<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
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))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
BORG WARNER SECURITY CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] 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 19, 1999
To the Stockholders:
We will hold the Annual Meeting of Stockholders of Borg-Warner Security
Corporation on Tuesday, April 20, 1999, at 10:00 a.m. at the Company's
headquarters at 200 South Michigan Avenue, Chicago, Illinois, for the following
purposes:
1. To elect four directors for a term expiring in 2002;
2. To approve the Company's 1999 Stock Incentive Plan and the business
criteria related to performance share awards;
3. To ratify the designation of Deloitte & Touche LLP as independent
auditors for the Company for 1999; 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 5, 1999
will be entitled to vote at the meeting or any adjournment or postponement.
By order of the Board of Directors
ROBERT E.T. LACKEY
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 19, 1999
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 20, 1999 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 19, 1999. We enclose the
Company's Annual Report for the year ended December 31, 1998.
Only stockholders of record at the close of business on March 5, 1999 are
entitled to vote at the meeting. As of such date, 23,904,760 shares of Common
Stock were issued and outstanding. Each share of Common Stock entitles the
holder to one vote.
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 Corporate 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. John A. Edwardson, Robert A. McCabe, Alexis P. Michas and Donald C.
Trauscht are nominated to serve for a term of three years expiring in 2002. The
stockholders have previously elected all nominees, except John A. Edwardson. As
part of the Company's succession plan, Mr. Edwardson, as of March 1, 1999, was
named Chief Executive Officer and President of the Company. 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 5, 1999, certain information
concerning each nominee and continuing director.
NOMINEES FOR A TERM EXPIRING IN 2002
NAME AGE PRINCIPAL OCCUPATION AND DIRECTORSHIPS
---- --- --------------------------------------
John A. Edwardson 49 Chief Executive Officer and President (since March
1999). Former President from July 1994 to September
1998 and Chief Operating Officer from April 1995 to
September 1998 of United Airlines, Inc. Former
Executive Vice President and Chief Financial
Officer from March 1991 to July 1994 of Ameritech
Corp. Mr. Edwardson is also a director of Household
International and Focal Communications Corporation.
Robert A. McCabe 64 Chairman of Pilot Capital Corporation, an investment
Director since 1993 firm, since 1999. Former President from 1987 to
1999. Mr. McCabe is also a director of Atlantic
Bank, Church & Dwight Co., Inc., Thermo Electron
Corporation and Thermo Optek, Inc.
Alexis P. Michas 41 Managing Partner and director of Stonington
Director since 1987 Partners, Inc., an investment firm ("Stonington"),
since 1993 and director of Merrill Lynch Capital
Partners ("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.
2
<PAGE>
NAME AGE PRINCIPAL OCCUPATION AND DIRECTORSHIPS
---- --- --------------------------------------
Donald C. Trauscht 65 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 Blue Bird
Corporation, ESCO Electronics Corporation, Hydac
International Corporation, Cordant Technologies
Inc., Global Motorsports Group, Inc. and Wynn's
International Inc.
CONTINUING DIRECTORS WITH A TERM EXPIRING IN 2000
NAME AGE PRINCIPAL OCCUPATION AND DIRECTORSHIPS
---- --- --------------------------------------
Arthur F. Golden 52 Partner of Davis Polk & Wardwell, a law firm,
since 1978.
Dale W. Lang 66 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 59 Retired Chairman and Chief Executive Officer of
Director since 1996 Rand 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 64 Author and lecturer since 1991. Mr. Schwarzkopf
Director since 1993 was 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.
CONTINUING DIRECTORS WITH A TERM EXPIRING IN 2001
NAME AGE PRINCIPAL OCCUPATION AND DIRECTORSHIPS
---- --- --------------------------------------
J. Joe Adorjan 60 Chairman of the Board (since January 1996), Chief
Director since 1993 Executive Officer (October 1995 to March 1999)
and President (April 1995 to March 1999) 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., Loomis, Fargo & Co.,
Hussmann Corporation and Illinova Corporation.
3
<PAGE>
NAME AGE PRINCIPAL OCCUPATION AND DIRECTORSHIPS
---- --- --------------------------------------
James J. Burke, Jr. 47 Partner and director of Stonington Partners, Inc.,
Director since 1987 since 1993 and director of 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 53 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, US Foodservice, Inc.,
Merisel, Inc. and United Artists Theatre Circuit,
Inc.
At the February 2, 1999 Board of Directors Meeting, a resolution was
adopted that a mandatory retirement age of 70 be established for members of the
Board of Directors, subject to the discretionary right of the Chief Executive
Officer to extend the term of any director beyond the mandatory retirement age.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held nine meetings during 1998. Each director
attended at least 75% of the meetings of the Board of Directors and any
committee on which they served.
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 met once in 1998.
The members of the Compensation Committee are R.A. McCabe (Chairman), D.W.
Lang, and A. McNally IV and, effective January 1, 1999, A.J. Fitzgibbons III and
A.P. Michas. 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
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 four times during 1998.
4
<PAGE>
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 five times during
1998.
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 Corporate Secretary. The Nominating Committee did not meet during
1998.
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 1998. Committee members also received $1,000 ($1,250, if
chairman of the committee) for each committee meeting attended during 1998.
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.
In accordance with a Non-Affiliate Director Stock Option Plan 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.
5
<PAGE>
On April 24, 1998, 1,000 options, having an exercise price per share equal to
$20.9063, were granted to each of the Non-Affiliate Directors. All such options
will be immediately exercisable and expire ten years after the date of grant.
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
was amended August 31, 1998 to automatically renew for successive one year terms
unless terminated by either party for any reason.
During 1997 and 1998 the Company periodically 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 5, 1999, 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>
NUMBER OF PERCENT
NAME OF BENEFICIAL OWNER SHARES OF 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 27.7%
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 8.4%
---------- ----
Total ML Entities........................................................... 10,200,000 42.7%
FMR Corp(a)................................................................. 1,724,900 7.2%
</TABLE>
____________
* Represents less than one percent.
(a) Pursuant to a Schedule 13G, dated February 1, 1999, FMR Corp. indicated
that, in its capacity as investment adviser, it had sole power to vote
772,700 shares of Common Stock and sole power to dispose of 1,724,900
shares of Common Stock on behalf of various persons.
6
<PAGE>
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.
The following table sets forth, as of March 5, 1999, 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>
NUMBER
OF PERCENT
NAME OF BENEFICIAL OWNER SHARES(A) OF CLASS
- ------------------------ -------- --------
<S> <C> <C>
John A. Edwardson (b)...................................................... 100,000 *
J. Joe Adorjan (c)......................................................... 673,578 2.8
John D. O'Brien............................................................ 201,117 *
Timothy M. Wood............................................................ 133,735 *
Robert E.T. Lackey......................................................... 6,065 *
James J. Burke, Jr. (d).................................................... 0 *
Albert J. Fitzgibbons III (d).............................................. 0 *
Arthur F. Golden........................................................... 11,000 *
Dale W. Lang............................................................... 16,000 *
Robert A. McCabe........................................................... 18,000 *
Andrew McNally IV.......................................................... 21,000 *
Alexis P. Michas (d)....................................................... 0 *
H. Norman Schwarzkopf...................................................... 16,000 *
Donald C. Trauscht......................................................... 47,244 *
All directors and executive officers of the Company (14 persons)........... 1,245,539 5.2
</TABLE>
_________
* Represents less than one percent.
