<PAGE> 1
As filed with the Securities and Exchange Commission on November 25, 1994.
Registration No. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
-------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
SENSORMATIC ELECTRONICS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3663 34-1024665
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Identification No.)
organization) Classification Code
Number)
</TABLE>
-------------------------
500 N.W. 12TH AVENUE
DEERFIELD BEACH, FLORIDA 33442
(305) 420-2000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
-------------------------
MICHAEL E. PARDUE
EXECUTIVE VICE PRESIDENT
Sensormatic Electronics Corporation
500 N.W. 12th Avenue, Deerfield Beach,
Florida 33442 (305) 420-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
JEROME M. LEWINE, ESQ. WILLIAM A. PERLMUTH, ESQ.
Christy & Viener Stroock & Stroock & Lavan
620 Fifth Avenue Seven Hanover Square
New York, New York 10020 New York, New York 10004
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
-------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================
Title of Each Class of Amount Proposed Maximum Proposed Maximum Amount of
Securities to Be to Be Offering Price Aggregate Registration
Registered Registered per Share(1) Offering Price(1) Fee(1)
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value ..................... 3,792,820 Not applicable $ 106,706,620 $11,716
shares
===========================================================================================================
</TABLE>
(1) Pursuant to Rule 457(f)(1) under the Securities Act of 1933, as amended
(the "Securities Act"), the registration fee has been calculated on the
basis of $106,706,620, the market value of the shares of common stock, par
value $.01 per share, of Knogo Corporation to be exchanged in the merger
described herein based on the average high and low sale prices as reported
in the New York Stock Exchange Composite Transactions on November 21, 1994.
Pursuant to Rule 457(b) under the Securities Act and Section 14(g) of the
Securities Exchange Act of 1934, as amended, and Rule 0-11 thereunder, the
registration fee of $36,796 otherwise payable has been reduced by the
filing fee of
(Cover continued on following page.)
<PAGE> 2
$25,080 previously paid by Knogo Corporation in connection with the filing
of its preliminary proxy materials included herein on October 5, 1994.
Therefore, the registration fee payable upon the filing of this
Registration Statement is $11,716.
THE REGISTRATION STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE> 3
CROSS REFERENCE SHEET TO FORM S-4 OF
SENSORMATIC ELECTRONICS CORPORATION
(PURSUANT TO ITEM 501(B) OF REGULATION S-K)
<TABLE>
<CAPTION>
ITEM NUMBER AND LOCATION IN
CAPTION OF FORM S-4 PROSPECTUS
------------------- ----------
A. INFORMATION ABOUT THE TRANSACTION
<S> <C> <C>
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus . . . . . . . . . . . . . . . . Facing Page of Registration Statement; Cross-
Reference Sheet; Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus . . . . . . . . . . . . . . "Available Information"; "Incorporation of
Certain Documents by Reference"; Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information . . . . . . "Summary"; "Pro Forma Combined Financial
Information"; "Sensormatic Selected Historical
Financial Information"; "Knogo Selected
Historical Financial Information"
4. Terms of the Transaction . . . . . . . . "The Merger"; "The Divestiture"; "Description of
Sensormatic Capital Stock"
5. Pro Forma Financial Information . . . . . "Summary"; "Pro Forma Combined Financial
Information"
6. Material Contacts with the Company Being
Acquired . . . . . . . . . . . . . . . . "The Merger"
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
Be Underwriters . . . . . . . . . . . . . *
8. Interests of Named Experts and Counsel . . "Legal Matters"; "Experts"
9. Disclosure of Commission Position on
Indemnification for Securities Acts
Liabilities . . . . . . . . . . . . . . . *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants . . . . . . . . . . . . . . . "Incorporation of Certain Documents by
Reference"; "Summary"; "Sensormatic Selected
Historical Financial Information"; "Sensormatic
Business"; "Description of Sensormatic Capital
Stock"; "Comparison of Certain Rights of
Shareholders of Knogo and Sensormatic"
11. Incorporation of Certain Information by
Reference . . . . . . . . . . . . . . . . "Incorporation of Certain Documents by Reference"
12. Information with Respect to S-2 or S-3
Registrants . . . . . . . . . . . . . . . *
13. Incorporation of Certain Information
by Reference . . . . . . . . . . . . . . *
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
ITEM NUMBER AND LOCATION IN
CAPTION OF FORM S-4 PROSPECTUS
------------------- ----------
<S> <C> <C>
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants . . . . . *
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies
*
16. Information with Respect to S-2 or S-3
Companies . . . . . . . . . . . . . . . . Cover Page; "Incorporation of Certain Documents
by Reference"; "Summary"; "Knogo Selected
Historical Financial Information"; "Knogo
Business"; "Comparison of Certain Rights of
Shareholders of Knogo and Sensormatic"
17. Information with Respect to Companies Other
Than S-2 or S-3 Companies . . . . . . . . *
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited . . . Cover Page; "Incorporation of Certain Documents
by Reference"; "Introduction"; "Summary"; "The
Merger"
19. Information if Proxies, Consents or
Authorizations are not to be Solicited, or
in an Exchange Offer . . . . . . . . . . *
</TABLE>
- ---------------------
* Not applicable or answer negative upon the date of filing of this
Registration Statement.
