9.8%. The decrease was
principally due to reduced electronic security equipment under operating
leases.
Operating profit increased to $93.1 million in 1996 from
$85.9 million in 1995, an increase of $7.2 million or 8.4%. Operating
profit margin increased to 5.4% in 1996 from 5.0% in 1995. Physical
security services operating profit increased to $62.1 million in 1996 from
$56.4 million in 1995, an increase of $5.7 million or 10.1%. Electronic
security services operating profit increased to $18.9 million in 1996 from
$15.8 million in 1995, an increase of $3.1 million or 19.6%. Armored
services operating profit decreased to $12.1 million in 1996 from $13.7
million in 1995, a decrease of $1.6 million or 11.7%.
Interest expense, including the amortization of financing
costs, increased to $56.6 million in 1996 from $55.9 million in 1995 as a
result of higher costs associated with the issuance and renegotiation of
certain bank lines of credit and borrowing facilities. This was partially
offset by the benefits of lower short-term market rates of interest and lower
average debt levels outstanding.
Income taxes were $9.5 million and $6.9 million in 1996 and
1995, respectively. The Company's effective tax rate generally exceeds the
statutory rate because of non-deductible excess purchase price amortization.
Earnings from continuing operations for 1996 were $13.9
million, up 65.5% from $8.4 million in 1995. Including the impact of the
discontinued Pony Express Courier business, the Company incurred a net loss of
$14.6 million in 1996, compared with net earnings of $1.2 million in 1995.
The loss from discontinued operations in 1996 included a
$25.0 million non-cash charge related to the decision to treat the
Company's courier business as discontinued. In 1995, the Company incurred
an extraordinary charge of $4.7 million, net of tax, related to the early
extinguishment of debt in connection with the amendment of the Company's
credit facilities.
Year Ended December 31, 1995 Compared to Year Ended December
31, 1994
Total revenues increased to $1,708.5 million in 1995 from
$1,626.8 million in 1994, an increase of $81.7 million or 5.0%. Physical
security services revenues increased to $1,222.8 million in 1995 from
$1,209.4 million in 1994, an increase of $13.4 million or 1.1%. The
increase was principally due to higher billing rates and new business
growth. Electronic security services revenues increased to $254.7 million
in 1995 from $206.2 million in 1994, an increase of $48.5 million or 23.5%.
In 1995 the Company began recognizing certain long-term alarm service
contracts as sales-type leases rather than operating leases. This change
increased revenues by approximately $38.5 million in 1995. Excluding the
impact of sales-type lease accounting, alarm revenues were $216.2 million
and $206.2 million in the years 1995 and 1994, respectively. The increase
of 4.8% was principally due to higher direct sales of commercial
installations and higher service revenue on residential operations.
Armored services total revenues increased to $231.0 million in 1995 from
$211.2 million in 1994, an increase of $19.8 million or 9.4%. This
increase was principally due to better pricing and higher volume in the
Wells Fargo Armored Express and ATM services operations.
Gross profit increased to $349.2 million in 1995 from $337.4
million in 1994, an increase of $11.8 million or 3.5%. Gross profit margin
decreased to 20.4% in 1995 from 20.7% in 1994. The decrease was primarily due
to competitive price pressures and general cost increases.
Selling, general, and administrative expenses decreased to
$212.5 million in 1995 from $220.2 million in 1994, a decrease of $7.7 million
or 3.5%. As a percent of total revenues, selling, general, and administrative
expenses decreased to 12.4% in 1995 from 13.5% in 1994. This decrease was
principally due to continued cost reduction efforts and reduced selling
expenditures.
Depreciation expenses decreased to $52.1 million in 1995 from
$52.8 million in 1994, a decrease of $0.7 million or 1.3%. The decrease was
principally due to reduced alarm equipment under operating leases.
Operating profit increased to $85.9 million in 1995 from
$76.1 million in 1994, an increase of $9.8 million or 12.9%. Operating
profit margin increased to 5.0% in 1995 from 4.7% in 1994. Physical
security services operating profit increased to $56.4 million in 1995 from
$54.5 million in 1994, an increase of $1.9 million or 3.5%. Electronic
security services operating profit increased to $15.8 million in 1995 from
$14.9 million in 1994, an increase of $0.9 million or 6.0%. Armored
services operating profit increased to $13.7 million in 1995 from $6.7
million in 1994, an increase of $7.0 million or 104.5% principally due to
improved pricing relative to assumed risks.
Other income in 1994 included a gain of $9.9 million related to
the sale of trademarks and other rights to BW Automotive.
Interest expense, including the amortization of financing
costs, increased to $55.9 million in 1995 from $48.8 million in 1994 as a
result of higher market interest rates combined with increased rates under the
1995 credit agreement amendments and refinancing.
Income taxes were $6.9 million in 1995 compared to a net income
tax benefit of $3.2 million recorded by the Company in 1994 primarily because
of adjustments to deferred income taxes of $7.0 million related to changes in
the tax basis of certain liabilities as a result of sales and settlements. The
Company's effective tax rate generally exceeds the statutory rate because of
non-deductible excess purchase price amortization.
The Company incurred an extraordinary charge of $4.7 million,
net of tax, from the early extinguishment of debt in connection with the
amendment of the Company's credit facilities. Net earnings including such
charge were $1.2 million in 1995 compared to net earnings of $13.1 million in
1994.
International Operations
Revenues from international operations for 1996 were $116.7
million compared with $109.4 million in 1995 and $101.7 million in 1994.
Operations are primarily in Canada, Colombia and the United Kingdom and
principally involve the employment and assignment of contract guard personnel.
Financial Position, Capital Resources and Liquidity
The Company continues its strategy to become less capital
intensive and to produce steady cash flow from operations. In addition to
internally generated cash flow, the Company maintains financing resources that
are sufficient to meet working capital and other needs.
Cash Flow
The Company generated cash flow from operating activities of
$86.9 million in 1996, compared to $52.4 million and $68.0 million in 1995 and
1994, respectively. The improved cash flow in 1996 was due primarily to better
working capital management and reduced net capital spending for subscriber
installations.
Capital expenditures and investments in sales-type leases were
$40.7 million in 1996 down from 1995 and 1994 levels of $47.8 million and
$59.4 million, respectively. This reduction reflects a more selective
investment process, primarily within the electronic security services segment.
The Company's capital expenditures are primarily related to equipment
installations under alarm leases. In 1997, the Company anticipates its capital
expenditures to be up to $55 million, which will be used principally to
support the Company's stated objectives of increasing revenues and cash flows
from operations.
The Company also implemented a program in 1995 to outsource the
financing for capital expenditures related to equipment installations under
alarm leases by selling to a third party a portion of its alarm lease
contracts and receivables. This program reduced the internal capital
requirements necessary to maintain and grow this line of business. The Company
received approximately $10.4 million in outsourcing proceeds in 1996.
Due to restrictions contained in the debt instruments of Loomis
Fargo, the Company does not anticipate receiving cash dividends on its equity
investment in Loomis Fargo.
Leverage/Capitalization
Debt was $442.6 million at year-end 1996, a reduction of $41.9
million from the 1995 year-end level of $484.5 million. This reduction
primarily resulted from cash flow from operations exceeding investing
activities. In January 1997, the Company's debt was further reduced out of the
cash proceeds from the Loomis Fargo Combination.
In 1996, the Company repaid $100 million of 8% senior notes
with $100 million in proceeds from the Old Term Loan, which was due December
31, 1998.
On November 14, 1995, the Company entered into a new $120
million accounts receivable facility to replace the previous facility which
would have expired on November 30, 1995. The new facility is available through
December 31, 1998. Under the terms of this facility, a wholly owned special
purpose subsidiary of the Company purchases customer receivables on a daily
basis from participating operating units and sells an undivided interest in
the revolving pool of receivables through asset-backed certificates issued to
investors. See "Description of Certain Indebtedness--Securitization of
Receivables."
At year-end 1996, the Company maintained bank lines of credit
and term loans totaling $332.2 million of which $283.6 million was utilized
and outstanding. Of the total, $41.6 million was available through June 1999
and $247.8 million would mature at various dates through 1998, with the
remainder to mature at various dates in 1997. The Company also maintained a
$155 million letter of credit facility that was available through 1998. At
year-end 1996, letters of credit totaling $136.3 million were issued and
outstanding.
On March 24, 1997, the Company replaced the Old Term Loan, the
Old Revolving Loan and the Old LC Facility with the $285 million New Credit
Facility. The New Credit Facility consists of up to a $155 million New
Revolving Facility and up to a $155 million New LC Facility, subject to an
overall limit on the aggregate amount at any time outstanding under both
facilities of $285 million. The Company used borrowings under the New
Revolving Facility, together with the proceeds from the offering of the Old
Notes, to repay in full the Old Term Loan and the Old Revolving Loan and pay
transaction costs associated with the Refinancing. The New Credit Facility
will mature on March 31, 2002 with mandatory semiannual reductions in the
total commitments aggregating $10 million in 1999, $20 million in 2000 and $30
million in 2001. The New Credit Facility provides for funds at market rates of
interest throughout the availability periods. See "Description of Certain
Indebtedness--New Credit Facility."
Loans under the New Credit Facility generally bear interest
based on an adjusted Eurodollar rate available for one, two, three or six
month periods plus the applicable Eurodollar rate margin. The applicable
Eurodollar rate margin is subject to adjustment depending on the Company's
interest coverage ratio. Interest rates based on a prime lending rate and the
federal funds rate are also available under the New Credit Facility.
The Company uses selective financial derivative instruments to
limit exposure to fluctuations in short term interest rates.
Contingencies
As discussed more fully in Note 6 of the Notes to Consolidated
Financial Statements, various complaints seeking substantial dollar amounts
have been filed against the Company. The Company believes that it has
established adequate provisions for litigation liabilities in its financial
statements in accordance with generally accepted accounting principles. The
Company believes that none of these matters individually or in the aggregate
will have a material adverse effect on its financial position or future
operating results, although no assurance can be given with respect to the
ultimate outcome of any such proceeding.
BUSINESS
The Company is the nation's largest provider of security
services. The Company is the nation's largest supplier of contract guard
services and is a leading provider of electronic security services. As a
result of its significant market presence and breadth of product offerings,
the Company is well positioned to service local, multi-location and national
accounts and provide "Total Security Solutions" to its customers.
Protective Services Industry Overview
The protective services industry can be divided into several
segments including contract guard and investigative services and electronic
security services. The Company believes that a trend towards "Total Security
Solutions" is leading to increased integration of various segments of the
protective services industry.
Guard Services
Security guard and investigative services, which primarily
consist of guard and patrol services, is the largest segment of the
protective services industry. Services provided in this area are typically
divided within the industry into "proprietary" or "contract" services.
Under proprietary arrangements, users of the service employ and manage
their own guards. Under contract arrangements, independent companies such
as the Company provide guard and investigative services to customers. The
Company believes that the industry has experienced and will continue to
experience a trend towards outsourcing of the guard and investigative
services due to customer demand for single point responsibility and
improved quality and reliability of services. According to a recent study,
the total United States market for contract guard and investigative
services was approximately $10.9 billion in 1994. The Company estimates
that contract guard services represent approximately half of the total
security guard services market in the United States. No single company is
dominant in the contract guard industry. The Company estimates that the
largest four companies in the contract guard industry have a combined
market share of approximately 20%. While industry trends have been toward
consolidation over the last several years, the market remains highly
fragmented and very competitive.
Electronic Security Services
Electronic security services primarily consist of the design,
sale, installation, monitoring, maintenance, and repair of security alarm
services as well as security consulting and data security services. According
to a recent study the total United States market for electronic security
systems was approximately $4.3 billion in 1994. The industry is characterized
by relatively high capital investment due to the equipment and technology
required and low marginal costs of additional revenue. Despite the opportunity
for economies of scale, the electronic security services industry is highly
fragmented. The Company estimates that the largest five companies in the
industry have a combined market share of approximately 25%, with over 12,000
local and regional companies constituting the remainder of the market.
Business Strategy
The Company's business strategy is to maintain and enhance its
position as the nation's largest provider of security services. The key
elements of this strategy are as follows:
Market Segment Focus. The Company has targeted selected market
segments for increased penetration and development. These markets are
characterized by their growing needs for quality, highly reliable security
services and a willingness to recognize value added service and single point
responsibility for a full range of protective services. Inherent in the
Company's marketing strategy is pricing based on risk-adjusted rates of return
and targeted at improving the Company's overall profitability.
Total Security Solutions. In response to customer demand for
integrated security services with single point responsibility and the trend
toward outsourcing of security management needs, the Company has focused on
providing Total Security Solutions. The Company believes it is well positioned
to effectively and profitably provide Total Security Solutions to
multi-location and national accounts due to its nationwide network of offices
and support facilities. Management believes that the combination of the
Company's electronic and physical security services coupled with its equity
interest in Loomis Fargo provides a significant competitive advantage.
Customer and Employee Retention. Customer and employee
retention are the foundation for the Company's growth and profit
improvement strategies. The Company believes that customer retention is
related to employee retention. Based on extensive customer and employee
needs analysis, the Company has implemented a number of retention
improvement programs. In the physical security services unit, the Company
is establishing regional administrative service centers to improve both
quality and efficiency by standardizing best practices with appropriate
systems support. These improvements include the ability to recruit and
staff jobs promptly, to confirm on-time guard presence as well as adherence
to post requirements, and to communicate incidents to clients in a timely
and effective manner. The Company's electronic security services unit has
implemented programs to upgrade customer installation technology, to
provide enhanced monitoring technology at reduced cost, and to provide
incentives for its sales force to maximize contract renewals. Employee
programs start with recruiting where applicants are not only screened but
also profiled for optimal job assignments. Security officer training
focuses on client orientation, safety, job standards and communication.
The Company also conducts management training programs that emphasize
communication, employee relations and negotiating skills. To support these
efforts, employment "centers of excellence" are being opened to provide
recruiting and training programs. These efforts are reinforced by reward
incentives that recognize exemplary and continuing service to the customer.
Risk Management. The Company believes that significant
improvement in operating results of the business can be attained through
its risk management program. An effective program has been implemented at
national, regional and local levels to reduce workers' compensation costs.
The Company has also established similar programs focused on training and
safety awareness to mitigate employee and general liability claims. Of
equal importance is the Company's policy of pricing business in a manner
that is commensurate with the underlying risks.
Capitalize on Industry Consolidation. The protective services
industry is highly fragmented, consisting of a few national companies and
numerous small and regional companies. The Company believes that customer
demand for full service, financially stable security providers will drive the
protective services industry toward consolidation. The Company believes that
its management is skilled at identifying attractive acquisition candidates and
integrating acquisitions quickly and efficiently. Generally, the Company
acquires the customer base and operations employees of the acquired entity and
integrates the acquired company's operations into the Company's operations.
The Company typically experiences cost savings and productivity gains through
economies of scale and the leverage of the Company's operating systems.
Company's Business Units
The Company's protective services business is divided into two
business units: physical security services and electronic security services.
The net service revenues, operating profit and operating margins of each of
these units for the three years ended December 31, 1996 are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
(millions of dollars)
<S> <C> <C> <C>
Net Services Revenues:
Physical Security Services...... $1,209.4 $1,222.8 $1,223.8
Electronic Security Services.... 206.2 254.7 241.1
Operating Profit:
Physical Security Services...... 54.5 56.4 62.1
Electronic Security Services.... 14.9 15.8 18.9
Operating Margins (percent):
Physical Security Services...... 4.5% 4.6% 5.1%
Electronic Security Services.... 7.2% 6.2% 7.8%
</TABLE>
Physical Security Services
The Company provides guard services, as well as background
screening, contract employment and investigative services, to approximately
14,000 clients in the United States, Canada, the United Kingdom and South
America. The Company services these clients with approximately 73,000
employees in approximately 280 offices under the Wells Fargo[Registered],
Burns[Registered], Globe[Registered] and other service marks.
The physical security 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, access control at health care and educational facilities, mailroom
services, staffing services and investigative services, including background
investigations of prospective employees.
The physical security services unit employs approximately
70,600 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
drivers' 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.
The physical security services unit markets guard services
through approximately 153 sales representatives nationwide and in Canada, the
United Kingdom and South America. Sales personnel operate out of local branch
and sales offices. The physical security services unit also bids on contracts
with governmental agencies.
Physical security 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 service 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.
Electronic Security Services
The Company provides integrated electronic security systems,
including intrusion and fire detection, sprinkler and critical industrial
process monitoring, closed circuit television and access control. The Company
designs, installs, monitors and services electronic security systems located
on the premises of approximately 83,000 commercial and 43,000 residential
customers in the United States and Canada under the Wells Fargo[Registered]
and Pony Express[Registered] service marks. The Company provides, under the
Bel-Air Patrol trade name, an integrated guard, patrol and alarm service to
approximately 12,000 customers in Bel Air, Beverly Hills and other Los Angeles
communities. The unit has approximately 2,200 employees.
Customers may either purchase or lease the electronic security
system offered by the Company. If a customer chooses to lease the system, the
Company is entitled to receive the lease payments (and maintenance and
monitoring charges) for the duration of the lease and the equipment upon
termination of the lease. In order to reduce the capital requirements of
carrying the cost of leased equipment, in 1996, the Company began selling
selected lease payment rights under customer contracts for cash to a third
party. In 1996, the Company received net proceeds of $10.4 million from the
sale of payment rights. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Financial Position, Capital Resources and
Liquidity."
Commercial. The Company's electronic security 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 stations operated by the Company in the
United States and Canada. The Company also services its installed systems.
The Company's electronic security unit services approximately
83,000 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.
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
expiration of the initial term of the contract and enter into new five-year
monitoring contracts.
The electronic security 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 electronic security 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 and fast food chains that require a single point of control for
planning, servicing, monitoring and reporting for all locations.
The Company 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 Company's electronic security unit also
installs fire and intrusion protection systems for residential customers under
the Pony Express[Registered] service mark. Residential customer sales and
service 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 31,000 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 12,000 customers under the trade name
Bel-Air Patrol.
The Company's electronic security 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.
Loomis Fargo
Loomis Fargo Combination
On November 28, 1996, the Company entered into an agreement
with Wingate Partners, L.P. and certain of its affiliates ("Wingate "),
pursuant to which on January 24, 1997 Wells Fargo Armored contributed
substantially all of its assets and assigned certain of its liabilities to
Loomis Fargo, a newly established corporation, in exchange for (i) 49% of
Loomis Fargo's outstanding common stock and (ii) a cash payment of
approximately $105 million (net of transaction costs, but subject to certain
adjustments). Wingate contributed all of the Loomis Holding Corporation's
common stock in exchange for (i) 51% of Loomis Fargo's outstanding common
stock, (ii) a $6 million promissory note and (iii) a cash payment of
approximately $15 million. In addition, Loomis Fargo repaid existing Loomis
indebtedness and redeemed outstanding shares of Loomis preferred stock. Among
the liabilities of Wells Fargo Armored that were retained by the Company are
casualty and employee claims incurred prior to the closing. The Company
accounts for its investment in Loomis Fargo under the equity method.
The Company agreed to indemnify Loomis Fargo for environmental
liabilities associated with existing underground storage tanks and other known
and identified environmental liabilities. Such indemnification obligation will
continue until the earlier of December 31, 1998 or the first anniversary of an
initial public offering of Loomis Fargo common stock. The Company has also
agreed to indemnify Loomis Fargo against certain other claims, including
claims relating to receivables and taxes.
The Company and Wingate entered into a stockholders agreement
(the "Stockholders Agreement") providing that Loomis Fargo's board of
directors initially will consist of seven directors: Loomis Fargo's chief
executive officer; three directors nominated by the Company and three
directors nominated by Wingate. The number of directors that may be designated
pursuant to the Stockholders Agreement may vary if either the Company or
Wingate reduce their ownership interest in Loomis Fargo. The Stockholders
Agreement also provides that the vote of five of the seven directors is
required for Loomis Fargo to engage in certain specified activities. The
Company has nominated Messrs. Adorjan, O'Brien and Wood, its executive
officers, to Loomis Fargo's board of directors.
In addition, the Stockholders Agreement prohibits the transfer
of Loomis Fargo common stock by either party for three years following the
closing without the prior consent of the other party. After such period,
Loomis Fargo common stock may be transferred only in accordance with the
provisions of the Stockholders Agreement, which include rights of first
refusal and co-sale rights. The Stockholders Agreement also provides for
certain preemptive and registration rights with respect to equity issuances by
Loomis Fargo.
Loomis Fargo--Business
Loomis Fargo is one of the largest armored transport
companies in the United States. It operates over 150 branches, employs
approximately 8,700 persons, and utilizes a fleet of approximately 2,700
armored vehicles nationwide to provide armored ground transport services,
ATM services, and cash vault and related services to financial institutions
and commercial customers. Serving all 50 states and Puerto Rico, Loomis
Fargo is one of only two armored transport companies in the United States
that provides these services on a national basis. The Company believes
that Loomis Fargo is favorably positioned for additional revenue
opportunities as large financial and retail institutions are increasingly
seeking vendors capable of providing an array of services on a national
basis. In addition, the Company believes the proliferation of ATMs and the
trend of banks and other financial and retail institutions towards
outsourcing cash vault and related services will contribute to Loomis
Fargo's growth prospects. Management of Loomis Fargo believes that upon
successful completion of its consolidation plan, the combined company will
realize cost savings.
Loomis Fargo provides ATM services to over 27,000 ATM locations
nationwide, making it the leading provider of ATM services in the United
States. Both the number of ATM locations and the types of items being
dispensed through ATMs continue to grow. Additionally, many ATM owners have
begun outsourcing the servicing and maintenance of ATM locations formerly
serviced and maintained internally. With its broad range of services and
automated systems, Loomis Fargo intends to build upon its leading position in
the ATM services market.
Loomis Fargo also provides a wide array of cash vault and
related services ranging from passive, secured storage of valuables such as
currency, securities and computer chips to active services such as deposit
processing and consolidation, change order preparation, coin wrapping and
storage and food stamp processing. Loomis Fargo's cash vault capacity is a key
element in supporting services to larger customers and ATM networks.
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 due to generally low wages, especially in the guard industry, 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 5,800 employees. The
collective bargaining agreements expire at various dates from 1997 to 1999
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.
Competition
The physical security services unit competes with major
national firms 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 electronic security services unit competes with major
national firms and numerous small regional and local companies. Competition in
the electronic security 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.
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 physical security services operations are subject
to a variety of city, county and state firearm and occupational licencing
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 establishment of such standards will have a material effect on
its physical security services operations.
The Company's electronic security 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.
From time to time, in the ordinary course of business, the
Company is subject 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.
The Company generally obtains customer indemnification or
liability limitations in its contracts to mitigate this risk exposure. The
Company carries insurance of various types, including workers'
compensation, automobile and general liability coverage. These policies
include deductibles per occurrence for which the Company is self-insured.
The Company obtains its 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 does not believe that
limitations on, or the uncertainty of, insurance 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.
Discontinued Operations
The Company has treated its courier services unit as a
discontinued operation since September 1996. As a result of this decision, a
non-cash charge of $25 million was incurred to provide for anticipated future
losses and liabilities. The unit transports time-sensitive packages for
commercial businesses and non-negotiable financial documents for financial
institutions in approximately 32 states under the Pony Express[Registered]
service mark. The unit employs approximately 3,800 persons and leases from its
employees approximately 65% of its vehicle fleet of approximately 3,025
vehicles. 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.
Trademarks and Patents
The Wells Fargo[Registered], Burns[Registered] and Pony
Express[Registered] 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. For both the United States and the foreign patents, their
expiration, individually, and in the aggregate, is not expected to have any
material effect on the Company's financial condition or results of operations.
Properties
The Company and its subsidiaries maintain courier terminals,
central alarm stations, plants and general offices in various cities in the
United States, Puerto Rico, Canada, the United Kingdom and South America. At
December 31, 1996, the physical security services unit occupied approximately
283 branch and satellite offices, all but one of which were leased. At
December 31, 1996, the electronic security services unit operated 12 central
stations, of which 4 were leased, 28 additional branch and headquarters
offices, 12 of which were owned and 47 separate satellite and sales offices,
all of which were leased. The Company leases approximately 57,000 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.
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 of the Company, 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 liabilities at an aggregate level that is not in
excess of Centaur's assets. In rehabilitation, Centaur's assets are 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, 1995, Centaur's total liabilities were
$137.1 million and its deficit in net worth was $56.1 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.
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. The complaint was amended again in
1995, to allege additional causes of action based on negligence and breach of
the covenant of good faith and fair dealing. Plaintiff seeks judgment in
excess of $100 million for current losses, future losses and other damages and
also seeks punitive damages.
In 1989, the Company filed a motion to dismiss or stay the
action, pending resolution of Centaur's rehabilitation in Illinois. The
court declined to dismiss the action, but entered an order staying the
action until the rehabilitation proceeding is resolved, except that the
parties may pursue discovery to preserve evidence. In 1992, the Centaur
rehabilitator filed a motion to intervene and dismiss the complaint on the
grounds that the plaintiff lacked standing and that its claims were not
ripe for adjudication. The motion is pending. In 1993, six of the 11
individual defendants were dismissed from the lawsuit. In September 1994,
the court effectively lifted its stay. The liability phase of the trial
was held in 1996 and the court has set a schedule for hearing the parties'
closing arguments in such phase. 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 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 or for claims
for natural resource or property damage or injury to human health caused by
contamination at such sites. Responsibility for cleanup and other remedial
activities at a Superfund site is typically shared among PRPs based on an
allocation formula. In addition, the Company has or may have liability for
environmental matters at properties it presently or previously owned or
leased.
Based on currently available information, 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, indemnification obligations in favor of the Company from
the current owners of certain sold or discontinued operations, 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 $9 million (relating to environmental matters with respect to
discontinued operations of the Company). The Company has requested that BW
Automotive indemnify it against certain past and future costs relating to
environmental and financing liabilities associated with certain former
automotive operations. At December 31, 1996 such past costs were approximately
$2.3 million. BW Automotive has contested its indemnification obligation with
respect to such liabilities. While estimates of liability for environmental
matters can vary over time due to, among other things, changes in laws,
technology or available information, the Company believes that such provisions
for indicated environmental liabilities have been established on a basis
consistent with generally accepted accounting principles.
MANAGEMENT
The following table sets forth certain information concerning
the persons who are executive officers and directors of the Company as of
March 7, 1997; all information is provided as of such date:
<TABLE>
<CAPTION>
Name Age Position and Experience
---- --- ------------------------
<S> <C> <C>
J. Joe Adorjan 58 Chairman of the Board (since January 1996), Chief Executive
Officer (since October 1995), President (since April 1995)
and Director (since 1993) of the Company. Mr. Adorjan was
President of Emerson Electric Co., a manufacturer of
electronic, electrical and other products, from 1992 to 1995
and Chairman and Chief Executive Officer of ESCO
Electronics Corporation from 1990 to 1992. Mr. Adorjan is
also a director of California Microwave, Inc., The
Earthgrains Company, ESCO Electronics Corporation, Goss
Graphic Systems, Inc. and Loomis, Fargo & Co.
