-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PPOfBkEKPVWlGfAlvQLOjJN271TGAnxtphZmbwpyAyx1smoj/9uDtbStiS7PtC5T K7n5bTHUXsBnqGuUPOIC+A== 0000950131-96-003945.txt : 19960816 0000950131-96-003945.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950131-96-003945 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BORG WARNER SECURITY CORP CENTRAL INDEX KEY: 0000817945 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-DETECTIVE, GUARD & ARMORED CAR SERVICES [7381] IRS NUMBER: 133408028 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05529 FILM NUMBER: 96613237 BUSINESS ADDRESS: STREET 1: 200 S MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60604 BUSINESS PHONE: 3123228500 MAIL ADDRESS: STREET 1: 200 S. MICHIGAN AVENUE CITY: CHICAGO STATE: IL ZIP: 60604 FORMER COMPANY: FORMER CONFORMED NAME: BORG WARNER CORP /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: BORG WARNER HOLDINGS CORP DATE OF NAME CHANGE: 19880328 10-Q 1 FORM 10-Q =========================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended June 30, 1996 Commission file number: 1-5529 BORG-WARNER SECURITY CORPORATION - ----------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 13-3408028 - ----------------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 200 South Michigan Avenue, Chicago, Illinois 60604 - -------------------------------------------- ------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (312)322-8500 ------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- On July 31, 1996 the registrant had 22,110,542 shares of Common Stock and 1,149,600 shares of Series I Non-Voting Common Stock outstanding. ============================================================================= -1- BORG-WARNER SECURITY CORPORATION AND CONSOLIDATED SUBSIDIARIES FORM 10-Q THREE MONTHS ENDED JUNE 30, 1996 INDEX Page No. -------- PART I. Financial Information --------------------- Item 1. Financial Statements Condensed Consolidated Balance Sheet at June 30, 1996 and December 31, 1995 . . . . . . . . . 2 Consolidated Statement of Earnings for the three months ended June 30, 1996 and 1995 . . . . . 3 Consolidated Statement of Earnings for the six months ended June 30, 1996 and 1995 . . . . . . 4 Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 1996 and 1995 . . . . . . 5 Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . 11 PART II. Other Information ----------------- Item 1. Legal Proceedings . . . . . . . . . . . . . . . . 15 Item 2. Changes in Securities . . . . . . . . . . . . . . 15 Item 3. Defaults Upon Senior Securities . . . . . . . . . 15 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . 15 Item 5. Other Information . . . . . . . . . . . . . . . . 16 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 16 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . 17 -2- Part I. Financial Information Item 1. Financial Statements -------------------- BORG-WARNER SECURITY CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (MILLIONS OF DOLLARS)
June 30, December 31, 1996 1995 ---------- ------------ ASSETS Cash and cash equivalents $ 15.7 $ 21.1 Receivables, net 97.8 102.7 Inventories 13.6 12.5 Other current assets 64.5 59.5 ------- ------- Total current assets 191.6 195.8 ------- ------- Property, plant and equipment, at cost 478.9 500.7 Less accumulated depreciation 248.1 249.8 ------- ------- Net property, plant and equipment 230.8 250.9 ------- ------- Net excess purchase price over net assets acquired 265.9 273.0 Deferred tax asset 52.9 52.8 Other assets 87.1 78.9 ------- ------- $ 828.3 $ 851.4 Total assets ======= ======= LIABILITIES & STOCKHOLDERS' EQUITY Notes payable $ 5.0 $ 7.0 Accounts payable and accrued expenses 180.9 193.9 ------- ------- Total current liabilities 185.9 200.9 ------- ------- Long-term debt 478.7 482.1 Other long-term liabilities 111.6 118.7 Capital stock: Common stock 0.2 0.2 Series I non-voting common stock - - Other stockholders' equity 51.9 49.5 ------- ------- Total stockholders' equity 52.1 49.7 ------- ------- Total liabilities & stockholders' equity $ 828.3 $ 851.4 ======= =======
(The accompanying notes are an integral part of these financial statements) -3- BORG-WARNER SECURITY CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED) (MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
Three Months Ended June 30, ------------------------------- 1996 1995 -------- -------- Net service revenues $ 454.6 $ 467.3 Cost of services 366.2 377.0 Selling, general and administrative expenses 54.2 57.0 Depreciation 12.9 14.3 Amortization of excess purchase price over net assets acquired 3.6 3.6 Interest expense and finance charges 14.6 14.4 -------- -------- Earnings before income taxes 3.1 1.0 Provision for income taxes 1.2 0.4 -------- -------- Net earnings $ 1.9 $ 0.6 ======== ======== Net earnings per share $ 0.08 $ 0.03 ======== ========
(The accompanying notes are an integral part of these financial statements) -4- BORG-WARNER SECURITY CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED) (MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
Six Months Ended June 30, ----------------------------- 1996 1995 -------- -------- Net service revenues $ 904.6 $ 929.7 Cost of services 729.4 748.2 Selling, general and administrative expenses 109.0 115.9 Depreciation 26.1 29.2 Amortization of excess purchase price over net assets acquired 7.2 7.4 Interest expense and finance charges 29.6 28.2 -------- -------- Earnings before income taxes 3.3 0.8 Provision for income taxes 0.9 0.1 -------- -------- Net earnings $ 2.4 $ 0.7 ======== ======== Net earnings per share $ 0.10 $ 0.03 ======== ========
(The accompanying notes are an integral part of these financial statements) -5- BORG-WARNER SECURITY CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (MILLIONS OF DOLLARS)
Six Months Ended June 30, 1996 1995 ------- ------ OPERATING: Net earnings $ 2.4 $ 0.7 Adjustments to reconcile net earnings to net cash provided by operating activities: Non-cash charges to earnings: Depreciation and amortization 33.3 36.6 Provision for losses on receivables 2.2 2.1 Amortization of debt discounts 0.6 1.0 Changes in assets and liabilities: Decrease in receivables 2.6 7.4 Increase in other current assets (5.8) (4.4) Decrease in accounts payable and accrued expenses (13.0) (6.4) Net change in other long-term assets and liabilities 2.5 (5.7) Other (5.0) (2.0) ------- ------ Net cash provided by operating activities 19.8 29.3 ------- ------ INVESTING: Capital expenditures and investments in sales-type leases (21.9) (27.6) Other, net 1.0 0.4 ------- ------ Net cash used in investing activities (20.9) (27.2) ------- ------ FINANCING: Net decrease in notes payable (2.0) (5.7) Increase (decrease) in debt outstanding under revolving credit facility (2.1) 18.6 Increases in long-term debt 100.0 - Reductions in long-term debt (100.0) - Net decrease in receivables sold (0.3) (18.0) Sales of treasury common stock 0.1 0.5 ------- ------ Net cash used in financing activities (4.3) (4.6) ------- ------ NET DECREASE IN CASH AND CASH EQUIVALENTS (5.4) (2.5) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 21.1 15.8 ------- ------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15.7 $ 13.3 ======= ======
(The accompanying notes are an integral part of these financial statements) -6- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) The financial statements of Borg-Warner Security Corporation and Consolidated Subsidiaries ("Company") have been prepared in accordance with the instructions to Form 10-Q. The statements are unaudited, but include all adjustments, consisting of normal recurring items, which the Company considers necessary for a fair presentation of the information set forth herein. The results of operations for the three and six month periods ended June 30, 1996 are not necessarily indicative of the results to be expected for the entire year. Certain 1995 amounts have been reclassified to conform with the 1996 presentation. (2) The allowance for doubtful accounts was $7.0 million at June 30, 1996 and $7.3 million at December 31, 1995. The accumulated amortization on excess purchase price over net assets acquired was $90.4 million at June 30, 1996 and $93.0 million at December 31, 1995. In November 1995, the Company entered into a three-year agreement to sell a $120 million undivided interest in a revolving pool of customer receivables. This sold interest was reflected as a reduction of "Receivables" in the accompanying Condensed Consolidated Balance Sheet at June 30, 1996 and December 31, 1995. The Company retains, on a subordinated basis, an undivided interest in the pool of receivables. The Company's retained interest of $11.2 million and $17.0 million at June 30, 1996 and December 31, 1995, respectively, is included with "Receivables, net" on the balance sheet. "Other current assets" at June 30, 1996 and December 31, 1995 included interest- bearing cash deposits of $31.4 million and $31.1 million, respectively, held in trust under the terms of the accounts receivable facility. These deposits represent collections held back by the trustee based on the amount of eligible receivables in the revolving receivables pool. The Company's retained interest in the receivables and cash deposits is generally restricted. The full amount of the allowance for losses has been retained because the Company has retained substantially the same risk of credit loss as if the receivables had not been sold. The discount related to the sale of receivables is included with "Interest expense and finance charges" in the Consolidated Statement of Operations. Net cash payments for interest and income taxes were as follows (in millions of dollars):
Six Months Ended June 30, ------------------- 1996 1995 ------ ------ Interest paid $29.7 $28.4 Income taxes paid (refunded) 1.5 (0.6)
(3) The Company's provisions for income taxes for the three and six month periods ended June 30, 1996 and 1995 reflect estimated annual tax rates for the year applied to federal, state and foreign income. -7- (4) The following tables summarize the capitalization of the Company at June 30, 1996 and December 31, 1995 (in millions of dollars):
June 30, 1996 December 31, 1995 ----------------- ----------------- DEBT Current Long-Term Current Long-Term ------- --------- ------- --------- Bank term loan due 1998 (at an average rate of 8.8% in 1996 and 9.5% in 1995; and 8.7% at June 30, 1996) $ - $200.0 $ - $100.0 Bank revolving commitment loan due through 1999 (at an average rate of 8.5% in 1996 and 7.3% in 1995; and 8.4% at June 30, 1996) - 122.5 - 124.6 8% notes (face amount of $100 million due 1996) - - - 99.5 Unsecured notes (at an average rate of 7.2% in 1996 and 7.0% in 1995; and 7.3% at June 30, 1996) 0.2 0.4 0.4 0.6 Capital lease liability (at an average rate of 8.3% in 1996 and 8.4% in 1995; and 8.4% at June 30, 1996) 4.8 6.6 6.6 8.3 9-1/8% senior subordinated notes (face amount of $150 million due 2003) - 149.2 - 149.1 ----- ------ ------ ------ Total notes payable and long-term debt $ 5.0 $478.7 $ 7.0 $482.1 ===== ====== ====== ======
-8-
STOCKHOLDERS' EQUITY June 30, December 31, 1996 1995 ------------- ------------ Common stock: Common stock $ 0.2 $ 0.2 Series I non-voting common stock - - Preferred stock - - Capital in excess of par value 28.3 28.1 Notes receivable - management stock purchase (0.3) (0.3) Retained earnings 33.5 31.2 Cumulative translation adjustment (0.6) (0.4) ---------- ---------- 61.1 58.8 Less treasury common stock, 1,905,958 shares in 1996 and 1,928,861 shares in 1995, at cost (9.0) (9.1) ---------- ---------- Total stockholders' equity $ 52.1 $ 49.7 ========== ==========
