EXHIBIT 10.5
BORG-WARNER SECURITY CORPORATION
EXECUTIVE OFFICER INCENTIVE PLAN
(Effective January 1, 1997)
ARTICLE I GENERAL
1.1. Purpose. The purpose of the Plan is to motivate and reward
executive participants competitively for the attainment of specific annual
performance objectives. The Plan is intended to attract and retain high-quality
executive participants by linking a significant portion of their annual
compensation to the accomplishment of financial and strategic goals of the
Company.
1.2. Effective Date. The Plan shall become effective as of January 1,
1997, subject to its approval by the Company's stockholders.
ARTICLE II DEFINITIONS
2.1. "Annual Incentive Award" means the cash amounts established by the
Committee pursuant to Section 4.1.
2.2. "Board of Directors" means the Board of Directors of the Company.
2.3. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
2.4. "Commission" means the Securities and Exchange Commission or any
successor agency.
2.5. "Committee" means the committee referred to in Section 6.1.
2.6. "Company" means Borg-Warner Security Corporation, a Delaware
corporation.
2.7. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
2.8. "Fair Market Value" means, as of any given date, the mean between
the highest and lowest reported sales prices of the Stock on the New York Stock
Exchange Composite Tape or, if not listed on such exchange, on any other
national securities exchange on which the Stock is listed or on NASDAQ. If there
is no regular public trading market for such Stock, the Fair Market Value of the
Stock shall be determined by the Committee in good faith.
2.9. "Participant" means a person who is designated, pursuant to Section
3.1, to be eligible to receive benefits under the Plan.
2.10. "Performance Goals" means the performance standards established by
the Committee pursuant to Section 4.2.
2.11. "Performance Period" means for each Participant, the period
beginning on the first day of the applicable calendar year that said Participant
was designated by the Company to participate in the Plan and ending on December
31st of that calendar year. For purposes of applying to Covered Employees (as
defined in the Code) the various rules of the performance-based
compensation exemption under Section 162(m)(4)(C) of the Code and the Treasury
Regulations issued thereunder, the Performance Period shall be the "period of
service to which the Performance Goals relate" (as defined in Treasury
Regulation Section 1.162-27(e)(2)).
2.12. "Plan" means this Borg-Warner Security Corporation Executive Officer
Incentive Plan, as amended from time to time.
2.13. "Stock" means common stock, par value $.01 per share, of the
Company.
2.14. "Stock Option" means a non-qualified stock option granted under
Article V.
ARTICLE III ELIGIBILITY AND PARTICIPATION
3.1. Eligibility. Participation in the Plan shall be limited to
executive officers of the Company who are designated to be eligible by the
Committee.
ARTICLE IV ANNUAL INCENTIVE AWARDS
4.1. Annual Incentive Award.
(a) On or about the commencement of each Performance Period under the
Plan, the Committee shall establish an Annual Incentive Award for each
Participant for such Performance Period. Each Annual Incentive Award may have
multiple potential award payouts. Each such award payout will correspond with a
different Performance Goal. The level of attainment of a Participant's
Performance Goals determines the amount of the award that the Company will pay
such Participant. Only one Annual Incentive Award shall be established for any
one Participant in any Performance Period.
(b) All Annual Incentive Awards and corresponding Performance Goals
shall be established:
(i) For persons designated by the Company to participate in the
Plan on or before the first day of the respective calendar year, before April
1st of the Performance Period.
(ii) For persons designated by the Company to participate in the
Plan after the first day of the respective calendar year, before the day
representing one-fourth of the number of days from the day said Participant was
first so designated by the Company during the respective calendar year to the
subsequent December 31st.
In all cases, at such time that the Annual Incentive Awards are
established, the outcome of the corresponding Performance Goals must be
substantially uncertain. Performance Goals must be finalized in writing by the
Committee on or prior to the applicable deadline described in the preceding
sentences.