(a) Includes the following number of shares issuable upon the exercise of
options within the next 60 days: 461,000 for Mr. Adorjan; 67,500 for Mr.
O'Brien; 67,500 for Mr. Wood; 16,000 for each of Messrs. Lang, McCabe and
Schwarzkopf; 11,000 for each of Messrs. Golden and McNally IV; 5,000 for
Mr. Trauscht; and 6,000 for Mr. Lackey.
(b) Includes 100,000 restricted shares which vest in five equal installments
over the next five years, awarded to Mr. Edwardson pursuant to his
employment agreement.
(c) Includes 1,800 shares held in revocable trust for Mr. Adorjan's daughter.
Includes 44,444 shares held in a trust established by the Company that will
be distributed to Mr. Adorjan on April 15, 1999.
(d) 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
7
<PAGE>
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 1998 were timely filed.
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, 1998
for each of the three years ending December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Securities
underlying LTIP All Other
Name and Position Year Salary Bonus Options(#) Payouts(b) Compensation(c)
- ----------------- ---- ------ ----- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
J. Joe Adorjan(a)....................... 1998 $ 900,000 $ 500,000 0 $ 762,252 $ 429,112
Chairman, Chief Executive Officer 1997 900,000 426,667 300,000 0 420,660
and President 1996 900,000 358,333 0 0 426,268
John D. O'Brien......................... 1998 357,000 247,000 0 587,041 137,074
Senior Vice President 1997 325,000 177,333 75,000 0 123,226
1996 325,000 147,500 0 0 90,808
Timothy M. Wood......................... 1998 319,000 223,000 0 587,041 107,793
Vice President, Finance 1997 290,000 161,000 75,000 0 86,417
1996 290,000 127,708 0 0 62,038
Robert E.T. Lackey...................... 1998 170,000 144,200 0 0 29,934
Vice President, General Counsel 1997 114,782 70,560 12,000 0 12,766
and Secretary(d)
</TABLE>
____________
(a) On April 16, 1995, 177,778 shares of Common Stock were deposited into a
Company trust for the benefit of Mr. Adorjan. The value of such shares at
December 31, 1998 was $3,133,337. Such shares were distributed, together
with any dividends or other distributions made with respect thereto, in
equal installments on each of the first three anniversaries of April 16,
1995 and the final distribution will be made on April 16, 1999. On such
anniversary dates, the Company has also paid deferred compensation of
$250,000 to Mr. Adorjan.
8
<PAGE>
(b) Represents the total value of awards paid out under the performance share
plan for 1998 performance. Awards were paid in cash and stock and included
(i) 22,000 shares for Mr. Adorjan; (ii) 16,637 shares for Mr. O'Brien; and
(iii) 16,638 shares for Mr. Wood.
(c) During 1998 represents: (i) for Mr. Adorjan, $250,000 of deferred
compensation discussed in note (a), $173,749 contributed to an annuity
established for his benefit and $5,363 for the value of the benefit of a
split dollar life insurance policy; (ii) for Mr. O'Brien, $104,108
contributed to an annuity established for his benefit and $32,966 credited
pursuant to the Company's Retirement Savings Excess Plan (the "Excess Plan
"); (iii) for Mr. Wood, $92,764 contributed to an annuity established for
his benefit and $15,029 credited pursuant to the Excess Plan; and (iv) for
Mr. Lackey, $29,934 contributed to an annuity established for his benefit.
During 1997 and 1996, represents amounts contributed by the Company for the
named executive officers to annuities established for their benefit,
credits made pursuant to the Excess Plan, deferred compensation discussed
in note (a) and the value of the benefit of a split dollar life insurance
policy.
(d) Mr. Lackey first became an executive officer during 1997.
STOCK OPTIONS
During 1998, the named executive officers did not receive any stock
options.
The following table sets forth information concerning exercised and
unexercised options held by the named executive officers at the end of 1998. The
number of unexercisable options represents shares that become exercisable upon
the satisfaction of certain periods of employment. The value of unexercised
options represents the difference between the exercise price and the share price
of Common Stock at December 31, 1998. An option is in-the-money if the share
price of Common Stock exceeds the exercise price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NAME NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN THE
---- --------------------- ---------------------------
OPTIONS AT YEAR END(#) MONEY OPTIONS AT YEAR END($)
---------------------- ---------------------------
SHARES VALUE
ACQUIRED(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Joe Adorjan 0 $ 0 311,000 300,000 $ 3,245,580 $ 2,400,000
John D. O'Brien 20,666 342,927 30,000 75,000 101,250 600,000
Timothy M. Wood 5,000 82,969 30,000 75,000 101,250 600,000
Robert E.T. Lackey 0 0 0 12,000 0 63,750
</TABLE>
9
<PAGE>
PERFORMANCE SHARE AWARDS
The following table sets forth information concerning awards made
during 1998 pursuant to the Company's Performance Share Plan. Awards are stated
in shares of Common Stock. The performance period for such awards over which
achievement of specified performance goals is measured is the year ending
December 31, 2000. The performance criteria established for such awards is the
Company's earnings per share. The Compensation Committee has reserved the right
to define earnings for purposes of determining satisfaction of the performance
goal. In that regard, the Compensation Committee presently intends to consider
primarily income from operations and assess earnings from extraordinary gains
based on appropriateness of such earnings to the Performance Share Plan.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE OR OTHER
PERIOD UNTIL
NAME MATURATION OR PAYMENT THRESHOLD(#) TARGET(#) MAXIMUM (#)
---- --------------------- ------------ --------- -----------
<S> <C> <C> <C> <C>
J. Joe Adorjan............ Three years 24,000 48,000 87,000
John D. O'Brien........... Three years 12,500 25,000 45,000
Timothy M. Wood........... Three years 12,500 25,000 45,000
Robert E.T. Lackey........ Three years 5,000 10,000 18,000
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Mr. Adorjan under which he
serves as the chairman 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 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 (these obligations under the agreement will have
been fulfilled by April 16, 1999); 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 fringe plans and
programs extended to other key executives of the Company.
10
<PAGE>
Under such employment 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 twice 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 fringe 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 an employment agreement with Mr. Edwardson under which he
serves as the chief executive officer and president of the Company through March
1, 2002. The agreement contains certain automatic renewal provisions and further
provides Mr. Edwardson with: an annual base salary of $750,000; an annual cash
performance based bonus opportunity ranging from $300,000 to $800,000 (with a
1999 annual bonus award of not less than $500,000 subject to certain deferral
provisions to comply with Section 162(m) of the Internal Revenue Code); a
minimum annual contribution to a tax deferred annuity of $165,000; an award of
100,000 restricted shares of Common Stock having an aggregate value, as of
February 23, 1999, of $1,762,500 which will vest in equal installments on each
of the first five anniversaries of the date of grant; an award of 13-year
options to purchase 400,000 shares of Common Stock which become exercisable in
equal installments on each of the first three anniversaries of date of the
agreement, subject to certain deferral provisions to comply with Section 162(m)
of the Internal Revenue Code; and, an award of 100,000 Performance Shares on the
first day of employment and another 100,000 Performance Shares by not later than
March 31, 2000 under the Company's 1999 Stock Incentive Plan (the "Plan"), which
is subject to approval by the Company's shareholders. Subsequent stock option
grants are as determined by the Board of Directors. Mr. Edwardson is also
eligible to participate in all incentive, savings, retirement, benefit and
fringe plans and programs extended to other key executives of the Company.
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Under such employment agreement, if Mr. Edwardson'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.