CAPITAL STOCK - NUMBER OF SHARES June 30, December 31, (Thousands of shares) 1996 1995 --------- ------------ Common Stock, $.01 par value: Authorized 50,000.0 50,000.0 Issued 22,446.1 22,446.1 Outstanding 22,110.5 22,087.6 Series I non-voting common stock, $.01 par value: Authorized 25,000.0 25,000.0 Issued 2,720.0 2,720.0 Outstanding 1,149.6 1,149.6 Preferred stock, $.01 par value: Authorized 5,000.0 5,000.0 Issued and outstanding - -
-9- (5) Earnings per common share are based on average outstanding common shares and common share equivalents. Common share equivalents recognize the dilutive effects of common shares which may be issued in the future upon exercise of certain stock options. The number of shares used in the computation of earnings per share were as follows (in thousands of shares):
Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 1996 1995 1996 1995 ------ ------ ------ ------ Average common shares outstanding 23,258 23,101 23,251 23,027 Common share equivalents 294 195 284 203 ------ ------ ------ ------ Total used for computation of per share earnings 23,552 23,296 23,535 23,230 ====== ====== ====== ======
(6) The Company's discontinued property and casualty insurance subsidiary ("Centaur") ceased writing insurance in 1984 and has been operating under rehabilitation since September 1987. Rehabilitation is a process supervised by the Illinois Director of Insurance to attempt to compromise claim liabilities at an aggregate level that is not in excess of Centaur's assets. In rehabilitation, Centaur's assets are currently being used to satisfy claim liabilities under direct insurance policies written by Centaur. Any remaining assets will be applied to Centaur's obligations to other insurance companies under reinsurance contracts. If all of Centaur's obligations are not satisfied through rehabilitation, it is possible that satisfaction could be sought from the Company for Centaur's liabilities. The foregoing has resulted in one pending lawsuit against the Company, certain of its current and former subsidiaries, and directors and officers of certain current and former subsidiaries for recovery of alleged damages incurred because of Centaur's failure to satisfy its reinsurance obligations. The lawsuit seeks in excess of $100 million for current losses, future losses and other damages and also seeks punitive damages. The Company believes that any damages for failure to satisfy reinsurance obligations are solely the responsibility of Centaur and that the resolution of the lawsuit relating to Centaur, including the Company's indemnification obligations to certain former officers and directors, will not have a material adverse effect on its financial position or future operating results; however, no assurance can be given as to the ultimate outcome with respect to such lawsuit. The Company and certain of its current and former subsidiaries have been identified by the U.S. Environmental Protection Agency and certain state environmental agencies as potentially responsible parties ("PRPs") at several hazardous waste disposal sites under the Comprehensive Environmental Response, Compensation and Liability Act ("Superfund") and equivalent state laws and, as such, may be liable for the cost of cleanup and other remedial activities at these sites. Responsibility for cleanup and other remedial activities at a Superfund site is typically shared among PRPs based on an allocation formula. The Company believes that none of these matters individually -10- or in the aggregate will have a material adverse effect on its financial position or future operating results, generally either because the maximum potential liability at a site is not large or because liability will be shared with other PRPs, although no assurance can be given with respect to the ultimate outcome of any such liability. Based on its estimate of allocations of liability among PRPs, the probability that other PRPs, many of whom are large, solvent public companies, will fully pay the costs allocated to them, currently available information concerning the scope of contamination at such sites, estimated remediation costs at such sites, estimated legal fees and other factors, the Company has made provisions for indicated environmental liabilities in the aggregate amount of approximately $9 million (relating to environmental matters with respect to discontinued operations of the Company). If any environmental liability claim relating to the Company's former chemical and plastics business is made, the Company is indemnified by the purchaser of such business, General Electric Company. Since the disposition, the Company has notified General Electric Company of various claims made with respect to the Company's former chemical and plastic business, and General Electric Company has assumed all of such claims and has not contested its indemnification obligations. There is no dollar limitation on the General Electric Company's indemnification obligations and there are no other material limitations or exclusions with respect thereto. If any environmental liability claim relating to the operations of the Company's discontinued automotive subsidiary is made, the Company will be indemnified by such former subsidiary. The Company believes that the various asserted claims and litigation in which it is involved will not materially affect its financial position or future operating results, although no assurance can be given with respect to the ultimate outcome of any such claim or litigation. -11- Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF --------------------------------------- FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- RESULTS OF OPERATIONS --------------------- Consolidated net service revenue for the three and six month periods ended June 30, 1996 declined 2.7% from the comparable 1995 periods. Despite reduced revenue, operating profit, which is pretax earnings before interest expense and unallocated corporate expenses, increased 13.4% and 11.2% for the second quarter and first six months of 1996, respectively. The Guard and Alarm units improved margins through a combination of profitability improvement programs and cost reduction efforts. Lower margins at the Armored and Courier units offset some of the improvement. The revenue contributed by each of the Company's units was as follows (in millions of dollars):
Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 1996 1995 1996 1995 ------ ------ ------ ------ Guard $297.7 $307.7 $593.9 $609.7 Alarm 59.9 63.1 118.8 128.3 Armored 60.7 56.8 119.7 113.4 Courier 36.3 39.7 72.2 78.3 ------ ------ ------ ------ Total $454.6 $467.3 $904.6 $929.7 ====== ====== ====== ======
Guard revenue declined 3% in the second quarter and the first six months of 1996 compared to 1995. Volume, as measured by average guard hours-in-force, declined 5.3% year-to-date, as reductions, cancellations, and terminations exceeded new sales. The unit's program to reduce underperforming contracts contributed to improved margins as operating profit increased 19.7% in the second quarter and 22.8% in the first half of this year. Field cost reduction and streamlining programs along with reduced amounts of unbilled overtime also contributed to the improvement. Alarm revenue decreased 5.2% in the second quarter and 7.4% in the first six months of 1996 compared to 1995. In 1995, Alarm began recognizing installation contracts as sales-type leases rather than operating leases. Such recognition resulted in increased reported revenue in 1995 which is and will be offset by reduced rental revenue from equipment under operating leases. There is no significant impact on operating income since the -12- rental revenue is substantially offset by finance income earned on sales-type leases and lower depreciation expense on remaining operating leases. Alarm's 1996 operating profit increased significantly primarily due to improved investment control performance and lower operating costs. Armored revenue increased 7.1% in the second quarter and 5.6% in the first six months of 1996 compared to 1995. The increases resulted primarily from higher volume in the ATM operations. Revenue for the armored transport and cash services operations were comparable to 1995. Operating profit declined 25.8% and 21.3% for the second quarter and the first half of 1996, respectively, due to higher labor and vehicle costs, higher cargo losses, and the absence of a pricing surcharge implemented in the first quarter of 1995. Courier revenue decreased 8.6% in the second quarter and 7.8% in the first six months of 1996 compared to 1995. The lower revenue reflects the reduced volume of traditional financial document shipments, customer cost reduction efforts and the unit's efforts to improve margins by reducing underperforming business. Operating profit declined due to reduced revenues and a fixed cost base in established route structures. The unit is reviewing its route structure and branch organization in light of the reduced volume of business. The United States Congress has recently passed legislation that is expected to be enacted that will increase the minimum wage payable to employees. The Company believes that it will be able to adjust its billing rates in response to any such increase and that there would not be a material effect on operating income from any increase in the minimum wage. Interest expense and finance charges increased 1.4% in the second quarter and 5.0% for the first six months of 1996 compared to 1995. This is primarily due to higher interest rates associated with refinancing activities in late 1995, offset by slightly lower average debt balances. FINANCIAL CONDITION AND LIQUIDITY - --------------------------------- In November 1995 the Company entered into a three-year agreement to sell a $120 million undivided interest in a revolving pool of customer receivables. Other current assets at June 30, 1996 and December 31, 1995 included interest- bearing cash deposits of $31.4 million and $31.1 million, respectively, held in trust under the terms of the accounts receivable facility. These deposits represent collections held back based on the amount of eligible receivables in the revolving receivables pool. The levels of receivables and current liabilities are influenced by the timing of billings, collections and payrolls. The Company's policy is to keep working capital as low as is operationally feasible to minimize related carrying costs. -13- Net cash provided by operating activities was $19.8 million and $29.3 million in the first six months of 1996 and 1995, respectively. The decline in cash provided by operating activities was primarily due to changes in working capital requirements. Cash used for investing activities declined by $6.3 million due primarily to controlled Alarm investment and lower capital expenditures. Total funding, including debt and off-balance sheet facilities, declined to $570.4 million at March 31, 1996 from $576.3 million at December 31, 1995. The Company expects that continuing operations, together with existing credit facilities and replacements thereof, will generate sufficient cash to fund current operating requirements and capital expenditures. On October 17, 1995, the