<PAGE> 5
[LOGO] KNOGO CORPORATION
350 WIRELESS BOULEVARD
HAUPPAUGE, NEW YORK 11788
November 28, 1994
Dear Shareholder:
You are cordially invited to attend a Special Meeting of
Shareholders of Knogo Corporation ("Knogo") to be held at 10:00 A.M. local
time, on December 29, 1994, at Knogo Corporation, 350 Wireless Boulevard,
Hauppauge, New York. I hope that you will be present or represented by proxy
at this important meeting.
At the Special Meeting, you will be asked to approve the
Amended and Restated Agreement and Plan of Merger dated as of August 14, 1994,
among Sensormatic Electronics Corporation ("Sensormatic"), Knogo and Knogo
North America Inc. ("Knogo N.A."). Knogo N.A. is a recently formed
wholly-owned subsidiary of Knogo. Pursuant to the Merger Agreement, Knogo will
be merged with Sensormatic (or a subsidiary of Sensormatic), and each
outstanding share of Knogo Common Stock (including any related rights to
purchase preferred stock) outstanding at the effective time of the Merger will
be converted into the right to receive merger consideration in the form of a
fraction of a share of Common Stock of Sensormatic, having a value of $18,
based upon the average of the closing prices of Sensormatic Common Stock on the
New York Stock Exchange for the 20 trading days preceding the effective date of
the Merger, provided, that if such average closing price exceeds $33, such $18
value would be increased by an amount equal to 0.273 times the excess of such
average closing price over $33.
The Merger Agreement contemplates that immediately prior to
the proposed merger, Knogo will contribute to Knogo N.A. substantially all of
its existing business interests in the United States, Canada and Puerto Rico
and distribute the common stock of Knogo N.A. to Knogo Shareholders (the "Knogo
N.A. Stock Distribution"), so that upon the effectiveness of the proposed
merger Knogo's business interests outside of the United States, Canada and
Puerto Rico will be combined with those of Sensormatic (the "Merger") (the term
"Divestiture" used herein and in the accompanying Proxy Statement--Prospectus
refers to the contribution of Knogo assets to Knogo N.A. and the Knogo N.A.
Stock Distribution or the earlier sale of the stock or assets of Knogo N.A.).
See "The Divestiture" in the accompanying Proxy Statement--Prospectus.
When the Divestiture and the Merger are completed, each
outstanding share of Common Stock of Knogo, including any related rights to
purchase preferred stock, will in effect be exchanged for a fraction of a share
of Common Stock of Sensormatic having a value of $18 (subject to adjustments as
described above) and, as a result of the Knogo N.A. Stock Distribution, one
share of Knogo N.A. Common Stock. Provided that the merger consideration does
not include a substantial amount of cash (which it could under certain
circumstances if the average closing price of Sensormatic Common Stock is below
$28 per share prior to the Merger), the Knogo N.A. Stock Distribution and the
Merger are intended to be tax-free transactions for federal income tax
purposes. See "The Merger--Structure and Terms of the Merger" in the
accompanying Proxy Statement--Prospectus.
<PAGE> 6
The consideration you are to receive in the Merger for your
Knogo Common Stock may be subject to other adjustments, including if Knogo N.A.
were to be sold rather than distributed prior to the Merger or if Sensormatic
were prevented by law or injunction from acquiring certain of Knogo's
international assets. See "The Divestiture" and "The Merger--Possible
Additional Adjustments in the Merger Consideration" in the accompanying Proxy
Statement--Prospectus.
