<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
BORG-WARNER SECURITY CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
BORG-WARNER SECURITY CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Chicago, Illinois
March 20, 1998
To the Stockholders:
We will hold the Annual Meeting of Stockholders of Borg-Warner Security
Corporation on Tuesday, April 21, 1998, at 10:00 a.m. at the Company's
headquarters at 200 South Michigan Avenue, Chicago, Illinois, for the
following purposes:
1. To elect three directors for a term expiring in 2001;
2. To adopt the 1998 Non-Affiliate Director Stock Option Plan;
3. To ratify the designation of Deloitte & Touche LLP as independent
auditors for the Company for 1998; and
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement.
Only holders of shares of Common Stock at the close of business on March 6,
1998 will be entitled to vote at the meeting or any adjournment or
postponement.
By order of the Board of Directors
JEFFREY P. BILAS
Assistant Corporate Secretary
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN
THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON.
YOUR VOTE IS IMPORTANT.
<PAGE>
BORG-WARNER SECURITY CORPORATION
200 SOUTH MICHIGAN AVENUE
CHICAGO, ILLINOIS 60604
----------------
PROXY STATEMENT
----------------
MARCH 20, 1998
The Board of Directors of Borg-Warner Security Corporation (the "Company")
furnishes this Proxy Statement in connection with the solicitation of proxies
for the Company's Annual Meeting of Stockholders, which we will hold at 10:00
a.m. on April 21, 1998 at the Company's headquarters, 200 South Michigan
Avenue, Chicago, Illinois. We are mailing this Proxy Statement and
accompanying form of proxy to stockholders beginning on or about March 20,
1998. We enclose the Company's Annual Report for the year ended December 31,
1997.
Only stockholders of record at the close of business on March 6, 1998 are
entitled to vote at the meeting. As of such date, 23,364,931 shares of Common
Stock were issued and outstanding. Each share of Common Stock entitles the
holder to one vote. Holders of the Company's Series I Non-Voting Common Stock
are not entitled to notice of, or to vote at, the Annual Meeting.
We will vote a properly signed, dated and returned proxy according to its
terms. If you do not indicate how you want to vote, we will vote it as
recommended by the Board of Directors. You may revoke your proxy anytime
before the vote is taken by delivering to the Secretary of the Company a
written revocation, a proxy bearing a later date, or by attending and voting
at the Annual Meeting.
The Company will bear the cost of solicitation of proxies. Besides
soliciting proxies through the mail, the Company's officers, directors and
employees may solicit proxies in person or by telephone. The Company will
request that brokers, nominees and other similar record holders forward
solicitation material and will reimburse them upon request for their out-of-
pocket expenses.
The election inspectors appointed for the meeting will total the votes cast
by proxy or in person at the meeting and will determine whether a quorum is
present. Unless otherwise indicated, the election inspectors will treat
abstentions and votes withheld as shares that are present and entitled to vote
for purposes of determining the presence of a quorum but as unvoted for
purposes of determining the approval of any matter submitted to the
stockholders for a vote. If a nominee indicates that it does not have
discretionary voting power and has not received voting instructions from the
beneficial owner, those shares will not be considered as present and entitled
to vote with respect to that matter.
<PAGE>
1. ELECTION OF DIRECTORS
We have divided the Company's Board of Directors into three classes. Messrs.
J. Joe Adorjan, James J. Burke, Jr. and Albert J. Fitzgibbons III are
nominated to serve for a term of three years expiring in 2001. The
stockholders have previously elected all nominees and each nominee has agreed
to serve if elected. If any nominee should become unavailable for election,
the Board of Directors may designate a substitute nominee, and we will vote
the shares represented by proxies for such substitute nominee unless you
indicate an instruction to the contrary on the proxy card. The Company
requires a plurality of votes cast at the meeting to elect a director. Votes
withheld and broker non-votes will not affect the outcome of the election.
The following sets forth as of March 6, 1998 certain information concerning
each nominee and continuing director.
NOMINEES FOR A TERM EXPIRING IN 2001
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION AND DIRECTORSHIPS
---- --- --------------------------------------
<C> <C> <S>
J. Joe Adorjan............ 59 Chairman of the Board (since January 1996),
Director since 1993 Chief Executive Officer (since October 1995)
and President (since April 1995) of the
Company. Mr. Adorjan was President of Emerson
Electric Co., a manufacturer of electronic,
electrical and other products, from 1992 to
1995. Mr. Adorjan is also a director of The
Earthgrains Company, ESCO Electronics
Corporation, Goss Graphic Systems, Inc. and
Loomis, Fargo & Co.
James J. Burke, Jr........ 46 Partner and director of Stonington Partners,
Director since 1987 Inc., an investment firm ("Stonington"), since
1993 and director of Merrill Lynch Capital
Partners ("MLCP"), an investment firm, 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 52 Partner and director of Stonington since 1993
Director since 1987 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 Dictaphone Corporation, JP
Foodservice, Inc., Merisel, Inc. and United
Artists Theatre Circuit, Inc.
CONTINUING DIRECTORS WITH A TERM EXPIRING IN 1999
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION AND DIRECTORSHIPS
---- --- --------------------------------------
<C> <C> <S>
Robert A. McCabe.......... 63 President of Pilot Capital Corporation, an
Director since 1993 investment firm, since 1987. Mr. McCabe is
also a director of Atlantic Bank, Church &
Dwight Co., Inc., Thermo Electron Corporation
and Thermo Optek Inc.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION AND DIRECTORSHIPS
---- --- --------------------------------------
<C> <C> <S>
Alexis P. Michas..... 40 Managing Partner and director of Stonington since
Director since 1987 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 & Co., Inc. ("ML&Co."), a
financial services company, from 1991 to 1994. Mr.
Michas is also a director of Blue Bird Corporation,
Borg-Warner Automotive, Inc., Dictaphone
Corporation, Goss Graphic Systems, Inc. and Packard
BioScience Company.
Donald C. Trauscht... 64 Chairman of the BW Capital Corporation, a private
Director since 1987 investment company, since 1996. Mr. Trauscht was
Chairman of the Board, Chief Executive and
President of the Company from 1992 to 1995. Mr.
Trauscht is also a director of Baker Hughes
Incorporated, Blue Bird Corporation, ESCO
Electronics Corporation, Imo Industries, Inc. and
Thiokol Corporation.
CONTINUING DIRECTORS WITH A TERM EXPIRING IN 2000
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION AND DIRECTORSHIPS
---- --- --------------------------------------
<C> <C> <S>
Arthur F. Golden..... 51 Partner of Davis Polk & Wardwell, a law firm, since
Director since 1996 1978. Mr. Golden is also a director of Allegiance
Corporation.