Company entered into a credit agreement with a syndicate of banks, providing for a $200 million term loan due December 31, 1998. On such date the Company also amended its existing revolving credit and letter of credit facilities, principally to permit the term loan, change pricing, amend covenants relating to interest coverage, leverage, net worth and earnings, extend the maturity of the letter of credit facility to December 31, 1998 and reduce the level of commitments under the letter of credit facility to $155 million. The Company used the initial $100 million of proceeds from the term loan to prepay an existing $50 million term loan and for general corporate purposes. The remaining $100 million of term loan proceeds was used to repay the $100 million principal amount of its 8% notes, which matured on April 1, 1996. The Company is required to prepay the term loan with the proceeds from certain asset sales, certain reversions of surplus pension plan assets, issuance of debt or equity securities and excess cash flow. In the event that, as of the end of each quarter beginning with the quarter ended March 31, 1997, the Company has not achieved required covenants for the four consecutive quarters ending on such date, the Company is required to prepay $150 million of the term loan not later than 120 days after the end of such quarter. If the Company is required to make such payment, it expects to fund such amount through some combination of transactions that may include the issuance of debt or equity securities, the sale of assets or other financing alternatives. In March 1996, the Company entered into an agreement that provides for the purchase of the installation and equipment lease payments due under certain alarm unit customer leased installations. The Company has entered into a letter of intent to combine the business conducted by its armored unit with Loomis Armored, Inc. The Company and existing shareholders of Loomis will each own 50% of the to-be-named company. Loomis is controlled by Wingate Partners, a private equity investment partnership. The new company will provide a full range of armored transportation, cash services and automated teller machine services nationwide. The Company expects to receive approximately $95 million from the transaction, which will be applied to reduce existing debt. The transaction is subject to a number of conditions, but the Company expects that it will be completed in 1996. -14- As discussed more fully in Note 6 of the Notes to Consolidated Financial Statements, various complaints seeking substantial dollar amounts have been filed against the Company. The Company believes that it has established adequate provisions for litigation liabilities in its financial statements in accordance with generally accepted accounting principles. The Company believes that none of these matters individually or in the aggregate will have a material adverse effect on its financial position or future operating results, although no assurance can be given with respect to the ultimate outcome of any such proceeding. -15- Part II. Other Information Item 1. Legal Proceedings ----------------- As previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 1995, Centaur Insurance Company ("Centaur"), the Company's discontinued property and casualty insurance subsidiary, has been operating under rehabilitation since September 1987. Rehabilitation is a process supervised by the Illinois Director of Insurance to attempt to compromise Centaur's liabilities at an aggregate level that is not in excess of its assets. The foregoing has resulted in one pending lawsuit against the Company for recovery of alleged damages incurred as a result of Centaur's failure to satisfy its reinsurance obligations. The liability phase of such lawsuit has begun and the Company intends to defend this lawsuit vigorously. Item 2. Changes in Securities --------------------- Inapplicable Item 3. Defaults Upon Senior Securities ------------------------------- Inapplicable Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- On April 16, 1996, the Company held its annual meeting of stockholders. At such meeting, Arthur F. Golden and Andrew McNally IV were elected as directors to serve for a term expiring in 1997 and Robert A. McCabe, Alexis P. Michas and Donald C. Trauscht were elected as directors to serve for a term expiring in 1999. Each of J. Joe Adorjan, James J. Burke, Jr., Albert J. Fitzgibbons, III, Dale W. Lang, Jr. and H. Norman Schwarzkopf continued to serve as directors following the meeting. At such meeting, the following votes were cast in the election of directors: For Withheld --- -------- A.F. Golden 17,628,578 1,080,729 A. McNally 17,631,658 1,077,649 R.A. McCabe 17,631,658 1,077,649 A.P. Michas 17,617,957 1,091,350 D.C. Trauscht 17,579,264 1,130,043 At such meeting, the proposal to amend the Company's 1993 Stock Incentive Plan was approved by the following votes: For Against Abstain Broker Non-Votes --- ------- ------- ---------------- 14,581,374 1,381,901 57,501 2,688,531 At such meeting, the proposal to adopt the Company's Performance Share Plan was approved by the following votes: For Against Abstain Broker Non-Votes --- ------- ------- ---------------- 15,528,296 308,353 184,127 2,688,531 -16- At such meeting, the selection of Deloitte & Touche LLP as auditors was approved by the following votes: For Against Abstain --- ------- ------- 18,652,646 25,007 31,653 Item 5. Other Information ----------------- None Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: 4.1 First Amendment to Credit Agreement and Consent, dated as of March 14, 1996, among the Company, various lenders and Bankers Trust Company, as Agent. 4.2 Fourth Amendment to Credit Agreement and Consent, dated as of March 14, 1996, among the Company, various lenders, the lead managers and co-agents named therein and Bankers Trust Company, as Administrative Agent. 4.3 Amendment No. 8 to Credit Agreement and Consent, dated as of March 14, 1996, among the Company, the banks party thereto and The Long-Term Credit Bank of Japan, LTD., as Agent. 27 - Financial Data Schedule (b) Reports on Form 8-K: None -17- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Borg-Warner Security Corporation -------------------------------- (Registrant) By /s/ Timothy M. Wood ------------------------ (Signature) Timothy M. Wood Vice President, Finance (Principal Financial and Accounting Officer) Date: August 14, 1996 EX-4.1 2 FIRST AMENDMENT TO CREDIT AGREEMENT AND CONSENT EXHIBIT 4.1 BORG-WARNER SECURITY CORPORATION FIRST AMENDMENT TO CREDIT AGREEMENT AND CONSENT This FIRST AMENDMENT TO CREDIT AGREEMENT AND CONSENT (this "AMENDMENT") is dated as of March 14, 1996 and entered into by and among BORG-WARNER SECURITY CORPORATION, a Delaware corporation ("COMPANY"), the financial institutions listed on the signature pages hereof ("LENDERS"), NATIONSBANK, N.A., as Documentation Agent ("DOCUMENTATION AGENT"), and BANKERS TRUST COMPANY, as Agent for Lenders (in such capacity, "AGENT"), and, for purposes of Section 5 hereof, the Credit Support Parties (as defined in Section 5 hereof) listed on the signature pages hereof, and is made with reference to that certain Credit Agreement dated as of October 16, 1995 by and among Company, Lenders, Documentation Agent and Agent (the "CREDIT AGREEMENT"). Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, Company and Lenders desire to amend the Credit Agreement by (i) amending the mandatory prepayment provisions thereof, (ii) amending certain of the financial covenants contained therein and (iii) making certain other amendments as set forth below; WHEREAS, Company has requested that Lenders consent to the terms and conditions of the Alarm Services Contract Securitization Facility; and WHEREAS, subject to the terms and conditions of this Amendment, Lenders are willing to agree to such amendments and to consent to such terms and conditions; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT 1.1 AMENDMENTS TO SECTION 1: DEFINITIONS. ------------------------------------ A. Subsection 1.1 of the Credit Agreement is hereby amended by adding thereto the following definitions, which shall be inserted in proper alphabetical order: "'CALCULATION PERIOD' means the three month period commencing on each March 26, June 26, September 26 and December 26 and concluding on 1 the succeeding June 25, September 25, December 25 and March 25, respectively; provided however, that the initial Calculation Period shall commence on the date following the date of receipt by Company or any of its Subsidiaries of the Initial Alarm Receivables Net Cash Proceeds and shall conclude on the succeeding June 25, September 25, December 25 or March 25, as the case may be. 'FIRST AMENDMENT' means that certain First Amendment to Credit Agreement and Consent dated as of March 14, 1996 by and among Company, Lenders, Documentation Agent and Agent. 'INITIAL ALARM RECEIVABLES NET CASH PROCEEDS' means the Net Cash Proceeds received by Company or any of its Subsidiaries pursuant to the Alarm Services Contract Securitization Facility on the date upon which the Alarm Services Contract Securitization Facility becomes effective and the initial purchase of receivables, contracts and/or leases is made thereunder. 'NET INCREMENTAL ALARM RECEIVABLES PROCEEDS' means, for any Calculation Period, the sum of (i) the Purchase Amounts for Equipment Payment Rights under Equipment Leases paid to Wells Fargo Alarm Services, Inc. ("Alarm") by the purchaser thereof during such Calculation Period less (ii) any Repurchase or Recourse Amounts paid by Alarm to the purchaser thereof during such Calculation Period less (iii) payments received by such purchaser during such Calculation Period with respect to all Equipment Payment Rights sold to such purchaser since the date of commencement of the Alarm Services Contract Securitization Facility, all as determined by reference to, and as such capitalized terms are defined in, the Alarm Services Contract Securitization Facility. 'PRO RATA BASIS' means, with respect to this Agreement, the percentage which the Loan Exposure of all Lenders under this Agreement represents of the sum of (i) the Loan Exposure of all Lenders under this Agreement plus (ii) the commitments of all lenders under the Existing Revolving Credit Agreement, and with respect to the Existing Revolving Credit Agreement, the percentage which the commitments of all lenders under the Existing Revolving Credit Agreement represents of the sum of (i) the Loan Exposure of all Lenders under this Agreement plus (ii) the commitments of all lenders under the Existing Revolving Credit Agreement." B. Subsection 1.1 of the Credit Agreement is hereby further amended by deleting clause (ii) of the definition of "Consolidated Excess Cash Flow" in its entirety and by substituting the following therefor: "(ii) to the extent such amounts have been included in the foregoing clauses (x) and (y), amounts equal to the sum of (1) Net Cash Proceeds of 2 Asset Sales applied to the prepayment of Loans pursuant to subsection 2.4B(ii)(a)(I) of this Agreement or to the prepayment of loans pursuant to subsection 2.4A(ii)(a)(I) of the Existing Revolving Credit Agreement, (2) Net Cash Proceeds of Asset Sales pursuant to the Alarm Services Contract Securitization Facility whether or not applied to the prepayment of Loans pursuant to subsection 2.4B(ii)(a)(II) of this Agreement or to the prepayment of loans pursuant to subsection 2.4A(ii)(a)(II) of the Existing Revolving Credit Agreement and (3) Net Reversion Amounts applied to the prepayment of Loans pursuant to subsection 2.4B(ii)(b) of this Agreement or to the prepayment of loans pursuant to subsection 2.4A(ii)(c) of the Existing Revolving Credit Agreement." 