Edwardson 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. Edwardson would receive severance and noncompete pay,
as follows: (i) an amount equal to the unpaid annual base salary and
supplemental benefit compensation through the date of termination, plus a
prorated bonus award at the targeted level through the date of termination, plus
an amount equal to any accrued but unpaid bonus related to any prior year; and,
(ii) an amount equal to the sum of the annual base salary, bonus and
supplemental benefit compensation for the period from the date of termination to
the end of the then contract employment period. The agreement also provides for
the vesting of unvested stock options, performance shares and restricted share
awards. The Agreement also provides for certain gross up payments in the event
that Mr. Edwardson is subject to an excise tax on his termination payments. The
Company must continue to provide certain fringe benefits to Mr. Edwardson
through the first anniversary of the date of termination (reduced by any
comparable benefit received from another employer during this period). Upon such
termination of employment, Mr. Edwardson has agreed, among other things, not to
compete with the Company for two years after such termination.
The Company has employment 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
twice 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 provide 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 fringe 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.
The Company entered into an agreement with Mr. Lackey which provides, in
the event of his termination of employment upon a change in control or within
eighteen months thereafter, he will be entitled to his annual salary and other
supplemental benefits paid through his date of termination,
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plus a lump sum payment equal to the total of his eighteen months salary, prior
year's annual bonus award, supplemental benefits contributions, and prorated
current year's annual bonus award. The Company will also provide medical, life
and other insurance benefits to him and his family and outplacement services for
eighteen months after his termination.
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 and annual and
long-term incentive 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
performance goals in annual plans as well as stock option and performance
share plans.
. Target compensation levels at rates that reflect market practices to
maintain a stable and successful management team.
. Enhance the Company's ability to attract, retain, and encourage the
development of high-quality executives.
. Encourage personal equity ownership to align executives' interests with
those of the stockholders.
The Company's executive compensation program consists of base pay, annual
incentives, stock options and long-term performance shares. The Committee
reviews the program annually and targets total compensation in a range similar
to total compensation for executives in general industry, as shown in published
executive compensation surveys, with consideration to known compensation
practices in relevant service industry companies. To assist in determining
competitive pay practices, the Committee also utilizes information provided by
qualified independent consultants.
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The Committee determines the compensation of the Company's Chief Executive
Officer and the other named executive officers, whose compensation is detailed
in this Proxy Statement. The Committee reviews the policies established for the
next level of management, including other corporate and subsidiary executives,
and evaluates and administers all stock-based compensation plans. In reviewing
the individual performance of the executives (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 in industry in general. In
1998, the salary of Mr. Adorjan remained at the level established by his
employment contract, dated March 28, 1995. Messrs. Lackey, O'Brien and Wood
received salary increases that are consistent with the above stated policies.
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.
For the named executive officers, the Committee sets performance goals
based on specified business criteria. If the threshold performance measured by
these criteria is not met, no cash incentive is paid. In 1998 the Committee
evaluated the Company's performance against the established criteria and
determined that the named executive officers earned a cash incentive payment.
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 the interests of the executives 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 and proxy statements of peer companies.
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In 1998 payments under the Performance Share Plan, initiated in 1996, were
made. The Committee determined that the earnings achieved in 1998 constituted
performance that merited distribution of shares under each individual 1996
grant. In making these payments the Committee recognized that the performance
resulted in part from actions taken by management which are in the long-term
interest of the Company.
Performance share awards granted to named executive officers in 1998 may
result in actual payments to executives according to achievement of threshold,
target and maximum performance goals in 2000. If the threshold performance is
not achieved, no shares will be distributed under the Plan.
During 1998, the Company granted stock options to newly hired key
executives of the Company and its business units.
The Committee, in recognizing the decentralized, people intensive nature of
this business, encourages the use of performance related stock options in the
compensation package of managers at all levels of the organization. Under the
terms of stock options already granted in 1999, most of the participants must
attain predetermined value growth targets for their respective areas of
responsibility in order to vest their awards within a 3-year time frame.
Compensation of the Chief Executive Officer
The salary of Mr. Adorjan 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 Borg-Warner Security, 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 1998 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 Mr. Adorjan had earned a cash
incentive.
Mr. Adorjan's 1996 performance share award has vested based on 1998
performance, as outlined above. Consistent with the Company's compensation
guidelines, the Committee also awarded Mr. Adorjan additional performance shares
in 1998. In making the grant, the Committee recognized the importance of
directing executive attention to continually increasing stockholder value.
The terms of Mr. Adorjan's employment agreement are set forth in the
section entitled "Employment Agreements."
As part of the Company's succession plan, Mr. Edwardson was named Chief
Executive Officer
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and President on March 1, 1999. The terms of his employment agreement are set
forth in the section entitled "Employment Agreements". The Compensation
Committee established the terms of the agreement in order to attract Mr.
Edwardson to the Company.
Deductibility of compensation in excess of $1 million per year
Internal Revenue Code Section 162(m), in general, precludes a public
corporation from claiming a tax deduction for compensation in excess of $1
million in any taxable year for its executive officers named in the cash
compensation table in such corporation's proxy statement. Certain
performance-based compensation is exempt from this tax deduction limitation. The
Committee's policy is to structure executive compensation in order to maximize
the amount of the Company's tax deduction. However, the Committee reserves the
right to deviate from that policy in order to serve the best interest of the
Company. Such a deviation has occurred under the terms of Mr. Adorjan's
employment agreement executed on March 28, 1997 and Mr. Edwardson's employment
agreement executed on February 23, 1999. The Committee believes that the
provisions of the employment agreements were necessary in order to recruit and
retain both Mr. Adorjan and Mr. Edwardson for the Company. Mr. Adorjan has
significantly improved shareholder value during his tenure.
The Company's incentive plans are structured to provide that any
compensation paid to other named executive officers that may exceed the Section
162(m) limit will qualify for the performance-based exemption.
Robert A. McCabe
Albert J. Fitzgibbons III
Dale W. Lang
Andrew McNally IV
Alexis P. Michas
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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, 1993 and the reinvestment of dividends as they were
paid. The total return for the Company assumes that $100 was invested on
December 31, 1993. The S&P MidCap 400 tracks the aggregate price performance of
equity securities of 400 companies selected in the market capitalization range
of $183 million to $12.7 billion. The DJ Index tracks the price performance of
equity securities of companies that provide services to other commercial
enterprises
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG BORG-WARNER SECURITY CORPORATION,
THE S & P MIDCAP 400 INDEX
AND THE DOW JONES OTHER INDUSTRIAL & COMMERCIAL SERVICES INDEX
<TABLE>
<CAPTION>
BORG-WARNER DOW JONES OTHER
Measurement Period SECURITY S & P INDUSTRIAL & COMMERCIAL
(Fiscal Year Covered) CORPORATION MIDCAP 400 SERVICES
- -------------------- ----------- ---------- --------
<S> <C> <C> <C>
Measurement Pt-
12/31/93 $ 100 $ 100 $ 100
FYE 12/31/94 $ 48 $ 96 $ 97
FYE 12/31/95 $ 61 $ 126 $ 124
FYE 12/31/96 $ 52 $ 150 $ 135
FYR 12/31/97 $ 86 $ 199 $ 155
FYE 12/31/98 $ 91 $ 228 $ 184
</TABLE>
* $100 INVESTED ON 12/31/93 IN STOCK OR INDEX.
INCLUDING REINVESTMENT OF DIVIDENDS,
FISCAL YEAR ENDING DECEMBER 31.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has a consulting agreement with Mr. Schwarzkopf for a fee of
$5,000 per month. Further details can be found in the Compensation of Directors
section.