The Divestiture and Merger (including the merger consideration
and the various possible adjustments thereto) are described in greater detail
in the enclosed Proxy Statement--Prospectus. Detailed business, management and
financial information concerning Knogo N.A. after the Knogo N.A. Stock
Distribution is included in the Knogo N.A. Prospectus annexed as Annex V to the
Proxy Statement--Prospectus.
Shareholders of Knogo will, immediately after the Knogo N.A.
Stock Distribution, own all the shares of Knogo N.A. Knogo N.A. will have a
net worth of approximately $21 million and no bank debt.
Following the Merger, the former shareholders of Knogo are
expected to own approximately 4.3% of the outstanding Sensormatic Common Stock.
The exact number of shares will be dependent upon the exchange value, the
trading price of Sensormatic Common Stock, and certain other factors at the
time of the Merger, as described above and in the accompanying Proxy
Statement--Prospectus. If the exchange value were calculated on the basis of
the average closing price of Sensormatic Common Stock on the New York Stock
Exchange Composite Tape for the 20 trading days preceding November 21, 1994,
and assuming no other adjustments in the merger consideration (as described in
the accompanying Proxy Statement--Prospectus), each outstanding share of Knogo
Common Stock would be exchanged for .5251 shares of Sensormatic Common Stock.
The Board of Directors of Knogo has received the written
opinion, dated August 14, 1994, of its financial advisor, Smith Barney Inc., to
the effect that, as of such date and based upon and subject to certain matters
stated therein, the consideration to be received by the holders of Knogo Common
Stock in the Knogo N.A. Stock Distribution and the Merger, taken together, was
fair to such holders from a financial point of view. See "The Merger--Opinion
of Financial Advisor" in the accompanying Proxy Statement--Prospectus. A copy
of the written opinion of Smith Barney Inc. is included as Annex III to the
accompanying Proxy Statement--Prospectus and should be read carefully in its
entirety.
Your Board of Directors, after careful consideration, has
approved the Divestiture and Merger and determined that the Divestiture and
Merger are fair to and in the best interests of Knogo shareholders. See "The
Merger--Recommendation of the Knogo Board of Directors" in the accompanying
Proxy Statement--Prospectus. Copies of the Merger Agreement and the various
agreements annexed as exhibits thereto are attached as Annexes I and II to the
accompanying Proxy Statement--Prospectus.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" APPROVAL AND ADOPTION OF THE DIVESTITURE AND MERGER.
Approval of the matters related to the Divestiture and Merger
to be voted on at the Special Meeting requires a favorable vote of two-thirds
of the outstanding shares of Knogo Common Stock. Accordingly, failure to vote
has the effect of a vote against the transaction. Moreover, under New York
Stock Exchange rules, brokers cannot vote at the Special Meeting without
instructions from shareholders. Shareholders whose shares are held in
brokerage accounts ("street names") are urged to instruct their brokers to vote
their shares in favor of the transaction. The officers and directors of Knogo
who collectively own approximately 23.3% of the shares of Knogo Common Stock
expected to be outstanding at the time of the Special Meeting, including shares
held
<PAGE> 7
by Mr. William A. Perlmuth, a director of Knogo, as Executor of the Estate of
Mr. Arthur J. Minasy, the former Chairman and Chief Executive Officer of Knogo,
and as trustee under trusts for the benefit of Mr. Minasy's adult children,
have indicated that they presently intend to vote "for" the proposed
transactions and the authorization referred to below.
The proxy form includes a space for Shareholders to grant or
withhold authorization to the person or persons voting the proxies to vote in
favor of adjournment or postponement of the Special Meeting if management of
Knogo determines that such adjournment is necessary or appropriate. Unless
otherwise indicated on the proxy form, properly executed proxies that are
timely returned will be voted "FOR" approval and adoption of the Divestiture
and Merger, and "FOR" authorizing the person or persons voting the proxies to
vote in favor of adjournment or postponement of the Special Meeting if
management of Knogo determines that such adjournment is necessary or
appropriate. If fewer shares of Knogo Common Stock have been voted in favor of
the approval and adoption of the Merger Agreement than the number required for
approval and adoption as of the date of the Special Meeting, it is expected
that the Special Meeting will be adjourned or postponed in order to allow
additional time for obtaining additional proxies or votes. In addition,
properly executed proxies that are timely returned will be voted in accordance
with the judgment of the person or persons voting the proxies on any other
matter that may properly be brought before the Special Meeting.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" AUTHORIZING THE PERSON OR PERSONS VOTING THE PROXIES TO VOTE IN FAVOR OF
ADJOURNMENT OR POSTPONEMENT OF THE SPECIAL MEETING IF MANAGEMENT OF KNOGO
DETERMINES THAT SUCH ADJOURNMENT IS NECESSARY OR APPROPRIATE.