-2-
4.2. Performance Goals.
(a) The Performance Goals set by the Committee shall be based on
specified criteria, as determined by the Committee and shall be based on
objective business criteria. The Committee shall establish specific performance
targets with respect to the chosen business criteria. The business criteria
shall include one or more of the following: earnings per share, total
shareholder return, return on equity, return on capital, market share, stock
price, sales, costs, net income, cash flow, retained earnings, results of
customer satisfaction surveys, shareholder value, aggregate product price and
other product price measures, safety record, service reliability, operating and
maintenance cost management, and other quantifiable business criteria.
Performance Goals also may be based upon the attainment of specified levels of
performance of the Company under one or more of the measures described above
relative to the performance of other corporations. At the time of establishing
Performance Goals, the Committee shall specify the manner in which such
Performance Goals shall be calculated. In so doing, the Committee may exclude
the impact of certain specified events from the calculation of the Performance
Goal.
(b) For all Covered Employees, all of the provisions of this Section
4.2 are subject to the requirement that all Performance Goals shall be objective
performance goals satisfying the requirement for "performance-based
compensation" within the meaning of Section 162(m)(4) of the Code and the
Treasury Regulations issued thereunder.
4.3. Maximum Cash Payment Under an Annual Incentive Award. The maximum
Annual Incentive Award cash payment that may be made to any Participant with
respect to any Performance Period pursuant to this Plan is two times the
Participant's gross base salary for the Performance Period.
4.4. Committee Discretion to Adjust Awards. At any time prior to the time
the Committee determines, pursuant to Section 4.6, the amount of the Annual
Incentive Award to be paid to a Participant hereunder, the Committee shall have
the authority to modify, amend, or adjust the terms and conditions of such
Annual Incentive Awards, the terms and conditions of the corresponding
Performance Goals, the manner in which such Performance Goals are calculated
and/or the amount of Annual Incentive Awards payable. However, the Committee
shall have no authority to increase directly or indirectly or to otherwise
adjust upwards the amount of Annual Incentive Awards payable to a Covered
Employee or to take any other action to the extent that such action or the
Committee's ability to take such action would cause any payment under the Plan
to fail to qualify as "performance-based compensation" within the meaning of
Code Section 162(m)(4) and the Treasury Regulations issued thereunder.
4.5. Conflict with Employment Agreements. If the Plan conflicts with any
employment agreement between the Company and a Participant, then the terms of
the Plan shall control.
4.6. Committee Determination of Annual Incentive Awards Payable. After a
Performance Period has ended, each Participant shall be entitled to receive the
Annual Incentive Award as
-3-
determined by the Committee. The Committee shall determine the extent to which
(i) the Performance Goals set pursuant to Section 4.2 have been met and (ii) any
Annual Incentive Awards are payable. No cash payment shall be made hereunder
prior to written certification by the Committee that the applicable Performance
Goal(s) have been satisfied to a particular extent for the Performance Period.
4.7. Settlement of Annual Incentive Award. The Company shall pay to each
Participant the cash amount determined by the Committee pursuant to Section 4.6
as soon as practicable following such determination; provided that the Company
shall have the right to deduct from all payments of Annual Incentive Awards
hereunder any federal, state, or local taxes required by law to be withheld with
respect to such distributions and pay the applicable amounts to the appropriate
taxing authorities.
4.8. Distribution upon Termination of Employment. If a Participant's
employment terminates prior to the end of the Performance Period, such
Participant will be eligible for a pro-rated portion of the Annual Incentive
Award that would have otherwise been payable to the Participant after the end of
the applicable Performance Period based upon the number of days that Participant
is employed during the applicable Performance Period. Any such distribution will
be made to the Participant in the same form and at the same time that all other
Participants under the Plan receive their distributions with respect to that
Performance Period unless otherwise determined by the Committee.
ARTICLE V STOCK OPTION AWARDS
5.1. Stock Options Subject to Plan.
(a) Subject to adjustment as provided herein, the total number of
shares of stock options of the Company available for grant under the Plan shall
be 150,000, provided that no "Covered Employee" (as such term is defined in
Section 162(m) of the Code) shall be granted more than 136,800 stock options in
any taxable year. Shares subject to an award under the Plan may be authorized
and unissued shares or may be treasury shares.
(b) If any Stock Option terminates without being exercised, shares
subject to such Awards shall again be available for distribution in connection
with Awards under the Plan.