Dale W. Lang......... 65 President of KX Acquisition Corp., an owner and
Director since 1993 operator of television stations, since 1992.
Retired Chairman of Lang Communications, Inc., a
magazine publishing company.
Andrew McNally IV.... 58 Retired Chairman and Chief Executive Officer of Rand
Director since 1996 McNally, a publishing and map making company. Mr.
McNally was Chairman and Chief Executive Officer
from 1993 to 1997 and President and Chief Executive
Officer from 1978 to 1993 of Rand McNally. Mr.
McNally is also a director of Hubbell Incorporated,
Mercury Finance Co., Morgan Stanley Funds and
Zenith Electronics Corporation.
H. Norman Schwarzkopf 63 Author and lecturer since 1991. Mr. Schwarzkopf was
Director since 1993 a general in the United States Army until his
retirement in 1991. Mr. Schwarzkopf is also a
director of Home Shopping Network, Inc., Kuhlman
Corporation and Remington Arms Company, Inc.
</TABLE>
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held five meetings during 1997. Each director
attended at least 75% of the meetings of the Board of Directors and any
committee on which they served except for Mr. Fitzgibbons.
The Board of Directors has an Executive Committee, a Compensation Committee,
a Finance and Audit Committee and a Nominating Committee. The members of the
Executive Committee are J.J. Adorjan (Chairman), A.F. Golden, A.P. Michas and
D.C. Trauscht. The Executive Committee may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Company, except as limited by Delaware law. The Executive
Committee did not meet in 1997.
The members of the Compensation Committee are R.A. McCabe (Chairman), D.W.
Lang and A. McNally. The responsibilities of the Compensation Committee
include determining executive compensation, including base salary, bonuses and
stock incentives; reviewing employee benefit plans and approving changes to
executive
3
<PAGE>
officer benefit plans; reviewing changes in the Company's organization
structure; reviewing the Company's key executive development and succession
plans; and recommending director compensation and benefits. The Compensation
Committee met five times during 1997.
The members of the Finance and Audit Committee are A.P. Michas (Chairman),
J.J. Burke, Jr., A.F. Golden, H.N. Schwarzkopf and D.C. Trauscht. The
responsibilities of the Finance and Audit Committee include recommending to
the Board of Directors the independent certified public accountants to be
selected to conduct the annual audit of the books and accounts of the Company;
reviewing the proposed scope of such audit and approving the audit fees to be
paid; reviewing the adequacy and effectiveness of the internal auditing,
accounting and financial controls of the Company with the independent
certified public accountants and the Company's financial and accounting staff;
reviewing the Company's capital plans; and advising the Board of Directors on
corporate financial policy matters. The Finance and Audit Committee met four
times during 1997.
The members of the Nominating Committee are H.N. Schwarzkopf (Chairman),
A.J. Fitzgibbons, III, D.W. Lang, R.A. McCabe and A. McNally. The
responsibilities of the Nominating Committee include recommending prospective
nominees for the Board of Directors. The Nominating Committee will consider
any person proposed by a stockholder for membership on the Board of Directors.
Stockholders should send proposals to the Nominating Committee, in care of the
Company's Secretary. The Nominating Committee did not meet during 1997.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company or its subsidiaries or
affiliates of ML&Co. (a "Non-Affiliate Director") received an $18,000 annual
retainer for service on the Board of Directors and $1,000 for each Board
meeting attended during 1997. Committee members also received $500 ($750, if
chairman of the committee) for each committee meeting attended during 1997.
During 1998 committee members will receive $1,000 ($1,250, if chairman of the
committee) for each committee meeting attended.
Pursuant to the Borg-Warner Security Corporation 1993 Stock Incentive Plan,
each Non-Affiliate Director received options to purchase 10,000 shares of
Common Stock having an exercise price equal to the fair market value of the
Common Stock as of November 16, 1993 or if later the date such person becomes
a director. All such options expire ten years after the date of grant and
become exercisable in equal installments on each of the first five anniversary
dates of the date of grant, if on such date the optionee is still a director
of the Company.
On February 4, 1997 each Non-Affiliate Director was granted options to
purchase 6,000 shares of Common Stock having an exercise price per share equal
to $11.3125, which was the average of the high and low trading prices of the
Common Stock on such date. All such options expire ten years after the date of
grant and become exercisable in equal installments on each of the first three
anniversary dates of the date of grant. Such options become immediately
exercisable upon a change in control of the Company or the retirement of a
director from the Company's board.
If the Non-Affiliate Director Stock Option Plan is approved by the
stockholders, each Non-Affiliate Director will be granted options to purchase
1,000 shares of Common Stock annually on the third business day after the
annual meeting. Such options will have an exercise price per share equal to
the average of the high and low trading prices of the Common Stock on such
date. All such options will be immediately exercisable and expire ten years
after the date of grant.
4
<PAGE>
During 1997 the Company amended its existing Directors Stock Appreciation
Rights Plan by extending the expiration date of the rights issued thereunder
from July 31, 1997 to July 31, 2000. Messrs. Burke, Fitzgibbons and Michas are
the only participants in such plan.
The Company has a consulting agreement with Mr. Schwarzkopf pursuant to
which he has agreed to provide consulting and advisory services to the Company
and its subsidiaries with respect to the development of an overall strategy
for the operations of the Company and its subsidiaries and the management,
training, motivation and utilization of its physical security personnel. The
Company pays Mr. Schwarzkopf a consulting fee of $5,000 per month. The
consulting agreement expires August 31, 1998 and may be terminated by either
party for any reason at any time.
During 1997 and 1998 the Company retained the law firm of Davis Polk &
Wardwell, of which Mr. Golden is a partner, to advise the Company on various
matters.
STOCK OWNERSHIP
The following table sets forth as of March 6, 1998 certain information
regarding beneficial ownership of Common Stock by all entities that, to the
best knowledge of the Company, beneficially owned more than five percent of
the Common Stock. Except as indicated, each entity has sole voting and
investment power with respect to such shares.