1.2 AMENDMENTS TO SECTION 2: AMOUNTS AND TERMS OF COMMITMENTS AND ------------------------------------------------------------- LOANS. - ----- A. MANDATORY PREPAYMENTS. (1) Subsection 2.4B(ii)(a) of the Credit Agreement is hereby amended by deleting it in its entirety and substituting the following therefor: "(ii) Mandatory Prepayments. --------------------- (a) (I) Prepayments from Asset Sales. No later than the second Business Day following the date of receipt by Company or any of its Subsidiaries of Cash Proceeds of any Asset Sale other than any Cash Proceeds arising as a result of Asset Sales pursuant to the Alarm Services Contract Securitization Facility, as to which subsection (II) below applies, Company shall prepay the Loans in an amount equal to the Net Cash Proceeds of such Asset Sale; provided however, that so long as no Event of Default or Potential Event of Default shall have occurred and be continuing, Company and its Subsidiaries shall not be required to apply the Net Cash Proceeds of any Asset Sale to the mandatory prepayment of the Loans pursuant to this subsection 2.4B(ii)(a)(I) to the extent that (A) such Net Cash Proceeds have been or will be reinvested in like assets or in other assets used in the business of Company and its Consolidated Subsidiaries within six months of such sale; provided that the aggregate amount of Net Cash Proceeds excluded from application to the mandatory prepayment of the Loans pursuant to this clause (A) does not exceed $5,000,000 in the aggregate, or (B) such Net Cash Proceeds are less than $1,000,000 or are proceeds from the sale of non-earning assets; provided that the aggregate amount of Net Cash Proceeds excluded from application to the mandatory prepayment of the Loans pursuant to this clause (B) does not exceed $5,000,000 in the aggregate. Concurrently with any prepayment of the Loans pursuant to this subsection 2.4B(ii)(a)(I), 3 Company shall deliver to Agent an Officers' Certificate demonstrating the derivation of the Net Cash Proceeds of the correlative Asset Sale from the gross sales price thereof. Any such mandatory prepayments shall be applied as specified in subsection 2.4B(iii)." (II) Prepayments from Asset Sales pursuant to the Alarm Services Contract Securitization Facility. No later than the second Business Day following the date of receipt by Company or any of its Subsidiaries of the Initial Alarm Receivables Net Cash Proceeds, Company shall prepay the Loans and the loans outstanding under the Existing Revolving Credit Agreement on a Pro Rata Basis in an aggregate amount equal to such Net Cash Proceeds; and no later than each April 20, July 20, October 20 and January 20 thereafter, Company shall prepay the Loans and the commitments under the Existing Revolving Credit Agreement shall be permanently reduced on a Pro Rata Basis in an aggregate amount equal to the Net Incremental Alarm Receivables Proceeds, if such amount is a positive number, for the Calculation Period ended as of the preceding March 25, June 25, September 25 and December 25, as the case may be. Concurrently with any prepayment of the Loans pursuant to this subsection 2.4B(ii)(a)(II), Company shall deliver to Agent a Notice of Prepayment and Commitment Reduction substantially in the form of Exhibit XIII annexed hereto. Any such mandatory prepayments shall be applied as specified in subsection 2.4B(iii)." (2) Subsection 2.4B(ii)(f) of the Credit Agreement is hereby amended by (i) deleting the reference to "2.5" contained therein and substituting "2.45" therefor and (ii) deleting the reference to "$160,000,000" contained therein and substituting "$149,000,000" therefor. 1.3 AMENDMENTS TO SECTION 6: COMPANY'S NEGATIVE COVENANTS. ------------------------------------------------------ A. CONTINGENT OBLIGATIONS. Subsection 6.4(xi) of the Credit Agreement is hereby amended by adding at the end thereof the following: "Contingent Obligations of Company's Consolidated Subsidiaries with respect to the Alarm Services Contract Securitization Facility; and" B. INTEREST COVERAGE RATIO. Subsection 6.6A of the Credit Agreement is hereby amended by deleting the table set forth therein in its entirety and substituting the following therefor: 4
MINIMUM "FISCAL QUARTER ENDED INTEREST COVERAGE RATIO --------------------- ----------------------- September 30, 1995 2.25:1.00 December 31, 1995 2.20:1.00 March 31, 1996 2.15:1.00 June 30, 1996 2.15:1.00 September 30, 1996 2.15:1.00 December 31, 1996 2.15:1.00 March 31, 1997 2.20:1.00 June 30, 1997 2.25:1.00 September 30, 1997 2.30:1.00 December 31, 1997 2.35:1.00 March 31, 1998 2.40:1.00 June 30, 1998 2.50:1.00 September 30, 1998 2.55:1.00 December 31, 1998 2.65:1.00" C. LEVERAGE RATIO. Subsection 6.6B of the Credit Agreement is hereby amended by deleting the table set forth therein in its entirety and substituting the following therefor: "FISCAL QUARTER ENDED MAXIMUM LEVERAGE RATIO --------------------- ---------------------- September 30, 1995 3.75:1.00 December 31, 1995 4.20:1.00 March 31, 1996 4.05:1.00 June 30, 1996 3.85:1.00 September 30, 1996 3.75:1.00 December 31, 1996 3.60:1.00 March 31, 1997 3.45:1.00 June 30, 1997 3.30:1.00 September 30, 1997 3.15:1.00 December 31, 1997 3.05:1.00 March 31, 1998 2.90:1.00 June 30, 1998 2.75:1.00 September 30, 1998 2.65:1.00 December 31, 1998 2.45:1.00"
D. CONSOLIDATED EBITDA. Subsection 6.6D of the Credit Agreement is hereby amended by deleting the table set forth therein in its entirety and substituting the following therefor: 5
MINIMUM CONSOLIDATED "FISCAL QUARTER ENDED EBITDA --------------------- -------------------- September 30, 1995 125,000,000 December 31, 1995 125,000,000 March 31, 1996 126,500,000 June 30, 1996 128,000,000 September 30, 1996 128,000,000 December 31, 1996 129,700,000 March 31, 1997 133,000,000 June 30, 1997 135,300,000 September 30, 1997 137,600,000 December 31, 1997 138,900,000 March 31, 1998 139,300,000 June 30, 1998 142,700,000 September 30, 1998 144,000,000 December 31, 1998 147,400,000"
E. RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES AND ACQUISITIONS. Subsection 6.7(iii) of the Credit Agreement is hereby amended by deleting clause (a) contained in the first proviso thereof in its entirety and substituting the following therefor: "(a) (1) such Asset Sale is pursuant to the Alarm Services Contract Securitization Facility or (2) such Asset Sale is made for the fair market value of such assets and for at least eighty-five percent (85%) cash, and" 1.4 AMENDMENTS TO SECTION 7: EVENTS OF DEFAULT. ------------------------------------------- A. RECEIVABLES FACILITIES. Subsection 7.14 of the Credit Agreement shall be amended by (1) deleting the word "or" at the end of clause (iv) thereof and (2) by adding a new clause (vi) at the end thereof as follows: "(vi) any condition or event shall occur which constitutes a Lessee Notice Event (as defined in the Alarm Services Contract Securitization Facility) under clause (iv) of Section 20.1 of the Alarm Services Contract Securitization Facility involving an amount in excess of $2,500,000; or any condition or event shall occur which constitutes an Event of Seller Default involving an amount in excess of $2,500,000 (as defined in the Security Agreement executed in connection with the Alarm Services Contract Securitization Facility)." 1.5 AMENDMENT OF EXHIBITS. --------------------- A. EXHIBIT IV: FORM OF COMPLIANCE CERTIFICATE. Exhibit IV to the Credit Agreement is hereby amended by: 6 (1) deleting each reference to "Attachment No. 1" contained therein and substituting "Attachments Nos. 1 and 2" therefor; and (2) adding thereto a new Attachment No. 2 in the form of Annex A to this Amendment. 1.6 ADDITION OF EXHIBITS. -------------------- A. EXHIBIT XIII: FORM OF NOTICE OF COMMITMENT REDUCTION AND PREPAYMENT. The Credit Agreement is hereby amended by adding thereto a new Exhibit XIII in the form of Annex B to this Amendment. SECTION 2. CONSENT A. ALARM SERVICES CONTRACT SECURITIZATION FACILITY. Each Lender executing this Amendment hereby consents to the terms and conditions of the Alarm Services Contract Securitization Facility substantially in the form annexed hereto as Annex C. B. AMENDMENT OF L/C AGREEMENT. Each Lender executing this Amendment hereby consents to the amendment of the L/C Agreement substantially in the form annexed hereto as Annex D. C. AMENDMENT OF EXISTING REVOLVING CREDIT FACILITY. Each Lender executing this Amendment hereby consents to the amendment of the Existing Revolving Credit Agreement substantially in the form annexed hereto as Annex E. SECTION 3. CONDITIONS TO EFFECTIVENESS Section 1 and Section 2 of this Amendment shall become effective only upon the satisfaction of all of the following conditions precedent (the date of satisfaction of such conditions being referred to herein as the "FIRST AMENDMENT EFFECTIVE DATE"): A. COMPANY DOCUMENTS. On or before the First Amendment Effective Date, Company shall deliver to Lenders (or to Agent for Lenders with sufficient originally executed copies, where appropriate, for each Lender) the following, each, unless otherwise noted, dated the First Amendment Effective Date: (i) Signature and incumbency certificates of its officers executing this Amendment; and 7 (ii) Copies of this Amendment, executed by Company and each of the Credit Support Parties. B. REQUISITE LENDER EXECUTION. On or before the First Amendment Effective Date, Requisite Lenders shall have delivered to Agent originally executed copies of this Amendment; provided however, that unless Lenders having or holding 90% of the sum of the aggregate Loan Exposure of all Lenders shall have delivered to Agent originally executed copies of this Amendment, Section 1.2A(2) of this Amendment shall not become effective. C. EXISTING L/C AGREEMENT. On or before the First Amendment Effective Date, corresponding consents and amendments shall have been obtained or made with respect to the Existing L/C Agreement. Such amendment shall be satisfactory in form and substance to Agent and Requisite Lenders. D. EXISTING REVOLVING CREDIT AGREEMENT. On or before the First Amendment Effective Date, corresponding consents and amendments shall have been obtained or made with respect to the Existing Revolving Credit Agreement. Such amendment shall be satisfactory in form and substance to Agent and Requisite Lenders. E. COMPLETION OF PROCEEDINGS. On or before the First Amendment Effective Date, all corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Agent, acting on behalf of Lenders, and its counsel shall be satisfactory in form and substance to Agent and such counsel, and Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as Agent may reasonably request. SECTION 4. COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, Company represents and warrants to each Lender that the following statements are true, correct and complete: A. CORPORATE POWER AND AUTHORITY. Company has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the "AMENDED AGREEMENT"). B. ACCOUNTING METHOD. The materials provided to Agent and Lenders in connection with this Amendment were prepared using accounting methods consistent with the accounting methods used to prepare Company's financial statements for its fiscal year ended December 31, 1995. 