Shareholders are entitled to vote all shares of Knogo Common
Stock held by them on November 28, 1994, which is the record date for the
Special Meeting.
WE URGE YOU TO CONSIDER CAREFULLY THESE IMPORTANT MATTERS,
WHICH ARE DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT- PROSPECTUS. In order
to ensure that your vote is represented at the meeting, please indicate your
choice on the proxy form, date and sign it, and return it in the enclosed
envelope. A prompt response will be appreciated.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. IF
THE DIVESTITURE AND MERGER ARE APPROVED BY THE SHAREHOLDERS AT THE SPECIAL
MEETING, YOU WILL RECEIVE SEPARATE INSTRUCTIONS AS TO HOW TO EXCHANGE YOUR
STOCK CERTIFICATES.
Sincerely,
/s/ THOMAS A. NICOLETTE
-----------------------
Thomas A. Nicolette
President and Chief Executive
Officer
<PAGE> 8
KNOGO CORPORATION
350 WIRELESS BOULEVARD
HAUPPAUGE, NEW YORK 11788
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 29, 1994
NOTICE HEREBY IS GIVEN that a Special Meeting of Shareholders of Knogo
Corporation, a New York corporation ("Knogo"), has been called by the Board of
Directors of Knogo and will be held at Knogo Corporation, 350 Wireless
Boulevard, Hauppauge, New York at 10:00 A.M. local time on December 29, 1994,
for the following purposes:
1. To consider and vote upon a proposal to approve and
adopt the Amended and Restated Agreement and Plan of Merger, dated as
of August 14, 1994 (as it may be amended, supplemented or modified
from time to time, the "Merger Agreement"), among Sensormatic
Electronics Corporation, a Delaware corporation ("Sensormatic"),
Knogo and Knogo North America Inc., a Delaware corporation ("Knogo
N.A."), and the transactions contemplated by the Merger Agreement,
pursuant to which:
(a) Knogo will be merged with Sensormatic (or a
subsidiary of Sensormatic) upon the terms and subject to the
conditions set forth in the Merger Agreement (the "Merger");
(b) Immediately prior to the Merger, and as a
condition to its consummation, Knogo will contribute to Knogo
N.A. substantially all of its existing business interests in
the United States, Canada and Puerto Rico, and distribute the
stock of Knogo N.A. to Knogo shareholders, as is currently
intended, or otherwise dispose of the stock or assets of
Knogo N.A., so that upon the effectiveness of the Merger,
Knogo's business interests outside of the United States,
Canada and Puerto Rico will be combined with those of
Sensormatic and the Knogo shareholders will receive either
stock of Knogo N.A. or additional merger consideration
reflecting the net after-tax proceeds of such other
disposition (or, in certain instances, distribution of such
proceeds from Knogo);
(c) Each outstanding share of Common Stock of Knogo,
par value $.01 per share, including any related rights to
purchase preferred stock ("Knogo Common Stock"), outstanding
at the effective time of the Merger will be converted into
the right to receive merger consideration in the form of a
fraction of a share of Common Stock of Sensormatic, par value
$.01 per share ("Sensormatic Common Stock"), having a value
of $18, based upon the average of the closing prices of
Sensormatic Common Stock on the New York Stock Exchange for
the 20 trading days preceding the effective date of the
Merger, provided, that if such average closing price exceeds
$33, such $18 value would be increased by an amount equal to
0.273 times the excess of such average closing price over $33
(and subject to certain additional adjustments described in
the accompanying Proxy Statement--Prospectus); and each Knogo
stock option for employees and non-employees directors
<PAGE> 9
outstanding and unexercised at the effective time of the
Merger will be cancelled and the holder thereof will be
entitled to receive an option to purchase Sensormatic Common
Stock and an option to purchase Knogo N.A. Common Stock (or,
in certain instances, in lieu of such stock options, shares
of Sensormatic Common Stock or Knogo N.A. Common Stock and/or
cash), as more fully described in the accompanying Proxy
Statement--Prospectus;
subject to and as more fully described in the Merger Agreement, the
full text of which is attached as Annex I to the accompanying Proxy
Statement--Prospectus; and
2. To transact such other business as may properly come
before the meeting or any adjournments or postponements thereof.