(c) In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, extraordinary distribution with
respect to the Stock or other change in corporate structure affecting the Stock,
the Committee or Board of Directors may make such substitution or adjustments in
the aggregate number and kind of shares reserved for issuance under the Plan, in
the number, kind and option price of shares subject to outstanding Stock Options
granted under the Plan and/or such other substitution or adjustments in the
consideration receivable upon exercise as it may determine to be appropriate in
its sole discretion; provided, however, that the number of shares subject to any
Stock Option shall always be a whole number.
-4-
(d) Stock Options may be granted alone or in addition to other Annual
Incentive Awards granted under the Plan.
5.2. Stock Option Agreements.
Stock Options shall be evidenced by option agreements, the terms and
provisions of which may differ. The grant of a Stock Option shall occur on the
date the committee by resolution selects an individual to be a participant in
any grant of a Stock Option, determines the number of shares of Stock to be
subject to such Stock Option to be granted to such individual and specifies the
terms and provisions of the Stock Option. The Company shall notify a participant
of any grant of a Stock Option, and a written option agreement or agreements
shall be duly executed and delivered by the Company to the participant. Such
agreement or agreements shall become effective upon execution by the
participant.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions as
the Committee shall deem desirable:
(a) Option Price. The option price per share of Stock purchasable under a
Stock Option shall be determined by the Committee and set forth in the
option agreement and shall not be less than the Fair Market Value of
the Stock subject to the Stock Option on the date of grant.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than 10 years
after the date the Stock Option is granted.
ARTICLE VI ADMINISTRATION
6.1. Committee. The Plan shall be administered by the Compensation
Committee of the Board of Directors, or such other Committee of the Board of
Directors, composed exclusively of not less than two outside directors, as such
term is used in section 162(m) of the Code, and non-employee directors, as such
term is defined in Rule 16b-3(b)(3) promulgated by the Commission under the
Exchange Act (or any successor definition promulgated by the Commission), each
of whom shall be appointed by and serve at the pleasure of the Board of
Directors. The Committee may designate person(s) who are Company employees to
oversee the day to day administration of the Plan.
6.2. General Rights, Powers, and Duties of Committee. The Committee will
be responsible for the management, operation, and administration of the Plan.
Subject to the limitations contained in Section 4.4 and to the remaining terms
of the Plan, the Committee will have the following powers, rights and duties in
addition to those provided elsewhere in the Plan:
-5-
(a) To maintain records concerning the Plan sufficient to prepare
reports, returns and other information required by the Plan or by law;
(b) To direct the payment of awards under the Plan, and to give such
other directions and instructions as may be necessary for the proper
administration of the Plan; and
(c) To be responsible for the preparation, filing and disclosure on
behalf of the Plan of such documents and reports as are required by any
applicable federal or state law.
The Committee will also have the authority to adopt, alter and repeal such
administrative rules, guidelines, and practices governing the Plan as it may,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any other agreement relating
thereto), and to otherwise supervise the administration of the Plan.
Any determination made by the Committee pursuant to the provisions of the
Plan with respect to any grants, payments or other transactions under the Plan
shall be made in the sole discretion of the Committee at the time of the grant,
payment or other transaction or, unless in contravention of any express term of
the Plan, at any time thereafter. All decisions made by the Committee pursuant
to the provisions of the Plan shall be final and binding on all persons,
including the Company and Participants.
6.3. Information to be Furnished to Committee. Participants and their
beneficiaries shall furnish to the Committee such necessary evidence, data or
information and execute such documents as the Committee requests.
6.4. Responsibility and Indemnification. No member of the Committee or of
the Board of Directors or any person who is designated to oversee the day to day
administration of the Plan (as provided in Section 6.1) shall be liable to any
person for any action taken or omitted in connection with the administration of
this Plan unless attributable to his own fraud or willful misconduct; nor shall
the Company be liable to any person for any such action unless attributable to
fraud or willful misconduct on the part of a director, officer, or employee of
the Company within the scope of his Company duties. Each member of the Committee
shall be indemnified and held harmless by the Company for any liability arising
out of the administration of the Plan, to the maximum extent permitted by law.