John D. O'Brien 54 Senior Vice President of the Company. Mr. O'Brien has been
Senior Vice President of the Company since 1993 and was
Vice President of the Company from 1987 to 1993. Mr.
O'Brien is also President of Borg-Warner Protective Services
Corporation and a Director of Loomis, Fargo & Co.
Timothy M. Wood 49 Vice President, Finance of the Company. 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. Wood is also a Director of Loomis, Fargo & Co.
James J. Burke, Jr. 45 Director of the Company since 1987, Managing Partner and
director of Stonington Partners, Inc. ("Stonington") since
1993 and director of MLCP since 1985. Mr. Burke was
Managing Partner of MLCP from 1993 to 1994 and was
President and Chief Executive Officer of MLCP from 1987 to
1993. Mr. Burke is also a director of Ann Taylor Stores
Corporation, Education Management Corporation, Pathmark
Stores, Inc., Supermarket General Holdings Corp. and United
Artists Theatre Circuit, Inc.
Albert J. Fitzgibbons, III 51 Director of the Company since 1987, partner and director of
Stonington since 1993 and director of MLCP since 1988. Mr.
Fitzgibbons was a partner of MLCP from 1993 to 1994 and
was Executive Vice President of MLCP from 1988 to 1993.
Mr. Fitzgibbons is also a director of Borg-Warner
Automotive, Inc., Dictaphone Corporation, Rykoff-Sexton,
Inc. and United Artists Theatre Circuit, Inc.
Arthur F. Golden 50 Director of the Company since 1996, Partner of Davis Polk &
Wardwell, a law firm, since 1978. Mr. Golden is also a
director of Allegiance Corporation.
Dale W. Lang 64 Director of the Company since 1993, President of KX
Acquisition Corp., an owner and operator of television
stations, since 1992. Retired chairman of Lang
Communications, Inc., a magazine publishing company.
Robert A. McCabe 62 Director of the Company since 1993, President of Pilot Capital
Corporation, an investment firm, since 1987. Mr. McCabe is
also a director of Atlantic Bank, Church & Dwight Co., Inc.,
Morrison-Knudsen Corporation, Thermo Electron Corporation
and Thermo Optek Inc.
Andrew McNally IV 57 Director of the Company since 1996, Chairman and Chief
Executive Officer since 1993 and President and Chief
Executive Officer from 1978 to 1993 of Rand McNally, a
publishing and map making company. Mr. McNally is also a
director of Hubbell Incorporated, Mercury Finance Co.,
Morgan Stanley Funds and Zenith Electronics Corporation.
Alexis P. Michas 39 Director of the Company since 1987, Managing Partner and
director of Stonington since 1993 and director of MLCP since
1989. Mr. Michas was Senior Vice President of MLCP from
1989 to 1993 and a Managing Director in the Investment
Banking Division of Merrill Lynch, a financial services
company, from 1991 to 1994. Mr. Michas is also a director
of Blue Bird Corporation, Borg- Warner Automotive, Inc.,
Dictaphone Corporation and Goss Graphic Systems, Inc.
H. Norman Schwarzkopf 62 Director of the Company since 1993, author and lecturer since
1991. Mr. Schwarzkopf was a general in the United States
Army until his retirement in 1991. He was Commander in
Chief, United States Central Command, and Commander of
Operations for Desert Shield and Desert Storm. Mr.
Schwarzkopf is also a director of Home Shopping Network,
Inc., Kuhlman Corporation, Remington Arms Company, Inc.
and The Washington Water Power Company.
Donald C. Trauscht 63 Director of the Company since 1987, Chairman of the BW
Capital Corporation, a private investment company, since
1996. Mr. Trauscht was Chairman of the Board, Chief
Executive Officer and President of the Company from 1992
to 1995 and Chief Operating Officer and President from 1991
to 1992. Mr. Trauscht is also a director of Baker Hughes
Incorporated, Blue Bird Corporation, Borg-Warner
Automotive, Inc., ESCO Electronics Corporation, Imo
Industries, Inc. and Thiokol Corporation.
</TABLE>
PRINCIPAL SHAREHOLDERS
The following table sets forth as of March 7, 1997 certain
information regarding beneficial ownership of the Common Stock, par value $.01
per share, of the Company ("Common Stock") by all entities that, to the best
knowledge of the Company, beneficially owned more than five percent of the
Common Stock of the Company. Except as indicated, each entity has sole voting
and investment power with respect to such shares.
<TABLE>
<CAPTION>
Number of Percentage of
Shares Class
--------- -------------
Name of Beneficial Owner
<S> <C> <C>
Merrill Lynch KECALP L.P. 1986............................................ 40,000 *
Merrill Lynch KECALP L.P. 1987............................................ 200,000 *
Merchant Banking L.P. No. 1............................................... 500,000 2.2%
ML Venture Partners II, L.P............................................... 500,000 2.2%
Merrill Lynch Capital Appreciation Partnership No. VIII, L.P. ............ 6,628,615 29.8%
ML Offshore LBO Partnership No. VIII...................................... 168,524 *
ML Employees LBO Partnership No. 1, L.P. ................................. 164,779 *
ML IBK Positions, Inc. ................................................... 1,998,082 9.0%
---------- ----
Total ML Entities......................................................... 10,200,000 45.8%
Wellington Management Company, LLP (a).................................... 1,776,400 8.0%
Vanguard Explorer Fund, Inc. (b).......................................... 1,200,000 5.4%
<FN>
- ------------
* Represents less than one percent.
(a) Pursuant to a Schedule 13G dated February 13, 1997, Wellington Management
Company, LLP indicated that, in its capacity as investment adviser, it may
be deemed to beneficially own 1,776,400 shares of Common Stock of the
Company that are owned of record by its clients. It indicated that it had
shared voting power with respect to 276,400 shares and shared dispositive
power with respect to 1,776,400 shares. One of its clients is Vanguard
Explorer Fund, Inc.
(b) Pursuant to a Schedule 13G dated February 4, 1997, Vanguard Explorer Fund,
Inc. indicated that it had sole voting power and shared dispositive power
with respect to all shares.
</TABLE>
The address of each of the ML Entities is c/o Merrill Lynch &
Co., Inc., World Financial Center, New York, New York 10281. The address of
Wellington Management Company, LLP is 75 State Street, Boston, Massachusetts
02109. The address of Vanguard Explorer Fund, Inc. is P.O. Box 2600, Valley
Forge, Pennsylvania 19482-2600.
The following table sets forth as of March 7, 1997 certain
information regarding beneficial ownership of Common Stock by the named
directors and executive officers of the Company and by all directors and
executive officers as a group.
Number of Percentage of
Name of Beneficial Owner Shares Class
- ------------------------ --------- -------------
J. Joe Adorjan (b).................. 395,778 1.8%
John D. O'Brien..................... 156,916 *
Timothy M. Wood..................... 86,000 *
James J. Burke, Jr. (c)............. 0 *
Albert J. Fitzgibbons, III (c)...... 0 *
Arthur F. Golden.................... 2,000 *
Dale W. Lang........................ 7,000 *
Robert A. McCabe.................... 9,000 *
Andrew McNally IV................... 12,000 *
Alexis P. Michas (c)................ 0 *
H. Norman Schwarzkopf............... 7,000 *
Donald C. Trauscht.................. 220,390 1.0%
All directors and
executive officers of the
Company (12 persons)
(b) (c)............................ 896,084 3.9%
- ------------
* Represents less than one percent.
(a) Includes the following number of shares issuable upon the exercise of
options within the next 60 days: 207,000 for Mr. Adorjan; 94,416 for Mr.
O'Brien; 56,000 for Mr. Wood; 7,000 for each of Messrs. Lang, McCabe and
Schwarzkopf; 2,000 for each of Messrs. Golden and McNally; 100,000 for Mr.
Trauscht; and 482,416 for all directors and officers of the Company.
(b) Excludes 1,800 shares held in trust for Mr. Adorjan's daughter. Mr.
Adorjan is co-trustee of such trust and disclaims beneficial ownership of
such shares. Includes 133,333 shares held in a trust established by the
Company that will be distributed to Mr. Adorjan over up to a three-year
period.
(c) Messrs. Burke, Fitzgibbons and Michas are directors of MLCP, which manages
Merrill Lynch Capital Appreciation Partnership No. VIII, L.P. and ML
Offshore LBO Partnership No. VIII. Such persons may be deemed to
beneficially own the 6,797,139 shares of Common Stock held by such
partnerships. MLCP is part of a group that beneficially owns 10,200,000
shares of Common Stock. They expressly disclaim beneficial ownership of
such shares.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summary of the agreements described below does
not purport to be complete and is qualified in its entirety by the various
agreements, copies of which have either been filed as exhibits to or
incorporated by reference in the Registration Statement of which this
Prospectus is a part (see "Available Information") or will otherwise be made
available upon request.
New Credit Facility
On March 24, 1997, the Company completed the initial funding
under the $285 million new credit facility (the "New Credit Facility") with
Bankers Trust Company, Canadian Imperial Bank of Commerce and NationsBank,
N.A., acting as agents, consisting of up to a $155 million new revolving
credit facility (the "New Revolving Facility") and up to a $155 million letter
of credit facility (the "New LC Facility"). The New Credit Facility limits the
aggregate amount at any time outstanding under the New Revolving Facility and
the New LC Facility to $285 million. The Company used borrowings under the
New Revolving Facility, together with the proceeds from the offering of the
Old Notes, to repay in full the Old Term Loan, the Old Revolving Loan and
transaction costs associated with the Refinancing. The Company also used
letters of credit under the New LC Facility to replace all the letters of
credit outstanding under the Old LC Facility.
Loans under the New Credit Facility generally bear interest
based on an adjusted Eurodollar rate available for one, two, three or six
month periods plus the applicable Eurodollar rate margin. The applicable
Eurodollar rate margin is subject to adjustment depending on the Company's
interest coverage ratio. Interest rates based on a prime lending rate and the
federal funds rate are also available under the New Credit Facility.
The Company intends to use the funds available under the New
Revolving Facility for the financing of acquisitions and investments, general
corporate purposes and working capital. The Company intends to use the New LC
Facility for the issuance of commercial letters of credit and standby letters
of credit to support workers' compensation contingencies and for certain other
corporate purposes.
The New Credit Facility will mature on March 31, 2002, with
mandatory semiannual reductions in the total commitments aggregating $10
million in 1999, $20 million in 2000 and $30 million in 2001.
Under the New Credit Facility, the Company is permitted to
prepay all amounts borrowed thereunder and/or to reduce the commitments
thereunder without penalty. In addition, the New Credit Facility will require
the Company to prepay such amounts and/or to reduce the commitments in amounts
equal to (i) net proceeds from any cash asset sales by the Company or any of
its subsidiaries to the extent such proceeds are not reinvested in the
Company's business within twelve months of receipt thereof, (ii) net cash
proceeds from issuances of certain debt securities, (iii) 50% of the net cash
proceeds from issuances of the Company's equity securities, (iv) 50% of excess
cash flow (as defined therein) and (v) proceeds from any pension plan
reversions.
All amounts borrowed under the New Credit Facility are secured
by a pledge of certain intercompany indebtedness, all the shares of capital
stock of certain U.S. subsidiaries of the Company, 65% of the shares of
capital stock of certain non-U.S. subsidiaries of the Company and all the
shares of capital stock of Loomis Fargo owned by the Company. Certain of the
Company's U.S. subsidiaries guarantee the Company's obligations under the New
Credit Facility.
The New Credit Facility contains numerous restrictive financial
and other covenants, including, without limitation, (i) restrictions on the
incurrence of indebtedness, liens and guarantees, (ii) restrictions on certain
mergers, sales of assets, transactions with affiliates and conduct of
business, (iii) restrictions on certain acquisitions, investments, capital
expenditures and leases, (iv) restrictions on certain payments (early
redemption or retirement of the Notes and other junior indebtedness,
dividends, redemptions or other payments on the capital stock) and (v)
financial tests, including, among others, those requiring the Company to
maintain a maximum leverage ratio, minimum interest coverage ratio, minimum
net worth and minimum EBITDA (as defined therein).
Notwithstanding the foregoing limitations, the New Credit
Facility permits the Company, subject to pro forma compliance with the
financial covenants and with its other obligations thereunder (i) to make
annual repurchases of up to $10 million of its common stock and (ii) to make
acquisitions of, and investments in, businesses substantially similar to those
currently conducted by the Company and its subsidiaries, subject to an annual
limit of $75 million for such acquisitions and other capital expenditures.
The events of default under the New Credit Facility include,
among others, (i) any failure of the Company to pay principal, interest or
other obligations due thereunder, subject to certain grace periods, (ii)
the material breach of any representations or warranties contained in the
New Credit Facility, (iii) default in any negative covenant and certain
affirmative covenants, or default in certain affirmative covenants that
continues unremedied for a grace period after notice by any co-agent or any
lender, (iv) any failure to pay amounts, above certain limits, due under
certain other obligations of the Company or any of its subsidiaries or
defaults that result in or permit the acceleration of certain other
obligations, (v) certain events of bankruptcy, insolvency or dissolution of
the Company or certain of its subsidiaries, (vi) the entry of certain
judgments or decrees against the Company or any of its subsidiaries in
excess of specified amounts and subject to grace periods, (vii) the failure
or invalidity of any collateral or guaranty under the New Credit Facility,
(viii) the removal, resignation or replacement of more than 50% of the
members of the Company's Board of Directors or the acquisition, directly or
indirectly, by any person or group (as defined by Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) of more than 30% of the voting
stock of the Company. Upon the occurrence of any event of default under
the New Credit Facility, the lenders may accelerate the maturity of the
loans and terminate their commitments thereunder.
9 1/8% Notes
The $150 million aggregate principal amount of the 9 1/8%
Senior Subordinated Notes due 2003 (the "9 1/8% Notes") was issued by the
Company, at a less than one percent original issue discount, on May 3, 1993
pursuant to an indenture dated as of May 3, 1993 (the "9 1/8% Note
Indenture"). The proceeds from the issuance of the 9 1/8% Notes were used to
redeem debt securities of the Company. Interest on the 9 1/8% Notes is
payable semi-annually. The 9 1/8% Notes will mature on May 1, 2003 and may be
redeemed at the option of the Company, in whole or in part, at any time on or
after May 1, 1998 at a premium declining to par on and after May 1, 2000.
Upon a change of control (as defined in the 9 1/8% Note Indenture), subject to
certain conditions, each holder of the 9 1/8% Notes may require the Company to
purchase such holder's 9 1/8% Notes at 101% of the principal amount thereof,
together with accrued and unpaid interest, if any, to the date of purchase.
The 9 1/8% Note Indenture contains certain restrictive
covenants that are substantially similar to the covenants in the Indenture.
The 9 1/8% Notes are unsecured and subordinated in right of payment and upon
liquidation to existing and future senior indebtedness of the Company (as
defined in the 9 1/8% Note Indenture). The 9 1/8% Notes rank pari passu with
the Old Notes and will rank pari passu with the Exchange Notes. As of March
1, 1997, $150 million aggregate principal amount of the 9 1/8% Notes was
outstanding.
Old Credit Facility
In connection with the spin-off of BW Automotive in 1993 the
Company completed a significant recapitalization entering into a credit
facility (the "Old Credit Facility") consisting of the $225 million revolving
credit facility (the "Old Revolving Loan") and the $155 million letter of
credit facility (the "Old LC Facility"). In 1995 the Company undertook another
recapitalization in connection with which the Old Credit Facility was amended
to include a new $200 million intermediate term loan maturing in 1998 (the
"Old Term Loan") and to amend the terms of the Old Revolving Loan and the Old
LC Facility.
The Old Credit Facility contained numerous financial and
operating covenants and events of default. The borrowings under the Old Credit
Facility were secured by a pledge of stock of certain of the Company's
subsidiaries. In addition, certain of the Company's subsidiaries guaranteed
the Company's obligations under the Old Credit Facility. At March 1, 1997 the
Company was in compliance with all the covenants under the Old Credit
Facility.
The Company terminated the Old Credit Facility and repaid in
full the Old Term Loan, the Old Revolving Loan and the Old LC Facility upon
the completion of the offering of the Old Notes and the simultaneous initial
funding under the New Credit Facility. See "--New Credit Facility."
Securitization of Receivables
In 1995 the Company established a non-recourse
receivables-backed facility. Pursuant to this facility, BPS Financial
Services, Inc. (a wholly-owned special purpose subsidiary of the Company)
purchases customer receivables on a daily basis from participating operating
units and sells an undivided interest in the revolving pool of receivables
through $120 million face amount of asset-backed certificates issued to
investors. The revolving period under this facility ends no later than
December 31, 1998 with final payment anticipated in April 1999.
DESCRIPTION OF THE NOTES
The Old Notes were issued and the Exchange Notes will be issued
under the Indenture dated as of March 24, 1997 (the "Indenture") between the
Company, as issuer, and The Bank of New York, as trustee (the "Trustee").
Copies of the Indenture will be made available to holders of the Notes during
normal business hours at the principal corporate trust office of the Trustee.
The Indenture will be qualified under the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The following summary of the material
provisions of the Indenture does not purport to be complete and is subject to,
and qualified in its entirety by reference to, the provisions of the
Indenture, including the definitions of certain terms contained therein and
those terms made part of the Indenture by reference to the Trust Indenture
Act. For definitions of certain capitalized terms used in the following
summary, see "--Certain Definitions."
General
The Notes will mature on March 15, 2007, will be limited to
$125 million aggregate principal amount and will be unsecured senior
subordinated obligations of the Company. Each Note will bear interest at the
rate of 9 5/8% per annum from March 24, 1997 or from the most recent interest
payment date to which interest has been paid or duly provided for, payable in
cash on September 15, 1997 and semiannually thereafter on March 15 and
September 15 in each year until the principal thereof is paid or duly provided
for to the holders of the Notes at the close of business on the March 1 or
September 1 next preceding such interest payment date. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will
be payable, and the Notes will be exchangeable and transferable, at the office
or agency of the Company in The City of New York maintained for such purposes
(which initially will be the Trustee); provided, however, that, at the option
of the Company, interest may be paid by check mailed to the address of the
Person entitled thereto as such address shall appear on the security register.
(Sections 301, 305 and 1002) The Old Notes are and the Exchange Notes will be
issued only in registered form without coupons and only in denominations of
$1,000 and any integral multiple thereof. (Section 302) No service charge will
be made for any registration of transfer or exchange or redemption of Notes,
but the Company may require payment in certain circumstances of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in connection therewith. (Section 305)
Sinking Fund
The Notes are not and will not be entitled to the benefit of
any sinking fund.
Optional Redemption
Redemption at the Option of the Company after 2002. The Notes
will be redeemable at any time on or after March 15, 2002 at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
prior notice at the redemption prices (expressed as percentages of the
principal amount) set forth below, together with accrued and unpaid interest,
if any, to the redemption date, if redeemed during the 12-month period
beginning March 15 of the years indicated (subject to the right of holders of
record on relevant record dates to receive interest due on an interest payment
date):
Year Redemption Price
---- ---------------
2002................................... 104.812%
2003................................... 102.406%
2004 and thereafter.................... 100.000%
Redemption at the Option of the Company with the Proceeds of
Public Equity Offerings. In addition, at any time prior to March 15, 2000,
the Company may redeem up to 30% of the original aggregate principal amount
of the Notes within 60 days after the closing of one or more Public Equity
Offerings with the net proceeds of such offering at a redemption price equal
to 109.625% of the principal amount thereof, together with accrued and unpaid
interest, if any, to the Redemption Date (subject to the right of holders of
record on relevant record dates to receive interest due on relevant interest
payment dates), provided that not less than $87.5 million aggregate principal
amount of the Notes remains outstanding immediately after the occurrence of
any such redemption.
Treatment by the Company. For United States tax purposes, the
Company does not intend to treat the possibility of an optional redemption as
giving rise to any accrual of "original issue discount" or recognition of
ordinary income upon redemption, sale or exchange of a Note. Holders may wish
to consider that United States Treasury Regulations regarding the treatment of
certain contingencies were recently issued and may wish to consult their tax
advisers in this regard.
Subordination
The indebtedness represented by the Notes is subordinated in
right of payment to the prior payment in full of all Senior Indebtedness;
provided, however, that the Notes shall rank on a pari passu basis (equal to
and without preference) in right of payment with, or prior to, all existing
and future Indebtedness of the Company that is expressly subordinated to any
Senior Indebtedness. (Section 1501)
No payment or distribution shall be made on account of the
principal of or premium, if any, or interest on, or the purchase, redemption
or other acquisition of, the Notes in the event and during the continuation of
any default in the payment of principal, premium, if any, or interest on any
Specified Senior Indebtedness beyond any applicable grace period (a "Payment
Default"). (Section 1503)
During the continuance of any default, other than a Payment
Default, with respect to any Specified Senior Indebtedness pursuant to
which the maturity thereof may be accelerated, no payment or distribution
of any kind or character may be made by the Company on account of the
principal of or premium, if any, or interest on, or the purchase,
redemption or other acquisition of, the Notes for the period specified
below (the "Payment Blockage Period"). The Payment Blockage Period shall
commence upon the receipt of notice by the Trustee from the agent for the
Banks or any other representative of a holder of Specified Senior
Indebtedness and shall end on the earlier of (i) 179 days thereafter, (ii)
the date on which such event is cured, waived or ceases to exist or on
which such Specified Senior Indebtedness is discharged or (iii) such
Payment Blockage Period shall have been terminated by written notice to the
Company or the Trustee from the agent for the Banks or any other
representative of a holder of the Specified Senior Indebtedness initiating
such Payment Blockage Period, after which the Company shall resume making
any and all required payments in respect of the Notes, including any missed
payments. In no event will a Payment Blockage Period extend beyond 179
days. Not more than one Payment Blockage Period with respect to the Notes
may be commenced during any period of 365 consecutive days. No event of
default with respect to Specified Senior Indebtedness that existed or was
continuing on the date of the commencement of any Payment Blockage Period
with respect to the Specified Senior Indebtedness initiating such Payment
Blockage Period will be, or can be, made the basis for the commencement of
a second Payment Blockage Period whether or not within a period of 365
consecutive days, unless such event of default has been cured or waived for
a period of not less than 90 consecutive days. (Section 1503)
The Indenture provides that in the event of any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation,
reorganization or other similar case or proceeding in connection therewith,
relative to the Company or to its creditors, as such, or its assets, or any
liquidation, dissolution or other winding up of the Company, whether voluntary
or involuntary, or any assignment for the benefit of creditors or other
marshalling of assets or liabilities of the Company, all Senior Indebtedness
must be paid in full in cash or cash equivalents or provision made for such
payment, before any payment or distribution is made on account of the
principal of, premium, if any, or interest on the Notes. (Section 1502) By
reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are holders of Senior Indebtedness may recover
more, ratably, than the holders of the Notes.
Failure by the Company to make any required payment in respect
of the Notes when due or within any applicable grace period, whether or not
occurring during a Payment Blockage Period, would result in an Event of
Default and, thereafter, holders of the Notes would have the right to
accelerate the maturity thereof. See "--Events of Default."
As of December 31, 1996, on a pro forma basis after giving
effect to the Loomis Fargo Combination and the Refinancing, the Company would
have had approximately $356.7 million aggregate outstanding principal amount
of Indebtedness, of which approximately $75.1 million would have been Senior
Indebtedness (exclusive, in each case, of approximately $128.8 million of
undrawn letters of credit that constitute Senior Indebtedness). In addition,
the Company would have had additional availability of $79.9 million for
borrowings under the New Credit Facility, all of which would be Senior
Indebtedness. Although the Indenture contains limitations on the amount of
additional Indebtedness that the Company may incur, under certain
circumstances the amount of such Indebtedness could be substantial and such
Indebtedness may be Senior Indebtedness. Moreover, neither the Indenture nor
the Notes impose any limitation on the incurrence by the Company of
liabilities that are not considered Indebtedness under the Indenture or the
Notes. See "--Certain Covenants--Limitation on Indebtedness."
The Company is a holding company that derives all of its
operating income and cash flow from its subsidiaries. Generally, claims of
creditors of a subsidiary, including trade creditors, secured creditors and
creditors holding indebtedness and guarantees issued by such subsidiary, and
claims of preferred stockholders (if any) of such subsidiary will have
priority with respect to the assets and earnings of such subsidiary over the
claims of creditors of its parent company, except to the extent the claims of
creditors of the parent company are guaranteed by such subsidiary. No
guarantees of the Notes were provided by any Person in connection with the Old
Note Offering and there will be no guarantees of the Notes provided by any
Person in connection with the offering of Exchange Notes and, except as
provided under the "Limitation on Issuances of Guarantees of Pari Passu or
Subordinated Indebtedness" covenant, there will be no guarantees of the Notes
in the future. The Notes, therefore, will be effectively subordinated to
creditors (including trade creditors) and preferred stockholders (if any) of
the direct and indirect subsidiaries of the Company. At December 31, 1996, on
a pro forma basis after giving effect to the Loomis Fargo Combination and the
Refinancing, the aggregate outstanding principal amount of indebtedness
(exclusive of obligations in respect of undrawn letters of credit of
approximately $128.8 million) of the Company's subsidiaries (including
guarantees by certain of the Company's subsidiaries of the Company's
obligations under the New Credit Facility) would have been approximately $83.3
million. Although the Indenture and the Notes contain limitations on the
amount of additional Indebtedness that the Company's subsidiaries may incur,
under certain circumstances such Indebtedness could be substantial. Moreover,
neither the Indenture nor the Notes imposes any limitation on the incurrence
by such subsidiaries of liabilities that are not considered Indebtedness under
the Indenture or the Notes. See "--Certain Covenants--Limitation on
Indebtedness." In addition, the Company has a $120 million non-recourse
receivables-backed facility available on a revolving basis. See "Description
of Certain Indebtedness--Securitization of Receivables."
"Specified Senior Indebtedness" means (i) all Indebtedness
under the Bank Credit Agreement to the extent any may be outstanding at any
time; and (ii) any other Senior Indebtedness which (x) at the time of
incurrence exceeds $25,000,000 in aggregate principal amount and (y) is
specifically designated in the instrument evidencing such Senior Indebtedness
as "Specified Senior Indebtedness" by the Company.