<TABLE>
<CAPTION>
PERCENT
NUMBER OF OF
NAME OF BENEFICIAL OWNER SHARES CLASS
- ------------------------ ---------- -------
<S> <C> <C>
Merrill Lynch KECALP L.P. 1986.............................. 40,000 *
Merrill Lynch KECALP L.P. 1987.............................. 200,000 *
Merchant Banking L.P. No. I................................. 500,000 2.1%
ML Venture Partners II, L.P................................. 500,000 2.1%
Merrill Lynch Capital Appreciation Partnership No. VIII,
L.P........................................................ 6,628,615 28.4%
ML Offshore LBO Partnership No. VIII........................ 168,524 *
ML Employees LBO Partnership No. I, L.P..................... 164,779 *
ML IBK Positions, Inc....................................... 1,998,082 8.6%
---------- ----
Total ML Entities........................................... 10,200,000 43.7%
FMR Corp. (a)............................................... 1,804,600 7.7%
</TABLE>
- --------
* Represents less than one percent.
(a) Pursuant to a Schedule 13G dated February 14, 1998, FMR Corp. indicated
that, in its capacity as investment adviser, it had sole power to vote
420,700 shares of Common Stock and sole power to dispose of 1,804,600
shares of Common Stock on behalf of various persons.
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 FMR Corp. is
82 Devonshire Street, Boston, Massachusetts 02109.
5
<PAGE>
The following table sets forth as of March 6, 1998 certain information
regarding beneficial ownership of Common Stock by the Company's directors and
executive officers named in the Summary Compensation Table and by all
directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENT
NUMBER OF OF
NAME OF BENEFICIAL OWNER SHARES(A) CLASS
- ------------------------ --------- -------
<S> <C> <C>
J. Joe Adorjan (b)........................................... 499,578 2.1%
John D. O'Brien.............................................. 156,916 *
Timothy M. Wood.............................................. 82,000 *
Robert E.T. Lackey........................................... 0 *
James J. Burke, Jr. (c)...................................... 0 *
Albert J. Fitzgibbons, III (c)............................... 0 *
Arthur F. Golden............................................. 6,000 *
Dale W. Lang................................................. 11,000 *
Robert A. McCabe............................................. 13,000 *
Andrew McNally IV............................................ 16,000 *
Alexis P. Michas (c)......................................... 0 *
H. Norman Schwarzkopf........................................ 11,000 *
Donald C. Trauscht........................................... 110,390 *
All directors and executive officers of the Company (13
persons)(b) (c)............................................. 905,884 3.8%
</TABLE>
- --------
* Represents less than one percent.
(a) Includes the following number of shares issuable upon the exercise of
options within the next 60 days: 309,000 for Mr. Adorjan; 50,666 for Mr.
O'Brien; 35,000 for Mr. Wood; 11,000 for each of Messrs. Lang, McCabe and
Schwarzkopf; 6,000 for each of Messrs. Golden and McNally; 2,000 for Mr.
Trauscht; and 441,666 for all directors and officers of the Company.
(b) Includes 1,800 shares held in revocable trust for Mr. Adorjan's daughter.
Includes 88,889 shares held in a trust established by the Company that
will be distributed to Mr. Adorjan over up to a two 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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's officers, directors and greater than 10% stockholders to file
certain reports with respect to beneficial ownership of the Company's equity
securities. Based on information provided to the Company by each officer,
director and greater than 10% stockholder, the Company believes all reports
required to be filed in 1997 were timely filed.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table shows the cash and other compensation paid or accrued by
the Company and its subsidiaries to the Company's Chief Executive Officer and
the other persons who were serving as executive officers at December 31, 1997
for each of the three years ending December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
----------------- ------------------------
SECURITIES
RESTRICTED UNDERLYING ALL OTHER
NAME AND POSITION YEAR SALARY BONUS STOCK OPTIONS(#) COMPENSATION(B)
- ----------------- ---- -------- -------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
J. Joe Adorjan.......... 1997 $900,000 $426,667 0 300,000 $420,660
Chairman, Chief 1996 900,000 358,333 0 0 426,268
Executive Officer 1995 592,500 400,000 $1,500,002(a) 300,000 95,762
and President(c)
John D. O'Brien......... 1997 325,000 177,333 0 75,000 123,226
Senior Vice President 1996 325,000 147,500 0 0 90,808
1995 308,750 0 0 0 88,504
Timothy M. Wood......... 1997 290,000 161,000 0 75,000 86,417
Vice President, Finance 1996 290,000 127,708 0 0 62,038
1995 261,250 0 0 0 57,283
Robert E.T. Lackey...... 1997 114,782 70,560 0 12,000 12,766
Vice President, General
Counsel
and Secretary(c)
</TABLE>
- --------
(a) Represents the value, as of the date of award, of 177,778 shares of Common
Stock deposited into a Company trust for the benefit of Mr. Adorjan. The
value of such shares at December 31, 1997 was $3,133,337. Such shares will
be distributed, together with any dividends or other distributions made
with respect thereto, in equal installments on each of the first four
anniversaries of April 16, 1995. On such anniversary dates, the Company
will also pay deferred compensation of $250,000 to Mr. Adorjan.
(b) During 1997 represents: (i) for Mr. Adorjan, $250,000 of deferred
compensation discussed in note (a), $164,775 contributed to an annuity
established for his benefit and $5,885 for the value of the benefit of a
split dollar life insurance policy; (ii) for Mr. O'Brien, $91,711
contributed to an annuity established for his benefit and $31,515 credited
pursuant to the Company's Retirement Savings Excess Plan (the "Excess
Plan"); (iii) for Mr. Wood, $72,056 contributed to an annuity established
for his benefit and $14,361 credited pursuant to the Excess Plan; and (iv)
for Mr. Lackey, amounts contributed to an annuity established for his
benefit. During 1996 and 1995, represents amounts contributed by the
Company for the named executive officers to annuities established for their
benefit, credits made pursuant to the Excess Plan, deferred compensation
discussed in note (a) and the value of the benefit of a split dollar life
insurance policy.
(c) Mr. Adorjan first became an executive officer during 1995. Mr. Lackey first
became an executive officer during 1997.
7
<PAGE>
STOCK OPTIONS
The following table sets forth information concerning the grant of stock
options to the named executive officers during 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
INDIVIDUAL GRANTS(A) STOCK PRICE APPRECIATION
------------------------------------- ---------------------------
NUMBER OF PERCENT OF TOTAL OPTIONS
SECURITIES UNDERLYING GRANTED TO EMPLOYEES EXERCISE EXPIRATION
NAME OPTIONS GRANTED(#) IN FISCAL YEAR PRICE ($/SH) DATE 5% ($) 10% ($)
- ---- --------------------- ------------------------ ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Joe Adorjan.......... 300,000 35.6 11.3125 2/4/07 2,138,063 5,396,063
John D. O'Brien......... 75,000 8.9 11.3125 2/4/07 534,516 1,349,016
Timothy M. Wood......... 75,000 8.9 11.3125 2/4/07 534,516 1,349,016
Robert E. T. Lackey..... 12,000 1.4 14 4/22/07 105,840 267,120
</TABLE>
- --------
(a) Options granted under the Company's 1993 Stock Incentive Plan, Management
Stock Option Plan or Executive Officer Incentive Plan. All options were
granted at the fair market value of the Common Stock on the date of grant.