8 C. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action on the part of Company. D. NO CONFLICT. The execution and delivery by Company of this Amendment and the performance by Company of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Company or any of its Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of Company or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company or any of its Subsidiaries (other than any Liens created under any of the Loan Documents in favor of Collateral Agent on behalf of Lenders), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Company or any of its Subsidiaries. E. GOVERNMENTAL CONSENTS. The execution and delivery by Company of this Amendment and the performance by Company of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. F. BINDING OBLIGATION. This Amendment and the Amended Agreement have been duly executed and delivered by Company and are the legally valid and binding obligations of Company, enforceable against Company in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. G. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT. The representations and warranties contained in Section 4 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the First Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. H. ABSENCE OF DEFAULT. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default or a Potential Event of Default. 9 SECTION 5. ACKNOWLEDGEMENT AND CONSENT Company is a party to the Company Pledge Agreement, as amended through the First Amendment Effective Date, pursuant to which Company has pledged certain Collateral to Collateral Agent to secure the Obligations. Each of the Borg-Warner Pledged Subsidiaries is a party to the Borg-Warner Subsidiary Pledge Agreement, as amended through the First Amendment Effective Date, pursuant to which each such Borg-Warner Pledged Subsidiary has pledged certain Collateral to Collateral Agent to secure the Obligations. Each of the Borg-Warner Guarantor Subsidiaries is a party to the Borg-Warner Subsidiary Guaranty, as amended through the First Amendment Effective Date, pursuant to which each such Borg- Warner Guarantor Subsidiary has guarantied the Obligations. Company, Borg- Warner Pledged Subsidiaries and Borg-Warner Guarantor Subsidiaries are collectively referred to herein as the "CREDIT SUPPORT PARTIES," and the Company Pledge Agreement, the Borg-Warner Subsidiary Pledge Agreement and Borg-Warner Subsidiary Guaranty are collectively referred to herein as the "CREDIT SUPPORT DOCUMENTS." Each Credit Support Party hereby acknowledges that it has reviewed the terms and provisions of the Credit Agreement and this Amendment and consents to the amendment of the Credit Agreement effected pursuant to this Amendment. Each Credit Support Party hereby confirms that each Credit Support Document to which it is a party or otherwise bound and all Collateral encumbered thereby will continue to guaranty or secure, as the case may be, to the fullest extent possible the payment and performance of all "Obligations," "Guarantied Obligations" and "Secured Obligations," as the case may be (in each case as such terms are defined in the applicable Credit Support Document), including without limitation the payment and performance of all such "Obligations," "Guarantied Obligations" or "Secured Obligations," as the case may be, in respect of the Obligations of Company now or hereafter existing under or in respect of the Amended Agreement and the Notes defined therein. Each Credit Support Party acknowledges and agrees that any of the Credit Support Documents to which it is a party or otherwise bound shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or limited by the execution or effectiveness of this Amendment. Each Credit Support Party represents and warrants that all representations and warranties contained in the Amended Agreement and the Credit Support Documents to which it is a party or otherwise bound are true, correct and complete in all material respects on and as of the First Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. 10 Each Credit Support Party (other than Company) acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Amendment, such Credit Support Party is not required by the terms of the Credit Agreement or any other Loan Document to consent to the amendments to the Credit Agreement effected pursuant to this Amendment and (ii) nothing in the Credit Agreement, this Amendment or any other Loan Document shall be deemed to require the consent of such Credit Support Party to any future amendments to the Credit Agreement. SECTION 6. MISCELLANEOUS A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS. (1) On and after the First Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. (2) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (3) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of Agent or any Lender under, the Credit Agreement or any of the other Loan Documents. B. FEES AND EXPENSES. Company acknowledges that all costs, fees and expenses as described in subsection 9.2 of the Credit Agreement incurred by Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Company. C. HEADINGS. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. 11 E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Amendment (other than the provisions of Section 1 and Section 2 hereof, the effectiveness of which is governed by Section 3 hereof) shall become effective upon the execution of a counterpart hereof by Company, Requisite Lenders and each of the Credit Support Parties and receipt by Company and Agent of written or telephonic notification of such execution and authorization of delivery thereof. [Remainder of page intentionally left blank] 12 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. BORG-WARNER SECURITY CORPORATION By: ---------------------------------- Title: -------------------------------- WELLS FARGO ALARM SERVICES, INC. (for purposes of Section 5 only) as a Credit Support Party By: ---------------------------------- Title: -------------------------------- WELLS FARGO ARMORED SERVICE CORPORATION (for purposes of Section 5 only) as a Credit Support Party By: ---------------------------------- Title: -------------------------------- BW-CANADIAN GUARD CORPORATION (for purposes of Section 5 only) as a Credit Support Party By: ---------------------------------- Title: -------------------------------- S-1 BORG-WARNER PROTECTIVE SERVICES CORPORATION (for purposes of Section 5 only) as a Credit Support Party By: ----------------------------------- Title: -------------------------------- PONY EXPRESS COURIER CORP. (for purposes of Section 5 only) as a Credit Support Party By: ----------------------------------- Title: -------------------------------- S-2 BANKERS TRUST COMPANY, INDIVIDUALLY AND AS AGENT By: ------------------------------- Title: ---------------------------- S-3 NATIONSBANK, N.A., INDIVIDUALLY AND AS DOCUMENTATION AGENT By: ------------------------------------ Title: --------------------------------- S-4 CIBC INC. By: ------------------------------------ Title: --------------------------------- S-5 THE LONG-TERM CREDIT BANK OF JAPAN, LTD. By: ------------------------------------ Title: --------------------------------- S-6 TORONTO DOMINION (TEXAS), INC. By: ------------------------------------ Title: --------------------------------- S-7 CAISSE NATIONALE DE CREDIT AGRICOLE By: ------------------------------------ Title: --------------------------------- S-8 THE FUJI BANK, LIMITED By: ------------------------------------ Title: --------------------------------- S-9 BANK OF HAWAII By: ------------------------------------ Title: --------------------------------- S-10 PRIME INCOME TRUST By: ------------------------------------ Title: --------------------------------- S-11 EX-4.2 3 FOURTH AMENDMENT TO CREDIT AGREEMENT AND CONSENT EXHIBIT 4.2 BORG-WARNER SECURITY CORPORATION FOURTH AMENDMENT TO CREDIT AGREEMENT AND CONSENT This FOURTH AMENDMENT TO CREDIT AGREEMENT AND CONSENT (this "AMENDMENT") is dated as of March 14, 1996 and entered into by and among BORG- WARNER SECURITY CORPORATION, a Delaware corporation ("COMPANY"), the financial institutions listed on the signature pages hereof ("LENDERS"), BANK OF AMERICA ILLINOIS, THE BANK OF NEW YORK and THE BANK OF NOVA SCOTIA, as Lead Managers, BANKERS TRUST COMPANY, CIBC INC. and NATIONSBANK, N.A., as Co-Agents, and BANKERS TRUST COMPANY, as Administrative Agent for Lenders (in such capacity, "ADMINISTRATIVE AGENT"), and, for purposes of Section 5 hereof, the Credit Support Parties (as defined in Section 5 hereof) listed on the signature pages hereof, and is made with reference to that certain Credit Agreement dated as of January 27, 1993 by and among Company, Lenders, Lead Managers, Co-Agent and Administrative Agent, as amended to the date hereof (as so amended, the "CREDIT AGREEMENT"). Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, Company and Lenders desire to amend the Credit Agreement by (i) amending the mandatory prepayment provisions thereof, (ii) amending certain of the financial covenants contained therein and (iii) making certain other amendments as set forth below; WHEREAS, Company has requested that Lenders consent to the terms and conditions of the Alarm Services Contract Securitization Facility; and WHEREAS, subject to the terms and conditions of this Amendment, Lenders are willing to agree to such amendments and to consent to such terms and conditions; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT 1.1 AMENDMENTS TO SECTION 1: DEFINITIONS. ------------------------------------ A. Subsection 1.1 of the Credit Agreement is hereby amended by adding thereto the following definitions, which shall be inserted in proper alphabetical order: 1 "'CALCULATION PERIOD' means the three month period commencing on each March 26, June 26, September 26 and December 26 and concluding on the succeeding June 25, September 25, December 25 and March 25, respectively; provided however, that the initial Calculation Period shall commence on the date following the date of receipt by Company or any of its Subsidiaries of the Initial Alarm Receivables Net Cash Proceeds and shall conclude on the succeeding June 25, September 25, December 25 or March 25, as the case may be. 'FOURTH AMENDMENT' means that certain Fourth Amendment to Credit Agreement and Consent dated as of March 14, 1996 by and among Company, Lenders, Lead Managers, Co-Agent and Administrative Agent. 'INITIAL ALARM RECEIVABLES NET CASH PROCEEDS' means the Net Cash Proceeds received by Company or any of its Subsidiaries pursuant to the Alarm Services Contract Securitization Facility on the date upon which the Alarm Services Contract Securitization Facility becomes effective and the initial purchase of receivables, contracts and/or leases is made thereunder. 'NET INCREMENTAL ALARM RECEIVABLES PROCEEDS' means, for any Calculation Period, the sum of (i) the Purchase Amounts for Equipment Payment Rights under Equipment Leases paid to Wells Fargo Alarm Services, Inc. ("Alarm") by the purchaser thereof during such Calculation Period less (ii) any Repurchase or Recourse Amounts paid by Alarm to the purchaser thereof during such Calculation Period less (iii) payments received by such purchaser during such Calculation Period with respect to all Equipment Payment Rights sold to such purchaser since the date of commencement of the Alarm Services Contract Securitization Facility, all as determined by reference to, and as such capitalized terms are defined in, the Alarm Services Contract Securitization Facility. 