"Senior Indebtedness" means the principal of (and premium,
if any, on) and interest on (including interest accruing after the
occurrence of an event of default or after the filing of a petition
initiating any proceeding pursuant to any bankruptcy law whether or not
such interest is an allowable claim in any such proceeding) and other
amounts due on or in connection with any Indebtedness of the Company,
whether outstanding on the date of the Indenture or hereafter created,
incurred or assumed, including under the Bank Credit Agreement, unless, in
the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to
the Notes. Notwithstanding the foregoing, "Senior Indebtedness" shall not
include (A) Indebtedness evidenced by the Notes, (B) Indebtedness
evidenced by the 9 1/8% Notes and other Pari Passu Indebtedness, (C)
Indebtedness of the Company that is expressly subordinated in right of
payment to any Senior Indebtedness of the Company, the 9 1/8% Notes or the
Notes, (D) Indebtedness of the Company that by operation of law is
subordinate to any general unsecured obligations of the Company, (E)
Indebtedness of the Company to any Subsidiary, (F) to the extent it might
constitute Indebtedness, any liability for federal, state or local taxes or
other taxes, owed or owing by the Company and (G) to the extent it might
constitute Indebtedness, trade account payables owed or owing by the
Company.
"Indebtedness" means, with respect to any Person, without
duplication, (i) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services, excluding any trade accounts
payable and other accrued current liabilities incurred in the ordinary course
of business, but including, without limitation, all obligations, contingent or
otherwise, of such Person in connection with any letters of credit and
acceptances issued under letter of credit facilities, acceptance facilities or
other similar facilities, (ii) all obligations of such Person evidenced by
bonds, notes, debentures or other similar instruments, (iii) all indebtedness
created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even if the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), but excluding
trade accounts payable arising in the ordinary course of business, (iv) all
Capitalized Lease Obligations of such Person, (v) all Indebtedness referred to
in (but not excluded from) clause (i), (ii), (iii) or (iv) above of other
Persons and all dividends of other Persons, the payment of which is secured by
(or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property
(including, without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness, (vi) all Guaranteed Debt of such Person, (vii)
all Redeemable Capital Stock issued by such Person valued at the greater of
its voluntary or involuntary maximum fixed repurchase price plus accrued and
unpaid dividends, (viii) all obligations under interest rate contracts of such
Person and (ix) any amendment, supplement, modification, deferral, renewal,
extension or refunding of any liability of the types referred to in clauses
(i) through (viii) above. For purposes hereof, the "maximum fixed repurchase
price" of any Redeemable Capital Stock that does not have a fixed repurchase
price shall be calculated in accordance with the terms of such Redeemable
Capital Stock as if such Redeemable Capital Stock were purchased on any date
on which Indebtedness shall be required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by, the fair market
value of such Redeemable Capital Stock, such fair market value to be
determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock.
"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person guaranteed directly or indirectly in any
manner by such Person, or in effect guaranteed directly or indirectly by such
Person through an agreement (i) to pay or purchase such Indebtedness or to
advance or supply funds for the payment or purchase of such Indebtedness; (ii)
to purchase, sell or lease (as lessee or lessor) property, or to purchase or
sell services, primarily for the purpose of enabling the debtor to make
payment of such Indebtedness or to assure the holder of such Indebtedness
against loss; (iii) to supply funds to, or in any other manner invest in, the
debtor (including any agreement to pay for property or services to be acquired
by such debtor irrespective of whether such property is received or such
services are rendered); (iv) to maintain working capital or equity capital of
the debtor, or otherwise to maintain the net worth, solvency or other
financial condition of the debtor; or (v) otherwise to assure a creditor
against loss; provided that the term "guarantee" shall not include
endorsements for collection or deposit, in either case in the ordinary course
of business, or any obligation or liability of such Person in respect of
leasehold interests assigned by such Person to any other Person.
Certain Covenants
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness. The Company will not, and will not
permit any Subsidiary to, create, incur or assume or directly or indirectly
guarantee or in any other manner become directly or indirectly liable for the
payment of, or otherwise incur (collectively, "incur"), any Indebtedness
(including Indebtedness of an entity existing at the time such entity becomes
a Subsidiary or assumed in connection with the acquisition of assets from such
entity other than Indebtedness incurred in connection with, or in
contemplation of such entity becoming a Subsidiary or such acquisition), other
than Permitted Indebtedness, unless the Company's Adjusted Fixed Charge
Coverage Ratio for its last four completed fiscal quarters immediately
preceding the incurrence of such Indebtedness, taken as one period (and after
giving pro forma effect to (i) the incurrence of such Indebtedness and (if
applicable) the application of the net proceeds therefrom, as if such
Indebtedness was incurred, and the application of such proceeds occurred, on
the first day of such four-quarter period, (ii) the incurrence, repayment or
retirement of any other Indebtedness by the Company and its Subsidiaries since
the first day of such four-quarter period as if such Indebtedness was
incurred, repaid or retired on the first day of such four-quarter period
(except that, in making such computation, the amount of Indebtedness under any
revolving credit facility shall be computed based upon the average daily
balance of such Indebtedness during such four-quarter period) and (iii) the
acquisition (whether by purchase, merger or otherwise) or disposition (whether
by sale, merger or otherwise) of any company, entity or business acquired or
disposed of by the Company or its Subsidiaries, as the case may be, since the
first day of such four-quarter period, as if such acquisition or disposition
occurred on the first day of such four-quarter period), would have been at
least equal to 2.0 to 1.0. (Section 1008)
Limitation on Restricted Payments. (a) The Company will not,
and will not permit any of its Subsidiaries to, directly or indirectly, take
any of the following actions:
(i) declare or pay any dividend on, or make any distribution to
holders of, Capital Stock of the Company (other than dividends or
distributions payable solely in the Company's own Capital Stock
(other than Redeemable Capital Stock));
(ii) purchase, redeem, defease or otherwise acquire or retire
for value any Capital Stock of the Company or any options, warrants
or other rights to acquire such Capital Stock;
(iii) make any principal payment on, or redeem, repurchase or
defease, or otherwise acquire or retire for value, prior to any
scheduled principal payment or maturity, Indebtedness which is
Subordinated Indebtedness;
(iv) make any Investment (other than a Permitted Investment) in
any Person; or
(v) incur, create or assume any guarantee of Indebtedness of
any Affiliate (other than with respect to (a) guarantees of
Indebtedness of any Subsidiary by the Company or by any Subsidiary
or (b) guarantees of Indebtedness of the Company by any Subsidiary)
(such payments or any other actions described in (i), (ii), (iii), (iv) and
(v), collectively, "Restricted Payments") unless at the time of and after
giving effect to the proposed Restricted Payment (the amount of any such
payment, if other than cash, as determined by the Board of Directors, whose
determination shall be conclusive if evidenced by a Board Resolution), (1)
no Event of Default or event that, after notice or lapse of time or both
would become an Event of Default, shall have occurred or be continuing, and
(2) the Company could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the first paragraph of the "Limitation on
Indebtedness" covenant described above, and (3) the aggregate amount of all
Restricted Payments after April 1, 1993 shall not exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the
period beginning on April 1, 1993 and ending on the last day of the
Company's last fiscal quarter ending prior to the date of such
proposed Restricted Payment (or, if such aggregate Consolidated Net
Income shall be a loss, minus 100% of such loss), plus
(B) the aggregate net proceeds, including the fair market
value of property or assets other than cash (as determined by the
Board of Directors, whose determination will be conclusive if
evidenced by a Board Resolution), received by the Company from the
issue or sale (other than to a Subsidiary) after April 1, 1993 of
Capital Stock of the Company (other than Redeemable Capital Stock),
or of any options, warrants or other rights to purchase such Capital
Stock, plus
(C) the aggregate net cash proceeds received by the Company
from the issue or sale (other than to a Subsidiary) after April 1,
1993 of any debt securities or Redeemable Capital Stock evidencing
Indebtedness of the Company that thereafter has been converted into
or exchanged for Capital Stock of the Company (other than Redeemable
Capital Stock), plus
(D) to the extent not otherwise included in the Consolidated
Net Income of the Company, an amount equal to the net reduction in
Investments (other than reductions in Permitted Investments) in any
Person other than a Subsidiary resulting from the payments in cash
of interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to the Company
or a Subsidiary after the date of the Indenture from any such
Person, not to exceed the total amount of Investments (other than
Permitted Investments) in such Person by the Company and its
Subsidiaries. (Section 1009)
(b) None of the provisions set forth in paragraph (a) above
shall be deemed to prohibit:
(i) the payment of any dividend within 60 days after the date
of declaration thereof, if such declaration complied with the
foregoing provisions on the date of such declaration;
(ii) the redemption, repurchase or other acquisition or
retirement of any shares of any class of Capital Stock of the
Company or of any Subsidiary in exchange for, or out of the proceeds
of, a substantially concurrent issue and sale (other than to a
Subsidiary) of other shares of Capital Stock of the Company;
(iii) so long as no Default or Event of Default shall have
occurred and be continuing, payments with respect to the
cancellation or repurchase of stock or stock options granted or to
be granted to employees of the Company and its Subsidiaries under
the Borg-Warner Security Corporation Management Stock Option Plan or
the Borg-Warner Security Corporation 1993 Stock Option Plan or
pursuant to the Borg-Warner Holdings Corporation Management Stock
Subscription Agreement, as amended, in each case, in effect on the
date of the Indenture; provided that the Company could incur $1.00
of additional Indebtedness (other than Permitted Indebtedness) under
the first paragraph of the "Limitation on Indebtedness" covenant
described above; or
(iv) the purchase, redemption, defeasance or other acquisition
or retirement for value of any Subordinated Indebtedness in exchange
for, or out of the net cash proceeds of (x) a substantially
concurrent issuance and sale (other than to a Subsidiary) of, shares
of Capital Stock (other than Redeemable Capital Stock) of the
Company or (y) a substantially concurrent incurrence (other than to
a Restricted Subsidiary) of, new Subordinated Indebtedness so long
as (A) the principal amount of such new Indebtedness does not exceed
the principal amount (or, if such Subordinated Indebtedness being
refinanced provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration
thereof, such lesser amount as of the date of determination) of the
Subordinated Indebtedness being so purchased, redeemed, defeased,
acquired or retired, plus the lesser of the amount of any premium
required to be paid in connection with such refinancing pursuant to
the terms of the Subordinated Indebtedness being refinanced or the
amount of any premium reasonably determined by the Company as
necessary to accomplish such refinancing, plus, in either case, the
amount of reasonable expenses of the Company incurred in connection
with such refinancing, (B) such new Subordinated Indebtedness is
subordinated to the Notes to the same extent as such Subordinated
Indebtedness so purchased, redeemed, defeased, acquired or retired
and (C) such new Subordinated Indebtedness has an Average Life
longer than the Average Life of the Notes and a final Stated
Maturity of principal later than the final Stated Maturity of
principal of the Notes.
The action described in clauses (ii) and (iv)(x) of this
paragraph shall be a Restricted Payment that shall be permitted to be made in
accordance with this paragraph but shall reduce the amount that would
otherwise be available for Restricted Payments under paragraph (a) above.
(Section 1009)
Limitation on Issuance of Other Senior Subordinated
Indebtedness. The Company will not create, incur or suffer to exist any
Indebtedness that is subordinate in right of payment and upon liquidation to
any Senior Indebtedness unless such Indebtedness is also pari passu with, or
subordinate in right of payment and upon liquidation to, the Notes pursuant to
subordination provisions substantially similar to those contained in the
Indenture. (Section 1010)
Limitation on Issuances and Sale of Preferred Stock by
Subsidiaries. The Company (i) will not permit any of its Subsidiaries to
issue any Preferred Stock to any person (other than to the Company or to a
Wholly Owned Subsidiary of the Company) and (ii) will not permit any person
(other than the Company or a Wholly Owned Subsidiary of the Company) to own
any Preferred Stock of any Subsidiary of the Company; provided, however, that
nothing in such covenant will prohibit Preferred Stock issued by a person
prior to the time (a) such person becomes a Subsidiary of the Company, (b)
such person merges with or into a Subsidiary of the Company or (c) a
Subsidiary of the Company merges with or into such person; provided further
that such Preferred Stock was not issued or incurred by such person in
anticipation of the transaction contemplated by subclause (a), (b), or (c)
above. Section (1014).
Limitations on Issuances of Guarantees of Pari Passu or
Subordinated Indebtedness. The Company will not permit any Subsidiary,
directly or indirectly, to assume, guarantee or in any other manner become
liable with respect to any Indebtedness that is Pari Passu Indebtedness or
Subordinated Indebtedness, unless (i) such Subsidiary simultaneously executes
and delivers a supplemental indenture to the Indenture providing for a
guarantee of payment of the Notes by such Subsidiary, provided that (A) if any
such assumption, guarantee or other liability is subordinated, the guarantee
under such supplemental indenture shall be subordinated to no more than the
same extent as the Notes are subordinated to Senior Indebtedness and (B) with
respect to Subordinated Indebtedness, any such assumption, guarantee or other
liability of such Subsidiary with respect to such Subordinated Indebtedness
shall be subordinated to such Subsidiary's assumption, guarantee or other
liability with respect to the Notes at least to the same extent as such
Subordinated Indebtedness is subordinated to the Notes; and (ii) such
Subsidiary waives and will not in any manner whatsoever claim or take the
benefit or advantage of, any rights of reimbursement, indemnity or subrogation
or any other rights against the Company or any other Subsidiary as a result of
any payment by such Subsidiary under its Guarantee (as defined below) until
such time as the Notes have been paid in full; provided that this paragraph
shall not be applicable to any guarantee, assumption or other liability of any
Subsidiary that (x) existed at the time such Person became a Subsidiary and
(y) was not incurred in connection with, or in contemplation of, such Person
becoming a Subsidiary.
Each guarantee created pursuant to the provisions described in
the foregoing paragraph (or any other guarantee by any Subsidiary of payment
of the Notes provided, that (i) such Subsidiary simultaneously executes and
delivers a supplemental indenture to the Indenture providing for a guarantee
of payment of the Notes by such Subsidiary and providing that (a) such other
guarantee shall be subordinated to no more than the same extent as the Notes
are subordinated to Senior Indebtedness and (b) such other guarantee shall be
senior to at least the same extent as the Notes are senior to Subordinated
Indebtedness, and (ii) such Subsidiary takes the action referred to in clause
(ii) of the prior paragraph) is referred to as a "Guarantee" and the issuer of
each such Guarantee is referred to as a "Guarantor." Notwithstanding the
foregoing, any Guarantee by a Subsidiary of the Notes shall provide by its
terms that it shall be automatically and unconditionally released and
discharged upon (i) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all of the Company's Capital Stock in, or all or
substantially all the assets of, such Subsidiary (which sale, exchange or
transfer is not prohibited by the Indenture) or (ii) in the case of any
Guarantee created pursuant to the provisions described in the foregoing
paragraph, the release or discharge of the assumption, guarantee or other
liability which resulted in the creation of such Guarantee, except a discharge
or release by or as a result of payment under such assumption, guarantee or
other liability. (Section 1015)
Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries. The Company will not, and will not permit any
Subsidiary to, create or otherwise cause to exist or become effective any
consensual encumbrance or restriction of any kind, other than those included
in the terms of the Notes, the Bank Credit Agreement as originally executed or
any successor Bank Credit Agreement containing such encumbrances or
restrictions that are no more restrictive than as set forth in the Bank Credit
Agreement as originally executed, or those in existence immediately prior to
the date of the Indenture, on the ability of any Subsidiary to (i) pay
dividends or make any other distribution on its Capital Stock to the Company
or any Subsidiary, (ii) pay any Indebtedness owed to the Company or any
Subsidiary, (iii) make loans or advances to the Company or any Subsidiary,
(iv) transfer any of its property or assets to the Company or any Subsidiary
or (v) guarantee any Indebtedness of the Company or any Subsidiary, except in
each case for such encumbrances or restrictions as are (a) in the case of (iv)
above, permitted to be incurred under the "Limitation on Liens" covenant or
(b) existing under or by reason of any agreement or other instrument of a
Person, or binding with respect to assets, acquired by the Company or any
Subsidiary in existence at the time of such acquisition (but not created in
contemplation thereof), which encumbrance or restriction is not applicable to
any Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, or such assets, so acquired. (Section
1011)
Limitation on Liens. The Company will not, and will not permit
any Subsidiary to, directly or indirectly, create, incur, assume or suffer to
exist any Lien of any kind upon any of its property or assets, now owned or
acquired after the date of the Indenture, without making effective provision
whereby all of the Notes shall be directly secured equally and ratably with
(or prior to) the obligation or liability secured by such Lien, except for
Permitted Liens. (Section 1012)
Limitation on Transactions with Affiliates. The Company
will not enter into, renew, extend, or permit any Subsidiary to enter into,
renew or extend, any agreement relating to the sale, purchase or lease of
any assets, property or services from or to any Affiliate of the Company
(other than a Wholly Owned Subsidiary of the Company) unless (i) such
transaction or series of transactions is or are on terms that are no less
favorable to the Company or such Subsidiary, as the case may be, than would
be available in a comparable transaction with an unaffiliated third party;
and (ii) (A) with respect to any transaction or series of transactions
involving aggregate payments in excess of $5 million, but less than $10
million, the Company delivers an officer's certificate to the Trustee
certifying that such transaction or transactions comply with clause (i)
above and (B) with respect to a transaction or series of transactions,
involving aggregate payments equal to or greater than $10 million, such
transaction or transactions shall have received the approval of a majority
of the disinterested directors of the Board of Directors of the Company;
provided, however, that the foregoing restriction shall not apply to (i)
the payment of fees to Merrill Lynch Capital Partners, Inc. or Merrill
Lynch, Pierce, Fenner & Smith Incorporated or any of their Affiliates for
consulting, investment banking or financial advisory services rendered by
such Person to the Company or any of its Subsidiaries, (ii) actions in
connection with indebtedness to the Company incurred by certain members of
management of the Company to purchase shares of Common Stock, which
indebtedness is outstanding on the date of the Indenture, (iii) sales of
goods and services by the Company or any of its Subsidiaries to Affiliates
of the Company in the ordinary course of business, (iv) transactions
pursuant to the Distribution and Indemnity Agreement dated as of January
27, 1993, the Tax Sharing Agreement dated as of January 27, 1993, the
Benefits Agreement dated as of January 27, 1993, and the Service Agreement
dated as of January 27, 1993, in each case as in effect on the date of the
Indenture, (v) the Contribution Agreement dated November 28, 1996, the
Stockholders Agreement dated January 24, 1997 and all agreements related
thereto and (vi) services rendered to Loomis Fargo by the Company's senior
executive officers. (Section 1013)
Under Delaware law, the disinterested directors' fiduciary
obligations require that they act in good faith in a manner which they
reasonably believe to be in the best interests of the Company and its
stockholders, which may not necessarily be the same as those of holders of the
Notes.
Provision of Financial Statements and Reports. The Company
will file on a timely basis with the Commission, to the extent such filings
are accepted by the Commission and whether or not the Company has a class of
securities registered under the Exchange Act, the annual reports, quarterly
reports and other documents that the Company would be required to file if it
were subject to Section 13 or 15 of the Exchange Act. The Company will also be
required (a) to file with the Trustee, and provide to each holder of Notes,
without cost to such holder, copies of such reports and documents within 15
days after the date on which the Company files such reports and documents with
the Commission or the date on which the Company would be required to file such
reports and documents if the Company were so required, and (b) if filing such
reports and documents with the Commission is not accepted by the Commission or
is prohibited under the Exchange Act, to supply at the Company's cost copies
of such reports and documents to any prospective holder of Notes promptly upon
written request. (Section 1017)
Purchase of Notes upon Change of Control
If a Change of Control occurs at any time, each holder of Notes
will have the right to require that the Company repurchase each such holder's
Notes at a purchase price in cash equal to 101% of the principal amount of
such Notes plus accrued interest, if any, to the date of purchase pursuant to
the offer described below (the "Change of Control Offer") and as provided in
and subject to the terms of the Indenture. The indenture governing the 9 1/8%
Notes has a similar provision obligating the Company to make an offer to
purchase the 9 1/8% Notes in the event of a Change of Control. If there is a
Change of Control, due to the subordinated nature of the Notes or otherwise,
there can be no assurance that the Company will have available funds
sufficient to pay such purchase price for all of the Notes that holders elect
to require the Company to repurchase.
Within 30 days following a Change of Control and prior to the
mailing of the notice to holders provided for in the next paragraph, the
Company covenants to either (1) repay in full all Indebtedness under the Bank
Credit Agreement or offer to repay in full all such Indebtedness and repay the
Indebtedness of each Bank who has accepted such offer or (2) obtain the
requisite consent under the Bank Credit Agreement to permit the repurchase of
the Notes as provided for in this "Purchase of Notes upon Change of Control"
covenant. The Company shall first comply with the provisions of this paragraph
before it shall be required to repurchase the Notes pursuant to this "Purchase
of Notes upon Change of Control" covenant, and any failure to comply with this
paragraph shall constitute a default for purposes of clause (D) of the first
paragraph under "Events of Default". There can be no assurance that in the
event of a Change of Control the Company will be able to repay all amounts
outstanding under the Bank Credit Agreement or obtain the necessary consents
from the lenders under the Bank Credit Agreement to consummate a Change of
Control Offer. The failure of the Company to make or consummate the Change of
Control Offer or pay the Change of Control Purchase Price when due would
result in an Event of Default and would give the Trustee and the holders of
the Notes the rights described under "--Events of Default."
Within 30 days following any Change of Control, the Company
shall mail a notice to each holder stating (a) that a Change of Control has
occurred and that such holder has the right to require the Company to purchase
such holder's Notes in cash; (b) the date of purchase (which shall be no
earlier than 30 days nor later than 60 days from the date such notice is
mailed); (c) the purchase price for the purchase; and (d) the instructions
determined by the Company, consistent with this covenant, that a holder must
follow in order to have its Notes repurchased. (Section 1016)
The Company will comply with Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable, in the event that a Change of Control
occurs and the Company is required to purchase Notes as described above. The
existence of a holder's right to require, subject to certain conditions, the
Company to repurchase its Notes upon a Change of Control may deter a third
party from acquiring the Company in a transaction which constitutes a Change
of Control.
The provisions of the Indenture may not afford holders of Notes
protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction involving the Company that may
adversely affect holders of the Notes, if such transaction is not a
transaction defined as a Change of Control. Reference is made to "Certain
Definitions" for the definition of "Change of Control". A transaction
involving the Company's management or its affiliates, or a transaction
involving a recapitalization of the Company, will result in a Change of
Control if it is the type of transaction specified by such definition.
The use of the term "all or substantially all" in Indenture
provisions such as clause (b) of the definition of "Change of Control" and
under "--Consolidation, Merger and Sale of Assets" has no clearly established
meaning under New York law (which governs the Indenture) and has been the
subject of limited judicial interpretation in few jurisdictions. Accordingly,
there may be a degree of uncertainty in ascertaining whether a particular
transaction would involve a disposition of "all or substantially all" of the
assets of a person, which uncertainty should be considered by prospective
purchasers of the Notes.
Treatment by the Company. For United States tax purposes, the
Company does not intend to treat the possibility of a Change of Control Offer
as giving rise to any accrual of "original issue discount" or recognition of
ordinary income upon redemption, sale or exchange of a Note. Holders may wish
to consider that United States Treasury Regulations regarding the treatment of
certain contingencies were recently issued and may wish to consult their tax
advisers in this regard.
Consolidation, Merger and Sale of Assets
The Company may not, in a single transaction or a series of
transactions, consolidate with or merge with or into, or sell, assign, convey,
transfer or lease or otherwise dispose of its properties and assets
substantially as an entirety to, any entity, and the Company will not permit
any of its Subsidiaries to enter into any such transaction or series of
transactions if such transaction or series of transactions, in the aggregate,
would result in a sale, assignment, conveyance, transfer, lease or other
disposition of all or substantially all of the properties and assets of the
Company or the Company and its Subsidiaries, taken as a whole, to any other
entity unless: (i) either (a) the Company shall be the continuing corporation
or (b) the entity (if other than the Company) formed by such consolidation or
into which the Company or such Subsidiary is merged or the entity that
acquires by sale, assignment, conveyance, transfer or lease the properties and
assets of the Company or such Subsidiary, as the case may be, substantially as
an entirety shall be a corporation, partnership or trust organized and validly
existing under the laws of the United States or any State thereof or the
District of Columbia, and shall expressly assume by a supplemental indenture,
the due and punctual payment of the principal of and premium, if any, and
interest on all the Notes and the performance of every covenant of the
Indenture on the part of the Company to be performed or observed; (ii)
immediately thereafter, no Event of Default (and no event that, after notice
or lapse of time, or both, would become an Event of Default) shall have
occurred and be continuing; (iii) immediately thereafter, on a pro forma basis
(including, without limitation, any Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction or series of
transactions), the Company or such entity, after giving effect to such
transaction or series of transactions on a pro forma basis, could incur $1.00
of additional Indebtedness (other than Permitted Indebtedness) under the first
paragraph of the "Limitation on Indebtedness" covenant described above; (iv)
the Company or such entity shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, sale, assignment, conveyance, transfer or lease and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture, comply with the Indenture and that all conditions precedent therein
relating to such transaction have been satisfied; and (v) if any of the
property or assets of the Company would thereupon become subject to any Lien,
the Outstanding Notes shall be secured equally and ratably with (or prior to)
the obligation or liability secured by such Lien, unless the Company could
create such Lien under the Indenture without equally and ratably securing the
Notes. (Sections 801 and 803)
In the event of any transaction described in and complying with
the conditions listed in the immediately preceding paragraph in which the
Company is not the continuing corporation, the successor person formed or
remaining shall succeed to, and be substituted for, and may exercise every
right and power of, the Company and, thereafter, except in the case of a
lease, the Company would be discharged from all obligations and covenants
under the Indenture and the Notes. (Section 802)
Events of Default
"Event of Default" means any one of the following events
(whatever the reason for such Event of Default and whether it be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
A. default in the payment of any interest on any Note when
it becomes due and payable, and continuance of such default for a period of
30 days; or
B. default in the payment of the principal of (or any
premium, if any, on) any Note at its Maturity; or
C. default in the performance, or breach, of any covenant or
warranty of the Company in the Indenture (other than a default in the
performance, or breach, of a covenant or warranty which is specifically
dealt with elsewhere in this section of the Indenture), and continuance of
such default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in principal amount
of all Outstanding Notes a written notice specifying such default or breach
and requiring it to be remedied and stating that such notice is a "Notice
of Default" thereunder; or
D. (a) an event of default shall have occurred under any
mortgage, bond, indenture, loan agreement or other document evidencing any
Indebtedness of the Company or any Subsidiary, which Indebtedness is
outstanding in a principal amount of at least $10,000,000 in the aggregate,
and such default shall result in such Indebtedness becoming, whether by
declaration or otherwise, due and payable prior to the date on which it
would otherwise become due and payable or (b) a default in any payment when
due at final maturity of any such Indebtedness; or
E. any Person entitled to take the actions described in this
section, after the occurrence of any event of default under any agreement
or instrument evidencing any Indebtedness in excess of $10,000,000 in the
aggregate of the Company or any Subsidiary, shall commence judicial
proceedings to foreclose upon assets of the Company or any of its
Subsidiaries having an aggregate value in excess of $10,000,000, or shall
have exercised any right under applicable law or applicable security
documents to take ownership of such assets in lieu of foreclosure; or
F. final judgments or orders rendered against the Company or
any Subsidiary which require the payment in money, either individually or
in an aggregate amount, that is more than $10,000,000 and either (a) an
enforcement proceeding shall have been commenced by any creditor upon such
judgment or order or (b) there shall have been a period of 60 days during
which a stay of enforcement of such judgment or order, by reason of pending
appeal or otherwise, was not in effect; or
G. the entry by a court having jurisdiction in the premises
of (a) a decree or order for relief in respect of the Company or any
Material Subsidiary in an involuntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization or other
similar law or (b) a decree or order adjudging the Company or any Material
Subsidiary a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition of
or in respect of the Company or any Material Subsidiary under any
applicable federal or state law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of
the Company or any Material Subsidiary or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order for relief or any such other decree
or order unstayed and in effect for a period of 60 consecutive days; or
H. the commencement by the Company or any Material
Subsidiary of a voluntary case or proceeding under any applicable federal
or state bankruptcy, insolvency, reorganization or other similar law or of
any other case or proceeding to be adjudicated a bankrupt or insolvent, or
the consent by the Company or any Material Subsidiary to the entry of a
decree or order for relief in respect of the Company or such Material
Subsidiary in an involuntary case or proceeding under any applicable
federal or state bankruptcy, insolvency, reorganization or other similar
law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by the Company or any Material
Subsidiary of a petition or answer or consent seeking reorganization or
relief under any applicable federal or state law, or the consent by the
Company or any Material Subsidiary to the filing of such petition or the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of the Company or such
Material Subsidiary or of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or the
admission by the Company or any Material Subsidiary in writing of its
inability to pay its debts generally as they become due, or the taking of
corporate action by the Company or any Material Subsidiary in furtherance
of any such action; or
I. any Guarantee required to be in full force and effect by
the terms of the Indenture ceases to be in full force and effect or is
declared null and void, or any Guarantor denies that it has any further
liability under any Guarantee, or gives notice to such effect (other than
by reason of the termination of the Indenture or the release of any such
Guarantee in accordance with the Indenture) and such condition shall have
continued for a period of 60 days after written notice of such failure
requiring the Guarantor and the Company to remedy the same shall have been
given (x) to the Company by the Trustee or (y) to the Company and the
Trustee by Holders of at least 25% in aggregate principal amount of the
Notes then outstanding.