Only holders of Knogo Common Stock of record at the close of
business on November 28, 1994 (the "Record Date"), are entitled to notice of
and to vote at such meeting or any adjournments or postponements thereof.
Approval of the matters to be voted upon in connection with the Merger requires
the affirmative vote of two-thirds of the outstanding shares of Knogo Common
Stock.
Any holder of shares of Knogo Common Stock who is a
shareholder of Knogo as of the Record Date and who does not assent to the
Merger has the right, upon compliance with specific procedures, to demand from
Knogo payment of the fair value of such holder's shares. Such shareholders
must, among other things, not vote for the approval and adoption of the Merger
Agreement (which approval would include submitting a signed proxy card without
voting instructions), timely object to the Merger in writing prior to the
Special Meeting and strictly comply with certain other requirements. For a
more complete description of such right, reference is made to "The
Merger--Appraisal Rights" in the Proxy Statement--Prospectus and to Sections
623 and 910 of the New York Business Corporation Law, copies of which are
attached to the Proxy Statement--Prospectus as Annex IV.
By Order of the Board Directors
ROBERT T. ABBOTT
Secretary
Hauppauge, New York
November 28, 1994
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY FORM PROMPTLY, WHETHER OR NOT YOU
PLAN TO ATTEND THE SPECIAL MEETING. YOUR PROXY MAY BE REVOKED, EITHER IN
WRITING OR BY VOTING IN PERSON AT THE SPECIAL MEETING, AT ANY TIME PRIOR TO ITS
EXERCISE.
THE BOARD OF DIRECTORS OF KNOGO UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE MATTERS TO BE VOTED UPON AT THE SPECIAL MEETING.
PLEASE DO NOT SEND IN ANY SHARE CERTIFICATES AT THIS TIME.
<PAGE> 10
PROXY STATEMENT
KNOGO CORPORATION
350 WIRELESS BOULEVARD
HAUPPAUGE, NEW YORK 11788
(516) 232-2100
PROSPECTUS
SENSORMATIC ELECTRONICS CORPORATION
500 N.W. 12TH AVENUE
DEERFIELD BEACH, FLORIDA 33442
(305) 420-2000
This Proxy Statement--Prospectus is being furnished to
shareholders of Knogo Corporation, a New York corporation ("Knogo"), in
connection with the solicitation of proxies by and on behalf of the Board of
Directors of Knogo to be used at a special meeting of its shareholders
(including any adjournments or postponements thereof, the "Special Meeting"),
to be held on December 29, 1994. This Proxy Statement--Prospectus relates to
the proposed merger (the "Merger") between Knogo and Sensormatic Electronics
Corporation, a Delaware corporation ("Sensormatic"), pursuant to the Amended
and Restated Agreement and Plan of Merger, dated as of August 14, 1994 (as it
may be amended, supplemented or modified from time to time, the "Merger
Agreement"), among Sensormatic, Knogo, and Knogo North America Inc. ("Knogo
N.A."), a Delaware corporation and a wholly-owned subsidiary of Knogo. If the
proposed Merger is approved at the Special Meeting, immediately prior to the
Merger, and as a condition to its consummation, Knogo will contribute to Knogo
N.A. all of Knogo's existing business interests (subject to certain exclusions)
in the United States, Canada and Puerto Rico, and distribute the stock of Knogo
N.A. to Knogo shareholders (the "Knogo N.A. Stock Distribution"), or sell the
stock or assets of Knogo N.A. to a third party (collectively, the
"Divestiture"), so that upon the effectiveness of the Merger, Knogo's business
interests outside of the United States, Canada and Puerto Rico will be combined
with those of Sensormatic. At the Special Meeting, the shareholders of Knogo
will be asked to approve and adopt the Merger Agreement, which approval and
adoption will also constitute approval of the transactions contemplated
thereby, including the Merger and the Divestiture.