'PRO RATA BASIS' means, with respect to the Term Loan Facility, the percentage which the loan exposure of all lenders under the Term Loan Facility represents of the sum of (i) the loan exposure of all lenders under the Term Loan Facility plus (ii) the Commitments of all Lenders under this Agreement, and with respect to this Agreement, the percentage which the Commitments of all Lenders under this Agreement represents of the sum of (i) the loan exposure of all lenders under the Term Loan Facility plus (ii) the Commitments of all Lenders under this Agreement." B. Subsection 1.1 of the Credit Agreement is hereby further amended by deleting clause (iii) of the definition of "Consolidated Excess Cash Flow" in its entirety and by substituting the following therefor: 2 "(iii) to the extent such amounts have been included in the foregoing clauses (x) and (y), amounts equal to the sum of (1) Net Cash Proceeds of Asset Sales applied to the prepayment of loans pursuant to subsection 2.4B(ii)(a)(I) of the Term Loan Facility or to the prepayment of Loans pursuant to subsection 2.4A(ii)(a)(I) of this Agreement, (2) Net Cash Proceeds of Asset Sales pursuant to the Alarm Services Contract Securitization Facility whether or not applied to the prepayment of loans pursuant to subsection 2.4B(ii)(a)(II) of the Term Loan Facility or to the prepayment of Loans pursuant to subsection 2.4A(ii)(a)(II) of this Agreement and (3) Net Reversion Amounts applied to the prepayment of loans pursuant to subsection 2.4B(ii)(b) of the Term Loan Facility or to the prepayment of Loans pursuant to subsection 2.4A(ii)(c) of this Agreement." 1.2 AMENDMENTS TO SECTION 2: AMOUNTS AND TERMS OF COMMITMENTS AND ------------------------------------------------------------- LOANS. - ----- A. MANDATORY PREPAYMENTS. (1) Subsection 2.4A(ii)(a) of the Credit Agreement is hereby amended by deleting it in its entirety and substituting the following therefor: "(ii) Mandatory Prepayments. --------------------- (a) (I) Prepayments from Asset Sales. Subject to subsection (II) below, after the payment in full of the Term Loan Facility or in the event that any prepayment otherwise payable to the lenders under the Term Loan Facility is waived by the lenders under the Term Loan Facility, no later than the second Business Day following the date of receipt by Company or any of its Subsidiaries of the cash proceeds of any Asset Sale other than any Cash Proceeds arising as a result of Asset Sales pursuant to the Alarm Services Contract Securitization Facility, as to which subsection (II) below applies, Company shall prepay the Loans in an amount equal to the Net Cash Proceeds of such Asset Sale; provided however, that so long as no Event of Default or Potential Event of Default shall have occurred and be continuing, Company and its Subsidiaries shall not be required to apply the Net Cash Proceeds of any Asset Sale to the mandatory prepayment of the Loans pursuant to this subsection 2.4A(ii)(a)(I) to the extent that (A) such Net Cash Proceeds have been or will be reinvested in like assets or in other assets used in the business of Company and its Consolidated Subsidiaries within six months of such sale; provided that the aggregate amount of Net Cash Proceeds excluded from application to the mandatory prepayment of the Loans pursuant to this clause (A) does not exceed $5,000,000 in the aggregate, or (B) such Net Cash Proceeds are less than $1,000,000 or are proceeds from the sale of non- 3 earning assets; provided that the aggregate amount of Net Cash Proceeds excluded from application to the mandatory prepayment of the Loans pursuant to this clause (B) does not exceed $5,000,000 in the aggregate. Concurrently with any prepayment of the Loans pursuant to this subsection 2.4A(ii)(a)(I), Company shall deliver to Administrative Agent an Officers' Certificate demonstrating the derivation of the Net Cash Proceeds of the correlative Asset Sale from the gross sales price thereof. Any such mandatory prepayments shall be applied as specified in subsection 2.4A(iii). (II) Prepayments from Asset Sales pursuant to the Alarm Services Contract Securitization Facility. (x) No later than the second Business Day following the date of receipt by Company or any of its Subsidiaries of the Initial Alarm Receivables Net Cash Proceeds, Company shall prepay the Loans and the loans outstanding under the Term Loan Facility on a Pro Rata Basis in an aggregate amount equal to such Net Cash Proceeds; and (y) no later than the second Business Day following the date of receipt by Company or any of its Subsidiaries of Net Cash Proceeds arising as a result of subsequent Asset Sales pursuant to the Alarm Services Contract Securitization Facility, Company shall prepay the Loans in an amount equal to the Net Cash Proceeds of such Asset Sales. Concurrently with any prepayment of the Loans pursuant to the foregoing clause (x) and concurrently with any Commitment reduction pursuant to subsection 2.4G(i)(b), Company shall deliver to Administrative Agent a Notice of Prepayment and Commitment Reduction substantially in the form of Exhibit XVI annexed hereto. Any such mandatory prepayments shall be applied as specified in subsection 2.4A(iii)." (2) Subsection 2.4A(ii)(d) of the Credit Agreement is hereby amended by deleting the reference to "2.4G(ii) and (iii)" contained therein and substituting "2.4G(i)(b), (ii) and (iii)" therefor. (3) Subsection 2.4G of the Credit Agreement is hereby amended by deleting clause (i) thereof in its entirety and substituting the following therefor: "(i)(a) on the date any prepayment of Loans is made or is required to be made pursuant to subsections 2.4A(ii)(a)(I), 2.4A(ii)(a)(II)(x) and 2.4A(ii)(c) by an amount equal to the amount of such prepayment, and (b) on each April 20, July 20, October 20 and January 20 by an amount equal to the Lenders' Pro Rata Basis of the Net Incremental Alarm Receivables Proceeds, if such amount is a positive number, for the Calculation Period ended as of the preceding March 25, June 25, September 25 and December 25, as the case may be." 4 1.3 AMENDMENTS TO SECTION 6: COMPANY'S NEGATIVE COVENANTS. ------------------------------------------------------ A. CONTINGENT OBLIGATIONS. Subsection 6.4(xii) of the Credit Agreement is hereby amended by deleting the period at the end thereof and substituting the following therefor: "; and Contingent Obligations of Company's Consolidated Subsidiaries with respect to the Alarm Services Contract Securitization Facility." B. INTEREST COVERAGE RATIO. Subsection 6.6A of the Credit Agreement is hereby amended by deleting the table set forth therein in its entirety and substituting the following therefor:
MINIMUM "FISCAL QUARTER ENDED INTEREST COVERAGE RATIO --------------------- ----------------------- September 30, 1995 2.25:1.00 December 31, 1995 2.20:1.00 March 31, 1996 2.15:1.00 June 30, 1996 2.15:1.00 September 30, 1996 2.15:1.00 December 31, 1996 2.15:1.00 March 31, 1997 2.20:1.00 June 30, 1997 2.25:1.00 September 30, 1997 2.30:1.00 December 31, 1997 2.35:1.00 March 31, 1998 2.40:1.00 June 30, 1998 2.50:1.00 September 30, 1998 2.55:1.00 December 31, 1998 2.65:1.00 March 31, 1999 2.70:1.00 June 30, 1999 2.70:1.00"
C. LEVERAGE RATIO. Subsection 6.6B of the Credit Agreement is hereby amended by deleting the table set forth therein in its entirety and substituting the following therefor: 5 "FISCAL QUARTER ENDED MAXIMUM LEVERAGE RATIO --------------------- ---------------------- September 30, 1995 3.75:1.00 December 31, 1995 4.20:1.00 March 31, 1996 4.05:1.00 June 30, 1996 3.85:1.00 September 30, 1996 3.75:1.00 December 31, 1996 3.60:1.00 March 31, 1997 3.45:1.00 June 30, 1997 3.30:1.00 September 30, 1997 3.15:1.00 December 31, 1997 3.05:1.00 March 31, 1998 2.90:1.00 June 30, 1998 2.75:1.00 September 30, 1998 2.65:1.00 December 31, 1998 2.45:1.00 March 31, 1999 2.35:1.00 June 30, 1999 2.25:1.00" D. CONSOLIDATED EBITDA. Subsection 6.6D of the Credit Agreement is hereby amended by deleting the table set forth therein in its entirety and substituting the following therefor: "FISCAL QUARTER ENDED MINIMUM CONSOLIDATED EBITDA --------------------- --------------------------- September 30, 1995 $125,000,000 December 31, 1995 125,000,000 March 31, 1996 126,500,000 June 30, 1996 128,000,000 September 30, 1996 128,000,000 December 31, 1996 129,700,000 March 31, 1997 133,000,000 June 30, 1997 135,300,000 September 30, 1997 137,600,000 December 31, 1997 138,900,000 March 31, 1998 139,300,000 June 30, 1998 142,700,000 September 30, 1998 144,000,000 December 31, 1998 147,400,000 March 31, 1999 152,000,000 June 30, 1999 154,000,000" E. RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES AND ACQUISITIONS. Subsection 6.7(v) of the Credit Agreement is hereby amended by 6 deleting clause (a) contained in the first proviso thereof in its entirety and substituting the following therefor: "(a) (1) such Asset Sale is pursuant to the Alarm Services Contract Securitization Facility or (2) such Asset Sale is made for the fair market value of such assets and for at least eighty-five percent (85%) cash, and" 1.4 AMENDMENTS TO SECTION 7: EVENTS OF DEFAULT. ------------------------------------------- A. RECEIVABLES FACILITIES. Concurrently with the repayment in full of the Senior Notes, subsection 7.14 of the Credit Agreement shall be amended by (1) deleting the word "or" at the end of clause (iv) thereof and (2) by adding a new clause (vi) at the end thereof as follows: "(vi) any condition or event shall occur which constitutes a Lessee Notice Event (as defined in the Alarm Services Contract Securitization Facility) under clause (iv) of Section 20.1 of the Alarm Services Contract Securitization Facility involving an amount in excess of $2,500,000; or any condition or event shall occur which constitutes an Event of Seller Default involving an amount in excess of $2,500,000 (as defined in the Security Agreement executed in connection with the Alarm Services Contract Securitization Facility)." 1.5 AMENDMENT OF EXHIBITS. --------------------- A. EXHIBIT IV: FORM OF COMPLIANCE CERTIFICATE. Exhibit IV to the Credit Agreement is hereby amended by: (1) deleting each reference to "Attachment No. 1" contained therein and substituting "Attachments Nos. 1 and 2" therefor; and (2) adding thereto a new Attachment No. 2 in the form of Annex A to this Amendment. 