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. APPROVAL OF THE 1999 STOCK INCENTIVE PLAN AND
BUSINESS CRITERIA RELATED TO PERFORMANCE SHARE AWARDS
At the meeting, we will present a proposal to approve the Borg-Warner
Security Corporation 1999 Stock Incentive Plan (the "Plan") and the business
criteria related to performance share awards.
Background
The Board of Directors adopted the Borg-Warner Security Corporation 1999
Stock Incentive Plan (the "Plan") on February 2, 1999, subject to approval by
the stockholders of the Company. If approved by the stockholders, the Plan will
replace the Company's current 1993 Stock Incentive Plan (the "1993 Stock Plan")
and the Company's Performance Share Plan adopted effective January 1, 1996 (the
"Performance Share Plan"). The purpose of the Plan is to give the Company and
its subsidiaries a significant advantage in attracting, retaining and motivating
officers and key employees and to provide the Company and its subsidiaries with
the ability to provide incentives more directly linked to the profitability of
the Company's businesses and increases in stockholder value, thereby
strengthening the mutuality of interest between such employees and the Company's
stockholders. Please refer to Exhibit A for a complete statement of the
provisions of the Plan which are summarized below.
In structuring the Plan, the Board of Directors sought to provide for a
variety of awards that could be flexibly administered to carry out the purposes
of the Plan. This authority will permit the Company to keep pace with changing
developments in management compensation and make the Company competitive with
those companies that offer creative incentives to attract and keep key
management employees. The flexibility of the Plan will allow the Company to
respond to changing circumstances such as changes in tax laws, accounting rules,
securities regulations and other rules regarding benefit plans. The Plan grants
the administrators' discretion in establishing the terms and restrictions deemed
appropriate for particular awards as circumstances warrant.
Shares Available
The Plan makes available for awards 750,000 shares of Common Stock, plus
all shares
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remaining under the Company's 1993 Stock Plan, the Performance Share Plan, the
Executive Officer Incentive Plan and all other earlier stock benefit plans
(approximately 133,000 shares). All of such shares may, but need not, be issued
pursuant to the exercise of incentive stock options. If there is a lapse,
expiration, termination or cancellation of any option or right prior to the
issuance of shares or if shares are issued and thereafter are reacquired by the
Company pursuant to rights reserved upon issuance thereof, those shares may
again be used for new awards under the Plan.
No "covered employee" (as such term is defined in Section 162(m) of the
Internal Revenue Code) shall be granted more than 400,000 shares of Common Stock
in any calendar year with respect to a stock option or stock appreciation right.
In addition, the maximum number of shares of Common Stock that can be issued to
any covered employee pursuant to a performance share award in any calendar year
is 200,000. Any shares of Common Stock which may be awarded to a covered
employee in a calendar year under either of the foregoing limits may be carried
over and awarded to the employee in the next succeeding calendar year. The
limits are also subject to adjustment as provided in the Plan.
Administration
The Plan provides for administration by a committee (the "Committee"), to
be comprised of either the Compensation Committee of the Board or another
committee designated by the Board. Among the Committee's powers are the
authority to interpret the Plan, establish rules and regulations for its
operation, select officers and other key employees of the Company and its
subsidiaries to receive awards, and determine the form, amount and other terms
and conditions of awards. The Committee also has the power to modify or waive
restrictions on awards, to amend awards and to grant extensions and
accelerations of awards.
Eligibility for Participation
Officers and other key employees of the Company or any of its subsidiaries
are eligible to participate in the Plan. The selection of participants from
eligible employees is within the discretion of the Committee. The estimated
number of employees who are eligible to participate in the Plan is 300.
Type of Awards
The Plan provides for the grant of any or all of the following types of
awards: stock options, including incentive stock options and non-qualified stock
options; stock appreciation rights; restricted stock awards; and performance
share awards. Awards may be granted singly, in combination, or in tandem as
determined by the Committee.
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Stock Options
Under the Plan, the Committee may grant awards in the form of options to
purchase shares of the Common Stock. The Committee will, with regard to each
stock option, determine the number of shares subject to the option, the manner
and time of the option's exercise and vesting, and the exercise price per share
of stock subject to the option. The exercise price of a stock option will not be
less than 100 percent of the fair market value of the Common Stock on the date
the option is granted. The option price may, at the discretion of the Committee,
be paid by a participant in cash, in shares of Common Stock owned by the
participant for at least six months, a combination thereof or such other
consideration as the Committee may deem appropriate.
Stock Appreciation Rights (SARs)
The Plan authorizes the Committee to grant an SAR in tandem with a stock
option. An SAR is a right to receive a payment equal to the appreciation in
market value of a stated number of shares of Common Stock from the exercise
price to the market value on the date of its exercise.
A tandem SAR may be granted either at the time of the grant of the related
stock option or at a time thereafter during the term of the stock option. Upon
the exercise of a stock option, as to some or all of the shares covered by the
award, the related tandem SAR will be cancelled automatically to the extent of
the number of shares acquired through the stock option exercise.
Restricted Stock Awards
The Plan authorizes the Committee to grant awards in the form of restricted
shares of Common Stock. Such awards will be subject to such terms, conditions,
restrictions, and/or limitations, if any, as the Committee deems appropriate
including, but not by way of limitation, restrictions on transferability,
continued employment and performance goals established by the Committee over a
designated period of time.
Approval of Business Criteria and Material Terms Relating to Performance Share
Awards
The Plan permits the grant of performance share awards. The Compensation
Committee has determined that the use of performance share awards will further
motivate participants and link their compensation to the stockholders because
the performance share awards are payable in Common Stock of the Company or cash
equal to the value of the stock. Under Section 162(m) of the Internal Revenue
Code and related regulations, performance share awards paid to the named
executive officers will be exempt from the deduction limitation imposed under
Section 162(m) if they qualify as "performance-based." Stockholder approval of
the Plan will result in approval of the business criteria and material terms of
the performance share awards so that they will qualify as performance-based. The
material terms, as described below, consist of the following: (i) the
individuals eligible to receive performance share awards under the Plan, (ii)
the business criteria on which the
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performance share awards are payable under the Plan, and (iii) the maximum
number of performance share awards payable under the Plan to a participant.
Under the Plan, officers and other key employees of the Company and its
subsidiaries are eligible to receive performance share awards. Generally, a
participant must be employed by the Company or a subsidiary as of the last day
of the performance cycle. If employment is terminated prior to the last day of
the performance cycle due to the participant's death, disability or qualified
retirement, a prorated portion of the performance shares will be paid to the
participant or the participant's designated beneficiary. The performance share
awards also contain provisions with respect to stock dividends or splits, change
in control and the effect of mergers and consolidations.
The Compensation Committee will approve the participants and the objective
performance goals in writing at or shortly after the beginning of each
performance cycle. All shares paid pursuant to the performance share awards must
be payable as the result of the achievement of objectively measured performance
targets based on quantifiable, measurable business criteria. The performance
goals will be based on one or more business criteria, including, but not limited
to: earnings per share, total stockholder return, return on equity, return on
capital, stock price, sales, net income, cash flow, retained earnings, customer
retention and/or employee retention. Performance goals may also be based upon
the attainment of specified levels of performance of the Company under one or
more of the measures described above relative to the performance of other
corporations. The specific targets relating to performance goals constitute
confidential business information and are not disclosed.