Pursuant to the Knogo N.A. Stock Distribution, Knogo shareholders
will receive one share of common stock of Knogo N.A. ("Knogo N.A. Common
Stock") for each share of Knogo Common Stock (as hereinafter defined) held.
There is currently no trading market for the Knogo N.A. Common Stock, although
it is expected that a "when-issued" trading market will develop for the Knogo
N.A. Common Stock. Application has been made to have the Knogo N.A. Common
Stock listed on the American Stock Exchange, Inc. While Knogo currently
intends to distribute all of the capital stock of Knogo N.A. to Knogo
shareholders, the Merger Agreement permits Knogo to sell Knogo N.A.'s stock, or
all or substantially all of its assets (the "Knogo N.A. Sale"), in which event
the after-tax net proceeds thereof would be reflected in an increase in the
Merger Consideration or distributed to the Knogo shareholders. See "The
Divestiture" and "The Merger--Possible Additional Adjustments in the Merger
Consideration".
<PAGE> 11
When the Merger is completed, assuming the Knogo N.A. Stock
Distribution has occurred, each outstanding share of Common Stock of Knogo,
par value $.01 per share, including any related Rights (as hereinafter
defined) to purchase preferred stock ("Knogo Common Stock"), will represent
the right to receive merger consideration in the form of a fraction of a
share of Common Stock of Sensormatic, par value $.01 per share
("Sensormatic Common Stock"), having a value of $18 (subject to certain
adjustments described herein), based upon the average of the closing prices
of Sensormatic Common Stock on the New York Stock Exchange, Inc. (the "NYSE")
for the 20 trading days preceding the effective date of the Merger (the
"Average Sensormatic Share Price"), provided, that if the Average
Sensormatic Share Price exceeds $33, such $18 value would be increased by
an amount equal to 0.273 times the excess of the Average Sensormatic Share
Price over $33. Under the Merger Agreement, if the Average Sensormatic
Share Price is less than $28, Sensormatic has the right to pay the merger
consideration in cash, or a combination of cash and Sensormatic Common
Stock (valued at the Average Sensormatic Share Price), such that the
aggregate value per share of such cash and Sensormatic Common Stock equals
$18, provided, that in such event Knogo may nonetheless require Sensormatic
to pay the merger consideration entirely in Sensormatic Common Stock, valued
for such purpose at $28 per share (in which event the merger consideration per
share of Knogo Common Stock would be .6429 shares of Sensormatic Common Stock).
There is no provision for termination of the Merger Agreement in the event
that the Average Sensormatic Share Price is less than or exceeds specified
amounts. The merger consideration, however, could be further adjusted in
certain other events. See "The Merger--Possible Additional Adjustments in the
Merger Consideration". Had the Merger become effective on November 21, 1994,
the Average Sensormatic Share Price would have been $35.67 and the exchange
value of a share of Knogo Common Stock under the foregoing formula (assuming
that none of the adjustments discussed below are applicable) would have been
$18.73, yielding a conversion rate of .5251 shares of Sensormatic Common Stock
for each share of Knogo Common Stock.
Upon completion of the Divestiture and the Merger, each
outstanding share of Knogo Common Stock will in effect be exchanged for a
fraction of a share of Sensormatic Common Stock having a value of $18 (subject
to adjustments as described above) and, as a result of the Knogo N.A. Stock
Distribution, one share of Knogo N.A. Common Stock. In the event that a Knogo
N.A. Sale occurs in lieu of the Knogo N.A. Stock Distribution, Knogo
Shareholders would receive the benefit of such sale in the form of increased
merger consideration, appropriately adjusted to reflect the net after-tax
proceeds retained by Knogo from the Knogo N.A. Sale, or, in certain
circumstances, a distribution of such proceeds directly from Knogo. Except as
otherwise agreed by the parties, any additional amount reflected in the merger
consideration would be paid in Sensormatic Common Stock or cash, or a
combination thereof, as described above.
Upon consummation of the Merger, Knogo will be merged with
Sensormatic (or a subsidiary of Sensormatic). Except in certain limited
circumstances described in the Proxy Statement--Prospectus, the Knogo N.A.