1.6 ADDITION OF EXHIBITS. -------------------- A. EXHIBIT XVI: FORM OF NOTICE OF COMMITMENT REDUCTION AND PREPAYMENT. The Credit Agreement is hereby amended by adding thereto a new Exhibit XIII in the form of Annex B to this Amendment. SECTION 2. CONSENT A. ALARM SERVICES CONTRACT SECURITIZATION FACILITY. Each Lender executing this Amendment hereby consents to the terms and conditions of the Alarm Services Contract Securitization Facility substantially in the form annexed hereto as Annex C. 7 B. AMENDMENT OF L/C AGREEMENT. Each Lender executing this Amendment hereby consents to the amendment of the L/C Agreement substantially in the form annexed hereto as Annex D. C. AMENDMENT OF TERM LOAN FACILITY. Each Lender executing this Amendment hereby consents to the amendment of the Term Loan Facility substantially in the form annexed hereto as Annex E. SECTION 3. CONDITIONS TO EFFECTIVENESS Section 1 and Section 2 of this Amendment shall become effective only upon the satisfaction of all of the following conditions precedent (the date of satisfaction of such conditions being referred to herein as the "FOURTH AMENDMENT EFFECTIVE DATE"): A. COMPANY DOCUMENTS. On or before the Fourth Amendment Effective Date, Company shall deliver to Lenders (or to Administrative Agent for Lenders with sufficient originally executed copies, where appropriate, for each Lender) the following, each, unless otherwise noted, dated the Fourth Amendment Effective Date: (i) Signature and incumbency certificates of its officers executing this Amendment; and (ii) Copies of this Amendment, executed by Company and each of the Credit Support Parties. B. REQUISITE LENDER EXECUTION. On or before the Fourth Amendment Effective Date, Requisite Lenders shall have delivered to Administrative Agent originally executed copies of this Amendment. C. EXISTING L/C AGREEMENT. On or before the Fourth Amendment Effective Date, corresponding consents and amendments shall have been obtained or made with respect to the Existing L/C Agreement. Such amendment shall be satisfactory in form and substance to Administrative Agent and Requisite Lenders. D. TERM LOAN FACILITY. On or before the Fourth Amendment Effective Date, corresponding consents and amendments shall have been obtained or made with respect to the Term Loan Facility. Such amendment shall be satisfactory in form and substance to Administrative Agent and Requisite Lenders. E. COMPLETION OF PROCEEDINGS. On or before the Fourth Amendment Effective Date, all corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental 8 thereto not previously found acceptable by Administrative Agent, acting on behalf of Lenders, and its counsel shall be satisfactory in form and substance to Administrative Agent and such counsel, and Administrative Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as Administrative Agent may reasonably request. SECTION 4. COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, Company represents and warrants to each Lender that the following statements are true, correct and complete: A. CORPORATE POWER AND AUTHORITY. Company has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the "AMENDED AGREEMENT"). B. ACCOUNTING METHOD. The materials provided to Administrative Agent and Lenders in connection with this Amendment were prepared using accounting methods consistent with the accounting methods used to prepare Company's financial statements for its fiscal year ended December 31, 1995. C. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action on the part of Company. D. NO CONFLICT. The execution and delivery by Company of this Amendment and the performance by Company of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Company or any of its Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of Company or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company or any of its Subsidiaries (other than any Liens created under any of the Loan Documents in favor of Collateral Agent on behalf of Lenders), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Company or any of its Subsidiaries. E. GOVERNMENTAL CONSENTS. The execution and delivery by Company of this Amendment and the performance by Company of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or 9 other action to, with or by, any federal, state or other governmental authority or regulatory body. F. BINDING OBLIGATION. This Amendment and the Amended Agreement have been duly executed and delivered by Company and are the legally valid and binding obligations of Company, enforceable against Company in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. G. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT. The representations and warranties contained in Section 4 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the Fourth Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. H. ABSENCE OF DEFAULT. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default or a Potential Event of Default. SECTION 5. ACKNOWLEDGEMENT AND CONSENT Company is a party to the Company Pledge Agreement, as amended through the Fourth Amendment Effective Date, pursuant to which Company has pledged certain Collateral to Collateral Agent to secure the Obligations. Each of the Borg-Warner Pledged Subsidiaries is a party to the Borg-Warner Subsidiary Pledge Agreement, as amended through the Fourth Amendment Effective Date, pursuant to which each such Borg-Warner Pledged Subsidiary has pledged certain Collateral to Collateral Agent to secure the Obligations. Each of the Borg-Warner Guarantor Subsidiaries is a party to the Borg-Warner Subsidiary Guaranty, as amended through the Fourth Amendment Effective Date, pursuant to which each such Borg- Warner Guarantor Subsidiary has guarantied the Obligations. Company, Borg-Warner Pledged Subsidiaries and Borg-Warner Guarantor Subsidiaries are collectively referred to herein as the "CREDIT SUPPORT PARTIES," and the Company Pledge Agreement, the Borg-Warner Subsidiary Pledge Agreement and Borg-Warner Subsidiary Guaranty are collectively referred to herein as the "CREDIT SUPPORT DOCUMENTS." Each Credit Support Party hereby acknowledges that it has reviewed the terms and provisions of the Credit Agreement and this Amendment and consents to the amendment of the Credit Agreement effected pursuant to this Amendment. Each 10 Credit Support Party hereby confirms that each Credit Support Document to which it is a party or otherwise bound and all Collateral encumbered thereby will continue to guaranty or secure, as the case may be, to the fullest extent possible the payment and performance of all "Obligations," "Guarantied Obligations" and "Secured Obligations," as the case may be (in each case as such terms are defined in the applicable Credit Support Document), including without limitation the payment and performance of all such "Obligations," "Guarantied Obligations" or "Secured Obligations," as the case may be, in respect of the Obligations of Company now or hereafter existing under or in respect of the Amended Agreement and the Notes defined therein. Each Credit Support Party acknowledges and agrees that any of the Credit Support Documents to which it is a party or otherwise bound shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or limited by the execution or effectiveness of this Amendment. Each Credit Support Party represents and warrants that all representations and warranties contained in the Amended Agreement and the Credit Support Documents to which it is a party or otherwise bound are true, correct and complete in all material respects on and as of the Fourth Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. Each Credit Support Party (other than Company) acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Amendment, such Credit Support Party is not required by the terms of the Credit Agreement or any other Loan Document to consent to the amendments to the Credit Agreement effected pursuant to this Amendment and (ii) nothing in the Credit Agreement, this Amendment or any other Loan Document shall be deemed to require the consent of such Credit Support Party to any future amendments to the Credit Agreement. SECTION 6. MISCELLANEOUS A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS. (1) On and after the Fourth Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. 11 (2) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (3) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of Administrative Agent or any Lender under, the Credit Agreement or any of the other Loan Documents. B. FEES AND EXPENSES. Company acknowledges that all costs, fees and expenses as described in subsection 9.3 of the Credit Agreement incurred by Administrative Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Company. C. HEADINGS. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Amendment (other than the provisions of Section 1 and Section 2 hereof, the effectiveness of which is governed by Section 3 hereof) shall become effective upon the execution of a counterpart hereof by Company, Requisite Lenders and each of the Credit Support Parties and receipt by Company and Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof. [Remainder of page intentionally left blank] 12 EX-4.3 4 AMENDMENT NO. 8 TO CREDIT AGREEMENT AND CONSENT EXHIBIT 4.3 AMENDMENT NO. 8 This AMENDMENT NO. 8 (this "Amendment") is dated as of March 14, 1996 and entered into by and among BORG-WARNER SECURITY CORPORATION, a Delaware corporation (the "Company"), the financial institutions listed on the signature pages hereof (the "Banks") and THE LONG-TERM CREDIT BANK OF JAPAN, LTD., as Agent for the Banks (the "Agent") and, for purposes of Section 5 hereof, the Credit Support Parties (as defined in Section 5 hereof) listed on the signature pages hereof, and is made with reference to that certain Credit Agreement dated as of January 27, 1993, as amended as of November 2, 1993, January 24, 1994, June 30, 1994, December 14, 1994, March 15, 1995, October 16, 1995 and December 18, 1995 (as so amended, the "Credit Agreement"), by and among the Company, the Banks and the Agent. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, the Company and the Banks wish to amend the Credit Agreement by (i) amending certain of the financial covenants contained therein and (ii) making certain other amendments as set forth below; and WHEREAS, the Company has requested that the Banks consent to the terms and conditions of the Alarm Services Contract Securitization Facility; and WHEREAS, subject to the terms and conditions of this Amendment, the Banks are willing to agree to such amendments and to consent to such terms and conditions; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENTS 1.1 Amendments to Section 6: Company's Negative Covenants. (a) Contingent Obligations. Section 6.4 (xii) of the Credit Agreement is hereby amended by deleting the period at the end thereof and substituting the following therefor: "; and Contingent Obligations of the Company's Consolidated Subsidiaries with respect to the Alarm Services Contract Securitization Facility." (b) Interest Coverage Ratio. Section 6.6.a of the Credit Agreement is hereby amended by deleting the table set forth therein in its entirety and substituting the following therefor:
Minimum "Fiscal Quarter Ended Interest Coverage Ratio -------------------- ----------------------- September 30, 1995 2.25:1.00 December 31, 1995 2.20:1.00 March 31, 1996 2.15:1.00 June 30, 1996 2.15:1.00 September 30, 1996 2.15:1.00 December 31, 1996 2.15:1.00 March 31, 1997 2.20:1.00 June 30, 1997 2.25:1.00 September 30, 1997 2.30:1.00 December 31, 1997 2.35:1.00 March 31, 1998 2.40:1.00 June 30, 1998 2.50:1.00 September 30, 1998 2.55:1.00 December 31, 1998 2.65:1.00"
(c) Leverage Ratio. Section 6.6.B of the Credit Agreement is hereby amended by deleting the table set forth therein in its entirety and substituting the following therefor:
"Fiscal Quarter Ended Maximum Leverage Ratio --------------------- ---------------------- September 30, 1995 3.75:1.00 December 31, 1995 4.20:1.00 March 31, 1996 4.05:1.00 June 30, 1996 3.85:1.00 September 30, 1996 3.75:1.00 December 31, 1996 3.60:1.00 March 31, 1997 3.45:1.00 June 30, 1997 3.30:1.00 September 30, 1997 3.15:1.00 December 31, 1997 3.05:1.00 March 31, 1998 2.90:1.00 June 30, 1998 2.75:1.00 September 30, 1998 2.65:1.00 December 31, 1998 2.45:1.00"