Options become exercisable in equal installments on each of the second and
third anniversary of the date of grant. In the event of a change in
control, all options become fully exercisable.
(b) The dollar amounts indicated in these columns result from calculations
assuming 5% and 10% growth rates as required by the rules of the
Securities Exchange Commission and are not intended to forecast possible
future appreciation, if any, of the Company's stock price. The actual
future value of the options will depend on the market value of the Common
Stock.
The following table sets forth information concerning exercised and
unexercised options held by the named executive officers at the end of 1997.
The number of unexercisable options represents shares that become exercisable
upon the satisfaction of certain periods of employment. The value of
unexercised options represents the difference between the exercise price and
the share price of Common Stock at December 31, 1997. An option is in-the-
money if the share price of Common Stock exceeds the exercise price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN THE
OPTIONS AT YEAR END(#) MONEY OPTIONS AT YEAR END($)
SHARES VALUE ------------------------- -------------------------------
NAME ACQUIRED(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
J. Joe Adorjan.......... 0 0 209,000 402,000 1,826,220 2,806,860
John D. O'Brien......... 43,750 459,375 50,666 75,000 311,533 473,437
Timothy M. Wood......... 21,000 253,970 35,000 75,000 113,750 473,437
Robert E.T. Lackey...... 0 0 0 12,000 0 43,500
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Mr. Adorjan under which he
serves as the chairman and chief executive officer of the Company through
December 31, 1999. The agreement provides Mr. Adorjan with: an annual base
salary of $900,000; an annual cash bonus opportunity ranging from $200,000 to
$500,000; an award of shares of Common Stock having an aggregate value of
$1,500,000 on his first day of employment, which will be distributed, together
with any dividends or other distributions made with respect thereto, in equal
8
<PAGE>
installments on each of the first four anniversaries of his first day of
employment; deferred compensation of $250,000 payable without interest on each
of the first four anniversaries of his first day of employment; 10-year
options to purchase 300,000 shares of Common Stock exercisable in installments
beginning on each of the first three anniversaries of his first day of
employment; and a split-dollar life insurance policy with a face amount of
$400,000. Subsequent stock option grants are as determined by the Board of
Directors. Mr. Adorjan is also eligible to participate in all incentive,
savings, retirement, benefit and welfare plans and programs extended to other
key executives of the Company.
Under such employment agreement and a related noncompetition agreement, if
Mr. Adorjan's employment is terminated by the Company for reasons other than
for death, "disability" or "cause" (as such terms are defined in the
employment agreement) or by Mr. Adorjan for "good reason" (which includes,
among other things, termination of employment within a 30 day period following
the three month period after a "change in control"), Mr. Adorjan would receive
severance and noncompete pay equal to two times his annual base salary, annual
bonus (at the expected level) and supplemental benefit compensation payable
during the 12 month period following the date of termination at the rate in
effect at the date of termination. Mr. Adorjan would also be paid any portion
of his annual base salary not paid as of date of termination, a prorated
annual bonus (at the expected level) for year of termination, all accrued and
unpaid bonus and vacation pay, all unpaid deferred compensation and all
undistributed shares of common stock awarded to him on the first day of his
employment. In addition, after a "change in control" Mr. Adorjan would receive
a pro rata payment of his annual bonus for the year in which the change in
control occurs based on the Company's performance for the period ending on
such change in control as determined by the Compensation Committee of the
Board of Directors. The agreement also provides for certain gross up payments
in the event that Mr. Adorjan is subject to an excise tax on his termination
payments. The Company must continue to provide the split dollar life insurance
and certain welfare benefits to Mr. Adorjan through the second anniversary of
the date of termination (reduced by any comparable benefit received from
another employer during this period). Upon such termination of employment, Mr.
Adorjan has agreed, among other things, not to compete with the Company for
three years after such termination.
The Company has employment and noncompetition agreements with Messrs.
O'Brien and Wood (the "Agreements"). Under the Agreements, among other things,
if the executive's employment is terminated by the Company other than for
death, "disability," "retirement" or "cause" (as such terms are defined in the
Agreements) or by the executive for "good reason" (which includes, among other
things, termination of employment within a 30 day period following the first
anniversary of a "change in control"), the executive would receive severance
and noncompete pay equal to two times his annual base salary, annual bonus (at
the expected level) and supplemental benefit compensation payable during the
12 month period following the date of termination at the rate in effect at the
date of termination. Such executive would also be paid any portion of his
annual base salary not paid as of date of termination, a prorated annual bonus
for year of termination (at the expected level), all accrued and unpaid bonus
and vacation pay, all unpaid deferred compensation and all unpaid accrued
benefits under the Excess Plan. In addition, after a "change in control" such
executive would receive a pro rata payment of his annual bonus for the year in
which the change in control occurs based on the Company's performance for the
period ending on such change in control as determined by the Compensation
Committee of the Board of Directors. The Agreements also provides for certain
gross up payments in the event that the executive is subject to an excise tax
on his termination payments. The Company must continue to provide certain
welfare benefits to such executive through the second anniversary of the date
of termination (reduced by any comparable benefit received from another
employer during this period). Upon such termination of employment, each
executive has agreed, among other things, not to compete with the Company for
three years after termination of employment.
9
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is composed of
directors who are not employees of the Company. The committee is responsible
for setting and administering the policies that govern base salary, annual
incentive and stock ownership programs for the executive officers of the
Company.
Overall Policy
The Company's executive compensation program is designed to link executive
compensation to corporate performance and returns to stockholders. To this
end, the Company has developed an overall compensation strategy and specific
compensation plans that tie executive compensation to the Company's success in
meeting specified performance goals.
The following compensation guidelines are intended to facilitate the
achievement of the Company's business strategies:
. Emphasize variable, at-risk compensation that is based on meeting
specified Company performance goals.
. Encourage personal equity ownership to align executives' interests with
those of the stockholders.
. Enhance the Company's ability to attract, retain, and encourage the
development of high-quality executives.
. Target compensation levels at rates that reflect market practices to
maintain a stable, successful management team.
The Company's executive compensation program consists of base pay, annual
incentive, stock options and a long-term performance share plan. The committee
reviews the program annually and targets the total compensation in a range
similar to total compensation for executives at comparable companies, as shown
in published executive compensation surveys. To assist in determining
competitive pay practices, the committee also utilizes information provided by
qualified independent consultants.