The Compensation Committee must certify, in writing, that the goals have
been met before any payments to participants will be made. The Compensation
Committee will have no discretion to increase the shares payable to any covered
employee or to otherwise alter the performance goals of a covered employee after
the beginning of a performance cycle.
The maximum number of shares of Common Stock applicable to a performance
share award to any covered employee during any calendar year is 200,000.
At the end of the performance cycle, if the performance goals are achieved
and so determined by the Compensation Committee, a participant will receive
shares of the Common Stock of the Company or cash of equal value which will be
taxable as ordinary income based on the fair market value of the shares on the
date of the Compensation Committee's determination, and the Company will receive
a corresponding tax deduction.
Other Terms of Awards
The Plan provides that awards shall not be transferable other than by will
or the laws of descent and distribution. Notwithstanding the foregoing, the
Committee may permit the transferability of an award by a participant to members
of the participant's immediate family or trusts or family partnerships for the
benefit of such person. The Committee shall determine the treatment to be
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afforded to a participant in the event of termination of employment for any
reason including death, disability or retirement.
Upon the grant of any award, the Committee may, by way of an award notice
or otherwise, establish such other terms, conditions, restrictions and/or
limitations covering the grant of the award as are not inconsistent with the
Plan. No award of an incentive stock option shall be made more than ten years
after the date of adoption of the Plan by the Board of Directors. The Board of
Directors reserves the right to amend, suspend or discontinue the Plan at any
time, subject to the rights of participants with respect to any outstanding
awards.
The Plan contains provisions for equitable adjustment of shares of Common
Stock awarded under the Plan and of awards in the event of a merger,
consolidation, or reorganization, or issuance of shares by the Company without
new consideration.
Federal Tax Treatment
Under the current law, the following are U.S. federal income tax
consequences generally arising with respect to awards under the Plan.
A participant who is granted an incentive stock option does not recognize
any taxable income at the time of the grant or at the time of exercise.
Similarly, the Company is not entitled to any deduction at the time of grant or
at the time of exercise. If the participant makes no disposition of the shares
acquired pursuant to an incentive stock option before the later of two years
from the date of grant and one year from the date of exercise, any gain or loss
realized on a subsequent disposition of the shares will be treated as a long-
term capital gain or loss. Under such circumstances, the Company will not be
entitled to any deduction for federal income tax purposes.
A participant who is granted a non-qualified stock option will not have
taxable income at the time of grant, but will have taxable income at the time of
exercise equal to the difference between the exercise price of the shares and
the market value of the shares on the date of exercise. The Company is entitled
to a tax deduction for the same amount.
The grant of an SAR will produce no U.S. federal tax consequences for the
participant or the Company. The exercise of an SAR results in taxable income to
the participant, equal to the difference between the exercise price of the
shares and the market price of the shares on the date of exercise, and a
corresponding tax deduction to the Company.
A participant who has been granted an award of restricted shares of Common
Stock or performance share awards will generally not realize taxable income at
the time of the grant, and the Company will not be entitled to a tax deduction
at the time of the grant. When the restrictions lapse or the performance goals
are met, the participant will recognize taxable income in an amount equal to the
excess of the fair market value of the shares at such time over the amount, if
any, paid for such
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shares. The Company will be entitled to a corresponding tax deduction.
Other Information
The stock awards that were granted to employees (including the executive
officers named under "Executive Compensation") in 1998 under the Company's 1993
Stock Incentive Plan and the Performance Share Plan are reported elsewhere in
this Proxy Statement. For information concerning stock options and performance
shares granted to Mr. Edwardson, see the discussion of his employment agreement.
Approval of the Plan and business criteria related to performance share
awards require 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 1999 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.
If the appointment of Deloitte & Touche for the 1999 fiscal year is not
ratified by the stockholders, the Board of Directors will appoint other
independent accountants whose appointment for any period subsequent to the next
Annual Meeting of Stockholders will be subject to the approval of stockholders
at that meeting.
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.
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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.
The Company must receive stockholder proposals to be presented at the year
2000 Annual Meeting on or before November 20, 1999. 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, stockholders wishing to bring
a proposal before the Annual Meeting in 2000 (but not include it in the proxy
statement) must comply with the Company's By-Laws which require timely notice to
the Company. To be timely such notice must be delivered to the Corporate
Secretary of the Company at the principal executive offices of the Company not
less than sixty nor more than ninety days prior to the first anniversary of the
preceding year's annual 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, 1998, 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
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APPENDIX A
1999 STOCK INCENTIVE PLAN
1999 Stock Incentive Plan is established to give the company and its
subsidiaries a significant advantage in attracting, retaining and motivating
officers and key employees.
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of the Plan is to give the Company and its Subsidiaries a
significant advantage in attracting, retaining and motivating officers and key
employees and to provide the Company and its Subsidiaries with the ability to
provide incentives more directly linked to the profitability of the Company's
businesses and increases in stockholder value.
For purposes of the Plan, the following terms are defined as set forth
below:
a. "Affiliate" means a corporation or other entity controlled by the
---------
Company and designated by the Committee as such.
b. "Award" means a Stock Option, Stock Appreciation Right, Restricted
-----
Stock Award, or Performance Share Award.
c. "Board" means the Board of Directors of the Company.
-----
d. "Cause" has the meaning set forth in Section 5(i).
-----
e. "Change in Control" and "Change in Control Price" have the meanings
----------------- ----------------------
set forth in Sections 9(b) and (c), respectively.
f. "Code" means the Internal Revenue Code of 1986, as amended from time
----
to time, and any successor thereto.
g. "Commission" means the Securities and Exchange Commission or any
----------
successor agency.
h. "Committee" means the Committee referred to in Section 2.
---------
i. "Company" means Borg-Warner Security Corporation, a Delaware
-------
corporation.
j. "Disability" means permanent and total disability as determined under
----------
procedures established by the Committee for purposes of the Plan.
k. "Exchange Act" means the Securities Exchange Act of 1934, as amended
------------
from time to time, and any successor thereto.
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l. "Fair Market Value" means as of any given date, the mean between the
-----------------
highest and lowest reported sales prices of the 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 Stock is listed or
on NASDAQ. If there is no regular public trading market for such
Stock, the Fair Market Value of the Stock shall be determined by the
Committee in good faith.
m. "Incentive Stock Option" means any Stock Option intended to be and
----------------------
designated as an "incentive stock option" within the meaning of
Section 422 of the Code.
n. "Non-Employee Director" means a member of the Board who qualifies as
---------------------
(i) a "non-employee director" as defined in Rule 16b-3(b)(3)(i) as
promulgated by the Commission under the Exchange Act, or any successor
definition adopted by the Commission, and (ii) an "outside director"
as defined in Section 1.162-27(e)(3) of the Treasury Regulations
issued under Section 162(m) of the Code, or any successor definition
adopted by the Department of the Treasury.
o. "Non-Qualified Stock Option" means any Stock Option that is not an
--------------------------
Incentive Stock Option.
p. "Participant" shall mean an eligible (as defined in Section 4)
-----------
employee to whom an Award has been made pursuant to the Plan.
q. "Performance Share Award" means an Award granted under Section 8
-----------------------
hereof.
r. "Plan" means the Borg-Warner Security Corporation 1999 Stock Incentive
----
Plan, as set forth herein and as hereinafter amended from time to
time.
s. "Restricted Stock" means an award granted under Section 7.