If an Event of Default (other than as specified in (G) or (H)
above) occurs and is continuing under the Indenture, either the Trustee or the
Holders of not less than 25% in aggregate principal amount of the outstanding
Notes may immediately accelerate the maturity of all the Notes as provided in
the Indenture; provided, however, that no action on the part of the Trustee or
any Holder of the Notes is required for such acceleration if an Event of
Default specified in (G) or (H) above occurs and is continuing; and provided
further that, after such acceleration, but before a judgment or decree based
on acceleration, the Holders of a majority in aggregate principal amount of
outstanding Notes issued under the Indenture may, under certain circumstances,
rescind or annul such acceleration if all Events of Default, other than the
nonpayment of accelerated principal of, or premium, if any, on, or interest on
the Notes, have been cured or waived as provided in the Indenture. A
declaration of acceleration because of an Event of Default specified in (D) or
(E) above would be automatically annulled if the Indebtedness referred to
therein were discharged, or the Holders thereof rescinded their declaration of
acceleration referred to therein, within 60 days and no other Event of Default
had occurred and not been cured or waived during such period. (Section 502)
The Holders of a majority in principal amount of the Notes Outstanding also
have the right to waive certain past defaults under the Indenture. (Section
513)
No Holder of any Note issued under the Indenture has any right
to institute any proceeding with respect to such Indenture or for any remedy
thereunder, unless (i) such Holder has previously given to the Trustee (and, if
the Bank Credit Agreement is in effect, to the agent under the Bank Credit
Agreement) written notice of a continuing Event of Default under the
Indenture, (ii) the Holders of at least 25% in principal amount of the
Outstanding Notes issued under the Indenture have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as
Trustee under the Indenture, and (iii) the Trustee has not received from the
Holders of a majority in principal amount of the Outstanding Notes a direction
inconsistent with such request and the Trustee has failed to institute such
proceeding within 60 days after receipt of such notice. (Section 507) Such
limitations do not apply, however, to a suit instituted by a Holder of a Note
for the enforcement of payment of the principal of or premium, if any, or
interest on such Note on or after the respective due dates expressed in such
Note. (Section 508)
During the existence of an Event of Default, the Trustee is
required to exercise such rights and powers vested in it under the Indenture
and use the same degree of care and skill in its exercise thereof as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs. Subject to the provisions of the Indenture relating to the duties
of the Trustee, in case an Event of Default shall occur and be continuing, the
Trustee is not under any obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the Holders unless
such holders shall have offered to the Trustee reasonable security or
indemnity. (Section 602) Subject to such provisions for the indemnification of
the Trustee, the Holders of a majority in principal amount of the Outstanding
Notes have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee under the Indenture. (Section 512)
The Company is required to furnish to the Trustee an annual
statement as to the performance by the Company of its obligations under the
Indenture. (Section 1004)
Modification or Waiver
Modification and amendment of the Indenture may be made by
the Company and the Trustee with the consent of the Holders of not less
than a majority in principal amount of all Outstanding Notes that are
affected by such modification or amendment; provided that no such
modification or amendment may, without the consent of the Holder of each
Outstanding Note affected thereby, among other things: (i) change the
Stated Maturity of the principal of or any installment of interest on any
such Note; (ii) reduce the principal amount of or the rate of interest on,
or any premium payable upon the redemption of, any such Note; (iii)
adversely affect any right of repayment at the option of any Holder of any
such Note; (iv) change the Place of Payment or the coin or currency of
payment of the principal of, or any premium or interest on, any such Note;
(v) impair the right to institute suit for the enforcement of any such
payment on or after the Stated Maturity thereof or on or after any
Redemption Date or Repayment Date thereof; (vi) reduce the above-stated
percentage in principal amount of such Outstanding Notes, the consent of
whose Holders is necessary to modify or amend the Indenture or to consent
to any waiver thereunder or certain defaults thereunder; (vii) modify any
of the foregoing requirements or reduce the percentage of such Outstanding
Notes necessary to waive any past default or compliance with certain
restrictive provisions; or (viii) modify any of the provisions of the
Indenture relating to the subordination of the Notes in a manner adverse to
the Holders of Notes. (Section 902)
The Holders of a majority in aggregate principal amount of all
Outstanding Notes affected thereby have the right to waive compliance by the
Company with certain covenants. (Section 1017)
Modification and amendment of the Indenture may be made by the
Company and Trustee without the consent of any Holder for any of the following
purposes: (i) to evidence the succession of another Person to the Company as
obligor under the Indenture and the Notes; (ii) to add to the covenants of the
Company for the benefit of the Holders of Notes or to surrender any right or
power conferred upon the Company by the Indenture; (iii) to add Events of
Default for the benefit of the Holders of Notes; (iv) to secure the Notes
pursuant to the provisions described above under "Limitation on Liens" or
"Consolidation, Merger and Sale of Assets" or otherwise; (v) to provide for
the acceptance of appointment by a successor Trustee; (vi) to cure any
ambiguity, defect or inconsistency in the Indenture, provided such action does
not adversely affect the interests of Holders of Notes in any material
respect; or (vii) to supplement any of the provisions of the Indenture to the
extent necessary to permit or facilitate defeasance and discharge of the
Notes, provided that such action shall not adversely affect the interests of
the Holders of Notes in any material respect. (Section 901)
The Indenture provides that in determining whether the Holders
of the requisite principal amount of Outstanding Notes have given any request,
demand, authorization, direction, notice, consent or waiver thereunder, Notes
owned by the Company or any other obligor upon the Notes or any Affiliate of
the Company or of such other obligor shall be disregarded. (Section 101)
Discharge, Defeasance and Covenant Defeasance
The Company may discharge certain obligations to Holders of
Notes which have not already been delivered to the Trustee for cancellation
and which have either become due and payable or are by their terms due and
payable within one year (or scheduled for redemption within one year) when the
Company has (i) irrevocably deposited with the Trustee in trust funds in an
amount sufficient to pay the entire indebtedness on such Notes for principal
(and premium, if any) and interest to the date of such deposit (if such Notes
have become due and payable) or to the Stated Maturity or Redemption Date, as
the case may be; (ii) paid or caused to be paid all sums payable under the
Indenture by the Company; and (iii) delivered to the Trustee an Officers
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided in the Indenture relating to the satisfaction and discharge
of the Indenture have been complied with. (Section 401)
The Company may, at its option and at any time, elect to have
its obligations discharged with respect to the Outstanding Notes
("defeasance"). Such defeasance means that the Company shall be deemed to have
paid and discharged the entire indebtedness represented by such Outstanding
Notes and to have satisfied its other obligations under such Notes and the
Indenture, except for (i) the rights of Holders of such Outstanding Notes to
receive from a trust fund payments in respect of the principal of (and
premium, if any, on) and interest on such Notes when such payments are due,
(ii) the Company's obligations with respect to such Notes relating to the
registration, transfer and exchange of Notes, the replacement of mutilated,
destroyed, lost or stolen Notes, the maintenance of an office or agency in the
applicable Place of Payment and the holding of money for security payments in
trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee,
and (iv) the defeasance provisions of the Indenture. In addition, the Company
may, at its option and at any time, elect to be released from its obligations
with respect to certain covenants in the Indenture ("covenant defeasance"),
and any omission to comply with such obligations thereafter shall not
constitute a Default or an Event of Default with respect to the Notes.
(Sections 1402 and 1403)
In order to exercise either defeasance or covenant
defeasance: (i) the Company must irrevocably deposit with the Trustee (or
other qualifying trustee), in trust, for the benefit of the Holders of such
Notes, cash, Government Obligations, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants to pay the principal of (and
premium, if any, on) and interest on such Outstanding Notes on the
scheduled due dates therefor; (ii) in the case of defeasance, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that (x)
the Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (y) since the date of the Indenture, there has
been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such Opinion of Counsel shall confirm
that, the Holders of such Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance had not
occurred; (iii) in the case of covenant defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of such Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such covenant defeasance
had not occurred; (iv) no event or condition shall exist that, pursuant to
certain provisions described under "Subordination" above, would prevent the
Company from making payments of principal of (and premium, if any) and
interest on the Notes at the date of the irrevocable deposit referred to
above or at any time during the period ending on the 91st day after such
deposit date; (v) in the case of defeasance or covenant defeasance, such
defeasance shall not be in violation of the terms of any agreement or
instrument to which the Company is a party or to which any of its
properties are subject and the Agents under the Bank Credit Agreement shall
have delivered a certificate to the Trustee and the Company that such
defeasance shall not be in violation of the terms of the Bank Credit
Agreement and (vi) the Company must comply with certain other conditions.
Before the deposit referred to in clause (i) above, the Company may give to
the Trustee, in accordance with the Indenture, a notice of its election to
redeem all or any portion of the Outstanding Notes at a future date in
accordance with the terms of the Notes and the Indenture, which notice
shall be irrevocable. (Sections 1402, 1403 and 1404)
"Government Obligations" means securities which are direct
obligations of the United States the timely payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States, which are not callable or redeemable at the option of the issuer
thereof and shall also include a depository receipt issued by a bank or trust
company as custodian with respect to any such Government Obligation or a
specified payment of interest on or principal of any such Government
Obligation held by such custodian for the account of the holder of a
depository receipt; provided that (except as required by law) such custodian
is not authorized to make any deduction from the amount payable to the holder
of such depository receipt from any amount received by the custodian in
respect of the Government Obligation or the specific payment of interest or
principal of the Government Obligation evidenced by such depository receipt.
(Section 101)
In the event that the Company effects covenant defeasance with
respect to any Notes and such Notes are declared due and payable because of
the occurrence of any Event of Default other than the Event of Default
described in clause (C) under "Events of Default" with respect to Sections 803
and 1005 through 1017 of the Indenture (which Sections would no longer be
applicable to such Notes) or described in clause (D) under "Events of Default"
with respect to any other covenant with respect to which there has been
defeasance, the amounts of U.S. dollars and of Government Obligations that are
on deposit with the Trustee will be sufficient to pay amounts due on such
Notes at the time of their Stated Maturity but may not be sufficient to pay
amounts due on such Notes at the time of the acceleration resulting from such
Event of Default. However, the Company would remain liable to make payment of
such amounts due at the time of acceleration. (Section 1403)
If the Trustee or any Paying Agent is unable to apply any
money in accordance with the Indenture by reason of any order or judgment
of any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Company's obligations under the
Indenture and such Notes shall be revived and reinstated as though no
deposit had occurred pursuant to the Indenture, until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance
with the Indenture; provided, however, that, if the Company makes any
payment of principal of (or premium, if any, on) or interest on any such
Note following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such
payment from the money held by the Trustee or Paying Agent. (Section 1406)
The Trustee
The Indenture provides that, except during the continuance of
an Event of Default, the Trustee will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred
and is continuing, the Trustee will exercise such rights and powers vested in
it under the Indenture and use the same degree of care and skill in its
exercise as a prudent Person would exercise under the circumstances in the
conduct of such Person's own affairs. (Section 602)
The Indenture and provisions of the Trust Indenture Act
incorporated by reference therein contain limitations on the rights of the
Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received
by it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided, however, that if it
acquires any conflicting interest (as defined in the Trust Indenture Act) it
must eliminate such conflict or resign.
Governing Law
The Indenture, the Notes and any Guarantee are governed by, and
are to be construed in accordance with, the laws of the State of New York. The
Indenture will be qualified under the provisions of the Trust Indenture Act
that are required to be part of the Indenture and shall, to the extent
applicable, be governed by such provisions.
Certain Definitions
Set forth below is a summary of certain defined terms used in
the Indenture. Reference is made to the Indenture for the full definition of
all such terms.
"Adjusted Fixed Charge Coverage Ratio" means for any period the
ratio of (a) the sum of Consolidated Net Income, Consolidated Interest
Expense, Consolidated Tax Expense and Consolidated Non-cash Charges deducted
in computing Consolidated Net Income, in each case, for such period, on a
consolidated basis, to (b) Consolidated Interest Expense for such period;
provided that, in making such computation, the Consolidated Interest Expense
attributable to interest on any Indebtedness computed on a pro forma basis and
bearing a floating interest rate shall be computed as if the rate in effect on
the date of computation had been the applicable rate for the entire period.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control" when used with respect to any specified Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Bank Credit Agreement" means the Credit Agreement among
Bankers Trust Company, Canadian Imperial Bank of Commerce and NationsBank,
N.A., as agents, the other Banks and the Company as in effect on the Original
Issue Date and as such agreement may be amended, renewed, extended,
substituted, refinanced, restructured, replaced, supplemented or otherwise
modified from time to time (including, without limitation, any successive
renewals, extensions, substitutions, refinancings, restructurings,
replacements, supplementations or other modifications of the foregoing).
"Banks" means the banks and other financial institutions from
time to time that are lenders under the Bank Credit Agreement.
"Capitalized Lease Obligation" means any obligations of the
Company and its Subsidiaries on a consolidated basis under any capital lease
of real or personal property that, in accordance with GAAP, has been recorded
as a capitalized lease obligation.
"Cash Equivalents" means, at any time, (i) any evidence of
Indebtedness with a maturity of 365 days or less from the date of acquisition
thereof issued or directly and fully guaranteed or insured by the United
States of America or any agency or instrumentality thereof (provided that the
full faith and credit of the United States of America is pledged in support
thereof); (ii) time deposits or certificates of deposit or acceptances with a
maturity of one year or less from the date of acquisition thereof of any
financial institution that is a member of the Federal Reserve System having
combined capital and surplus and undivided profits of not less than
$100,000,000; (iii) (a) commercial paper with a maturity of one year or less
from the date of acquisition thereof issued by the parent of any commercial
bank (provided that the financial institution is a member of the Federal
Reserve System) of recognized standing having capital and surplus in excess of
$500,000,000 and (b) commercial paper with a maturity of one year or less from
the date of acquisition thereof issued by a corporation that is not an
Affiliate of the Company organized under the laws of any state of the United
States or the District of Columbia and rated at least A-1 by S&P or at least
P-1 by Moody's or at least an equivalent rating category of another nationally
recognized securities rating agency; (iv) repurchase agreements and reverse
repurchase agreements relating to marketable direct obligations issued or
unconditionally guaranteed by the government of the United States of America
or issued by any agency thereof and backed by the full faith and credit of the
United States of America, in each case maturing within one year from the date
of acquisition; (v) investments in money market funds substantially all of
whose assets are comprised of securities of the type described in clauses (i)
through (iv) above; and (vi) obligations the interest with respect to which is
excluded from gross income under Section 103 of the Internal Revenue Code of
1986, with a maturity of not more than six months from the date of acquisition
thereof or with the right of the holder to put such obligations for purchase
at par upon not more than seven days' notice, and in each case which are rated
A-2 or higher by S&P or rated P-2 or higher by Moody's.
"Change of Control" means the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) other than Permitted Holders
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the total
Voting Stock of the Company and the Permitted Holders do not have the right
or ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors of the Company; (b) the
Company consolidates with, or merges with or into, another person or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any person, or any person consolidates
with, or merges with or into, the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is
converted into or exchanged for cash, securities or other property, other
than any such transaction where (i) the outstanding Voting Stock of the
Company is converted into or exchanged for (1) Voting Stock (other than
Redeemable Capital Stock) of the surviving or transferee corporation or (2)
cash, securities and/or other property in an amount which could be paid by
the Company as a Restricted Payment under the Indenture and (ii)
immediately after such transaction either (x) no "person" or "group" (as
such terms are used in Section 13(d) or 14(d) of the Exchange Act), other
than Permitted Holders, directly or indirectly, is the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
person shall be deemed to have "beneficial ownership" of all securities
that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), of more than
50% of the total Voting Stock of the surviving or transferee corporation,
or (y) the Permitted Holders have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the
Board of Directors of the Company, or (c) during any consecutive two-year
period, individuals who at the beginning of such period constituted the
Board of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of 66(2)/3% of the
directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously
so approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office.
"Consolidated Gross PP&E" means, with respect to the Company as
of the end of any fiscal year of the Company, the amount of property, plant
and equipment of the Company and its Subsidiaries, determined on a
consolidated basis, as shown on an audited balance sheet of the Company as of
the end of such fiscal year, without giving effect to accumulated depreciation
and amortization in respect of such property, plant and equipment.
"Consolidated Interest Expense" means for any period the sum of
(i) the aggregate of the interest expense on Indebtedness of the Company and
its consolidated Subsidiaries for such period, on a consolidated basis, plus
(ii) that portion of operating lease rentals representative of the interest
factor (which shall be deemed to be one-third of operating lease rentals), in
each case as determined in accordance with GAAP.
"Consolidated Net Income" means for any period the consolidated
net income of the Company and its consolidated Subsidiaries for such period as
determined in accordance with GAAP adjusted by excluding (i) any gain or loss
realized upon the termination of any employee pension plan, (ii) net
extraordinary gains or net extraordinary losses (less all reasonable fees and
expenses relating thereto), as the case may be, (iii) the portion of net
income (or loss) of the Company and its Subsidiaries allocable to minority
interests in unconsolidated persons to the extent that cash dividends or
distributions have not actually been received by the Company or one of its
Subsidiaries, (iv) net income (or loss) of any person combined with the
Company or one of its subsidiaries on a "pooling of interests" basis
attributable to any period prior to the date of combination, (v) net gains or
losses (less all reasonable fees and expenses relating thereto) in respect of
dispositions of assets other than in the ordinary course of business, and (vi)
the net income of any Subsidiary of the Company to the extent that the
declaration of dividends or similar distributions by that Subsidiary of that
income is not at the time permitted, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulations applicable to that Subsidiary
or its stockholders.
"Consolidated Non-cash Charges" means, for any period, the
aggregate depreciation, amortization and other non-cash charges of the Company
and its Subsidiaries for such period, as determined in accordance with GAAP
(excluding any such non-cash charge which requires an accrual of or reserve
for cash charges for any future period).
"Consolidated Tax Expense" of the Company means for any period
the aggregate of the tax expense of the Company and its consolidated
Subsidiaries for such period, determined in accordance with GAAP.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Foreign Entity" means any Subsidiary of the Company either (i)
more than 80% of the sales, earnings or assets (determined on a consolidated
basis) of which are located or derived from operations outside of the United
States of America or (ii) which is a "controlled foreign corporation" within
the meaning of Section 952 of the Internal Revenue Code.
"Generally Accepted Accounting Principles" or "GAAP" means
generally accepted accounting principles in the United States, consistently
applied, that were in effect on the date of the 9 1/8% Note Indenture.
"Investment" means, with respect to any person, any direct or
indirect loan or other extension of credit or capital contribution to (by
means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase or
acquisition by such person of any Capital Stock, bonds, notes, debentures or
other securities or evidences of Indebtedness issued by, any other person.
"Investments" shall exclude extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices.
"Lien" means any mortgage, charge, pledge, lien, security
interest or encumbrance of any kind.
"Majority Owned Subsidiary" means any Subsidiary of the Company
of which 80% of the outstanding shares of Voting Stock are owned directly or
indirectly by the Company.
"Material Subsidiary" means (i) any Subsidiary of the Company
now existing or hereafter acquired or formed by the Company which (x) for the
most recent fiscal year of the Company commencing on or after January 1, 1996
accounted for more than 5% of the consolidated revenues of the Company, or (y)
as at the end of such fiscal year, was the owner of more than 5% of the
consolidated assets, all as shown on the consolidated financial statements of
the Company for such fiscal year; and (ii) any other Subsidiary so designated
by the Company, by an Officers' Certificate delivered to the Trustee.
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"ML Funds" means Merrill Lynch KECALP L.P. 1986, Merrill Lynch
KECALP L.P. 1987, Merchant Banking L.P. No. 1, ML Venture Partners II, L.P.,
Merrill Lynch Capital Appreciation Partnership No. VIII, L.P., ML Offshore LBO
Partnership No. VIII, ML Employees LBO Partnership No. 1, L.P., ML IBK
Positions, Inc. and any Affiliates of the foregoing that beneficially own,
directly or indirectly, shares of Capital Stock of the Company.
"9 1/8% Notes" means the Company's 9 1/8% Senior Subordinated
Notes due 2003.
"Pari Passu Indebtedness" means the 9 1/8% Notes and any other
Indebtedness which ranks pari passu in right of payment and upon liquidation
to the Notes.
"Permitted Holders" means the ML Funds and the Management
Investors.
"Permitted Indebtedness" means
(i) Indebtedness of the Company (and guarantees of such
Indebtedness of the Company by its Subsidiaries) under the Bank
Credit Agreement in an aggregate principal amount not to exceed
$285,000,000 (minus all principal payments made in respect of any
term loans thereunder, and minus the amount by which any commitments
under any revolving loan or letter of credit facility are
permanently reduced);
(ii) Indebtedness of the Company evidenced by the
Notes or of any Guarantor in respect of any guarantee of the Notes;
(iii) Indebtedness arising out of (a) letters of
credit incurred in the ordinary course of business and (b) other
letters of credit in an aggregate principal amount not to exceed $35
million at any time;
(iv) Indebtedness arising under the Company's
accounts receivable facility in effect on the date of the Indenture;
(v) Indebtedness of the Company or any of its
Subsidiaries outstanding on the date of the Indenture, other than
Indebtedness pursuant to clause (i) and (iv) hereof;
(vi) Indebtedness in respect of Capitalized Lease
Obligations incurred in any particular Annual Period in an aggregate
principal amount not to exceed 7(1)/2% of the dollar amount of the
Company's Consolidated Gross PP&E as of the end of the immediately
preceding full fiscal year;
(vii) Indebtedness of a Majority Owned Subsidiary of
the Company (x) to the Company or (y) to another Majority Owned
Subsidiary of the Company, provided that any disposition, pledge or
transfer of any such Indebtedness to a Person (other than a
disposition, pledge or transfer to the Company or a wholly owned
Subsidiary or to or for the benefit of the Banks as provided in the
Bank Credit Agreement) shall be deemed to be an incurrence of such
Indebtedness by such Majority Owned Subsidiary not permitted by this
clause (vii);
(viii) Indebtedness of the Company to a Majority
Owned Subsidiary of the Company which is unsecured and subordinated
in right of payment from and after such time as the Notes shall
become due and payable (whether at a Stated Maturity, by
acceleration or otherwise) to the payment and performance of the
Company's obligations under the Indenture and the Notes, provided
that any disposition, pledge or transfer of any such Indebtedness to
a Person (other than a disposition, pledge or transfer to the
Company or a wholly owned Subsidiary or to or for the benefit of the
Banks as provided in the Bank Credit Agreement) shall be deemed to
be an incurrence of such Indebtedness by the Company not permitted
by this clause (viii);
(ix) Indebtedness incurred by Foreign Entities,
including guarantees of the Company and its Subsidiaries of such
Indebtedness, not exceeding at any one time outstanding $50,000,000
in aggregate principal amount;
(x) obligations of the Company pursuant to interest
rate contracts designed to protect the Company against fluctuations
in interest rates in respect of Indebtedness of the Company, which
obligations do not exceed the aggregate principal amount of such
Indebtedness;
(xi) Guaranteed Debt resulting from endorsement of
negotiable instruments for collection in the ordinary course of
business;
(xii) any extension, renewal, substitution,
refinancing or replacement of any Permitted Indebtedness referred to
in clauses (ii), (iv) and (v) above, so long as such extension,
renewal, substitution, refinancing or replacement does not result in
an increase in the aggregate principal amount of outstanding
Indebtedness or shorten the weighted average life of such
Indebtedness;
(xiii) obligations in respect of any guarantee of any
Pari Passu Indebtedness or Subordinated Indebtedness permitted under
the "Limitation on Issuances of Guarantees of Pari Passu
Indebtedness or Subordinated Indebtedness" covenant; and
(xiv) $100 million less any amounts of outstanding
Indebtedness permitted by clause (ix) above.