The committee determines and recommends to the Board of Directors the
compensation of the Company's CEO and the other named executive officers,
reviews the policies established for the next level of management, including
other corporate and subsidiary executives, and evaluates and administers all
compensation plans that use stock as an award vehicle. In reviewing the
individual performance of the executives whose compensation is detailed in
this proxy statement (other than Mr. Adorjan), the committee takes into
account the views of Mr. Adorjan.
Base Salary
The committee targets base salaries to be at or above median levels provided
to executives with similar responsibilities at comparable companies. In 1997,
the salaries of Messrs. Adorjan, O'Brien and Wood remained at the levels that
had been in effect in 1996.
Annual Incentive
The Company's executive officers are eligible for an annual cash incentive.
Executives are assigned threshold, target and maximum award opportunities that
are based on the Company's compensation strategy and incentive opportunities
for comparable positions at comparable companies.
For the named executive officers, the committee sets performance goals based
on specified business criteria. If the threshold performance on these criteria
is not met, no cash incentive is paid. In 1997 the committee evaluated the
Company's performance against the established criteria and determined that the
target level of performance had been exceeded and the named executive officers
earned a cash incentive payment commensurate with that achievement.
10
<PAGE>
Although annual incentives for other corporate and subsidiary executives
depend primarily on the achievement of established performance objectives, the
committee may adjust awards based on other financial or non-financial actions
or circumstances that the committee believes will benefit long-term
stockholder value.
Stock Incentive Plans
The Company uses stock incentives in the form of stock options and
performance shares to align executives' interests with those of the
stockholders and to motivate executives to continue the long-term focus
required for the Company's future success. Both forms of stock incentives have
vesting provisions that support the Company's objective of retaining high-
quality executives. In granting stock incentives, the committee considers the
potential impact of each position, individual contribution, the size and
timing of previous awards and competitive practices described in independently
published executive compensation surveys. During 1997, the Company granted
stock options to named executive officers and newly hired key executives of
the Company and its business units. The grants to named executive officers
were made in recognition of significant achievements in 1997, including the
formation of Loomis, Fargo & Co. and the subsequent refinancing of the
Company's bank debt.
Compensation of the Chief Executive Officer
The salaries of Mr. Adorjan and other named executive officers remained at
their 1996 levels throughout 1997. Mr. Adorjan's salary is consistent with his
employment contract dated March 28, 1995. This salary was established in order
to attract Mr. Adorjan to the position of Chief Executive Officer of the
Company, and the committee believes that Mr. Adorjan's contributions to the
Company's improved earnings and strategic repositioning merit this salary.
Mr. Adorjan's annual incentive payment for 1997 was determined by
achievement against specified business criteria. The incentive was paid
according to the provisions of the Executive Officer Incentive Plan. The
committee evaluated the Company's performance against the established criteria
at the end of the year and determined that the target level of performance had
been exceeded, and Mr. Adorjan had earned a cash incentive.
Consistent with the Company's compensation guidelines, the committee awarded
Mr. Adorjan stock options in recognition of achievements early in the year. In
making the grant, the committee recognized the importance of directing
executive attention to continually increasing stockholder value.
Mr. Adorjan's employment agreement is summarized in the section entitled
"Employment Agreements."
Deductibility of compensation in excess of $1 million per year
In 1993 Congress enacted Internal Revenue Code section 162(m) which, in
general, precludes a public corporation from claiming a tax deduction for
compensation in excess of $1 million in any taxable year for its chief
executive officer and any of up to four other executive officers named in the
cash compensation table in such corporation's proxy statement. Section 162(m)
also provides that certain performance-based compensation is exempt from this
tax deduction limitation. The committee has structured executive compensation
in order to maximize the amount of the Company's tax deduction.
Robert A. McCabe
Dale W. Lang
Andrew McNally IV
11
<PAGE>
PERFORMANCE GRAPH
The graph below compares the percentage change in cumulative total
stockholder return on the Company's Common Stock with (i) the cumulative total
return of the Standard & Poor's MidCap 400 and (ii) the Dow Jones Industrial &
Commercial Services Index. The total return for each component assumes that
$100 was invested on December 31, 1992 and the reinvestment of dividends as
they were paid. The total return for the Company assumes that $100 was
invested on January 20, 1993, the first day of trading of Common Stock on the
New York Stock Exchange. The S&P MidCap 400 tracks the aggregate price
performance of equity securities of 400 companies selected in the market
capitalization range of $300 million to $4 billion. The DJ Index tracks the
price performance of equity securities of companies that provide services to
other commercial enterprises.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1/20/93 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Borg-Warner Security 100 103 49 63 54 88
S&P Midcap 400 100 114 110 144 171 227
Dow Jones Industrial
Services 100 104 101 129 141 162
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain members of management incurred indebtedness to the Company in 1987
in respect of money borrowed to purchase shares of Common Stock. During 1997,
the only executive officer or director indebted to the Company was Mr.
Trauscht, a director. The highest amount of indebtedness (excluding interest,
which is payable in cash annually) for Mr. Trauscht during 1997 was $172,998.
Mr. Trauscht repaid the full amount of such indebtedness on June 13, 1997.
12
<PAGE>
On February 12, 1998 the Company purchased from Mr. Trauscht options to
acquire 79,300 shares of Common Stock for $158,600, which represents the
difference between the lowest trade price for the Common Stock on such date
and the option exercise price.
2. ADOPTION OF THE 1998 NON-AFFILIATE DIRECTOR STOCK OPTION PLAN
At the meeting we will present a proposal to approve and ratify the adoption
of the Borg-Warner Security Corporation 1998 Non-Affiliate Director Stock
Option Plan (the "Plan"). The Board of Directors adopted the Plan on December
9, 1997 to be effective as of April 21, 1998 if approved by the stockholders.
The Plan is intended to benefit the Company and its stockholders by allowing
those members of the Board who are neither employees of the Company nor
affiliated with MLCP to have a greater personal financial stake in the Company
through the ownership of Company stock, thereby underscoring the directors'
mutual interest with stockholders in increasing the long-term value of the
Company's stock.
The following description of the Plan is a summary only. Please refer to the
copy of the Plan attached as Appendix A.
Participation in the Plan is limited to members of the Board who are not
employees of the Company or its subsidiaries or affiliated with MLCP ("Non-
Affiliate Directors"). There are currently six Non-Affiliate Directors. The
Plan provides for grants of options to Non-Affiliate Directors initially upon
becoming members of the Board and annually. Non-Affiliate Directors also
receive cash compensation for their services as directors. For a description
of such compensation see the section entitled "Compensation of Directors" in
this proxy statement.