ARTICLE VII AMENDMENT AND TERMINATION
7.1. Amendment. The Plan may be amended in whole or in part by the
Company, by action of the Board of Directors, at any time. The Committee
reserves the unilateral right to change any rule under the Plan if it deems such
a change necessary to avoid the application of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), to the Plan. No amendment shall be
made without the approval of the Company's stockholders to the extent such
approval is required by law or by agreement.
-6-
7.2. Company's Right to Terminate. The Company reserves the sole right to
terminate the Plan, by action of the Board of Directors, at any time.
ARTICLE VIII MISCELLANEOUS
8.1. No Implied Rights; Rights on Termination of Service. Neither the
establishment of the Plan nor any amendment thereof shall be construed as giving
any Participant or any other person any legal or equitable right unless such
right shall be specifically provided for in the Plan or conferred by specific
action of the Committee in accordance with the terms and provisions of the Plan.
Except as expressly provided in this Plan, the Company shall not be required or
be liable to make any payment under the Plan.
8.2. No Right to Company Assets. No Participant or any other person shall
acquire, by reason of the Plan, any right in or title to any assets, funds or
property of the Company whatsoever including, without limiting the generality of
the foregoing, any specific funds, assets, or other property which the Company,
in its sole discretion, may set aside in anticipation of a liability hereunder.
Any benefits which become payable hereunder shall be paid from the general
assets of the Company. A Participant shall have only a contractual right to the
amounts, if any, payable hereunder unsecured by any asset of the Company.
Nothing contained in the Plan constitutes a guarantee by the Company that the
assets of the Company shall be sufficient to pay any benefit to any person.
8.3. No Employment Rights. Nothing herein shall constitute a contract of
employment or of continuing service or in any manner obligate the Company to
continue the services of any Participant, shall obligate any Participant to
continue in the service of the Company, or shall serve as a limitation of the
right of the Company to discharge any of its employees, with or without cause.
Nothing herein shall be construed as fixing or regulating the compensation
payable to any Participant.
8.4. Other Benefits. No payment made under the Plan shall be considered
compensation for purposes of computing benefits under any "employee benefit
plan" (as defined in Section 3(3) of ERISA) of the Company nor affect any
benefits or compensation under any other benefit or compensation plan of the
Company now or subsequently in effect (except as provided to the contrary in
such Company plan).
8.5. Offset. If, at the time payments are to be made hereunder, a
Participant is indebted or obligated to the Company, then the payments under the
Plan remaining to be made to the Participant may, at the discretion of the
Company, be reduced by the amount of such indebtedness or obligation, provided,
however, that an election by the Company not to reduce any such payment or
payments shall not constitute a waiver of its claim for such indebtedness or
obligation.
8.6. Non-assignability. No Participant or any other person shall have any
voluntary or involuntary right to commute, sell, assign, pledge, anticipate,
mortgage, or otherwise encumber,
-7-
transfer, hypothecate, or convey in advance of actual receipt the amounts, if
any payable hereunder or any part thereof, which are expressly declared to be
unassignable and non-transferable. No part of the amounts payable prior to
actual payment shall be subject to seizure or sequestration for the payment of
any debts, judgments, alimony, or separate maintenance owed by any Participant
or any other person, or be transferable by operation of law in the event of any
Participant's or any other person's bankruptcy or insolvency.
8.7. Notice. Any notice required or permitted to be given under the Plan
shall be sufficient if in writing and hand delivered, or sent by registered or
certified mail, and if given to the Company, delivered to the principal office
of the Company, directed to the attention of the Committee, c/o the Director of
the Compensation Department of the Company. Such notice shall be deemed given as
of the date of delivery or, if delivery is made by mail, as of the date shown on
the postmark or the receipt for registration or certification.
8.8. Governing Laws. The Plan and all awards made and actions taken under
the Plan shall be governed and construed according to the laws of the State of
Delaware.
8.9. Gender and Number. Where appropriate, references in this Plan to the
masculine shall include the feminine, and references to the singular shall
include the plural.
8.10. Severability. In the event any provision of the Plan shall be held
legally invalid for any reasons, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
-8-