"Permitted Investments" means any of the following: (a)
(i) any Investment in any Majority Owned Subsidiaries by the Company or any
other Subsidiary or (ii) any Investment in the Company by any Subsidiary or
(iii) any Investment by the Company or any Majority Owned Subsidiary in
another Person, if as a result of such Investment such other Person is
merged or consolidated with or into the Company or such Majority Owned
Subsidiary; (b) Investments in existence on the date of the Indenture;
(c) loans or advances to employees made in the ordinary course of business
and consistent with past practices of the Company and its Subsidiaries;
(d) any Cash Equivalents; (e) sales of goods or services on trade credit
terms, consistent with the past practices of the Company or any Subsidiary
or as otherwise consistent with trade credit terms in common use in the
industry; (f) negotiable instruments held for collection, lease, utility
and other similar deposits, or stock, obligations or securities received in
settlement of debts owing to the Company or a Subsidiary as a result of
foreclosure, perfection or enforcement of any Lien, in each case as to debt
that arose in the ordinary course of business of the Company or any such
Subsidiary; (g) any Investment in any Person acquired or retained in
connection with any asset sale or other disposition of assets, provided,
that any such sale or other disposition is made for the fair value of such
assets and for at least 75% cash; and (h) Investments, in addition to the
Investments described in the foregoing clauses (a) through (g), in the
aggregate amount of $50 million at any one time outstanding, determined in
the case of each Investment by reference to the amount of the Investment at
the time originally made.
"Permitted Liens" means:
A. any Lien existing as of the date of the Indenture;
or
B. any Lien securing any Senior Indebtedness or any
guarantee thereof; or
C. any Lien arising by reason of (a) any judgment,
decree or order of any court, so long as (i) such judgment, decree
or order together with any other judgment, decree or order of the
Company or any of its Subsidiaries is less than $1,000,000,
excluding any judgment order or decree complying with clause (ii)
hereof, or (ii) such Lien is adequately bonded and any appropriate
legal proceedings which may have been duly initiated for the review
of such judgment, decree or order shall not have been finally
terminated or the period within which such proceedings may be
initiated shall not have expired; (b) taxes not yet delinquent or
which are being contested in good faith; (c) security for payment
of workmen's compensation or other insurance; (d) good faith
deposits in connection with tenders, contracts (other than contracts
for the payment of money) or leases; (e) deposits to secure public
or statutory obligations, or in lieu of surety or appeal bonds; or
(f) operation of law in favor of mechanics, materialmen, laborers,
employees or suppliers, incurred in the ordinary course of business
for sums which are not yet delinquent or are being contested in good
faith by negotiations or by appropriate proceedings which suspend
the collection thereof;
D. easements, rights-of-way, zoning restrictions and
other similar charges or encumbrances in respect of real property
not interfering in any material respect with the ordinary conduct of
the business of the Company or any of its Subsidiaries;
E. any interest or title of a lessor under any
Capitalized Lease Obligation;
F. Liens in favor of the purchaser and its assignee
of the Company's and its Subsidiaries' receivables with respect to
receivables purchased pursuant to the receivables financing facility
permitted under the Indenture;
G. Liens on the assets or property of a Subsidiary
which is a Foreign Entity securing the Indebtedness incurred by such
Foreign Entity and permitted under the Indenture; and
H. any Liens which may be granted to secure the Notes
or any Guarantees; or
I. any extension, renewal or replacement, in whole or
in part, of any Lien described in the foregoing clause (A), provided
that any such extension, renewal or replacement shall no more
restrictive in any material respect than the Lien so extended,
renewed or replaced and shall not extend to any additional property
or assets. (Section 1012)
"Preferred Stock" means, with respect to any person, any and
all shares, interests, participations or other equivalents (however
designated) of such person's preferred or preference stock whether now
outstanding, or issued after the issuance of the Notes, and including, without
limitation, all classes and series of preferred or preference stock of such
person.
"Public Equity Offering" means an underwritten primary public
offering by the Company of its Common Stock pursuant to an effective
registration under the Securities Act.
"Redeemable Capital Stock" means any Capital Stock of the
Company or any Subsidiary that, either by its terms, by the terms of any
security into which it is convertible or exchangeable or otherwise, (i) is or
upon the happening of an event or passage of time would be required to be
redeemed on or prior to the final stated maturity of the Notes or (ii) is
redeemable at the option of the holder thereof at any time prior to such final
stated maturity or (iii) is convertible into or exchangeable for debt
securities at any time prior to such final stated maturity.
"S&P" means Standard and Poor's Ratings Group, a division of
McGraw-Hill, Inc. and its successors.
"Subordinated Indebtedness" means Indebtedness of the Company
subordinated in right of payment to the Notes.
"Subsidiary" means any corporation of which at the time of
determination the Company, directly and/or indirectly through one or more
Subsidiaries, owns more than 50% of the shares of Voting Stock.
"Voting Stock" means any class or classes of Capital Stock
pursuant to which the holders thereof have the general voting power under
ordinary circumstances to elect at least a majority of the board of directors,
managers or trustees of any person (irrespective of whether or not, at the
time, stock of any other class or classes shall have, or might have, voting
power by reason of the happening of any contingency).
"Wholly Owned Subsidiary" means any subsidiary of the Company
of which 100% of the outstanding Capital Stock is owned by the Company or
another Wholly Owned Subsidiary of the Company. For purposes of this
definition, any directors' qualifying shares or investments by foreign
nationals mandated by applicable law shall be disregarded in determining the
ownership of a Subsidiary.
Book-Entry; Delivery and Form
The certificates representing the Exchange Notes will be issued
in fully registered form, without coupons. Except as described below, the
Exchange Notes will be deposited with, or on behalf of, the Depository Trust
Company, New York, New York ("DTC"), and registered in the name of Cede & Co.
("Cede") as DTC's nominee, in the form of a global Exchange Note certificate
(the "Global Exchange Note").
Holders of Exchange Notes who elect to take physical delivery
of their certificates instead of holding their interest through the Global
Exchange Note (collectively referred to herein as the "Non-Global Holders")
will be issued in registered form a certificated Exchange Note ("Certificated
Exchange Note"). Upon the transfer of any Certificated Exchange Note
initially issued to a Non-Global Holder, such Certificated Exchange Note will,
unless the transferee requests otherwise or the Global Exchange Note has
previously been exchanged in whole for Certificated Exchange Notes, be
exchanged for an interest in the Global Exchange Note.
The Global Exchange Note. The Company expects that pursuant
to procedures established by DTC (a) upon deposit of the Global Exchange
Note, DTC or its custodian will credit on its internal system interests in
the Global Exchange Notes to the accounts of persons who have accounts with
DTC ("Participants") and (b) ownership of the Global Exchange Note will be
shown on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC or its nominee (with respect to
interests of Participants) and the records of Participants (with respect to
interests of persons other than Participants). Ownership of beneficial
interests in the Global Exchange Note will be limited to Participants or
persons who hold interests through Participants.
So long as DTC or its nominee is the registered owner or holder
of the Exchange Notes, DTC or such nominee will be considered the sole owner
or holder of the Exchange Notes represented by the Global Exchange Note for
all purposes under the Indenture. No beneficial owner of an interest in the
Global Exchange Note will be able to transfer such interest except in
accordance with DTC's procedures, in addition to those provided for under the
Indenture with respect to the Exchange Notes.
Payments of the principal of or premium and interest on the
Global Exchange Note will be made to DTC or its nominee, as the case may be,
as the registered owner thereof. None of the Company, the Trustee or any
paying agent under the Indenture will have any responsibility or liability for
any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Global Exchange Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interest.
The Company expects that DTC or its nominee, upon receipt of
any payment of the principal of or premium and interest on the Global Exchange
Note, will credit Participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of such Global Exchange Note as shown on the records of DTC or its nominee.
The Company also expects that payments by Participants to owners of beneficial
interests in the Global Exchange Note held through such Participants will be
governed by standing instructions and customary practice as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
Participants.
Transfers between Participants in DTC will be effected in
accordance with DTC rules and will be settled in immediately available funds.
If a holder requires physical delivery of a Certificated Exchange Note for any
reason, including to sell Exchange Notes to persons in states which require
physical delivery of the Exchange Notes or to pledge such securities, such
holder must transfer its interest in the Global Exchange Note in accordance
with the normal procedures of DTC and with the procedures set forth in the
Indenture.
DTC has advised the Company that DTC will take any action
permitted to be taken by a holder of Exchange Notes (including the
presentation of Exchange Notes for exchange as described below) only at the
direction of one or more Participants to whose account at DTC interests in the
Global Exchange Note are credited and only in respect of such portion of the
aggregate principal amount of Exchange Notes as to which such Participant or
Participants has or have given such direction. However, if there is an Event
of Default under the Indenture, DTC will exchange the Global Exchange Note for
Certificated Exchange Notes, which it will distribute to its Participants.
DTC has advised the Company as follows: DTC is a limited
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was
created to hold securities for its Participants and facilitate the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and certain other organizations. Indirect access to the DTC
system is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interest in the Global Exchange Notes among
Participants, it is under no obligation to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by DTC or its
Participants or Indirect Participants of their respective obligations under
the rules and procedures governing their operations.
Certificated Exchange Notes. Interests in the Global Exchange
Notes will be exchangeable or transferable, as the case may be, for
Certificated Exchange Notes if (i) DTC notifies the Company that it is
unwilling or unable to continue as depositary for such Global Exchange Notes,
or DTC ceases to be a "clearing agency" registered under the Exchange Act, and
a successor depositary is not appointed by the Company within 90 days, or (ii)
an Event of Default has occurred and is continuing with respect to such
Exchange Notes. Upon the occurrence of any of the events described in the
preceding sentence, the Company will cause the appropriate Certificated
Exchange Notes to be delivered.
EXCHANGE OFFER
The Company entered into the Registration Rights Agreement
dated as of March 24, 1997 (the "Registration Rights Agreement") with
Merrill Lynch, Pierce, Fenner & Smith Incorporated, BT Securities
Corporation, Credit Suisse First Boston Corporation and CIBC Wood Gundy
Securities Corp. (collectively the "Initial Purchasers") pursuant to which
the Company agreed, for the benefit of the Holders of the Old Notes, at the
Company's cost, (i) to file a registration statement within 45 days after
the March 24, 1997 with the Commission with respect to an exchange offer
for exchange notes with terms identical in all material respects to the Old
Notes (except that such exchange notes would not contain terms with respect
to transfer restrictions), (ii) to use its best efforts to cause such
exchange offer registration statement to be declared effective under the
Securities Act within 105 days after the March 24, 1997 and (iii) to use
its best efforts to consummate such exchange offer within 135 days after
the March 24, 1997. The terms of the Exchange Notes will be identical in
all respects to the terms of the Old Notes, except that because the offer
of the Exchange Notes will have been registered under the Securities Act,
the Exchange Notes will not be subject to certain transfer restrictions and
registration rights and related provisions for an increase in the interest
rate payable on the Old Notes under certain circumstances if the Company
defaults with respect to its registration requirements under the
Registration Rights Agreement.
Terms of the Exchange Offer; Period for Tendering Old Notes
Upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal (which together
constitute the Exchange Offer), the Company will accept for exchange Old Notes
which are properly tendered on or prior to the Expiration Date and not
withdrawn as permitted below. For each $1,000 principal amount of Old Notes
surrendered to the Company pursuant to the Exchange Offer, the holder of such
Old Note will receive an Exchange Note having a principal amount equal to that
of the surrendered Old Note. The Company will keep the Exchange Offer open
for not less than 20 business days (or longer if required by applicable law)
after the date notice of the Exchange Offer is mailed to the holders of the
Old Notes. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on July 23, 1997; provided, however, that if the Company,
in its sole discretion, has extended the period of time for which the Exchange
Offer is open, the term "Expiration Date" means the latest time and date to
which the Exchange Offer is extended.
As of the date of this Prospectus, $125,000,000 aggregate
principal amount of the Old Notes was outstanding. This Prospectus, together
with the Letter of Transmittal, is first being sent on or about the date set
forth on the cover page to all Holders of Old Notes at the addresses set forth
in the security register with respect to Old Notes maintained by the Trustee.
The Company's obligations to accept Old Notes for exchange pursuant to the
Exchange Offer is subject to certain conditions as set forth under "Certain
Conditions to the Exchange Offer" below.
The Company expressly reserves the right, at any time or from
time to time, to extend the period of time during which the Exchange Offer is
open, and thereby delay acceptance of any Old Notes, by giving oral or written
notice of such extension to the Exchange Agent and notice of such extension to
the Holders as described below. During any such extension, all Old Notes
previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by the Company. Any Old Notes not accepted for exchange
for any reason will be returned without expense to the tendering Holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
The Company expressly reserves the right to amend or terminate
the Exchange Offer, and not to accept for exchange any Old Notes not
theretofore accepted for exchange, upon the occurrence of any of the
conditions of the Exchange Offer specified below under "Certain Conditions to
the Exchange Offer." The Company will give oral or written notice of any
extension, amendment, non-acceptance or termination to the Holders of the Old
Notes as promptly as practicable, such notice in the case of any extension to
be issued by means of a press release or other public announcement no later
than 9:00 a.m., New York City Time, on the next business day after the
previously scheduled Expiration Date.
Holders of Old Notes do not have any appraisal or dissenters'
rights under the General Corporation Law of the State of Delaware or the
Indenture in connection with the Exchange Offer. The Company intends to
conduct the Exchange Offer in accordance with the applicable requirements of
the Exchange Act and the rules and regulations of the Commission thereunder.
Procedures for Tendering Old Notes
The tender to the Company of Old Notes by a Holder thereof as
set forth below and the acceptance thereof by the Company will constitute a
binding agreement between the tendering Holder and the Company upon the terms
and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal. Except as set forth below, a Holder who
wishes to tender Old Notes for exchange pursuant to the Exchange Offer must
transmit a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal, to The
Bank of New York (the "Exchange Agent") at the address set forth below under
"Exchange Agent" on or prior to the Expiration Date. In addition, (i)
certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal, (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date or (iii) the Holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF
THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY, NO LETTERS OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, must be guaranteed unless the Old Notes
surrendered for exchange pursuant thereto are tendered (i) by a registered
Holder of the Old Notes who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution (as defined
below). In the event that signatures on a Letter of Transmittal or a notice
of withdrawal, as the case may be, are required to be guaranteed, such
guarantees must be by a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or by a commercial bank or trust company having an office or
correspondent in the United States (collectively, "Eligible Institutions").
If Old Notes are registered in the name of a person other than the person
signing the Letter of Transmittal, the Old Notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sole discretion, duly executed by the registered Holder with the signature
thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of Old Notes tendered for
exchange will be determined by the Company in its sole discretion, which
determination shall be final and binding. The Company reserves the
absolute right to reject any and all tenders of any particular Old Notes
not properly tendered or to not accept any particular Old Notes which
acceptance might, in the judgment of the Company or its counsel, be
unlawful. The Company also reserves the absolute right in its sole
discretion to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any
Holder who seeks to tender Old Notes in the Exchange Offer). The
interpretation of the terms and conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including
the Letter of Transmittal and the instructions thereto) by the Company
shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with the tender of Old Notes for exchange must
be cured within such reasonable period of time as the Company shall
determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity
with respect to any tender of Old Notes for exchange, nor shall any of them
incur any liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons
other than the registered Holder or Holders of Old Notes, such Old Notes must
be endorsed or accompanied by appropriate powers of attorney, in either case
signed exactly as the name or names of the registered Holder or Holders that
appear on the Old Notes.
If the Letter of Transmittal or any Old Notes or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers or corporations or others acting in a fiduciary or
representative capacity, such person should so indicate when signing and,
unless waived by the Company, proper evidence satisfactory to the Company of
its authority to so act must be submitted.
By tendering, each Holder will represent to the Company that,
among other things, (i) the Exchange Notes acquired pursuant to the Exchange
Offer are being acquired in the ordinary course of business of the person
receiving such Exchange Notes, whether or not such person is the Holder, (ii)
neither the Holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes, (iii) if the Holder is not a broker-dealer, or is a
broker-dealer but will not receive Exchange Notes for its own account in
exchange for Old Notes, neither the Holder nor any such other person is
engaged in or intends to participate in the distribution of such Exchange
Notes and (iv) neither the Holder nor any such other person is an "affiliate,"
as defined under Rule 405 of the Securities Act, of the Company or if such
Holder or such other person is an "affiliate," that such Holder or such other
person will comply with the registration and prospectus delivery requirements
of the Securities Act to the extent applicable. If the tendering Holder is a
broker-dealer that will receive Exchange Notes for its owns account in
exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, it will be required to acknowledge
that it will deliver a prospectus in connection with any resale of such
Exchange Notes.
Acceptance of Old Notes for Exchange; Delivery of Exchange Notes
Upon satisfaction or waiver of all of the conditions to the
Exchange Offer, the Company will accept, promptly after the Expiration Date,
all Old Notes properly tendered and will issue the Exchange Notes promptly
after acceptance of the Old Notes. See "Certain Conditions to the Exchange
Offer" below. For purposes of the Exchange Offer, the Company shall be deemed
to have accepted properly tendered Old Notes for exchange when, as and if the
Company has given oral or written notice thereof to the Exchange Agent.
In all cases, issuance of Exchange Notes for Old Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Old Notes or a
timely Book-Entry Confirmation of such Old Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described below, a properly completed and duly executed
Letter of Transmittal and all other required documents. If any tendered Old
Notes are not accepted for any reason set forth in the terms and conditions of
the Exchange Offer or if certificates representing Old Notes are submitted for
a greater principal amount than the Holder desires to exchange, such
unaccepted or non-exchanged Old Notes will be returned without expense to the
tendering Holder thereof (or, in the case of Old Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such
non-exchanged Old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration
or termination of the Exchange Offer.
Interest on the Exchange Notes
The Exchange Notes will bear interest from March 24, 1997,
payable semiannually on March 15 and September 15, of each year commencing on
September 15, 1997, at the rate of 9 5/8% per annum. Holders of Old Notes
whose Old Notes are accepted for exchange will be deemed to have waived the
right to receive any payment in respect of interest on the Old Notes accrued
from March 24, 1997 until the date of the issuance of the Exchange Notes.
Consequently, holders who exchange their Old Notes for Exchange Notes will
receive the same interest payment on September 15, 1997 (the first interest
payment date with respect to the Old Notes and the Exchange Notes) that they
would have received had they not accepted the Exchange Offer.
Book-Entry Transfer
The Exchange Agent will make a request to establish an account
with respect to the Old Notes at the Book-Entry Transfer Facility for purposes
of the Exchange Offer promptly after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account in accordance with the Book-Entry Transfer Facility's
Automated Tender Offer Program ("ATOP") procedures for transfer. However, the
exchange for the Old Notes so tendered will only be made after timely
confirmation of such book-entry transfer of Old Notes into the Exchange
Agent's account, and timely receipt by the Exchange Agent of an Agent's
Message (as such term is defined in the next sentence) and any other documents
required by the Letter of Transmittal. The term "Agent's Message" means a
message, transmitted by the Book-Entry Transfer Facility and received by the
Exchange Agent and forming a part of a Book-Entry Confirmation, which states
that the Book-Entry Transfer Facility has received an express acknowledgment
from a Participant tendering Old Notes that are the subject of such Book-Entry
Confirmation that such Participant has received and agrees to be bound by the
terms of the Letter of Transmittal, and that the Company may enforce such
agreement against such Participant.
Guaranteed Delivery Procedures
If a registered Holder of the Old Notes desires to tender such
Old Notes and the Old Notes are not immediately available, or time will not
permit such Holder's Old Notes or other required documents to reach the
Exchange Agent before the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if
(i) the tender is made through an Eligible Institution, (ii) prior to the
Expiration Date, the Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) and Notice of Guaranteed Delivery, substantially in the form provided
by the Company (by telegram, telex, facsimile transmission, mail or hand
delivery), setting forth the name and address of the Holder of Old Notes and
the amount of Old Notes tendered, stating that the tender is being made
thereby and guaranteeing that within five New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of Guaranteed Delivery,
the certificates of all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for
all physically tendered Old Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and all other documents required
by the Letter of Transmittal, are received by the Exchange Agent within five
NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
Withdrawal Rights
Tenders of Old Notes may be withdrawn at any time prior to the
Expiration Date.
For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent at one of the addresses set
forth below under "Exchange Agent." Any such notice of withdrawal must
specify the name of the person having tendered the Old Notes to be withdrawn,
identify the Old Notes to be withdrawn (including the principal amount of such
Old Notes), and (where certificates for Old Notes have been transmitted)
specify the name in which such Old Notes are registered, if different from
that of the withdrawing Holder. If certificates for Old Notes have been
delivered or otherwise identified to the Exchange Agent, then, prior to the
release of such certificates, the withdrawing Holder must also submit the
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution
unless such Holder is an Eligible Institution. If Old Notes have been tendered
pursuant to the procedure for book-entry transfer described above, any note of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Old Notes and otherwise
comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer. Any
Old Notes which have been tendered for exchange but which are not exchanged
for any reason will be returned to the Holder thereof without cost to such
Holder (or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described above, such Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility for
the Old Notes) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
re-tendered by following one of the procedures described under "Procedures for
Tendering Old Notes" above at any time on or prior to the Expiration Date.
Certain Conditions to the Exchange Offer
Notwithstanding any other provisions of the Exchange Offer, the
Company shall not be required to accept for exchange, or to issue Exchange
Notes in exchange for, any Old Notes and may terminate or amend the Exchange
Offer, if at any time before the acceptance of such Old Notes for exchange or
the exchange of the Exchange Notes for such Old Notes, such acceptance or
issuance would violate applicable law or any interpretation of the staff of
the Commission.
The foregoing condition is for the sole benefit of the Company
and may be asserted by the Company regardless of the circumstances giving rise
to such condition or may be waived by the Company in whole or in part at any
time and from time to time in its sole discretion. The failure by the Company
at any time to exercise the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time.
In addition, the Company will not accept for exchange any
Old Notes tendered, and no Exchange Notes will be issued in exchange for
any such Old Notes, if at such time any stop order shall be threatened or
in effect with respect to the Registration Statement of which this
Prospectus constitutes a part or the qualification of the Indenture under
the Trust Indenture Act of 1939, as amended (the "TIA").
Exchange Agent
The Bank of New York has been appointed as the Exchange Agent
for the Exchange Offer. All executed Letters of Transmittal should be directed
to the Exchange Agent at one of the addresses set forth below. Questions and
requests for assistance, requests for additional copies of this Prospectus or
of the Letter of Transmittal and requests for Notices of Guaranteed Delivery
should be directed to the Exchange Agent, addressed as follows:
Deliver To:
The Bank of New York, Exchange Agent
By Hand or Facsimile By Registered
Overnight Delivery: Transmissions: Or Certified Mail:
(Eligible
Institutions Only)
The Bank The Bank
of New York of New York
101 Barclay Street (212) 571-3080 101 Barclay Street, 7E
Corporate Trust New York, New York 10286
Services Window Attention: Reorganization
Ground Level To Confirm Section,
Attention: Reorganization by Telephone or for Arwen Gibbons
Section, Information, Call:
Arwen Gibbons
(212) 815-6333
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
Fees and Expenses
The principal solicitation is being made by mail; however,
additional solicitation may be made by telegraph, telephone or in person by
officers and regular employees of the Company and its affiliates. No
additional compensation will be paid to any such officers and employees who
engage in soliciting tenders. The Company will not make any payment to
brokers, dealers, or others soliciting acceptances of the Exchange Offer. The
Company, however, will pay the Exchange Agent reasonable and customary fees
for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith.
The estimated cash expenses to be incurred in connection with
the Exchange Offer will be paid by the Company and are estimated in the
aggregate to be $110,000.00.
Transfer Taxes
Holders who tender their Old Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that
Holders who instruct the Company to register Exchange Notes in the name of, or
request that Old Notes not tendered or not accepted in the Exchange Offer to
be returned to, a person other than the registered tendering Holder will be
responsible for the payment of any applicable transfer tax thereon.
Consequences of Failure to Exchange
Holders of Old Notes who do not exchange their Old Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject
to the restrictions on transfer of such Old Notes as set forth in the
legend thereon. In general, the Old Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Company does not intend to register the Old
Notes under the Securities Act. The Company believes that, based upon
interpretations contained in letters issued to third parties by the staff
of the Commission, Exchange Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by each Holder thereof (other than a broker-dealer, as set
forth below, and any such Holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities
Act provided that such Exchange Notes are acquired in the ordinary course
of such Holder's business and such Holder has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes. If any Holder has any arrangement or understanding with
respect to the distribution of the Exchange Notes to be acquired pursuant
to the Exchange Offer, such Holder (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with
the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that
receives Exchange Notes for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Notes. See "Plan of Distribution." In addition, to comply
with the securities laws of certain jurisdictions, if applicable, the
Exchange Notes may not be offered or sold unless they have been registered
or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The
Company does not currently intend to take any action to register or qualify
the Exchange Notes for resale in any such jurisdiction.
Resale of the Exchange Notes
Under existing interpretations of the staff of the Commission
contained in several no-action letters to third parties, the Exchange Notes
would in general be freely transferable after the Exchange Offer without
further registration under the Securities Act. However, any purchaser of Old
Notes who intends to participate in the Exchange Offer for the purpose of
distributing the Exchange Notes (i) will not be able to rely on the
interpretation of the staff of the Commission, (ii) will not be able to tender
its Old Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Notes unless such sale or transfer
is made pursuant to an exemption from such requirements.
By executing the Letter of Transmittal, each holder of the Old
Notes (other than certain specified holders) will represent that (i) it is not
an affiliate of the Company or if such Holder is an "affiliate," that such
Holder will comply with the registration and prospectus delivery requirements
of the Securities Act to the extent applicable, (ii) any Exchange Notes to be
received by it were acquired in the ordinary course of its business and (iii)
at the time of commencement of the Exchange Offer, it had no arrangement with
any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes. In addition, in connection with any
resales of Exchange Notes, any broker-dealer (a "Participating Broker-Dealer")
who acquired the Notes for its own account as a result of market-making or
other trading activities must deliver a prospectus meeting the requirements
of the Securities Act. The Commission has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the Exchange Notes (other than a resale of an
unsold allotment from the original sale of the Old Notes) with the prospectus
contained in the Exchange Offer Registration Statement. Under the Registration
Rights Agreement, the Company is required to allow Participating
Broker-Dealers and other persons, if any, subject to similar prospectus
delivery requirements to use this Prospectus as it may be amended or
supplemented from time to time, in connection with the resale of such Exchange
Notes.