Initially, any person who becomes a member of the Board and is a Non-
Affiliate Director will automatically receive options to purchase 10,000
shares of Common Stock having an exercise price equal to the average of the
high and low trading prices of the Common Stock on the date such person
becomes a director. All such options expire ten years after the date of grant
and become exercisable in equal installments on each of the first five
anniversary dates of the date of grant, if on such date the optionee is still
a director of the Company. Annually, each Non-Affiliate Director will be
granted options to purchase 1,000 shares of Common Stock on the third business
day after the annual meeting having an exercise price per share equal to the
average of the high and low trading prices of the Common Stock on such date.
All such options are immediately exercisable and expire ten years after the
date of grant.
The Plan makes available up to 100,000 shares of Common Stock for grant as
stock options. If a stock option granted under the Plan expires, terminates or
lapses for any reason without the issuance of shares of Common Stock, such
shares will again be available for grant under the Plan. The Plan provides
that options will become fully exercisable upon a "change in control" as
defined therein. In addition, during the 60-day period following a "change in
control," the holder of an option under the Plan has the right to surrender
such option for cash in an amount equal to the difference between the "change
in control price" (as defined) and the exercise price. Options granted under
the Plan may be transferred to the spouse, children or grandchildren of the
Non-Affiliate Director, a trust or trusts for the exclusive benefit of such
persons or a partnership in which such persons are the only partners, provided
such transfer is by gift with no consideration.
13
<PAGE>
The Plan will become effective on approval of the Company's stockholders and
will terminate, for purposes of granting further options, on December 31,
2008. The Plan may be amended or terminated, in whole or in part, by the Board
of Directors, but no amendment will be effective without the approval of the
Company's stockholders to the extent such approval is required by law or
agreement.
The following table sets forth the stock options that the individuals and
groups referred to below will receive in 1998 if the Plan is approved by the
Company's stockholders at this Annual Meeting. Executive officers and the
three current directors affiliated with MLCP are not eligible to participate
in the Plan.
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE NUMBER OF UNITS
----------------- ------------ ---------------
<S> <C> <C>
J. Joe Adorjan, Chairman, CEO and President -- --
John D. O'Brien, Senior Vice President -- --
Timothy M. Wood, Vice President, Finance -- --
Robert E.T. Lackey, Vice President, General
Counsel -- --
Executive Group -- --
Non-Executive Director Group (a) 6,000
Non-Executive Officer Employee Group -- --
</TABLE>
- --------
(a) Dollar value is dependent upon the future share price for the Common Stock
Approval of the Plan requires the affirmative vote of a majority of the
shares of Common Stock represented and entitled to vote at the Annual Meeting.
For this item, we will count abstentions as part of the total number of votes
cast and will count broker non-votes as present or represented for purposes of
determining the presence or absence of a quorum for the transaction of
business but not voting for purposes of determining the number of votes cast
with respect to the proposal, with abstentions thus having the effect of votes
against the proposal and broker non-votes having no effect on the outcome.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE PLAN. WE
WILL SO VOTE YOUR PROXY UNLESS YOU SPECIFY OTHERWISE.
3. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors proposes that the stockholders approve the selection
by the Finance and Audit Committee of Deloitte & Touche LLP to serve as the
Company's independent auditors for the 1998 fiscal year. The Board of
Directors anticipates that representatives of Deloitte & Touche LLP will be
present at the meeting to respond to appropriate questions, and they will have
an opportunity, if they desire, to make a statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPOINTMENT OF DELOITTE &
TOUCHE LLP AS THE INDEPENDENT AUDITORS. WE WILL SO VOTE YOUR PROXY UNLESS YOU
SPECIFY OTHERWISE.
OTHER INFORMATION
As of the date of this proxy statement, the Company knows of no business
that will be presented for consideration at the annual meeting other than the
items referred to above. If any other matter is properly presented for action
at the meeting, proxies in the enclosed form returned to the Company will be
voted in accordance with the recommendation of the Board of Directors or, in
the absence of a recommendation, in accordance with the judgment of the proxy
holders.
14
<PAGE>
The Company must receive stockholder proposals to be presented at the 1999
Annual Meeting on or before November 20, 1998. Any proposal must comply with
the requirements of the Securities and Exchange Commission for inclusion in
the proxy statement relating to that meeting. You should send proposals to the
attention of the Corporate Secretary. In addition, the Company's Bylaws
contain certain requirements with respect to the submission of proposals and
the nomination of directors at any stockholder meeting.
Upon request the Company will furnish you without charge one copy of the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, as
filed with the Securities and Exchange Commission. You should direct your
request to the Corporate Secretary, 200 South Michigan Avenue, Chicago,
Illinois 60604.
BORG-WARNER SECURITY CORPORATION
15
<PAGE>
APPENDIX A
1998 NON-AFFILIATE DIRECTORS STOCK OPTION PLAN
The 1998 Non-Affiliate Directors Stock Option Plan (the "Plan") is established
to attract, retain and compensate for service as members of the Board of
Directors (the "Board") of Borg-Warner Security Corporation (the "Company")
highly qualified individuals who are not employees of the Company or its
subsidiaries or affiliated with Merrill Lynch Capital Partners, Inc. and to
enable them to increase their ownership in the Company's Common Stock. The
Plan is intended to allow these directors to have a greater personal financial
stake in the Company through the ownership of Company stock, in addition to
aligning their interest with stockholders in increasing the value of the
Company stock over the long term.
SECTION 1. ELIGIBILITY; ADMINISTRATION
All members of the Board who are not otherwise (a) an employee of the Company
or any subsidiary (and have not been an employee of the Company or any
subsidiary for any part of the preceding fiscal year) or (b) affiliated with
Merrill Lynch Capital Partners, Inc. ("Non-Affiliate Directors") are eligible
to participate in the Plan. The Plan shall be administered by the Compensation
Committee (the "Committee") of the Board. If at any time no Committee shall be
in office, the functions of the Committee specified in the Plan shall be
exercised by the Board.
SECTION 2. STOCK SUBJECT TO PLAN
Subject to adjustment as provided herein, there is reserved for issuance under
this Plan 100,000 shares of Common Stock, par value $.01 per share ("Common
Stock"), of the Company, which may be authorized but unissued shares, treasury
shares or shares purchased from third parties in public or private
transactions. Only nonqualified stock options ("Options") may be granted under
this Plan.