----------------
t. "Retirement" means retirement from active employment under a pension
----------
plan of the Company, any Subsidiary or Affiliate, or under an
employment contract with any of them, or termination of employment at
or after age 55 under circumstances which the Committee, in its sole
discretion, deems equivalent to retirement.
u. "Rule 16b-3" means Rule 16b-3, as promulgated by the Commission under
----------
Section 16(b) of the Exchange Act, as amended from time to time.
v. "Stock" means Common Stock, par value $.01 per share, of the Company.
-----
w. "Stock Appreciation Right" means a right granted under Section 6.
------------------------
x. "Stock Option" means an option granted under Section 5.
------------
y. "Subsidiary" shall mean any corporation, partnership, joint venture or
----------
other enterprise (i) of which the Company owns or controls directly or
indirectly fifty
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percent or more of the outstanding shares of stock normally entitled
to vote for the election of directors (or comparable equity
participations and voting power) or (ii) which the Company controls by
contract or other means. "Control" means the power to direct or cause
the direction of the management and policies of a corporation, a
partnership, a joint venture or other enterprise.
z. "Termination of Employment" means the termination of any participant's
-------------------------
employment with the Company and any Subsidiary or Affiliate. A
participant employed by a Subsidiary or an Affiliate shall also be
deemed to incur a Termination of Employment if the Subsidiary or
Affiliate ceases to be such a Subsidiary or Affiliate, as the case may
be, and the participant does not immediately thereafter become an
employee of the Company or another Subsidiary or Affiliate.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
SECTION 2. ADMINISTRATION
The Plan shall be administered by the Compensation Committee of the Board
or such other committee of the Board, composed of not less than two Non-Employee
Directors, each of whom shall be appointed by and serve at the pleasure 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.
The Committee shall have plenary authority to grant Awards pursuant to the
terms of the Plan to officers and key employees of the Company and its
Subsidiaries and Affiliates.
Among other things, the Committee shall have the authority, subject to the
terms of the Plan:
(a) to select the officers and key employees to whom Awards may from time
to time be granted;
(b) to determine whether and to what extent Incentive Stock Options, Non-
Qualified Stock Options, Stock Appreciation Rights, Restricted Stock
or Performance Share Awards or any combination thereof are to be
granted hereunder;
(c) to determine the number of shares of Stock to be covered by each Award
granted hereunder;
(d) to determine or amend the terms and conditions of any Award granted
hereunder, any vesting restriction or limitation and any vesting,
acceleration or forfeiture waiver regarding any Award and the shares
of Stock relating thereto;
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(e) to modify, amend or adjust the terms and conditions of any Award, at
any time or from time to time; and
(f) to determine to what extent and under what circumstances Stock and
other amounts payable with respect to an Award shall be deferred.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any agreement relating thereto)
and to otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its qualified members then in
office, except that the members thereof may (i) delegate to an officer of the
Company the authority to make decisions with respect to any Award (provided that
no such delegation may be made that would cause Awards or other transactions
under the Plan to cease to be exempt from Section 16(b) of the Exchange Act and
exempt under Code Section 162(m)) and (ii) authorize any one or more of their
number or any officer of the Company to execute and deliver documents on behalf
of the Committee.
Any determination made by the Committee or pursuant to delegated authority
pursuant to the provisions of the Plan with respect to any Award shall be made
in the sole discretion of the Committee or such delegate at the time of the
grant of the Award or, unless in contravention of any express term of the Plan,
at any time thereafter. All decisions made by the Committee or any appropriately
delegated officer pursuant to the provisions of the Plan shall be final and
binding on all persons, including the Company and participants.
The Committee shall have no authority to increase directly or indirectly or
to otherwise adjust upwards the amount of Stock payable to a covered employee
with respect to a particular Performance Share Award or to take any other action
to the extent that such action or the Committee's ability to take such action
would cause any payment under the Plan to any covered employee to fail to
qualify as "performance-based compensation" within the meaning of Code Section
162(m)(4).
SECTION 3. STOCK SUBJECT TO PLAN.
Subject to adjustment as provided herein, the total number of shares of
Stock of the Company available for grant under the Plan shall be 750,000 plus
any remaining shares of Stock under any prior stock plan of the Company and any
shares recovered from a lapse, forfeiture, expiration or termination of any such
award of shares; provided that no "covered employee" (as such term is defined in
Section 162(m) of the Code) shall be granted more than 400,000 shares of Stock
in any calendar year with respect to a Stock Option or Stock Appreciation Right.
In addition, the maximum number of shares of Stock that may be issued to any
covered employee pursuant to a Performance Share Award in any calendar year is
200,000 (subject to adjustment as provided herein). These limits include any
portion or amount of Stock that is withheld for taxes. Any shares of Stock
which may be awarded to a covered employee in a calendar year under
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<PAGE>
either of the foregoing limits may be carried over and awarded to the employee
in the next succeeding calendar year.
Shares subject to an Award under the Plan may be authorized and unissued
shares or may be treasury shares. If any Award is forfeited or terminated for
which the participant did not receive any benefits of ownership or if any Stock
Appreciation Right is exercised for cash or if any Performance Share Award is
paid in cash, shares subject to such Awards shall again be available for
distribution in connection with Awards under the Plan.
In the event of any merger, reorganization, consolidation, recapitalization,
stock dividend, stock split, extraordinary distribution with respect to the
Stock or other change in corporate structure affecting the Stock, the Committee
or Board may make such substitution or adjustments in the aggregate number and
kind of shares reserved for issuance under the Plan, in the number, kind and
option price of shares subject to outstanding Stock Options and Stock
Appreciation Rights, in the number and kind of shares subject to other
outstanding Awards granted under the Plan and/or such other substitution or
adjustments in the consideration receivable upon exercise as it may determine to
be appropriate in its sole discretion. Without affecting the number of shares
reserved or available hereunder, the Committee or Board may authorize the
issuance or assumption of benefits in connection with any merger, consolidation,
acquisition or property or stock, or reorganization in which the Company is a
continuing corporation upon such terms and conditions as it may deem
appropriate.
SECTION 4. ELIGIBILITY.
Officers and key employees of the Company, its Subsidiaries and Affiliates
who are responsible for or contribute to the management, growth and
profitability of the business of the Company, its Subsidiaries and Affiliates
are eligible to be granted Awards under the Plan.
SECTION 5. STOCK OPTIONS.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options or both types of Stock Options (in
each case with or without Stock Appreciation Rights).
The Committee may authorize the Chief Executive Officer of the Corporation
to grant in any calendar year a Non- Qualified Stock Option (with or without
Stock Appreciation Rights) for up to 3,000 shares of Stock to any employee of
the Company who is not an executive officer of the Company subject to Section 16
of the Exchange Act. The Committee may limit or qualify such authorization in
any manner it deems appropriate. Stock Options granted by the Chief Executive
Officer shall have the terms and conditions determined by the Committee.
Stock Options shall be evidenced by option agreements, the terms and
provisions of which may differ. An option agreement shall indicate on its face
whether it is intended to be an agreement for an Incentive Stock Option or a
Non-Qualified Stock Option. The grant of a Stock Option shall occur on the date
the Committee by resolution selects an individual to be a
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<PAGE>
participant in any grant of a Stock Option, determines the number of shares of
Stock to be subject to such Stock Option to be granted to such individual and
specifies the terms and provisions of the Stock Option. The Company shall notify
a participant of any grant of a Stock Option, and a written option agreement or
agreements shall be duly executed and delivered by the Company to the
participant. Such agreement or agreements shall become effective upon execution
by the participant.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions as
the Committee shall deem desirable:
(a) Option Price. The option price shall be determined by the Committee and
-------------
shall not be less than the Fair Market Value of the Stock on the date of
grant.