United States Federal Income Tax Consequences of the Exchange Offer
The exchange of Old Notes for Exchange Notes pursuant to the
Exchange Offer will not result in any federal income tax consequences to
Holders. When a Holder exchanges an Old Note for an Exchange Note pursuant
to the Exchange Offer, the Holder will have the same adjusted basis and
holding period in the Exchange Note as in the Old Note immediately before
the Exchange.
ERISA CONSIDERATIONS
A fiduciary of a pension, profit-sharing, retirement, or other
employee benefit plan subject to Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"; such plan, a "Plan"), should
consider the fiduciary standards under ERISA in the context of the Plan's
particular circumstances before authorizing an investment of such Plan's
assets in the Notes. Accordingly, such fiduciary should consider whether the
investment satisfies the diversification and prudence requirements of ERISA
and whether the investment is consistent with the documents and instruments
governing the Plan.
In addition to the imposition of general fiduciary standards
of investment prudence and diversification, ERISA and the corresponding
provisions of the Code, prohibit a wide range of transactions involving the
assets of a Plan and persons who have certain specified relationships to
the Plan ("parties in interest", within the meaning of ERISA, "disqualified
persons", within the meaning of the Code). A prohibited transaction
described in Section 406 of ERISA or Section 4975 of the Code could arise
if the Company were, or were to become, a party in interest or a
disqualified person with respect to a Plan purchasing the Notes during the
offering or any time thereafter. A prohibited transaction could also arise
if any of the Company's lenders under the Existing Term Loan and the
Existing Revolving Loan, which will be refinanced with the net proceeds
from the offering of the Notes, were a party in interest or a disqualified
person with respect to a Plan purchasing the Notes during the offering.
Certain exemptions from the prohibited transaction rules could be
applicable to the purchase of the Notes by a Plan or by a person whose
assets may constitute assets of a Plan. Included among these exemptions
are: Prohibited Transaction Class Exemption ("PTCE") 90-1, regarding
investments by insurance company pooled separate accounts; PTCE 91-38,
regarding investments by bank collective investment funds; PTCE 84-14,
regarding transactions effected by a qualified professional asset manager;
PTCE 96-23, regarding transactions effected by in-house asset managers; and
PTCE 95-60, regarding transactions by insurance company general accounts.
Thus, a fiduciary of a Plan considering an investment in the Notes also
should consider whether the acquisition of the Notes might constitute or
give rise to a non-exempt prohibited transaction.
Certain employee benefit plans, such as governmental plans and
church plans, are not subject to the restrictions of ERISA, and assets of such
plans may be invested in the Notes without regard to the ERISA considerations
described above. The investment in the Notes by such employee benefit plans
may, however, be subject to other applicable federal, state and local laws,
which should be carefully considered by such employee benefit plans before
investing in the Notes.
Every Plan, governmental plan or church plan considering the
acquisition of the Notes should consult with its counsel with respect to the
potential applicability of ERISA, the Code and any other relevant laws to such
investment.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own
account ("Participating Broker-Dealer") pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. This Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating Broker-Dealer in connection
with resales of Exchange Notes received in exchange for Old Notes where such
Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that it will make this Prospectus,
as amended or supplemented, available to any Participating Broker-Dealer for
use in connection with any such resale and Participating Broker-Dealers shall
be authorized to deliver this Prospectus for a period not exceeding 180 days
after the Expiration Date. In addition, until September 30, 1997 (90 days
after the date of this Prospectus), all dealers effecting transactions in the
Exchange Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sales of the
Exchange Notes by Participating Broker-Dealers. Exchange Notes received by
Participating Brokers-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time, in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Exchange Notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
Participating Broker-Dealer that resells the Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer. Any broker or
dealer that participates in a distribution of such Exchange Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of Exchange Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Company will promptly send additional copies of this
Prospectus and any amendment or supplement to this Prospectus to any
Participating Broker-Dealer that requests such documents in the Letter of
Transmittal. See "The Exchange Offer."
The Company has agreed to pay all expenses incident to the
Company's performance of, or compliance with, the Registration Rights
Agreement and will indemnify the holders (including any broker-dealers) and
certain parties related to the holders against certain liabilities, including
liabilities under the Securities Act.
MLCP, an affiliate of Merrill Lynch, holds together with its
affiliates, in the aggregate, approximately 46% of the outstanding shares of
the Company's Common Stock. If Merrill Lynch, Pierce, Fenner & Smith
Incorporated conducts any market-making activities in the Exchange Notes, it
may be required to deliver a "market-making prospectus," registered with the
Commission, when effecting offers and sales in the Exchange Notes because of
such equity ownership of the Company by MLCP and such affiliates. Merrill
Lynch, Pierce, Fenner & Smith Incorporated has no obligation to make a market
in the Old Notes or the Exchange Notes, and may discontinue its market-making
activities at any time without notice, at its sole discretion.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be
passed upon for the Company by Davis Polk & Wardwell, New York, New York.
Arthur F. Golden, a director of the Company, is a partner of Davis Polk &
Wardwell. Davis Polk & Wardwell has represented the Company in connection with
various transactions.
EXPERTS
The consolidated financial statements included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their report appearing herein, and are included in reliance upon
the report of such firm as experts in accounting and auditing.
BORG-WARNER SECURITY CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Page
----
INDEPENDENT AUDITORS' REPORT................................................................... F-2
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Operations for the Years Ended December 31, 1994,
December 31, 1995 and December 31, 1996..................................................... F-3
Consolidated Balance Sheets as of December 31, 1995 and December 31, 1996................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994,
December 31, 1995 and December 31, 1996..................................................... F-5
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1994, December 31, 1995 and December 31, 1996............................................... F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..................................................... F-7
</TABLE>
INDEPENDENT AUDITORS' REPORT
To 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, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1996.
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 the 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, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Chicago, Illinois
February 4, 1997
BORG-WARNER SECURITY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1994 1995 1996
--------- --------- ---------
(millions of dollars, except per share)
<S> <C> <C> <C>
Net service revenues...................... $1,626.8 $1,708.5 $1,711.2
Cost of services.......................... 1,289.4 1,359.3 1,360.2
Selling, general and
administrative expenses.................. 220.2 212.5 210.6
Depreciation.............................. 52.8 52.1 47.0
Amortization of excess purchase price
over net assets acquired................. 14.8 13.4 13.4
Other income, net (Note 10)............... (9.8) -- --
Interest expense and finance charges...... 48.8 55.9 56.6
--------- --------- ---------
Earnings before income taxes.............. 10.6 15.3 23.4
Provision (benefit) for
income taxes (Note 11)................... (3.2) 6.9 9.5
--------- --------- ---------
Earnings from continuing operations....... 13.8 8.4 13.9
Loss from discontinued operations,
net of income taxes (Note 3)............. (0.7) (2.5) (28.5)
--------- --------- ---------
Earnings (loss) before
extraordinary item....................... 13.1 5.9 (14.6)
Extraordinary item:
Loss from early extinguishment of debt, -- (4.7) --
net of $3.2 tax benefit (Note 5)......... --------- --------- ---------
Net earnings (loss)....................... $13.1 $1.2 $(14.6)
========= ========= =========
Earnings (loss) per common share:
Continuing operations.................. $0.59 $0.36 $0.59
Discontinued operations................ (0.03) (0.11) (1.21)
Extraordinary item..................... -- (0.20) --
--------- --------- ---------
Net earnings (loss) per share............. $0.56 $0.05 $(0.62)
========= ========= =========
</TABLE>
BORG-WARNER SECURITY CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1996
--------- ---------
(millions of dollars)
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................................... $19.4 $17.8
Receivables, net.................................................................... 90.7 100.4
Inventories......................................................................... 12.5 12.1
Other current assets................................................................ 59.7 36.8
--------- ---------
Total current assets............................................................. 182.3 167.1
Property, plant and equipment
Land and buildings............................................................... 47.6 46.9
Machinery and equipment.......................................................... 72.8 5.8
Subscribers' installations....................................................... 336.5 374.6
Capital leases................................................................... 18.8 14.3
Construction in progress......................................................... 2.7 1.0
--------- ---------
478.4 442.6
Less accumulated depreciation....................................................... 240.5 239.5
--------- ---------
Net property, plant and equipment................................................ 237.9 203.1
Net excess purchase price over net assets acquired.................................. 250.2 237.2
Deferred tax asset, net............................................................. 52.8 46.8
Net assets of discontinued operations............................................... 36.8 12.6
Other assets........................................................................ 78.5 94.0
--------- ---------
Total other assets............................................................... 418.3 390.6
--------- ---------
$838.5 $760.8
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable....................................................................... $3.6 $4.4
Accounts payable and accrued expenses............................................... 185.6 173.7
--------- ---------
Total current liabilities........................................................ 189.2 178.1
Long-term debt...................................................................... 480.9 438.2
Other long-term liabilities......................................................... 118.7 103.3
Capital stock:
Common stock, issued 22,446,100 shares in 1995 and 1996.......................... 0.2 0.2
Capital in excess of par value...................................................... 28.1 29.0
Retained earnings................................................................... 31.2 20.6
Notes receivable--management stock purchase......................................... (0.3) (0.3)
Cumulative translation adjustment................................................... (0.4) 0.5
--------- ---------
58.8 50.0
Treasury common stock, at cost, 1,928,861 shares in 1995 and 1,862,311 shares
in 1996............................................................................ (9.1) (8.8)
--------- ---------
Total stockholders' equity....................................................... 49.7 41.2
--------- ---------
$838.5 $760.8
========= =========
</TABLE>
BORG-WARNER SECURITY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1994 1995 1996
-------- -------- --------
(millions of dollars)
<S> <C> <C> <C>
OPERATING:
Continuing operations:
Earnings from continuing operations............................... $13.8 $8.4 $13.9
Adjustments to reconcile net earnings to net cash provided by
continuing operations:
Non-cash charges to earnings:
Depreciation and amortization.................................. 67.6 65.5 60.4
Provision for losses on receivables............................ 5.5 4.4 2.7
Deferred income taxes.......................................... (9.4) (5.5) (3.8)
Amortization of debt discount.................................. 2.1 2.1 0.6
Changes in assets and liabilities:
(Increase) in receivables...................................... (17.7) (6.1) (12.4)
(Increase) decrease in other current assets.................... (2.8) (6.9) 32.6
Increase (decrease) in accounts payable
and accrued expenses.......................................... 19.2 19.3 (8.1)
Net change in other long-term assets and liabilities........... (3.7) (22.0) 5.3
Gain on sales of other assets.................................... (8.5) -- --
-------- -------- --------
Net cash provided by continuing operations....................... 66.1 59.2 91.2
Discontinued operations:
Net loss......................................................... (0.7) (2.5) (28.5)
Other cash related to discontinued operations.................... 2.6 (4.3) 24.2
-------- -------- --------
Net cash provided by (used in) discontinued operations........... 1.9 (6.8) (4.3)
-------- -------- --------
Net cash provided by operating activities........................ 68.0 52.4 86.9
INVESTING:
Capital expenditures and investments in sales-type leases......... (59.4) (47.8) (40.7)
Payments related to businesses acquired........................... (9.0) -- --
Proceeds from sales of fixed and other assets..................... 4.2 (1.1) 1.9
-------- -------- --------
Net cash used in investing activities............................ (64.2) (48.9) (38.8)
FINANCING:
Net increase (decrease) in notes payable.......................... 2.9 (6.1) 0.8
Increase (decrease) in debt outstanding under
revolving credit facility........................................ 40.2 19.4 (37.8)
Increases in long-term debt....................................... 17.5 100.0 100.0
Reductions in long-term debt...................................... (53.1) (90.8) (105.5)
Net decrease in receivables sold.................................. (12.0) (20.9) (9.3)
Sales of treasury common stock.................................... 0.8 1.0 0.3
Other............................................................. 1.7 (2.0) 1.8
-------- -------- --------
Net cash provided by (used in) financing activities.............. (2.0) 0.6 (49.7)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents.............. 1.8 4.1 (1.6)
Cash and cash equivalents at beginning of year.................... 13.5 15.3 19.4
-------- -------- --------
Cash and cash equivalents at end of year.......................... $15.3 $19.4 $17.8
======== ======== ========
Supplemental cash flow information................................
Interest paid.................................................... $46.0 $54.2 $57.7
Income taxes paid (refunded)..................................... (3.2) 0.7 2.8
</TABLE>
BORG-WARNER SECURITY CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------
1994 1995 1996
----------------------- ----------------------- -----------------------
Shares Amount Shares Amount Shares Amount
---------- --------- ---------- --------- ---------- ---------
(millions of dollars, except share data)
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK ISSUED
Beginning balance........................ 24,955,700 $0.2 25,155,700 $0.2 25,166,100 $0.2
Conversion of Series I non-voting shares
to common shares........................ 200,000 -- 10,400 -- -- --
---------- --------- ---------- --------- ---------- ---------
Balance at December 31................... 25,155,700 0.2 25,166,100 0.2 25,166,100 0.2
---------- --------- ---------- --------- ---------- ---------
CAPITAL IN EXCESS OF PAR
VALUE
Beginning balance........................ 28.2 30.9 28.1
Shares issued under stock option and
related plans........................... 0.2 (5.4) 0.4
Tax benefit from trust distribution and
exercise of stock options............... 2.5 2.6 0.5
--------- --------- ---------
Balance at December 31................... 30.9 28.1 29.0
--------- --------- ---------
RETAINED EARNINGS
Beginning balance........................ 15.9 29.7 31.2
Net earnings (loss)...................... 13.1 1.2 (14.6)
Adjustment for deferred pension
experience loss......................... 0.7 0.3 4.0
--------- --------- ---------
Balance at December 31................... 29.7 31.2 20.6
--------- --------- ---------
NOTES RECEIVABLE--
MANAGEMENT STOCK
PURCHASE
Beginning balance........................ (1.8) (1.0) (0.3)
Net activity............................. 0.8 0.7 --
--------- --------- ---------
Balance at December 31................... (1.0) (0.3) (0.3)
--------- --------- ---------
CUMULATIVE TRANSLATION
ADJUSTMENT
Beginning balance........................ 1.3 (0.5) (0.4)
Current year adjustment.................. (1.8) 0.1 0.9
--------- --------- ---------
Balance at December 31................... (0.5) (0.4) 0.5
--------- --------- ---------
TREASURY STOCK
Beginning balance........................ 2,151,108 (16.3) 2,237,344 (15.5) 1,928,861 (9.1)
Shares issued under stock option and
related plans........................... (113,764) 0.8 (318,883) 6.4 (66,550) 0.3
Conversion of Series I non-voting shares
to common shares........................ 200,000 -- 10,400 -- --
---------- --------- ---------- --------- ---------- ---------
Balance at December 31................... 2,237,344 $(15.5) 1,928,861 $(9.1) 1,862,311 $(8.8)
========== ========= ========== ========= ========== =========
Total Stockholders' Equity.............. $ 43.8 $49.7 $41.2
========= ========= =========
</TABLE>
BORG-WARNER SECURITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
The following paragraphs briefly describe significant
accounting policies. Certain 1994 and 1995 amounts have been reclassified to
conform with the 1996 presentation.
Principles of Consolidation
The consolidated financial statements include all significant
subsidiaries. As of September 30, 1996, the Company's courier unit has been
treated as a discontinued operation. The assets, liabilities, results of
operations and adjustments to carrying values of net assets, and cash flows of
the courier unit have been segregated and reported as discontinued operations
for all periods presented, and previously reported results have been restated
(see Note 3).
Use of Estimates
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and related
disclosures. Actual results may differ from those estimates.
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 method.
Property, Plant and Equipment and Depreciation
Property, plant and equipment is carried 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 the straight-line method over the following estimated useful
lives:
Buildings and improvements................... 15 to 50 years
Machinery and equipment...................... 3 to 12 years
Subscribers' installations................... 8 to 15 years
Property under capital leases................ 3 to 7 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 bases 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.
Under the defined contribution plans, 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.
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. The discount rate used to
value the future obligation at December 31, 1995 and 1996 was 5.5%.
Amortization of Excess of Purchase Price Over Net Assets
Acquired
Excess of purchase price over net assets acquired is being
amortized on a straight-line basis over 5 to 40 years, with the majority being
amortized over 40 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.
Transactions with Borg-Warner Automotive
Under a tax-sharing agreement with the Company, for periods
prior to January 1993, Borg-Warner Automotive is required to pay the Company
for any operating loss carry-forward apportioned to it at such time as the
benefits related to such carry-forward are realized by Borg-Warner Automotive.
Also, certain costs incurred at corporate headquarters are charged to
Borg-Warner Automotive based on a service agreement with the Company.
Derivative Financial Instruments
The Company uses interest rate swap agreements to manage
exposure to interest rate fluctuations. The Company does not use derivative
instruments for speculative purposes. The differential paid or received on
interest rate swap agreements is recognized as an adjustment to interest
expense in the period incurred or earned.
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 which may be issued in the future upon
exercise of certain stock options.
New Accounting Pronouncements
In 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and For
Long-Lived Assets to Be Disposed Of." The adoption of this standard did not
have a material effect on the financial statements.
In 1996, the Company also adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123). This statement defines a new "fair value" method of accounting for
stock-based compensation expense, and requires certain additional disclosures.
The statement also allows the retention of the previous "intrinsic value"
method of accounting for expense recognition under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). The
Company has retained the intrinsic value method and, therefore, the new
standard had no effect on the Company's net income or financial position (see
Note 8).
In October 1996, the American Institute of Certified Public
Accountants issued Statement of Position No. 96-1, "Environmental Remediation
Liabilities," which is effective for calendar year 1997. The Company does not
expect adoption of this statement to have a material effect on the financial
statements.
In June 1996, the Financial Accounting Standards Board issued
Statement No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities", which the Company must adopt for
transactions occurring after December 31, 1996. The Company does not expect
adoption of this statement to have a material effect on the financial
statements.
Note 2. Balance Sheet Information
Detailed balance sheet data are as follows:
December 31, December 31,
1995 1996
------------ ------------
(millions of dollars)
Receivables
Customers................................ $94.1 $102.8
Other.................................... 3.4 3.9
------------ ------------
97.5 106.7
Less allowance for losses............ 6.8 6.3
------------ ------------
Net receivables............................. $90.7 $100.4
============ ============
Other assets
Net investment in sales-type leases...... $35.3 $54.4
Debt issuance costs...................... 14.5 10.4
Deferred pension asset................... 7.5 9.1
Deferred subscribers' installation costs. 7.2 5.4
Other.................................... 14.0 14.7
------------ ------------
Total other assets.......................... $78.5 $94.0
============ ============
Accounts payable and accrued expenses
Trade payables........................... $24.4 $42.5
Payroll and related...................... 58.2 41.6
Casualty insurance....................... 45.2 44.4
Interest................................. 8.5 5.2
Liabilities to former shareholders....... 10.9 8.7
Deferred income.......................... 10.8 10.3
Other.................................... 27.6 21.0
------------ ------------
Total accounts payable and accrued expenses. $185.6 $173.7
============ ============
In November 1995 the Company replaced its previous $100
million accounts receivable facility with an agreement to sell a $120
million undivided interest in a revolving pool of customer receivables.
This sold interest is reflected as a reduction of "Receivables, net" in the
accompanying Consolidated Balance Sheet at December 31, 1995 and 1996. The
Company retains, on a subordinated basis, an undivided interest in the pool
of receivables. The Company's retained interest of $15.3 million and $34.9
million at December 31, 1995 and 1996, respectively, is included with
"Receivables, net" on the balance sheet. While the courier unit continues
to participate in the receivables facility, its share of the receivables
pool has been segregated on the balance sheet with "Net assets of
discontinued operations." "Other current assets" at December 31, 1995 and
1996 included interest-bearing cash deposits of $28.9 million and $9.3
million, respectively, held in trust under the terms of the accounts
receivable facility. These deposits represent proceeds of collections held
back based on the amount of eligible receivables in the revolving
receivables pool. The Company's retained interest in the receivables and
cash deposits is generally restricted. The full amount of the allowance
for losses has been retained because the Company has retained substantially
the same risk of credit loss as if the receivables had not been sold. The
discount related to the sale of receivables is included with "Interest
expense and finance charges" in the Consolidated Statement of Operations.
Selling, general and administrative expenses include provisions
for losses on receivables of $5.5 million, $4.4 million and $2.7 million in
1994, 1995 and 1996, respectively.
Accumulated depreciation related to capital leases amounted to
$11.0 million and $8.8 million at December 31, 1995 and 1996, respectively.
Accumulated amortization related to excess purchase price over net assets
acquired amounted to $77.8 million and $74.2 million at December 31, 1995 and
1996, respectively.
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 $16.1 million and $32.7 million at December 31,
1995 and 1996, respectively.
The non-current portion of the casualty insurance liability,
included in other long-term liabilities, was $44.2 million at December 31,
1995 and 1996. The total discounted insurance accrual, including the portion
reflected in accounts payable and accrued liabilities, was $89.4 million and
$88.6 million at December 31, 1995 and 1996, respectively. The estimated
aggregate undiscounted insurance liability was $101.6 million and $101.9
million at December 31, 1995 and 1996, respectively.
Note 3. Discontinued Operations
As of September 30, 1996, the Company's courier unit has been
treated as a discontinued operation. The assets, liabilities, results of
operations and adjustments to carrying values of net assets, and cash flows of
the courier unit have been segregated and reported as discontinued operations
for all periods presented, and previously reported results have been restated.
As of December 31, 1996, the net assets of the discontinued operation consists
mainly of customer receivables, property, plant and equipment and accounts
payable.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1994 1995 1996
-------------- -------------- --------------
(millions of dollars, except per share)
<S> <C> <C> <C>
Net service revenues..................................... $ 166.1 $ 154.0 $ 140.0
============== ============== ==============
Loss from operations before income taxes................. (0.5) (3.5) (5.4)
Income tax benefit (paid)................................ (0.2) 1.0 1.9
-------------- -------------- --------------
Loss from operations..................................... (0.7) (2.5) (3.5)
Adjustment of assets to estimated realizable
value and other provisions.............................. -- -- (27.0)
Income tax benefit....................................... -- -- 2.0
-------------- -------------- --------------
Net adjustment and provisions............................ -- -- (25.0)
-------------- -------------- --------------
Net loss from discontinued operations.................... $ (0.7) $ (2.5) $ (28.5)
============== ============== ==============
Loss per common share:
Loss from operations.................................. (0.03) (0.11) (0.15)
Net adjustment and provisions......................... -- -- (1.06)
-------------- -------------- --------------
Loss per common share............................. $ 0.00 $ (0.10) $ (1.21)
============== ============== ==============
</TABLE>
Note 4. Commitments
The Company is committed to pay rents on non-cancelable
operating leases with terms exceeding one year. Rental amounts committed in
future years are summarized at December 31, 1996 as follows:
<TABLE>
<CAPTION>
(millions of
Fiscal year dollars)
- ----------- -------------
<S> <C>
1997.................................. $19.4
1998.................................. 16.3
1999.................................. 9.9
2000.................................. 6.4
2001.................................. 4.3
2002 and after........................ 8.9
-------------
Total............................. $65.2
</TABLE> =============
Total rental expense amounted to $21.5 million, $26.1 million
and $26.7 million in 1994, 1995 and 1996, respectively.
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>
Year Ended
-------------------------------------------------------------
December 31, 1995 December 31, 1996
---------------------------- ------------------------------
Current Long-Term Current Long-Term
----------- ----------- ----------- -----------
(millions of dollars)
<S> <C> <C> <C> <C>
Bank term loan due 1998 (at an average of 8.3% in
1995 and 8.9% in 1996)................................ $-- $100.0 $-- $196.8
Bank revolving credit loan due through 1999 (at an
average rate of 7.3% in 1995 and 8.5% in 1996)......... -- 124.6 -- 86.8
8% notes (face amount $100 million due 1996)............. -- 99.5 -- --
Unsecured notes (at an average rate of 7.0% in 1995
and 7.3% in 1996)...................................... 0.4 0.6 2.0 0.1
Capital lease liability (at an average rate of 8.4% in
1995 and 10.2% in 1996)................................ 3.2 7.1 2.4 5.3
9 1/8% senior subordinated notes (face amount $150
million due 2003)...................................... -- 149.1 -- 149.2
----------- ----------- ----------- -----------
Total notes payable and long-term debt................... $3.6 $480.9 $4.4 $438.2
=========== =========== =========== ===========
</TABLE>
Maturities of long-term debt, including unamortized discount of
$0.8 million, are as follows: 1998, $243.4 million; 1999, $42.2 million; 2000,
$1.0 million; 2001, $1.0 million; and after 2001, $151.4 million.
Included in long-term debt at December 31, 1995 and 1996 were
obligations of $255.7 million and $154.5 million, respectively, with fixed
interest rates and $225.2 million and $283.7 million, respectively, with
variable interest rates (generally based on LIBOR or prime rate). Interest
rate swap agreements with a notional amount of $125 million at December 31,
1996 were utilized to manage exposure to interest rate fluctuations. Under
these agreements the Company has exchanged variable rate payments based on
LIBOR for fixed rate payments.
In 1995, the Company completed a financing which updated
more than $600 million of existing bank facilities. The financing included
a $200 million intermediate term loan, a $120 million accounts receivable
facility, an extension of the maturity of an existing letter of credit
facility of $155 million, and amendments to an existing $166 million
revolving credit facility. The term loan and the receivables facility are
available through December 31, 1998 while the revolving credit facility is
available through June 30, 1999.
The committed amount under the revolving credit facility
reduces semi-annually during the remaining commitment period. Available future
commitments at December 31 are as follows: 1997, $92.4 million; and 1998,
$41.6 million. Unused commitments at December 31, 1996 under the revolving
credit facility were $48.6 million.
The credit facilities contain 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.
To secure its obligations under these facilities, the Company pledged the
stock of certain of its subsidiaries.
In 1995, an extraordinary loss of $4.7 million, net of tax, was
realized related to the extinguishment of debt in connection with the
amendment of the Company's credit facilities.
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 being used to satisfy claim
liabilities under direct insurance policies written by Centaur. Any remaining
assets will be applied to Centaur's obligations to other insurance companies
under reinsurance contracts. If all of Centaur's obligations are not satisfied
through rehabilitation, it is possible that satisfaction could be sought from
the Company for Centaur's liabilities.
The foregoing has resulted in one pending lawsuit against the
Company, certain of its current and former subsidiaries, and directors and
officers of certain current and former subsidiaries for recovery of alleged
damages incurred because of Centaur's failure to satisfy its reinsurance
obligations. The lawsuit seeks in excess of $100 million for current losses,
future losses and other damages and also seeks punitive damages. The Company
believes that any damages for failure to satisfy reinsurance obligations are
solely the responsibility of Centaur and that the resolution of the lawsuit
relating to Centaur, including the Company's indemnification obligations to
certain former officers and directors, will not have a material adverse effect
on its financial position or future operating results; however, no assurance
can be given as to the ultimate outcome with respect to such lawsuit.