In the event of any merger, reorganization, consolidation, recapitalization,
stock dividend, stock split, extraordinary distribution with respect to the
Common Stock or other change in corporate structure affecting the Common
Stock, adjustments or substitution in the number and kind of shares authorized
by the Plan, in the number and kind of shares covered by, and in the option
price of outstanding Options under the Plan shall be made if, and in the same
manner as, such adjustments or substitution are made to Non-Qualified Stock
Options under the Company's then current stock incentive plan.
In the event that the number of shares of Common Stock available for future
grant under the Plan is insufficient to make all automatic grants required to
be made on such date, then all Non-Affiliate Directors entitled to a grant on
such date shall share ratably in the number of options on shares available for
grant under the Plan.
SECTION 3. INITIAL GRANT OF STOCK OPTIONS.
Any person who initially becomes a Non-Affiliate Director after the effective
date of the Plan shall automatically receive Options to purchase 10,000 shares
of Common Stock on the date such person becomes a Non-Affiliate Director. All
Options granted pursuant to this paragraph shall be exercisable in accordance
with the following schedule, if as of each such date such Non-Affiliate
Director is still a director of the Company:
<TABLE>
<CAPTION>
ANNIVERSARY DATE CUMULATIVE PERCENTAGE
OF GRANT EXERCISABLE
---------------- ---------------------
<S> <C>
First............................................. 20
Second............................................ 40
Third............................................. 60
Fourth............................................ 80
Fifth............................................. 100
</TABLE>
A-1
<PAGE>
The Committee may at any time waive such installment exercise provisions, in
whole or in part, based on such factors as the Committee may determine. The
Committee may at any time, in whole or in part, accelerate the exercisability
of any Option.
SECTION 4. ANNUAL GRANT OF STOCK OPTIONS
Each year on the date that is three business days following the Company's
Annual Meeting of Stockholders, each individual elected, reelected or
continuing as a Non-Affiliate Director shall automatically receive Options to
purchase 1,000 shares of Common Stock. If, however, on such date the General
Counsel of the Company determines, in her/his sole discretion, that the
Company is in possession of material, non-public information about the
Company, then the annual grant of Options to Non-Affiliate Directors shall be
suspended until the date that is three business days after public
dissemination of such information. All Options granted pursuant to this
paragraph shall be immediately exercisable.
SECTION 5. OPTIONS
Options granted under the Plan shall be subject to the following terms and
conditions:
(a) Option Price. The option price per share of Common Stock shall be the
mean between the highest and lowest reported sales prices of the Common Stock
on the New York Stock Exchange Composite Tape or, if not listed on such
exchange, on any other national securities exchange on which the Common Stock
is listed or on NASDAQ. If there is no regular public trading market for the
Common Stock, the option price per share of Common Stock shall be determined
by the Committee in good faith.
(b) Option Term. An Option granted under the Plan shall expire ten years
after the date of grant.
(c) Method of Exercise. Options may be exercised, in whole or in part, at
any time during the option term by giving written notice of exercise to the
Company specifying the number of shares of Common Stock subject to the Option
to be purchased.
The option price of Common Stock to be purchased upon exercise of any Option
shall be paid in full in cash (by certified or bank check or such other
instrument as the Company may accept) or by one or more of the following: (i)
in the form of unrestricted Common Stock already owned by the optionee based
in any such instance on the Fair Market Value of the Common Stock on the date
the Option is exercised; (ii) by requesting the Company to withhold from the
number of shares of Common Stock otherwise issuable upon exercise of the
Option that number of shares having an aggregate fair market value on the date
of exercise equal to the exercise price for all of the shares of Common Stock
subject to such exercise; or (iii) by a combination thereof.
In the discretion of the Committee, payment for any shares subject to an
Option may also be made by delivering a properly executed exercise notice to
the Company, together with a copy of irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds to pay the
purchase price. To facilitate the foregoing, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms.
No shares of Common Stock shall be issued until full payment therefor has been
made. An optionee shall have all of the rights of a stockholder of the Company
holding the Common Stock that is subject to such Option (including, if
applicable, the right to vote the shares and the right to receive dividends),
when the optionee has given written notice of exercise and has paid in full
for such shares.
A-2
<PAGE>
(d) Cessation of Service. Upon cessation of service as a director (for
reasons other than retirement or disability), any Option shall continue to be
exercisable (to the extent then exercisable or on such accelerated basis as
the Committee may determine) for a period of one year from the date of such
cessation or until the expiration of the stated term of the Option, whichever
is earlier. Upon cessation of service as a director by reason of retirement or
disability, any Option shall continue to be exercisable (to the extent then
exercisable or on such accelerated basis as the Committee may determine) for a
period of three years from the date of such cessation or until the expiration
of the stated term of the Option, whichever is earlier; provided, however,
that if the director dies within such three-year period, any unexercised
Option shall, notwithstanding the expiration of such three-year period,
continue to be exercisable to the extent to which it was exercisable at the
time of death for a period of 12 months from the date of such death or until
the expiration of the stated term of such Stock Option, whichever period is
the shorter. As used in the Plan, "retirement" means the cessation of service
as a director at or after the age 55 and "disability" means permanent and
total disability as determined by the Committee.
(e) Transferability of Options. Options may be transferred to (i) the
spouse, children or grandchildren of the Non-Affiliate Director ("Immediate
Family Members"), (ii) a trust or trusts for the exclusive benefit of such
Immediate Family Members or (iii) a partnership in which such Immediate Family
Members are the only partners, provided that (x) such transfer shall be by
gift with no consideration and (y) no subsequent transfers of Options shall be
permitted other than by will or by the laws of descent and distribution.
Except as permitted in the first sentence of this section, no Option shall be
transferable other than (i) by will or by the laws of descent and distribution
or (ii) pursuant to a qualified domestic relations order (as defined in the
Internal Revenue Code of 1986, as amended, or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder).
All Options shall be exercisable, during the grantee's lifetime, only by the
grantee or by the guardian or legal representative of the grantee or its
alternate payee pursuant to such qualified domestic relations order, it being
understood that the terms "holder" and "grantee" include the guardian and
legal representative of the Non-Affiliate Director and any person to whom an
Option is transferred by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order.
SECTION 6. CHANGE IN CONTROL PROVISIONS
(a) Impact of Event. Notwithstanding any other provision of the Plan to the
contrary, in the event of a Change in Control any Option outstanding as of the
date such Change in Control is determined to have occurred and not then
exercisable and vested shall become fully exercisable and vested to the full
extent of the original grant.