Stock Distribution and the Merger are intended to be tax-free transactions for
federal income tax purposes. See "The Merger--Certain Federal Income Tax
Consequences" and "Alternative Merger--Other Alternative Structures".
Following the Merger, Knogo N.A. and Sensormatic (as successor to
Knogo) will be parties to a supply agreement, providing Sensormatic with
certain of its product needs for 30 months, and a license agreement, concerning
certain patent rights and technology. See "The Divestiture--Supply and License
Agreements".
Only shareholders of record of Knogo Common Stock (the
"Shareholders") at the close of business on November 28, 1994 (the "Record
Date"), will be entitled to notice of, and to vote at, the Special Meeting.
Shares of Knogo Common Stock represented by duly executed proxies received by
Knogo will be voted in accordance with the instructions contained therein and,
in the
-ii-
<PAGE> 12
absence of specific instructions, will be voted for the approval and adoption
of the Merger Agreement and the transactions contemplated thereby, including
the Merger and the Divestiture, and for authorizing the person or persons
voting the proxies to vote in favor of adjournment or postponement of the
Special Meeting if management of Knogo determines that such adjournment or
postponement is necessary or appropriate. In addition, properly executed
proxies that are timely returned will be voted in accordance with the judgment
of the person or persons voting the proxies on any other matter that may
properly be brought before the Special Meeting. The execution of a proxy will
in no way affect a Shareholder's right to attend the Special Meeting and to
vote in person. Any proxy executed and returned by a Shareholder may be
revoked at any time thereafter except as to any matter or matters upon which,
prior to such revocation, a vote shall have been cast pursuant to the authority
conferred by such proxy.
This Proxy Statement--Prospectus also constitutes a prospectus of
Sensormatic with respect to shares of Sensormatic Common Stock issuable to
Knogo Shareholders in the Merger. Sensormatic has filed this Proxy
Statement--Prospectus with the Securities and Exchange Commission (the
"Commission") as part of a registration statement on Form S-4 (the
"Registration Statement") pursuant to the Securities Act of 1933, as amended
(the "Securities Act"), covering such shares. The information contained herein
with respect to Sensormatic and its subsidiaries has been supplied by
Sensormatic and the information contained herein with respect to Knogo and its
subsidiaries (including Knogo N.A.) has been supplied by Knogo. This Proxy
Statement--Prospectus does not contain all the information set forth in the
Registration Statement, certain items of which are contained in schedules and
exhibits to the Registration Statement as permitted by the rules and
regulations under the Securities Act and to which reference is made for further
information with respect to Sensormatic and the Sensormatic Common Stock.
Statements contained herein concerning any documents are not necessarily
complete and, in each instance, reference is made to the copies of such
documents filed as exhibits to the Registration Statement. Each such statement
is qualified in its entirety by such reference. This Proxy
Statement--Prospectus also does not contain all of the information regarding
Knogo N.A. set forth in the Knogo N.A. Registration Statement on Form S-1. See
"Additional Information" in the Knogo N.A. Prospectus attached as Annex V to
this Proxy Statement--Prospectus.
Sensormatic has registered 3,792,820 shares of Sensormatic Common
Stock under the Registration Statement, of which this Proxy
Statement--Prospectus is a part. Unless specifically requested by Knogo,
Sensormatic is not obligated to issue Sensormatic Common Stock as merger
consideration if the Average Sensormatic Share Price is less than $28 (i.e., if
more than 3,622,531 shares of Sensormatic Common Stock are required to be
issued to the Shareholders in the Merger, assuming that 5,634,673 shares of
Knogo Common Stock held by the Shareholders on the Record Date (exclusive of
shares issuable upon the exercise of Knogo Stock Options) are converted in the
Merger). The additional shares have been registered for issuance in the Merger
in exchange for (i) any shares of Knogo Common Stock issued after the date
hereof and prior to the effectiveness of the Merger pursuant to the exercise of
outstanding Knogo stock options and (ii) Knogo stock options to be cancelled
and exchanged in part for Sensormatic Common Stock. (See "The Merger--Knogo
Stock Options".) Had the Merger become effective on November 21, 1994,
approximately 2,958,767 shares would have been issued to the Shareholders in
the Merger and an estimated additional 110,000 shares issued with respect to
outstanding Knogo stock options, representing approximately 4.3% of the
outstanding Sensormatic Common Stock after giving effect to such issuances and
having a market value, based on the Average Sensormatic Share Price as of such
date, of approximately $109.4 million. See "Summary--Combined Sensormatic and
Knogo International--Comparative Per Share Data" and "Pro Forma Combined
Financial Information" for certain information relating to the combined pro
forma results of Sensormatic following the Merger and the contribution thereto
represented by Knogo.