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, indemnification
obligations in favor of the Company from the current owners of certain sold or
discontinued operations, estimated legal fees and other factors, the Company
has made provisions for indicated environmental liabilities in the aggregate
amount of approximately $9 million (relating to environmental matters with
respect to discontinued operations of the Company). The Company has requested
that its discontinued automotive subsidiary, Borg-Warner Automotive, indemnify
it against certain past and future costs relating to environmental and
financing liabilities associated with certain former automotive operations. At
December 31, 1996 such past costs were approximately $2.3 million. Borg-Warner
Automotive has contested its indemnification obligation with respect to such
liabilities.
The Company believes that the various asserted claims and
litigation in which it is involved will not materially affect its financial
position, future operating results or cash flows, although no assurance can be
given with respect to the ultimate outcome of any such claim or litigation.
Note 7. Retirement Benefits
The Company has various defined benefit and contribution plans
which cover eligible employees.
Retirement benefit expense amounted to $5.8 million, $4.7
million and $4.5 million in 1994, 1995 and 1996, respectively. This expense
includes post-retirement life insurance and medical benefits of $0.2 million,
$0.3 million and $0.3 million for 1994, 1995 and 1996, respectively, as well
as defined contribution plan expenses of $1.6 million, $1.7 million and $1.5
million in 1994, 1995 and 1996, respectively.
The following table sets forth the funded status of the defined
benefit plans:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1996
--------------------------- ---------------------------
Over Under Over Under
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Funded Status
Actuarial present value of benefit obligations:
Vested benefits.................................... $45.6 $44.1 $60.6 $25.7
Non-vested benefits................................ 1.4 2.0 2.6 0.1
---------- ---------- ---------- ----------
Accumulated benefit obligations................ 47.0 46.1 63.2 25.8
Effect of projected future compensation levels........ 5.3 -- 5.0 --
---------- ---------- ---------- ----------
Projected benefit obligation....................... 52.3 46.1 68.2 25.8
Plan assets at fair value............................. 55.9 34.4 81.4 20.5
---------- ---------- ---------- ----------
Assets in excess of (less than) projected benefit
obligation............................................ 3.6 (11.7) 13.2 (5.3)
Unrecognized net loss (gain).......................... 2.9 9.7 (4.9) 3.1
Unrecognized prior service cost (benefit)............. (1.7) 2.7 0.8 --
---------- ---------- ---------- ----------
Net asset (liability) before minimum liability........ 4.8 0.7 9.1 (2.2)
Adjustment required to recognize minimum liability.... -- (12.4) -- (3.1)
---------- ---------- ---------- ----------
Net asset (liability) on balance sheet................ $4.8 $(11.7) $9.1 $(5.3)
========== ========== ========== ==========
</TABLE>
Assets held in trust for the defined benefit plans are
comprised primarily of marketable equity and fixed income securities.
Net periodic pension expense for the defined benefit plans was
comprised as follows:
Year Ended December 31,
------------------------------------
1994 1995 1996
-------- -------- --------
(millions of dollars)
Service cost.................... $3.0 $2.4 $3.3
Interest cost.................. 6.7 6.9 7.0
Actual return on assets........ 1.1 (20.4) (12.5)
Net amortization and deferrals. (6.9) 13.8 4.9
-------- -------- --------
Net periodic pension cost.... $3.9 $2.7 $2.7
======== ======== ========
The Company's assumptions used as of December 31, 1994, 1995
and 1996 in determining the pension cost and pension liability shown above
were as follows:
1994 1995 1996
-------- -------- --------
Discount rate..................... 8.5% 7.5% 8.0%
Rate of salary progression........ 4.0% 4.0% 4.0%
Long-term rate of return
on assets........................ 9.5% 9.5% 10.0%
The Company also has post-employment benefits covering
certain existing and former employees, including employees of certain
businesses which have been divested by the Company. The liabilities on the
Company's balance sheet for these benefits as of December 31, 1995 and 1996
were $12.4 million and $11.5 million respectively, and are included in
"Other Long-Term Liabilities." The discount rate used in determining this
liability was 7.5% in 1995 and 8.0% in 1996. Medical expense increases are
projected to be 7.25% in 1997 grading to 5.25% in 1999.
Note 8. Stock Options and Notes Receivable-Management Stock Purchase
Stock Option Plan
The Company has two plans which authorize the grant of
options to purchase 3,900,000 shares of the Company's common stock. All
options granted to date carry exercise prices ranging from $5.00 to $20.75
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 with a graded
vesting schedule between two to three years.
In 1994, 1995 and 1996 there were no options canceled or
converted.
Common shares under option for the years ended December 31,
1994, 1995 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
Number of Shares Aggregate Option Price
------------------------------------ ------------------------------------
1994 1995 1996 1994 1995 1996
-------- -------- -------- -------- -------- --------
(thousands of shares) (millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
Shares under option at January 1.... 1,472 1,843 1,810 $19.9 $26.7 $24.2
Granted............................. 593 390 159 9.7 3.3 1.7
Exercised........................... (114) (141) (66) (1.1) (0.7) (0.3)
Forfeited........................... (108) (282) (358) (1.8) (5.1) (6.7)
-------- -------- -------- -------- -------- --------
Shares under option at end of
period.............................. 1,843 1,810 1,545 $26.7 $24.2 $18.9
======== ======== ======== ======== ======== ========
Options exercisable................. 881 800 985
======== ======== ========
Shares available for future grant... 186 78 1,177
======== ======== ========
Weighted-average fair value of
options granted during the year..... $3.57 $4.00
======== ========
</TABLE>
Additional information regarding options outstanding as of
December 31, 1996 is as follows (thousands of shares):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------- -----------------------------------------
Weighted
Average
Remaining Weighted
Number Contractual Life Average Number
Outstanding (yrs) Exercise Price Exercisable Exercise Price
------------- ---------------- --------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
$5.00-8.75.... 668 5.3 $7.04 378 5.92
10.94-15.94... 548 7.2 14.75 294 15.84
16.03-18.83... 263 4.3 17.99 263 17.99
19.63-20.75... 66 50
------------- 6.6 20.14 ----------------- 20.21
5.00-20.75.... 1,545 985
============= =================
5.9 12.20 12.84
</TABLE>
The 560 thousand options outstanding at December 31, 1996
that are not presently exercisable will vest according to various schedules
between two to three years.
The Company has retained the "intrinsic value" method of
accounting for stock-based compensation expense under APB 25. Had
compensation cost been determined based on the "fair value" method under
SFAS 123, the Company's pro forma net income and earnings per share would
have been as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1995 1996
---------- ----------
(millions of dollars, except per
share)
<S> <C> <C>
Net income (loss)
As reported............ $1.2 $(14.6)
Pro forma.............. 1.1 (14.9)
Earnings (loss) per share
As reported............ $0.05 $ (0.62)
Pro forma.............. 0.04 (0.63)
</TABLE>
The fair value of each option granted is estimated on the
date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1995 and 1996,
respectively: expected volatility of 43% and 41%; risk-free interest rates
of 6.00-6.81% and 6.15-6.22%; and expected lives of 4 and 3-4 years.
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 totaled approximately $0.3
million at December 31, 1995 and 1996, bear interest at approximately 6%
and are offset against stockholders' equity in the Consolidated Balance
Sheet.
Note 9. Business Segment Information
The Company's continuing operations have been classified
into three business segments: guard, alarm and armored 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.
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 operations, 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
1994, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1994 1995 1996
-------- -------- --------
(millions of dollars)
<S> <C> <C> <C>
Net service revenues:
Guard services...................................................... $1,209.4 $1,222.8 $1,223.8
Alarm services...................................................... 206.2 254.7 241.1
Armored services.................................................... 211.2 231.0 246.3
-------- -------- --------
Total net service revenues........................................ $1,626.8 $1,708.5 $1,711.2
======== ======== ========
Operating profit:
Guard services...................................................... $ 54.5 $ 56.4 $ 62.1
Alarm services...................................................... 14.9 15.8 18.9
Armored services.................................................... 6.7 13.7 12.1
-------- -------- --------
Total operating profit............................................ 76.1 85.9 93.1
Corporate expenses.................................................. 26.5 14.7 13.1
Other income........................................................ (9.8) -- --
Interest expense.................................................... 48.8 55.9 56.6
-------- -------- --------
Earnings before taxes............................................... 10.6 15.3 23.4
Provision (benefit) for income taxes................................ (3.2) 6.9 9.5
-------- -------- --------
Earnings from continuing operations............................... $ 13.8 $ 8.4 $ 13.9
======== ======== ========
Depreciation:
Guard services...................................................... $ 7.4 $ 7.3 $ 5.7
Alarm services...................................................... 38.0 37.4 34.2
Armored services.................................................... 7.0 7.1 7.0
Corporate........................................................... 0.4 0.3 0.1
-------- -------- --------
Total depreciation................................................ $ 52.8 $ 52.1 $ 47.0
======== ======== ========
Amortization of excess purchase price over net assets acquired:
Guard services...................................................... $ 11.1 $ 8.9 $ 8.9
Alarm services...................................................... 2.3 2.8 2.9
Armored services.................................................... 1.3 1.5 1.4
Corporate........................................................... 0.1 0.2 0.2
-------- -------- --------
Total amortization................................................ $ 14.8 $ 13.4 $ 13.4
======== ======== ========
Capital expenditures:
Guard services...................................................... $ 8.6 $ 3.6 $ 3.1
Alarm services...................................................... 44.6 40.5 29.5
Armored services.................................................... 6.2 3.7 8.1
-------- -------- --------
Total capital expenditures........................................ $ 59.4 $ 47.8 $ 40.7
======== ======== ========
Identifiable assets:
Guard services...................................................... $ 259.2 $ 231.1
Alarm services...................................................... 364.6 348.2
Armored services.................................................... 89.1 87.4
Discontinued operations............................................. 36.8 12.6
Corporate........................................................... 88.8 81.5
-------- --------
Total identifiable assets......................................... $ 838.5 $ 760.8
======== ========
</TABLE>
Note 10. Other Income, Net
Other income in 1994 included a $9.9 million gain on the sale
of certain trademarks and other rights to Borg-Warner Automotive.
Note 11. Income Taxes
Earnings before income taxes from continuing operations and
provision (benefit) for income taxes consist of:
<TABLE>
<CAPTION>
1994 1995
------------------------------ ------------------------------
U.S. Non-U.S. Total U.S. Non-U.S. Total
-------- -------- -------- -------- -------- --------
(millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
Earnings before income taxes.......... $ 7.9 $2.7 $10.6 $11.9 $3.4 $15.3
======== ======== ======== ======== ======== ========
Income taxes:
Current:
Federal/Foreign.................... $ 3.6 $1.7 $ 5.3 $ 9.9 $1.5 $11.4
State.............................. 0.9 -- 0.9 1.0 -- 1.0
-------- -------- -------- -------- -------- --------
4.5 1.7 6.2 10.9 1.5 12.4
Deferred............................. (9.4) -- (9.4) (5.5) -- (5.5)
-------- -------- -------- -------- -------- --------
Provision (benefit) for income taxes.. $(4.9) $1.7 $(3.2) $ 5.4 $1.5 $ 6.9
======== ======== ======== ======== ======== ========
1996
------------------------------
U.S. Non-U.S. Total
-------- -------- --------
<C> <C> <C>
Earnings before income taxes.......... $19.1 $4.3 $23.4
======== ======== ========
Income taxes:
Current:
Federal/Foreign.................... $10.5 $1.3 $11.8
State.............................. 1.5 -- 1.5
-------- -------- --------
12.0 1.3 13.3
Deferred............................. (3.8) -- (3.8)
-------- -------- --------
Provision (benefit) for income taxes.. $ 8.2 $1.3 $ 9.5
======== ======== ========
</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:
<TABLE>
1994 1995 1996
-------- -------- --------
(millions of dollars)
<S> <C> <C> <C>
Income taxes at U.S. statutory rate of 35%............ $3.7 $5.3 $8.2
Increases (decreases) resulting from:
Change in tax basis.................................. (7.0) -- --
State income taxes................................... 0.6 0.8 0.8
Non-temporary differences............................ 0.6 0.7 0.7
Other, net........................................... (1.1) 0.1 (0.2)
-------- -------- --------
Income taxes reported................................. $(3.2) $6.9 $9.5
======== ======== ========
</TABLE>
Following are the components of the net deferred tax asset
as of December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1996
-------- --------
(millions of dollars)
<S> <C> <C>
Deferred tax assets:
Liabilities for casualty insurance............................... $ 35.8 $ 35.6
Liabilities related to discontinued operations................... 9.8 9.6
Liabilities for pension benefits................................. 4.4 0.4
Liabilities for other post-retirement benefits................... 5.1 4.6
Other, net....................................................... 8.0 2.8
Net operating loss carry-forward................................. 16.7 10.9
General business credit.......................................... 25.5 26.3
Minimum tax credit............................................... 27.0 26.6
Foreign tax credit............................................... 2.3 1.3
-------- --------
Total deferred tax assets...................................... 134.6 118.1
Valuation allowance............................................... (10.6) (6.8)
-------- --------
124.0 111.3
Deferred tax liabilities:
Fixed assets..................................................... (49.5) (43.9)
Investments...................................................... (13.1) (13.1)
Net excess purchase price over net assets acquired............... (8.6) (7.5)
-------- --------
Total deferred tax liabilities................................. (71.2) (64.5)
-------- --------
Net deferred tax asset......................................... $52.8 $46.8
======== ========
</TABLE>
The foreign tax credit carry-forward has been fully
considered in the valuation allowance at both December 31, 1995 and 1996
while an additional allowance of $8.3 million and $5.5 million at December
31, 1995 and 1996, respectively, has been established against the other
credits. The general business credit carry-forward will expire in years
2004-2009, the net operating loss carry-forward 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, 1995 and 1996:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
------------ -------------
(thousands of shares)
<S> <C> <C>
Common stock, $.01 par value:
Authorized..................................................... 50,000.0 50,000.0
Issued......................................................... 22,446.1 22,446.1
Outstanding.................................................... 22,087.6 22,154.2
Series I non-voting common stock, $.01 par value:
Authorized..................................................... 25,000.0 25,000.0
Issued......................................................... 2,720.0 2,720.0
Outstanding.................................................... 1,149.6 1,149.6
Preferred stock, $.01 par value:
Authorized..................................................... 5,000.0 5,000.0
Issued and outstanding......................................... -- --
</TABLE>
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 based on floating rates identified by
reference to 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, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
------------ ------------
(millions of dollars)
<S> <C> <C>
Carrying amount......... $473.8 $432.9
Fair value.............. 463.6 432.4
</TABLE>
Interest rate swaps
The Company uses interest rate swap agreements to manage
exposure to fluctuations in interest rates. Interest rate swap agreements
involve the exchange of interest obligations on fixed and floating interest
rate debt without the exchange of the underlying principal amounts. The
differential paid or received on interest rate swap agreements is
recognized as an adjustment to interest expense over the term of the
underlying debt agreement. The book value of the interest rate swap
agreements represents the differential receivable or payable with a swap
counterparty since the last settlement date.
The fair value of interest rate swaps is the estimated
amount the Company would receive or pay to terminate the agreement. The
fair value is calculated using current market rates and the remaining terms
of the agreements. The fair value of interest rate swaps at December 31,
1996 is not significant. In the unlikely event that a counterparty fails
to meet the terms of an interest rate swap, the Company's exposure is
limited to the interest rate differential. The underlying notional amounts
on which the Company has interest rate swap agreements outstanding was $100
million at December 31, 1995 and $125 million at December 31, 1996.
Letters of credit
The Company utilizes third-party letters of credit to
guarantee certain casualty 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, 1995 and 1996
were $150.3 million and $136.3 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.
Note 14. Interim Financial Information (Unaudited)
<TABLE>
<CAPTION>
1996 Quarter Ended
------------------------------------------------------------------------------
March 31 June 30 September 30 December 31 Year 1996
-------- -------- ------------ ----------- ------------
(millions of dollars, except per share data)
<S> <C> <C> <C> <C> <C>
Net service revenues............... $414.1 $418.3 $434.9 $443.9 $1,711.2
Cost of services................... 329.6 332.2 348.2 350.2 1,360.2
Selling, general
and administrative
expenses........................... 52.7 52.2 51.8 53.9 210.6
Depreciation....................... 12.1 11.8 11.7 11.4 47.0
Amortization of excess
purchase price
over net assets acquired.......... 3.3 3.4 3.4 3.3 13.4
Interest expense
and finance charges............... 14.5 14.1 14.1 13.9 56.6
-------- -------- ------------ ----------- ------------
Earnings before income taxes...... 1.9 4.6 5.7 11.2 23.4
Provision (benefit)
for income taxes.................. 0.3 1.7 2.5 5.0 9.5
-------- -------- ------------ ----------- ------------
Earnings from
continuing operations............. 1.6 2.9 3.2 6.2 13.9
Loss from discontinued
operations, net of
income taxes...................... (1.1) (1.0) (26.4) -- (28.5)
-------- -------- ------------ ----------- ------------
Earnings (loss) before
extraordinary item................ 0.5 1.9 (23.2) 6.2 (14.6)
Extraordinary item:
Loss from early extinguishment
of debt, net of
income taxes...................... -- -- -- -- --
-------- -------- ------------ ----------- ------------
Net earnings (loss)............... $0.5 $1.9 $(23.2) $6.2 $(14.6)
======== ======== ============ =========== ============
Earnings (loss) per common share:
Continuing operations............. $0.07 $0.12 $0.14 $0.26 $0.59
Discontinued operations........... (0.05) (0.04) (1.13) -- (1.21)
Extraordinary item................ -- -- -- -- --
-------- -------- ------------ ----------- ------------
Net earnings (loss) per share... $0.02 $0.08 $(0.99) $0.26 $(0.62)
======== ======== ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
1995 Quarter Ended
------------------------------------------------------------------------------
March 31 June 30 September 30 December 31 Year 1995
-------- -------- ------------ ----------- ------------
(millions of dollars, except per share data)
<S> <C> <C> <C> <C> <C>
Net service revenues............... $423.8 $427.6 $427.8 $429.3 $1,708.5
Cost of services................... 336.0 341.5 341.0 340.8 1,359.3
Selling, general and
administrative
expenses........................... 56.8 54.6 51.7 49.4 212.5
Depreciation....................... 13.6 13.0 13.0 12.5 52.1
Amortization of excess
purchase price
over net assets acquired.......... 3.5 3.4 3.1 3.4 13.4
Interest expense
and finance charges............... 13.4 13.9 13.7 14.9 55.9
-------- -------- ------------ ----------- ------------
Earnings before
income taxes...................... 0.5 1.2 5.3 8.3 15.3
Provision (benefit)
for income taxes.................. (0.1) 0.3 2.5 4.2 6.9
-------- -------- ------------ ----------- ------------
Earnings from
continuing operations............ 0.6 0.9 2.8 4.1 8.4
Loss from discontinued
operations, net of
income taxes..................... (0.5) (0.3) (0.4) (1.3) (2.5)
-------- -------- ------------ ----------- ------------
Earnings (loss) before
extraordinary item............... 0.1 0.6 2.4 2.8 5.9
Extraordinary item:
Loss from early
extinguishment of debt,
net of income taxes............... -- -- -- (4.7) (4.7)
-------- -------- ------------ ----------- ------------
Net earnings (loss)............... $ 0.1 $ 0.6 $ 2.4 $ (1.9) $ 1.2
Earnings (loss) ======== ======== ============ ============ ============
per common share:
Continuing operations............ $ 0.02 $ 0.04 $ 0.12 $ 0.18 $ 0.36
Discontinued operations.......... (0.02) (0.01) (0.02) (0.06) (0.11)
Extraordinary item............... -- -- -- (0.20) (0.20)
-------- -------- ------------ ----------- ------------
Net earnings (loss) per share.. -- $ 0.03 $ 0.10 $ (0.08) $ 0.05
======== ======== ============ ============ ============
</TABLE>
Note 15. Subsequent Event and Related Pro Forma Financial
Information (Unaudited)
The following unaudited Pro Forma Financial Information has
been prepared as a result of the combination on January 24, 1997, of the
Company's armored services unit with Loomis Holding Corporation. The
unaudited Pro Forma Financial Information is based on the historical
financial statements of the Company and gives effect to (i) the disposition
of substantially all of the assets and certain liabilities of the armored
unit and other adjustments related to the business combination and (ii) the
application of the net proceeds received by the Company to repay certain
indebtedness. The accompanying unaudited Pro Forma Consolidated Statement
of Operations for the year ended December 31, 1996 gives effect to the
transactions as if they had been consummated on January 1, 1996. The
unaudited Pro Forma Consolidated Balance Sheet at December 31, 1996 is
presented giving effect to the transactions as if they had been consummated
as of that date.
While the Company anticipates that it will recognize a gain
from the sale of the armored unit's net assets, the ultimate gain is subject
to potential purchase price adjustments and other contingencies of which the
amounts have not been finalized at this time. However, the Company does not
anticipate that the gain will be material, and the Company does not expect any
material nonrecurring charges or credits to result from the transaction.
The unaudited Pro Forma Financial Information is intended
for informational purposes only and is not necessarily indicative of the
future results of operations or financial position of the Company had the
transactions described above occurred on the indicated dates or been in
effect for the periods presented.
The unaudited Pro Forma Financial Information and the
accompanying notes should be read in conjunction with the historical
Consolidated Financial Statements of the Company, including the related
notes thereto.
Pro Forma Consolidated Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
----------------------------------------------------------
Pro Forma
Historical Adjustments (a) Pro Forma
---------- --------------- ----------
(millions of dollars, except share data)
<S> <C> <C> <C>
Net service revenues.................................... $1,711.2 (246.3) $1,464.9
Cost of services........................................ 1,360.2 (204.5) 1,155.7
Selling, general and
administrative expense................................. 210.6 (20.7) 189.9
Depreciation............................................ 47.0 (7.1) 39.9
Amortization of excess purchase price
over net assets acquired............................... 13.4 (1.5) 11.9
Interest expense and finance charges.................... 56.6 (9.1) (b) 47.5
---------- --------------- ----------
Earnings before income taxes and equity in
earnings of unconsolidated
subsidiaries......................................... 23.4 (3.4) 20.0
Provision for income taxes.............................. 9.5 (1.3) (c) 8.2
---------- --------------- ----------
Earnings before equity in
earnings of unconsolidated
subsidiaries......................................... 13.9 (2.1) 11.8
Equity in earnings of Loomis, Fargo & Co................ -- 3.8 (d) 3.8
---------- --------------- ----------
Earnings from continuing operations.................... $13.9 $1.7 $15.6
========== =============== ==========
Earnings per share from continuing operations........... $0.59 $0.66
Average shares outstanding (in thousands)............... 23,517 23,517
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Consolidated Balance Sheet (Unaudited)
Year Ended December 31, 1996
---------------------------------------------------------------
Pro Forma
Historical Adjustment Pro Forma
---------- ---------- (e) ---------
(millions of dollars)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................. $ 17.8 -- $ 17.8
Receivables, net...................................... 100.4 $ (28.7) 71.7
Inventories........................................... 12.1 (1.8) 10.3
Other current assets.................................. 36.8 11.3 48.1
---------- ---------- (b) ---------
Total current assets............................. 167.1 (19.2) 147.9
Property, plant and equipment, at cost................ 442.6 (76.5) 366.1
Less accumulated depreciation......................... 239.5 (45.6) 193.9
Net property, plant and equipment................ 203.1 (30.9) 172.2
Net excess purchase price over net assets acquired.... 237.2 (27.4) 209.8
Deferred tax asset, net............................... 46.8 (5.1) 41.7
Net assets of discontinued operations................. 12.6 -- 12.6
Investment in Loomis, Fargo & Co...................... -- 3.4 (d) 3.4
Other assets.......................................... 94.0 (11.3) 82.7
---------- ---------- ---------
Total assets..................................... $ 760.8 $ (90.5) $ 670.3
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable......................................... $ 4.4 $ (0.6) $ 3.8
Accounts payable and accrued expenses................. 173.7 (10.1) 163.6
---------- ---------- ---------
Total current liabilities........................ 178.1 (10.7) 167.4
Long-term debt........................................ 438.2 (91.0) (b) 347.2
Other long-term liabilities........................... 103.3 11.2 (f) 114.5
Capital stock:
Common stock..................................... 0.2 -- 0.2
Series I non-voting common stock................. -- -- --
Capital in excess of par value........................ 29.0 -- 29.0
Retained earnings..................................... 20.6 -- 20.6
Notes receivable--management stock purchase........... (0.3) -- (0.3)
Cumulative translation adjustment..................... 0.5 -- 0.5
---------- ---------- ---------
50.0 -- 50.0
Treasury common stock................................. (8.8) -- (8.8)
---------- ---------- ---------
Total stockholders' equity....................... 41.2 -- 41.2
---------- ---------- ---------
Total liabilities and stockholders' equity....... $ 760.8 $ (90.5) $ 670.3
========== ========== ==========
<FN>
- ----------------------
(a) To eliminate the historical revenues and expenses of the armored unit.
(b) To eliminate debt retired with proceeds received from the transaction and
to adjust related interest expense. Cash proceeds from the transaction, net
of transaction and related expenses, were approximately $105 million and
were applied as follows: decrease in borrowings under the term loan, $80
million; decrease in borrowings under the revolving line of credit, $10
million; and increase in interest-bearing cash deposits under the accounts
receivable facility, $15 million. The interest expense adjustment was
computed using the average interest rates for the respective periods. Such
rates were used because management believes these rates would have been the
same if the facilities had been negotiated by the Company on a stand-alone
basis without the armored unit.
(c) To record the estimated income tax effect for the pro forma adjustments
described in Notes (a) and (b) for the respective periods.
(d) To recognize, under the equity method, the Company's 49% interest in the
pro forma net assets and earnings of Loomis, Fargo & Co.
(e) To eliminate the sold assets and liabilities of the armored unit.
(f) For anticipated expenses incurred as a direct result of the business
combination and for purchase price adjustments under the contribution
agreement, including indemnifications and performance guarantees.
</TABLE>
=============================================================================
No dealer, person or any other individual has been authorized
to give any information or to make any representations other than those
contained in this Prospectus in connection with the offering covered by this
Prospectus. If given or made, such information or representations must not be
relied upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any
security, other than those to which it relates, in any jurisdiction in which
such offer or solicitation is not qualified to do so or to any person to whom
it is unlawful to make such offer or solicitation. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create an implication that there has not been any change in the facts set
forth in this Prospectus or in the affairs of the Company since the date
hereof.