(b) Definition of Change in Control. For purposes of the Plan, a "Change in
Control" shall mean the happening of any of the following events:
(i) An acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either (1) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock") or
(2) the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); excluding, however, the
following: (1) any acquisition directly from the Company, other than an
acquisition by virtue of the exercise of a conversion privilege unless the
security being so converted was itself acquired directly from the Company,
(2) any acquisition
A-3
<PAGE>
by the Company, (3) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (4) any acquisition by any Person pursuant to
a transaction which complies with clauses (1), (2) and (3) of subsection
(iii) of this Section 6(b); or
(ii) A change in the composition of the Board such that the individuals
who, as of the effective date of the Plan, constitute the Board (such Board
shall be hereinafter referred to as the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided, however,
for purposes of this Section 6(b), that any individual who becomes a member
of the Board subsequent to such effective date, whose election, or
nomination for election by the Company's shareholders, was approved by a
vote of at least a majority of those individuals who are members of the
Board and who were also members of the Incumbent Board (or deemed to be
such pursuant to this proviso) shall be considered as though such
individual were a member of the Incumbent Board; but, provided further,
that any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board shall not be so considered as
a member of the Incumbent Board; or
(iii) The approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other disposition of all
or substantially all of the assets of the Company ("Corporate
Transaction"); excluding, however, such a Corporate Transaction pursuant to
which (1) all or substantially all of the individuals and entities who are
the beneficial owners, respectively, of the outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Corporate Transaction will beneficially own, directly or indirectly, more
than 60% of, respectively, the outstanding shares of common stock, and the
combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Corporate Transaction (including, without
limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Corporate Transaction, of the
outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (2) no Person (other than the Company, any employee
benefit plan (or related trust) sponsored or maintained by the Company or
any corporation controlled by the Company or such corporation resulting
from such Corporate Transaction) will beneficially own, directly or
indirectly, 20% or more of, respectively, the outstanding shares of common
stock of the corporation resulting from such Corporate Transaction or the
combined voting power of the outstanding voting securities of such
corporation entitled to vote generally in the election of directors except
to the extent that such ownership existed with respect to the Company prior
to the Corporate Transaction and (3) individuals who were members of the
Incumbent Board will constitute at least a majority of the members of the
board of directors of the corporation resulting from such Corporate
Transaction; or
(iv) The approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(c) Change in Control Price. For purposes of the Plan, "Change in Control
Price" means the higher of (i) the highest reported sales price, regular way,
of a share of Common Stock in any transaction reported on the New York Stock
Exchange Composite Tape or other national securities exchange on which such
shares are listed or on NASDAQ, as applicable, during the 60-day period prior
to and including the date of a Change in Control and (ii) if the Change in
Control is the result of a tender or exchange offer or a Corporate
Transaction, the highest
A-4
<PAGE>
price per share of Common Stock paid in such tender or exchange offer or
Corporate Transaction; provided, however, that in the case of a Option which
(A) is held by a person subject to Section 16(b) of the Exchange Act and (B)
was granted within 240 days of the Change in Control, then the Change in
Control Price for such Option shall be the mean between the highest and lowest
reported sales prices of the Common Stock on the New York Stock Exchange
Composite Tape or, if not listed on such exchange, on any other national
securities exchange on which the Common Stock is listed or on NASDAQ on the
date such Option is exercised or canceled. To the extent that the
consideration paid in any such transaction described above consists all or in
part of securities or other non-cash consideration, the value of such
securities or other non-cash consideration shall be determined in the sole
discretion of the Board.
(d) Change in Control Cash Out. Notwithstanding any other provision of the
Plan, during the 60-day period from and after a Change in Control (the
"Exercise Period"), an optionee shall have the right, whether or not the
Option is fully exercisable and in lieu of the payment of the exercise price
for the shares of Common Stock being purchased under the Option and by giving
notice to the Company, to elect (within the Exercise Period) to surrender all
or part of the Option to the Company and to receive cash, within 30 days of
such notice, in an amount equal to the amount by which the Change in Control
Price per share of Common Stock on the date of such election shall exceed the
exercise price per share of Common Stock under the Option (the "Spread")
multiplied by the number of shares of Common Stock granted under the Option as
to which the right granted under this Section 6(d) shall have been exercised;
provided, however, that if the Change in Control is within six months of the
date of grant of a particular Option held by an optionee who is subject to
Section 16(b) of the Exchange Act no such election shall be made by such
optionee with respect to such Option prior to six months from the date of
grant. Notwithstanding any other provision hereof, if the end of such 60-day
period from and after a Change in Control is within six months of the date of
grant of an Option held by an optionee who is subject to Section 16(b) of the
Exchange Act, such Option shall be cancelled in exchange for a cash payment to
the optionee, effected on the day which is six months and one day after the
date of grant of such Option, equal to the Spread multiplied by the number of
shares of Common Stock granted under the Option.
SECTION 7. TERM; AMENDMENT OF THE PLAN
An Option may not be granted under the Plan after December 31, 2008 but
Options granted prior to that date shall not be affected or impaired by the
termination of the Plan.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would (i) impair the rights
of an optionee under an Option without the optionee's consent, except such an
amendment made to cause the Plan to qualify for the exemption provided by Rule
16b-3, or (ii) disqualify the Plan from the exemption provided by Rule 16b-3.
In addition, no such amendment shall be made without the approval of the
Company's stockholders to the extent such approval is required by law or
agreement. No amendment revising the price, date of exercisability, option
period, or amount of shares under an Option may be made more frequently than
every six months unless necessary to comply with applicable laws or
regulations.
SECTION 8. EFFECTIVE DATE OF THE PLAN
The Plan shall be effective April 21, 1998 or such later date as stockholder
approval is obtained.
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SECTION 9. GENERAL PROVISIONS
It is the Company's intent that the Plan comply in all respects with Rule 16b-
3 under the Exchange Act and any regulations promulgated thereunder. If any
provision of the Plan is later found not to be in compliance with such rule,
the provision shall be deemed null and void. All grants and exercises of
Options under the Plan shall be executed in accordance with the requirements
of Section 16 of the Exchange Act and any regulations promulgated thereunder.
Except as provided in the Plan, no Non-Affiliate Director shall have any claim
or right to be granted an Option under the Plan. Neither the Plan nor any
action thereunder shall be construed as giving any director any right to be
retained in the service of the Company.
The Company shall have the right to require the optionee to make arrangements
satisfactory to the Company regarding the payment of any federal, state, local
or foreign taxes of any kind required to be paid or withheld relating to the
grant, transfer or exercise of any Option, which arrangements may include
settling such obligations with shares of Common Stock, including Common Stock
that is part of the Option that gives rise to the tax requirement.
The Plan and all Options granted and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of
Delaware.
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