(b) Option Term. The term of each Stock Option shall be fixed by the Committee,
-----------
but no Stock Option shall be exercisable more than 10 years after the date
of grant.
(c) Exercisability. Except as otherwise provided herein, Stock Options shall be
--------------
exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Committee.
(d) Method of Exercise. Stock Options may be exercised by giving written notice
------------------
of exercise to the Company specifying the number of shares of Stock to be
purchased.
The option price shall be paid in full in cash (by certified or bank check
or such other instrument as the Company may accept) or, if and to the
extent set forth in the option agreement, may also be paid by the delivery
or certification of ownership of Stock already owned by the optionee for at
least six months.
In the discretion of the Committee, payment 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.
(e) Transferability of Stock Options. The Committee may in its discretion
--------------------------------
authorize transfer of all or a portion of Stock Options to (i) the spouse,
children or grandchildren of the optionee ("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 Stock 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 Stock Option
shall be transferable by the optionee other than by will or by the laws of
descent and distribution. Unless transferred as permitted above, all Stock
Options shall be exercisable, during the optionee's lifetime, only by the
optionee or by the guardian or legal representative of the optionee.
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<PAGE>
(f) Death. If an optionee's employment terminates by reason of death, any Stock
-----
Option held by such optionee may thereafter be exercised, to the extent
then exercisable, for a period of one year from the date of death or until
the expiration of the stated term of such Stock Option, whichever period is
the shorter. If the optionee's death occurs after termination of employment
and while a Stock Option remains exercisable, the Option shall continue to
be exercisable for a period of 12 months from the date of death or until
the expiration of the stated term of such option, whichever period is
shorter.
(g) Termination by Reason of Disability. If an optionee's employment terminates
-----------------------------------
by reason of Disability, any Stock Option held by such optionee may
thereafter be exercised by the optionee, to the extent it was exercisable
at the time of termination, for a period of three years from the date of
such termination of employment or until the expiration of the stated term
of such Stock Option, whichever period is the shorter.
(h) Termination by Reason of Retirement. If an optionee's employment terminates
-----------------------------------
by reason of Retirement, any Stock Option held by such optionee may
thereafter be exercised by the optionee, to the extent it was exercisable
at the time of such Retirement, for a period of three years from the date
of such termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is the shorter.
(i) Other Termination. In the event of termination of employment for any reason
-----------------
other than death, Disability or Retirement, any Stock Option held by the
optionee shall thereupon terminate, except that such Stock Option, to the
extent then exercisable, may be exercised for the lesser of one year from
the date of termination or the balance of such Stock Option's term if such
termination is involuntary and without Cause. Unless otherwise determined
by the Committee, for the purposes of the Plan "Cause" shall mean (i) the
conviction of the optionee for committing a felony under Federal law or the
law of the state in which such action occurred, (ii) dishonesty in the
course of fulfilling the optionee's employment duties or (iii) willful and
deliberate failure on the part of the optionee to perform his employment
duties in any material respect.
(j) Cashing Out of Stock Option. On receipt of written notice of exercise, the
---------------------------
Committee may elect to cash out all or part of the portion of the shares of
Stock for which a Stock Option is being exercised by paying the optionee an
amount, in cash or Stock, equal to the excess of the Fair Market Value of
the Stock over the option price times the number of shares of Stock for
which to the Option is being exercised on the effective date of such cash
out.
(k) 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"), unless the Committee shall determine otherwise at the
----------------
time of grant, an optionee shall have the right, to elect (within the
Exercise Period) to surrender all or part of the Stock 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 Stock
on the date of such election shall exceed the exercise price per share of
Stock under the Stock Option (the
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<PAGE>
"Spread") multiplied by the number of shares of Stock as to which the right
granted under this Section 5(k) shall have been exercised.
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) Grant and Exercise. Stock Appreciation Rights may be granted in conjunction
------------------
with all or part of any Stock Option granted under the Plan. In the case of
a Non-Qualified Stock Option, such rights may be granted either at or after
the time of grant of such Stock Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of grant of such Stock
Option. A Stock Appreciation Right shall terminate and no longer be
exercisable upon the termination or exercise of the related Stock Option. A
Stock Appreciation Right may be exercised by an optionee by surrendering
the applicable portion of the related Stock Option in accordance with
procedures established by the Committee.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to such
--------------------
terms and conditions as shall be determined by the Committee, including the
following:
(i) Stock Appreciation Rights shall be exercisable only at such time or
times and to the extent that the Stock Options to which they relate
are exercisable.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee shall be
entitled to receive an amount in cash, shares of Stock or both equal
in value to the excess of the Fair Market Value of one share of Stock
over the option price per share specified in the related Stock Option
multiplied by the number of shares in respect of which the Stock
Appreciation Right shall have been exercised, with the Committee
having the right to determine the form of payment.
SECTION 7. RESTRICTED STOCK.
(a) Terms and Conditions. Shares of Restricted Stock shall be subject to such
---------------------
terms and conditions as shall be determined by the Committee, including the
following:
(i) During a period set by the Committee, commencing with the date of such
Award (the "Restriction Period"), the participant shall not be
permitted to sell, assign, transfer, pledge or otherwise encumber
shares of Restricted Stock. The Committee may provide for the lapse of
such restrictions, in whole or in part, based on period of service,
performance of the participant or of the Company or the Subsidiary,
division or department for which the participant is employed or such
other factors or criteria as the Committee may determine.
(ii) Except as provided herein and in the Restricted Stock Agreement, the
participant shall have, with respect to the shares of Restricted
Stock, all of the rights of a stockholder of the Company, including,
if applicable, the right to vote the shares
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<PAGE>
and the right to receive any cash dividends. If so determined by the
Committee in the applicable Restricted Stock Agreement, (1) cash
dividends on the shares of Stock that are the subject of the
Restricted Stock Award shall be automatically deferred and reinvested
in additional Restricted Stock, and (2) dividends payable in Stock
shall be paid in the form of Restricted Stock.
(iii) Except to the extent otherwise provided herein and in the applicable
Restricted Stock Agreement, upon a participant's Termination of
Employment for any reason during the Restriction Period, all shares
still subject to restriction shall be forfeited by the participant.
(iv) Upon expiration of the Restriction Period, unlegended certificates
shall be delivered to the participant.
(v) Each Award shall be confirmed by, and be subject to the terms of, a
Restricted Stock Agreement.
(b) Awards and Certificates. Shares of Restricted Stock shall be evidenced in
-----------------------
such manner as the Committee may deem appropriate, including book-entry
registration or issuance of one or more stock certificates. Any certificate
issued in respect of shares of Restricted Stock shall be registered in the
name of such participant and shall bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such Award. The
Committee may require that the certificates evidencing such shares be held
in custody by the Company until the restrictions thereon shall have lapsed
and that, as a condition of any Award of Restricted Stock, the participant
shall have delivered a stock power, endorsed in blank, relating to the
Stock covered by such Award.
SECTION 8. PERFORMANCE SHARE AWARDS.