(d) Consolidated EBITDA. Section 6.6.D of the Credit Agreement is hereby amended by deleting the table set forth therein in its entirety and substituting the following therefor: -2-
MAXIMUM CONSOLIDATED "FISCAL QUARTER ENDED EBITDA --------------------- -------------------- September 30, 1995 $125,000,000 December 31, 1995 $125,000,000 March 31, 1996 $126,500,000 June 30, 1996 $128,000,000 September 30, 1996 $128,000,000 December 31, 1996 $129,700,000 March 31, 1997 $133,000,000 June 30, 1997 $135,300,000 September 30, 1997 $137,600,000 December 31, 1997 $138,900,000 March 31, 1998 $139,300,000 June 30, 1998 $142,700,000 September 30, 1998 $144,000,000 December 31, 1998 $147,400,000"
(e) Restriction on Fundamental Changes; Asset Sales and Acquisitions. Section 6.7(v) of the Credit Agreement is hereby amended by deleting clause (a) contained in the first proviso thereof in its entirety and substituting the following therefor: "(a)(1) such Asset Sale is pursuant to the Alarm Services Contract Securitization Facility or (2) such Asset Sale is made for the fair market value of such assets and for at least eighty-five percent (85%) cash, and". 1.2 Amendments to Section 7: Events of Default. (a) Receivables Facilities. Concurrently with the repayment in full of the Senior Notes, Section 7.14 of the Credit Agreement shall be amended by (1) deleting the word "or" at the end of clause (iv) thereof and (2) by adding a new clause (vi) at the end thereof as follows: "(vi) any condition or event shall occur which constitutes a Lessee Notice Event (as defined in the Alarm Services Contract Securitization Facility) under clause (iv) of Section 20.1 of the Alarm Services Contract Securitization Facility involving an amount in excess of $2,500,000; or any condition or event shall occur which constitutes an Event of Seller Default involving an amount in excess of $2,500,000 (as defined in the Security Agreement executed in connection with the Alarm Services Contract Securitization Facility)." SECTION 2. CONSENT (a) Alarm Services Contract Securitization Facility. Each Bank executing this Amendment hereby consents to the terms and -3- conditions of the Alarm Services Contract Securitization Facility substantially in the form annexed hereto as Annex A. (b) Amendment of Term Loan Facility. Each Bank executing this Amendment hereby consents to the amendment of the Term Loan Facility substantially in the form annexed hereto as Annex B. (c) Amendment of BT Credit Facility. Each Bank executing this Amendment hereby consents to the Amendment of the BT Credit Agreement substantially in the form annexed hereto as Annex C. SECTION 3. CONDITIONS TO EFFECTIVENESS Section 1 and Section 2 of this Amendment shall become effective only upon the satisfaction of all of the following conditions precedent (the date of satisfaction of such conditions being referred to herein as the "Amendment Effective Date"): (a) Company Documents. On or before the Amendment Effective Date, the Company shall deliver to the Banks (or to the Agent with sufficient originally executed copies, where appropriate, for each Bank) the following, each, unless otherwise noted, dated the Amendment Effective Date: (1) Signature and incumbency certificates of its officers executing this Amendment; and (2) Copies of this Amendment, executed by the Company and each of the Credit Support Parties. (b) Banks Execution. On or before the Amendment Effective Date, the Required Banks shall have delivered to the Agent originally executed copies of this Amendment. (c) Term Loan Facility. On or before the Amendment Effective Date, corresponding consents and amendments shall have been obtained or made with respect to the Term Loan Facility. Such amendment shall be satisfactory in form and substance to the Agent and the Required Banks. (d) BT Credit Agreement. On or before the Amendment Effective Date, corresponding consents and amendments shall have been obtained or made with respect to the BT Credit Agreement. Such amendment shall be satisfactory in form and substance to the Agent and the Required Banks. (e) Completion of Proceedings. On or before the Amendment Effective Date, all corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by the Agent, acting on behalf of the Banks, and its -4- counsel shall be satisfactory in form and substance to the Agent and such counsel, and the Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as the Agent may reasonably request. SECTION 4. COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce the Agent and the Banks to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, the Company represents and warrants to the Agent and each Bank that the following statements are true, correct and complete: (a) Corporate Power and Authority. The Company has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the "Amended Agreement"). (b) Accounting Method. The materials provided to the Agent and the Banks in connection with this Amendment were prepared using accounting methods consistent with the accounting methods used to prepare the Company's financial statements for its fiscal year ended December 31, 1995. (c) Authorization of Agreements. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action on the part of the Company. (d) No Conflict. The execution and delivery by the Company of this Amendment and the performance by the Company of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to the Company or any of its Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of the Company or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on the Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of the Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries (other than any Liens created under any of the Credit Documents in favor of the Collateral Agent on behalf of the Banks), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of the Company or any of its Subsidiaries. -5- (e) Governmental Consents. The execution and delivery by the Company of this Amendment and the performance by the Company of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. (f) Binding Obligation. This Amendment and the Amended Agreement have been duly executed and delivered by the Company and are the legally valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. (g) Incorporation of Representations and Warranties From Credit Agreement. The representations and warranties contained in Article IV of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. (h) Absence of Default. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute a Default or an Unmatured Default. SECTION 5. ACKNOWLEDGEMENT AND CONSENT The Company is a party to the Company Pledge Agreement, as amended through the Amendment Effective Date, pursuant to which the Company has pledged certain Collateral to the Collateral Agent to secure the Obligations. Each of the Borg- Warner Pledged Subsidiaries is a party to the Borg-Warner Subsidiary Pledge Agreement, as amended through the Amendment Effective Date, pursuant to which each such Borg-Warner Pledged Subsidiary has pledged certain Collateral to the Collateral Agent to secure the Obligations. Each of the Borg-Warner Guarantor Subsidiaries is a party to the Borg-Warner Subsidiary Guaranty, as amended through the Amendment Effective Date, pursuant to which each such Borg-Warner Guarantor Subsidiary has guarantied the Obligations. The Company, the Borg- Warner Pledged Subsidiaries and the Borg-Warner Guarantor Subsidiaries are collectively referred to herein as the "Credit Support Parties", and the Company Pledge Agreement, the Borg-Warner Subsidiary Pledge Agreement, and the Borg- Warner Subsidiary Guaranty are -6- collectively referred to herein as the "Credit Support Documents". Each Credit Support Party hereby acknowledges that it has reviewed the terms and provisions of the Credit Agreement and this Amendment and consents to the amendment of the Credit Agreement effected pursuant to this Amendment. Each Credit Support Party hereby confirms that each Credit Support Document to which it is a party or otherwise bound and all Collateral encumbered thereby will continue to guaranty or secure, as the case may be, to the fullest extent possible the payment and performance of all "Obligations", "Guarantied Obligations" and "Secured Obligations", as the case may be (in each case as such terms are defined in the applicable Credit Support Document), including without limitation the payment and performance of all such "Obligations", "Guarantied Obligations" or "Secured Obligations", as the case may be, in respect of the Obligations of the Company now or hereafter existing under or in respect of the Amended Agreement. Each Credit Support Party acknowledges and agrees that any of the Credit Support Documents to which it is party or otherwise bound shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or limited by the execution or effectiveness of this Amendment. Each Credit Support Party represents and warrants that all representations and warranties contained in the Amended Agreement and the Credit Support Documents to which it is a party or otherwise bound are true, correct and complete in all material respects on and as of the Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. Each Credit Support Party (other than the Company) acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Amendment, such Credit Support Party is not required by the terms of the Credit Agreement or any other Credit Document to consent to the amendments to the Credit Agreement effected pursuant to this Amendment and (ii) nothing in the Credit Agreement, this Amendment or any other Credit Document shall be deemed to require the consent of such Credit Support Party to any future amendments to the Credit Agreement. -7- SECTION 6. MISCELLANEOUS (a) Reference to and Effect on the Credit Agreement and the other Credit Documents. (1) On and after the Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Credit Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. (2) Except as specifically amended by this Amendment, the Credit Agreement and the other Credit Documents shall remain in full force and effect and are hereby ratified and confirmed. (3) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of the Agent or any Bank under, the Credit Agreement or any of the other Credit Documents. (b) Fees and Expenses. The Company acknowledges that all costs, fees and expenses as described in Section 9.9 of the Credit Agreement incurred by the Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of the Company. (c) Headings. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. (d) Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. (e) Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Amendment (other than the provisions of Section 1 and -8- Section 2 hereof, the effectiveness of which is governed by Section 3 hereof) shall become effective upon the execution of a counterpart hereof by the Company, the Required Banks and each of the Credit Support Parties and receipt by the Company and the Agent of written or telephonic notification of such execution and authorization of delivery thereof. [Signature pages follow] -9- EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 16 0 105 7 14 192 479 248 828 186 479 0 0 0 52 828 0 905 0 729 33 2 30 3 1 2 0 0 0 2 .10 .10
-----END PRIVACY-ENHANCED MESSAGE-----