____________
TABLE OF CONTENTS
Page
------
Available Information....................................... 2
Incorporation of Certain Documents by Reference............. 2
Prospectus Summary.......................................... 3
Risk Factors................................................ 14
Capitalization.............................................. 20
Selected Financial Data..................................... 21
Pro Forma Financial Data (Unaudited)........................ 23
Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 27
Business.................................................... 32
Management.................................................. 41
Principal Shareholders...................................... 43
Description of Certain Indebtedness......................... 45
Description of the Notes.................................... 48
Exchange Offer.............................................. 70
ERISA Considerations........................................ 76
Plan of Distribution........................................ 77
Legal Matters............................................... 77
Experts..................................................... 78
Financial Statements........................................ F-1
=============================================================================
=============================================================================
$125,000,000
Offer to Exchange
9 5/8% Senior Subordinated Notes due 2007
For Any And All Of the Outstanding
9 5/8% Senior Subordinated Notes due 2007
of
Borg-Warner Security
Corporation
PROSPECTUS
July 2, 1997
=============================================================================
[Alternate Cover Page]
PROSPECTUS
Borg-Warner Security Corporation
9 5/8% Senior Subordinated Notes Due 2007
The 9 5/8% Senior Subordinated Notes due 2007, (the "Exchange
Notes") were issued in exchange for the 9 5/8% Senior Subordinated Notes due
2007 (the "Old Notes" and, together with the Exchange Notes, the "Notes") by
the Borg-Warner Security Corporation (the "Company"). See "Description of the
Exchange Notes."
Interest on the Exchange Notes is payable semi-annually on
March 15 and September 15 of each year, beginning on September 15, 1997. The
Exchange Notes will mature on March 15, 2007 and may be redeemed at the option
of the Company, in whole or in part, at any time on or after March 15, 2002,
at the redemption prices set forth herein, and, subject to certain limitations
described herein, up to 30% of the original aggregate principal amount of the
Notes may be redeemed at the option of the Company with the net cash proceeds
of one or more Public Equity Offerings (as defined herein), provided that not
less than $87.5 million aggregate principal amount of the Notes remains
outstanding immediately after giving effect to such redemption, at any time
prior to March 15, 2000, at the redemption price of 109.625% of the principal
amount thereof, in each case together with accrued and unpaid interest, if
any, to the date of redemption. Upon a Change of Control (as defined herein),
subject to certain conditions, each holder of the Exchange Notes may require
the Company to purchase such holder's Exchange Notes at 101% of the principal
amount thereof, together with accrued and unpaid interest, if any, to the date
of purchase. See "Description of the Exchange Notes."
The Exchange Notes are unsecured obligations of the Company
subordinated in right of payment and upon liquidation to all existing and
future Senior Indebtedness (as defined herein) of the Company, including
indebtedness under the New Credit Facility (as defined herein), which is
secured by pledges of stock of certain of the Company's subsidiaries. The
Company is a holding company and, accordingly, the Exchange Notes are
effectively subordinated to all existing and future indebtedness of the
Company's subsidiaries. Subject to certain restrictions contained in the
Company's debt instruments, the Company may incur additional Senior
Indebtedness and the Company's subsidiaries may incur additional
indebtedness in the future. As of December 31, 1996, after giving pro
forma effect to the Loomis Fargo Combination (as defined herein) and the
Refinancing (as defined herein), the aggregate outstanding principal amount
of Senior Indebtedness (exclusive of undrawn letters of credit of
approximately $128.8 million) of the Company would have been approximately
$75.1 million and the aggregate outstanding principal amount of
indebtedness (exclusive of obligations in respect of undrawn letters of
credit of approximately $128.8 million) of the Company's subsidiaries
(including guarantees by certain of the Company's subsidiaries of the
Company's obligations under the New Credit Facility) would have been
approximately $83.3 million. As of December 31, 1996, there were also $150
million aggregate principal amount of the Company's 9 1/8% Notes (as
defined herein) outstanding which are ranked pari passu in right of payment
and upon liquidation with the Notes. In addition, the Company has a non-
recourse receivables-backed facility. See "Description of Certain
Indebtedness--Securitization of Receivables."
This Prospectus is to be used by Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") in connection with offers and
sales in market-making transactions at negotiated prices related to
prevailing market prices at the time of sale. Merrill Lynch may act as
principal or agent in such transactions and has no obligation to make a
market in the Exchange Notes, and may discontinue its market-making
activities any time without notice, at its sole discretion. If Merrill
Lynch conducts any market-making activities, it may be required to deliver
a "market-making prospectus" when effecting offers and sales in the Notes
because of the equity ownership of affiliates of Merrill Lynch. Certain
affiliates of Merrill Lynch hold in the aggregate approximately 46% of the
outstanding shares of the Company's Common Stock. The Company will receive
no portion of the proceeds of the sale of such Exchange Notes and will bear
expenses incident to the registration thereof.
No dealer, salesperson, or other person has been authorized to
give information or to make any representations not contained in this
Prospectus, and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company or any dealer,
underwriter or agent. This prospectus does not constitute an offer to sell or
the solicitation of an offer to buy any security other than the Exchange Notes
offered hereby, nor does it constitute an offer to sell or the solicitation of
an offer to buy any of the Exchange Notes to any person in any jurisdiction in
which it is unlawful to make such an offer or solicitation to such person.
Neither the delivery of this Prospectus nor any sale made hereunder shall
under any circumstances create an implication that the information contained
herein is correct as of any date subsequent to the date hereof, or that there
has been no change in the affairs of the Company since such date or, in the
case of information incorporated herein by reference, the date of filing with
the Securities and Exchange Commission.
________________________
See "Risk Factors" for a discussion of certain factors that
should be considered in connection with an investment in the Exchange Notes.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July 2, 1997
AVAILABLE INFORMATION
The Company is currently subject to the informational
requirements of the Exchange Act and in accordance therewith files periodic
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and information may be inspected and copied at the
Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549; and at the regional offices of the Commission at 7
World Trade Center (13th Floor), New York, New York 10048; and at Suite 1400,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material can be obtained at prescribed rates from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission also maintains an internet "website" at http://www.sec.gov that
contains reports and other information.
This Prospectus constitutes a part of a registration
statement (the "Registration Statement") filed by the Company with the
Commission under the Securities Act. As permitted by the rules and
regulations of the Commission, this Prospectus does not contain all of the
information contained in the Registration Statement and the exhibits and
schedules thereto and reference is hereby made to the Registration
Statement and the exhibits and schedules thereto for further information
with respect to the Company and the securities offered hereby. Statements
contained herein concerning the provisions of any documents filed as an
exhibit to the Registration Statement or otherwise filed with the
Commission are not necessarily complete, and in each instance reference is
made to the copy of such document so filed. Each such statement is
qualified in its entirety by such reference. Copies of the Registration
Statement may be examined without charge at the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
and at the web site (http://www.sec.gov.) maintained by the Commission and
at the Commission's Regional Offices located at Seven World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any portion
of the Registration Statement can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE
WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST FROM BORG-WARNER SECURITY
CORPORATION, 200 SOUTH MICHIGAN AVENUE, CHICAGO, ILLINOIS 60604, TELEPHONE
NUMBER (312) 322-8500. IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY JULY 18, 1997
The following documents filed with the Commission (File No.
1-5529) are incorporated herein by reference: (1) the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996, and (2) the
Company's Current Reports on Form 8-K dated February 7, 1997 and Form 8-K/A
dated February 13, 1997.
All documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the this Exchange Offer shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modified or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each
person to whom a copy of this Prospectus has been delivered, upon written or
oral request of any such person, a copy of any and all of the documents
referred to above which have been or may be incorporated in this Prospectus by
reference, other than exhibits to such documents which are not specifically
incorporated by reference to such documents. Requests for such copies should
be directed to Borg-Warner Security Corporation, 200 South Michigan Avenue,
Chicago, Illinois 60604, telephone number (312) 322-8500.
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS UNDER
"PROSPECTUS SUMMARY", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS", IN ADDITION TO CERTAIN
STATEMENTS CONTAINED ELSEWHERE IN THIS PROSPECTUS, ARE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 AND ARE THUS PROSPECTIVE. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT
TO RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. THE MOST SIGNIFICANT OF SUCH RISKS, UNCERTAINTIES
AND OTHER FACTORS ARE DISCUSSED UNDER THE HEADING "RISK FACTORS", BEGINNING ON
PAGE 14 OF THIS PROSPECTUS, AND PERSONS CONSIDERING AN INVESTMENT IN THE
EXCHANGE NOTES ARE URGED TO CAREFULLY CONSIDER SUCH FACTORS.
Summary Description of the Exchange Notes
The form and terms of the Exchange Notes and the Old Notes are
identical in all respects, except that the offer of the Exchange Notes is
registered under the Securities Act and, therefore, the Exchange Notes are not
subject to certain transfer restrictions, registration rights and related
provisions requiring an increase in the interest rate on the Old Notes under
certain circumstances if the Company defaults with respect to its registration
requirements under the Registration Rights Agreement applicable to the Old
Notes.
Exchange Notes....................... $125,000,000 aggregate principal
amount of 9 5/8% Series B Senior
Subordinated Notes (the "Exchange
Notes") due 2007 of the Company.
Maturity Date........................ March 15, 2007.
Interest Payment Dates............... March 15 and September 15, beginning
September 15, 1997. The Exchange
Notes bear interest from March 24,
1997, the date of issuance of the Old
Notes that were tendered in exchange
for the Exchange Notes (or the most
recent interest payment date to which
interest on the Old Notes has been
paid). Holders of Old Notes whose Old
Notes were accepted for exchange have
waived the right to receive any
payment in respect of interest on such
Old Notes accrued from March 24, 1997
to the date of the issuance of the
Exchange Notes.
Optional Redemption.................. The Notes may be redeemed at the
option of the Company, in whole or
in part, at any time on or after
March 15, 2002, at the redemption
prices set forth herein together
with accrued and unpaid interest,
if any, to the date of redemption.
In addition, at any time prior to
March 15, 2000, the Company may
redeem up to 30% of the original
aggregate principal amount of the
Notes at a redemption price of
109.625% of the principal amount
thereof (together with accrued and
unpaid interest, if any, to the
date of redemption) with the net
cash proceeds of one or more Public
Equity Offerings (as defined
herein); provided that not less
than $87.5 million aggregate
principal amount of the Notes
remains outstanding immediately
after giving effect to such
redemption. See "Description of
the Notes--Optional Redemption."
Change of Control.................... Upon a Change of Control, subject to
certain conditions, each holder of
the Notes may require the Company
to purchase such holder's Notes at
101% of the principal amount
thereof, together with accrued and
unpaid interest, if any, to the
date of purchase. There can be no
assurance that the Company would
have sufficient cash to purchase
the Notes in the event a Change of
Control occurs. See "Description
of the Notes--Purchase of Notes
Upon Change of Control."
Ranking.............................. The Exchange Notes are, unsecured
obligations of the Company
subordinated in right of payment
and upon liquidation to all
existing and future Senior
Indebtedness of the Company,
including indebtedness under the
New Credit Facility. The Company
is a holding company and,
accordingly, the Exchange Notes
are, effectively subordinated to
all existing and future
indebtedness of the Company's
subsidiaries. Subject to certain
restrictions contained in the terms
of the Company's indebtedness, the
Company may incur additional Senior
Indebtedness and the Company's
subsidiaries may incur additional
indebtedness in the future. As of
December 31, 1996, after giving pro
forma effect to the Loomis Fargo
Combination and the Refinancing,
the aggregate outstanding principal
amount of Senior Indebtedness
(exclusive of undrawn letters of
credit of approximately $128.8
million) of the Company would have
been approximately $75.1 million
and the aggregate outstanding
principal amount of indebtedness
(exclusive of obligations in
respect of undrawn letters of
credit of approximately $128.8
million) of the Company's
subsidiaries (including guarantees
by certain of the Company's
subsidiaries of the Company's
obligations under the New Credit
Facility) would have been
approximately $83.3 million. In
addition, the Company has a $120
million non-recourse receivables-
backed facility available on a
revolving basis. As of December
31, 1996, there were also $150
million aggregate principal amount
of the Company's 9 1/8% Notes
outstanding which rank pari passu
in right of payment and upon
liquidation with the Notes. See
"Risk Factors--Subordination of
Notes;--Holding Company Structure,"
"Description of Certain
Indebtedness--Securitization of
Receivables" and "Description of
the Notes--Subordination."
Certain Covenants.................... The indenture under which the Exchange
Notes were issued (the "Indenture")
contains certain restrictive covenants
that, among other things, limit the
ability of the Company and its
subsidiaries to: (i) incur additional
indebtedness; (ii) create certain
liens; (iii) pay dividends or make
investments or certain other
restricted payments; (iv) engage in
mergers, consolidations or sales of
all or substantially all assets; (v)
engage in certain transactions with
affiliates; (vi) issue or sell
preferred stock of any subsidiary of
the Company; and (vii) create
restrictions on the ability of any
subsidiary of the Company to pay
dividends or make certain other
payments to the Company. All of these
limitations are subject to a number of
important qualifications. See
"Description of the Notes--Certain
Covenants."
Trading Market for the There is currently no established
Exchange Notes...................... trading market for the Exchange
Notes, and none may develop.
Merrill Lynch, Pierce, Fenner &
Smith Incorporated, BT Securities
Corporation, Credit Suisse First
Boston Corporation and CIBC Wood
Gundy Securities Corp. (the
"Initial Purchasers") have
indicated to the Company that they
currently intend to make a market
in the Exchange Notes, as permitted
by applicable laws and regulations,
but they are under no obligation to
do so; and such market-making could
be discontinued at any time without
notice, at the sole discretion of
the Initial Purchasers. In
addition, such market making
activities may be limited during
the pendency of a Shelf
Registration Statement.
Accordingly, no assurance can be
given that an active trading market
for the Exchange Notes will develop
or, if such a market develops, as
to the liquidity of such market.
The Company intends to apply for
listing of the Exchange Notes on
the New York Stock Exchange. If
the Exchange Notes, are traded
after their initial issuance, they
may trade at a discount from their
initial offering price, depending
upon prevailing interest rates, the
market for similar securities, the
performance of the Company and
certain other factors.
Use of Proceeds...................... This Prospectus is delivered in
connection with the sale of Exchange
Notes by Merrill Lynch in market-making
transactions. The Company will not
receive any proceeds from such
transactions.
Risk Factors
See "Risk Factors" for a discussion of certain factors which
should be considered in connection with the Exchange Offer or an investment in
the Exchange Notes.
DESCRIPTION OF THE NOTES
The Exchange Notes were issued under the Indenture dated as of
March 24, 1997 (the "Indenture") between the Company, as issuer, and The Bank
of New York, as trustee (the "Trustee"). Copies of the Indenture will be made
available to holders of the Notes during normal business hours at the
principal corporate trust office of the Trustee. The Indenture has been
qualified under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). The following summary of the material provisions of the
Indenture does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the provisions of the Indenture, including the
definitions of certain terms contained therein and those terms made part of
the Indenture by reference to the Trust Indenture Act. For definitions of
certain capitalized terms used in the following summary, see "--Certain
Definitions."
General
The Notes will mature on March 15, 2007, will be limited to
$125 million aggregate principal amount and will be unsecured senior
subordinated obligations of the Company. Each Note bears interest at the rate
of 9 5/8% per annum from March 24, 1997 or from the most recent interest
payment date to which interest has been paid or duly provided for, payable in
cash on September 15, 1997 and semiannually thereafter on March 15 and
September 15 in each year until the principal thereof is paid or duly provided
for to the holders of the Notes at the close of business on the March 1 or
September 1 next preceding such interest payment date. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will
be payable, and the Notes will be exchangeable and transferable, at the office
or agency of the Company in The City of New York maintained for such purposes
(which initially will be the Trustee); provided, however, that, at the option
of the Company, interest may be paid by check mailed to the address of the
Person entitled thereto as such address shall appear on the security register.
(Sections 301, 305 and 1002) The Exchange Notes are issued only in registered
form without coupons and only in denominations of $1,000 and any integral
multiple thereof. (Section 302) No service charge will be made for any
registration of transfer or exchange or redemption of Notes, but the Company
may require payment in certain circumstances of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith.
(Section 305)
MARKET-MAKING ACTIVITIES OF MERRILL LYNCH
This Prospectus is to be used by Merrill Lynch in connection
with offers and sales of the Exchange Notes in market-making transactions at
negotiated prices related to prevailing market prices at the time of sale.
Merrill Lynch may act as principal or agent in such transactions. There can
be no assurance that Merrill Lynch will continue to act in such capacities.
Merrill Lynch has no obligation to make a market in the Exchange Notes, and
may discontinue its market-making activities at any time without notice, at
its sole discretion.
MLCP, an affiliate of Merrill Lynch, holds together with its
affiliates, in the aggregate, approximately 46% of the outstanding shares of
the Company's Common Stock. Merrill Lynch acted as an Initial Purchaser in
connection with the original offering of the Old Notes and received an Initial
Purchasers' discount in the aggregate amount of $2,062,500 in connection
therewith.
The Company will receive no portion of the proceeds of the
sales of the Exchange Notes and will bear the expenses incident to the
registration thereof. The Company has agreed to indemnify Merrill Lynch
against certain liabilities, including civil liabilities under the Securities
Act or to contribute to payments Merrill Lynch may be required to make in
respect thereof.
LEGAL MATTERS
Certain legal matters in connection with the sale of the
Exchange Notes were passed upon for the Company by Davis Polk & Wardwell, New
York, New York. Arthur F. Golden, a director of the Company, is a partner of
Davis Polk & Wardwell. Davis Polk & Wardwell has represented the Company in
connection with various transactions.
=============================================================================
No dealer, person or any other individual has been authorized
to give any information or to make any representations other than those
contained in this Prospectus in connection with the offering covered by this
Prospectus. If given or made, such information or representations must not be
relied upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any
security, other than those to which it relates, in any jurisdiction in which
such offer or solicitation is not qualified to do so or to any person to whom
it is unlawful to make such offer or solicitation. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create an implication that there has not been any change in the facts set
forth in this Prospectus or in the affairs of the Company since the date
hereof.
____________
TABLE OF CONTENTS
Page
------
Available Information.......................................
Incorporation of Certain Documents by Reference.............
Forward-Looking Statements..................................
Prospectus Summary..........................................
Risk Factors................................................
Capitalization..............................................
Selected Financial Data.....................................
Pro Forma Financial Data (Unaudited)........................
Management's Discussion and Analysis of
Financial Condition and Results of Operations.........
Business....................................................
Management..................................................
Principal Shareholders......................................
Description of Certain Indebtedness.........................
Description of the Notes....................................
Exchange Offer..............................................
ERISA Considerations........................................
Market-Making Activities of Merrill Lynch...................
Legal Matters...............................................
Experts.....................................................
Financial Statements........................................
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Borg-Warner Security
Corporation
9 5/8% Senior Subordinated Notes due 2007
PROSPECTUS
July 2, 1997
=============================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Reference is made to Section 102(b)(7) of the Delaware General
Corporation Law (the "DGCL") which enables a corporation in its original
certificate of incorporation or an amendment thereto to eliminate or limit the
personal liability of a director for violations of the director's fiduciary
duty, except (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the DGCL (providing for liability of directors for
the unlawful payment of dividends or unlawful stock purchases or redemptions)
or (iv) for any transaction from which a director derived an improper personal
benefit. Section 145 of the DGCL empowers the Company to indemnify, subject
to the standards set forth therein, any person in connection with any action,
suit or proceeding brought before or threatened by reason of the fact that the
person was a director, officer, employee or agent of such company, or is or
was serving as such with respect to another entity at the request of such
company. The DGCL also provides that the Company may purchase insurance on
behalf of any such director, officer, employee or agent.
The Company's Amended and Restated Certificate of Incorporation
provides in effect for the indemnification by the Company of each director and
officer of the Company to the fullest extent permitted by applicable law .
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits (see index to exhibits at E-1)
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) The undersigned registrant hereby undertakes to deliver or
cause to be delivered with the prospectus, to each person to whom the
prospectus is sent or given, the latest annual report, to security holders
that is incorporated by reference in the prospectus and furnished pursuant to
and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to be
presented by Article 3 of Regulation S-X is not set forth in the prospectus,
to deliver, or cause to be delivered to each person to whom the prospectus is
sent or given, the latest quarterly report that is specifically incorporated
by reference in the prospectus to provide such interim financial information.
(d) (1) The undersigned registrant hereby undertakes as
follows: that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act and is
used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the registration statement
and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(f) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrants pursuant to the foregoing provisions,
or otherwise, the registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrants will, unless in the opinion of their counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
(g) (1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(h) The undersigned registrant hereby undertakes to file an
application for the purpose of determining the eligibility of the trustee to
act under subsection (a) of Section 310 of the Trust Indenture Act in
accordance with the rules and regulations prescribed by the Commission under
Section 305(b)(2) of the Act.
(i) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4,10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(j) The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1933, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto to duly authorized in the city of Chicago, State
of Illinois, on the 30th day of June, 1997.
BORG-WARNER SECURITY CORPORATION
By: /s/ Timothy M. Wood Vice President, Finance
---------------------------- (Principal Financial and
Timothy M. Wood Accounting Officer)
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed by the following persons and in
the capacities on June 30, 1997.
Signature Title
--------- -----
* Chairman of the Board, Chief Executive
_____________________________ Officer and President and Director
J. Joe Adorjan (Principal Executive Officer)
/s/ Timothy M. Wood Vice President, Finance
_____________________________ (Principal Financial and Accounting
Timothy M. Wood Officer)
*
_____________________________ Director
James J. Burke, Jr.
*
_____________________________ Director
Albert J. Fitzgibbons, III
*
_____________________________ Director
Arthur F. Golden
*
_____________________________ Director
Dale W. Lang
*
_____________________________ Director
Robert A. McCabe
*
_____________________________ Director
Andrew McNally IV
*
_____________________________ Director
Alexis P. Michas
*
_____________________________ Director
H. Norman Schwarzkopf
*
_____________________________ Director
Donald C. Trauscht
*By: /s/ Timothy M. Wood
__________________________
Attorney-in-fact
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Document Description
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<S> <C>
* 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 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. 334670).
* 4.2 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).
** 4.3 Indenture dated as of March 24, 1997 by and between the Company and The Bank of New York, as
Trustee.
** 4.4 Registration Rights Agreement dated as of March 24, 1997 among the Company and the Initial
Purchasers.
** 4.5 Credit Agreement dated as of March 24, 1997 among Borg-Warner Security Corporation, as
Borrower, the Lenders named therein, Canadian Imperial Bank of Commerce, as Documentation
Agent, NationsBank, N.A., as Syndication Agent and Bankers Trust Company as Administrative
Agent.
** 5 Opinion of Davis Polk & Wardwell regarding the validity of the securities being registered.
+* 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 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).
+* 10.3 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).
+* 10.4 Employment Agreement dated as of March 28, 1995 for J.J. Adorjan (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for The quarter ended March 31,
1995).
+* 10.5 Form of Employment Agreement for Messrs. O'Brien and Wood (incorporated by reference to
Exhibit 10.26 to Registration Statement No. 33-15419), as amended by Form of Amendment of
Employment Agreement 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).
* 10.6 Form of Indemnification Agreement dated September 23, 1986 between the Company and Messrs.
O'Brien and Wood (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1986).
* 10.7 Agreement dated as of March 28, 1995 with D.C. Trauscht (incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995).
+* 10.8 Borg-Warner Security Corporation Retirement Savings Excess Benefit Plan, as amended and restated
through January l, 1995 (incorporated by reference to Exhibit 10.21 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994).
+* 10.9 Borg-Warner Security Corporation Supplemental Benefits Compensation Program (incorporated by
reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
* 10.10 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).
* 10.11 Consulting Agreement dated as of January 1, 1996 between the Company and D.C. Trauscht
(incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
* 10.12 Contribution Agreement dated as of November 28, 1996 by and among the Company, Wells Fargo
Armored Service Corporation, Loomis-Wells Corporation (now known as Loomis, Fargo & Co.),
Loomis Holding Corporation and Loomis Stockholders Trust (incorporated by reference to Exhibit
2.1 to the Company's Current Report on Form 8-K dated February 7, 1997).
* 11 Computation of earnings per share (incorporated by reference to Exhibit 11 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996).
12 Statement re: Computation of Ratio of Earnings to Fixed Charges.
* 13 Portions of the 1996 Annual Report to Stockholders (incorporated by reference to Exhibit 13 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996).
* 21 Subsidiaries of the Company (incorporated by reference to Exhibit 21 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996).
** 23.1 Consent of Davis Polk & Wardwell (included in Exhibit 5).
** 23.2 Consent of Deloitte & Touche LLP.
** 24 Powers of Attorney of certain officers and directors of the Company.
** 25 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York.
* 27 Financial Data Schedule (incorporated by reference to Exhibit 27 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996).
** 99.1 Form of Letter of Transmittal to 9 5/8% Series B Senior Subordinated Notes due 2007 of the
Company.
** 99.2 Form of Notice of Guaranteed Delivery to 9 5/8% Series B Senior Notes due 2007 of the Company.
** 99.3 Instruction to Registered Holder and/or Book-entry Transfer Facility Participant from Owner of
Borg-Warner Security Corporation.
** 99.4 Form of Letter to Clients.
** 99.5 Form of Letter to Registered Holder and The Depository Trust Company Participants.
<FN>
- ------------------
* Incorporated by reference.
** Previously filed with the SEC.
+ Indicates a management contract or compensatory plan or arrangement
required to be filed pursuant to Item 14(c).
</TABLE>
EXHIBIT 12
BORG-WARNER SECURITY CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(millions of dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------
1996
1992 1993 1994 1995 1996 Pro Forma
------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Earnings before income
taxes........................ $29.3 $51.3 $10.6 $15.3 $23.4 $26.9
Fixed charges................. 51.8 57.0 57.3 64.6 65.5 49.9
Total earnings................ $81.1 $108.3 $67.9 $79.9 $88.9 $76.8
Ratio of earnings to fixed
charges...................... 1.6x 1.9x 1.2x 1.2x 1.4x 1.5x
- ------------------
Note: For the purpose of calculating the ratio of earnings to fixed charges,
earnings represent income (loss) before income taxes plus fixed charges.
Fixed charges consist of interest expense on all indebtedness plus the
interest portion of rental expense on noncancelable leases, and
amortization of debt issuance costs and debt discount. The calculation
for the year ended December 31, 1993 excludes the non-recurring
elimination of excess purchase price over net assets acquired.
</TABLE>