(a) Subject to the terms of the Plan, the Committee shall designate the
participants to whom Performance Shares are to be awarded and determine the
number of shares and the terms and conditions of each such award. Each
award of Performance Shares shall entitle the participant to a payment in
the form of shares of Common Stock upon the attainment of performance goals
and other terms and conditions specified by the Committee. The Committee
may, in its discretion, make a cash payment equal to the fair market value
of shares of Common Stock otherwise required to be issued to a participant
pursuant to a Performance Share Award. Performance Share Awards shall be
made subject to the attainment of performance goals relating to one or more
business criteria, including, but not limited to, one or more of the
following: earnings per share, total stockholder return, return on equity,
return on capital, stock price, sales, net income, cash flow, retained
earnings, customer retention, and employee retention. Performance goals
also may be based upon the attainment of specified levels of performance of
the Company under one or more of the measures described above relative to
the performance of other corporations.
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<PAGE>
(b) Notwithstanding the foregoing, no Performance Share Award shall be granted
to a "covered employee" within the meaning of Section 162(m) of the Code on
or after the 90th day of a performance period or, if earlier, after 25% of
the performance period has elapsed or shall be adjusted after the
applicable date. Performance Share Awards must be granted to covered
employees or adjusted at a time when the outcome of the performance goal
established or to be established for the applicable performance period is
substantially uncertain.
(c) If the employment of a participant terminates by reason of death,
disability or retirement before the completion of a performance period, the
participant or the participant's beneficiary will be eligible for a
prorated portion of the shares of Common Stock that would have otherwise
been payable to the participant after the end of the performance period.
If the employment of a participant terminates before the end of a
performance period for any reason other than death, disability or
retirement, whether voluntary or involuntary, all rights to receive any
portion of the shares of Common Stock subject to the award will
automatically be forfeited.
(d) No Performance Share Award shall be transferable by the participant other
than by will or by the laws of descent and distribution. All deliveries or
payments with respect to Performance Share Awards shall be made during the
participant's lifetime only to the participant or to the guardian or legal
representative of the participant.
SECTION 9. 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:
(i) Any outstanding Stock Options and Stock Appreciation Rights shall
become fully exercisable and vested.
(ii) The restrictions applicable to any Restricted Stock shall lapse and
such stock shall become fully vested and transferable.
(iii) The performance goals established for any Performance Shares shall be
deemed fully achieved at the maximum level and all other terms and
conditions met and all Performance Shares shall be delivered to the
participant.
(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
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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 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 9(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 9(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 stockholders, 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 stockholders 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
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<PAGE>
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 stockholders 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 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 price per share of Stock paid in such
tender or exchange offer or Corporate Transaction; provided, however, that
in the case of Incentive Stock Options and Stock Appreciation Rights
relating to Incentive Stock Options, the Change in Control Price shall be
in all cases the Fair Market Value of the Stock on the date such Incentive
Stock Option or Stock Appreciation Right is exercised. 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.
SECTION 10. TERM, AMENDMENT AND TERMINATION.
The Plan will terminate on December 31, 2004. Under the Plan, Awards
outstanding as of December 31, 2004 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
a participant without the participant'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.
The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any holder without the holder's consent except such an amendment made to cause
the Plan or Award to qualify for the exemption provided by Rule 16b-3. The
Committee may also substitute new Stock Options for
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previously granted Stock Options, including previously granted Stock Options
having higher option prices.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules, as
well as other developments and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval.
SECTION 11. UNFUNDED STATUS OF PLAN.
It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Stock or make payments; provided, however, that unless the Committee
otherwise determines, the existence of such trusts or other arrangements is
consistent with the "unfunded" status of the Plan.
SECTION 12. GENERAL PROVISIONS.
(a) The Committee may require each person purchasing or receiving shares
pursuant to an Award to represent to and agree with the Company in writing
that such person is acquiring the shares without a view to the distribution
thereof. The certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer. All
certificates for shares of Stock or other securities delivered under the
Plan shall be subject to such stock transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations and other
requirements of the Commission, any stock exchange upon which the Stock is
then listed and any applicable Federal or state securities law, and the
Committee may cause a legend or legends to be put on any such certificates
to make appropriate reference to such restrictions.
(b) The adoption of the Plan shall not confer upon any employee any right to
continued employment nor shall it interfere in any way with the right of
the Company or any Subsidiary or Affiliate to terminate the employment of
any employee at any time.
(c) No later than the date as of which an amount first becomes includible in
the gross income of the participant for Federal income tax purposes with
respect to any Award under the Plan, the participant shall pay to the
Company, or make arrangements satisfactory to the Company regarding the
payment of, any Federal, state, local or foreign taxes of any kind required
by law to be withheld with respect to such amount. The obligations of the
Company under the Plan shall be conditional on such payment or
arrangements, and the Company, its Subsidiaries and its Affiliates shall,
to the extent permitted by law, have the right to deduct any such taxes
from any payment otherwise due to the participant. The Committee may
establish such procedures as it deems appropriate, including the making of
irrevocable elections, for the settlement of withholding obligations with
Stock.
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(d) The Plan and all Awards made and actions taken thereunder shall be governed
by and construed in accordance with the laws of the State of Delaware.
SECTION 13. EFFECTIVE DATE OF PLAN.
The Plan was adopted by the Board of Directors on February 2, 1999,
subject to stockholder approval.
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1. ELECTION OF DIRECTORS FOR all nominees WITHHOLD AUTHORITY EXCEPTIONS
listed below to vote for all
nominees listed below
Directors to serve for a term expiring in 2002: John Edwardson, Robert A.
McCabe, Alexis P. Michas, Donald C. Trauscht (INSTRUCTIONS: TO WITHHOLD
AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE MARK THE "EXCEPTIONS" BOX AND
WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW). Exceptions
__________________________________________.
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<S> <C>
2. To approve the Company's 1999 Stock Incentive Plan and the business 3. To ratify the appointment of Deloitte & Touche
criteria related to performance share awards. LLP as independent auditors for the Company for
1999.
FOR [X] AGAINST [X] ABSTAIN [X] FOR [X] AGAINST [X] ABSTAIN [X]
4. To transact such other business as may property come before the
meeting or any adjournment or postponement thereof.
Address Change [X]
and/or Comments
Mark Here
Please sign exactly as your name appears
hereon. When shares are held by joint tenants,
both should sign. When signing as attorney,
executor, administrator, trustee or guardian,
please give full as such, if a corporation,
please sign in full corporate name by an
authorized officer, if a partnership, please
sign in partnership name by an authorized
person.
Dated: ____________________________, 1999
__________________________________________
Signature
___________________________________________
Signature, if held jointly
Votes must be indicated [X]
Please sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope. (X) in Black or Blue ink.
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BORG-WARNER SECURITY CORPORATION
ANNUAL MEETING OF STOCKHOLDERS APRIL 20, 1999
The Annual Meeting of Stockholders of Borg-Warner Security Corporation will
be held on Tuesday, April 20, 1999, at 10:00 a.m. at the Company's headquarters
located at 200 South Michigan Avenue, Chicago, Illinois, for the purpose
described on the reverse side.
Only stockholders at the close of business on March 5, 1999 will be
entitled to vote at the meeting or any adjournment or postponement thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The
undersigned hereby appoints each of J.Joe Adorjan and Timothy M. Wood, as
Proxies, each with the power to appoint his substitute, to represent and to
Vote, as designated on the reverse side, all the shares of Common Stock of
Borg-Warner Security Corporation held of record by the undersigned on March 5,
1999 at the annual meeting of stockholders to be held on April 20, 1999 or any
adjournment thereof.
THIS PROXY WHEN DULY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL PROPOSALS.
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.
BORG-WARNER SECURITY CORPORATION
(Continued, and to be dated and signed P.O. BOX 11195
on the reverse side.) NEW YORK, N.Y. 10203-0195