-iii-
<PAGE> 13
This Proxy Statement--Prospectus and the accompanying proxy card
are being mailed on or about November 29, 1994 to Shareholders entitled to vote
at the Special Meeting. The expense of soliciting proxies, including the cost
of assembling and mailing this proxy material to Shareholders, will be borne by
Knogo. In addition to solicitation by use of the mails, Knogo may use the
services of its directors, officers and employees to solicit proxies personally
or by telephone, without additional salary or compensation to them. Knogo has
also retained the services of Georgeson & Company, Inc. to assist in the
solicitation of proxies for a fee estimated at $5,000, plus reimbursement of
out-of-pocket expenses. Brokerage houses, custodians, nominees and fiduciaries
will be requested to forward the proxy soliciting materials to the beneficial
owners of Knogo's shares held of record by such persons, and Knogo will
reimburse such persons for reasonable out-of-pocket expenses incurred by them
in that regard.
Any holder of shares of Knogo Common Stock who is a Shareholder of
Knogo as of the Record Date and who does not assent to the Merger has the
right, upon compliance with specific procedures, to demand from Knogo payment
of the fair value of such holder's shares. Such Shareholders must, among other
things, not vote for the approval and adoption of the Merger Agreement (which
approval would include submitting a signed proxy card without voting
instructions), timely object to the Merger in writing prior to the Special
Meeting and strictly comply with certain other requirements. For a more
complete description of such right, reference is made to "The Merger--Appraisal
Rights" in the Proxy Statement--Prospectus and to Sections 623 and 910 of the
New York Business Corporation Law, copies of which are attached to this Proxy
Statement--Prospectus as Annex IV.
Accompanying this Proxy Statement--Prospectus are copies of
Knogo's Annual Report on Form 10-K, as amended, for the fiscal year ended
February 28, 1994 and Quarterly Report on Form 10-Q, as amended, for the
quarter ended August 31, 1994, and, for the information of the Knogo
Shareholders, Sensormatic's 1994 Annual Report to Stockholders and First
Quarter Report to Stockholders for the quarter ended September 30, 1994.
THE SECURITIES TO BE ISSUED PURSUANT TO THE MERGER AGREEMENT HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROXY STATEMENT--PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
November 28, 1994
-iv-
<PAGE> 14
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS ON BEHALF OF SENSORMATIC, KNOGO
OR KNOGO N.A. NOT CONTAINED IN THIS PROXY STATEMENT--PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY SENSORMATIC, KNOGO OR KNOGO N.A. THIS PROXY
STATEMENT--PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN
THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER
TO BUY, THE SENSORMATIC COMMON STOCK, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT--PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF SENSORMATIC, KNOGO OR KNOGO
N.A. SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
Sensormatic and Knogo are (and, following the Knogo N.A. Stock
Distribution, Knogo N.A. is expected to be) subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, file reports and other information with
the Commission. Reports, proxy statements and other information filed by
Sensormatic and Knogo can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Midwest Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511, and Northeast Regional Office, 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition,
reports, proxy statements and other information concerning Sensormatic and
Knogo may be inspected at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed with the Commission by
Sensormatic (File Number 1-10739) and Knogo (File Number 1-7856) pursuant to
the Exchange Act are incorporated by reference in this Proxy
Statement--Prospectus: (a) with respect to Sensormatic, its Annual Report on
Form 10-K for the fiscal year ended June 30, 1994, its Quarterly Report on Form
10-Q for the quarter ended September 30, 1994 and its Current Report on Form
8-K filed on August 25, 1994, as amended by Amendment No. 1 on Form 8-K/A filed
on September 20, 1994; and (b) with respect to Knogo, its Annual Report on Form
10-K for the fiscal year ended February 28, 1994, as amended by Amendment No. 1
on Form 10-K/A filed on June 28, 1994 and Amendment No. 2 on Form 10-K/A filed
on November 22, 1994, its Quarterly Report on Form 10-Q for the quarter ended
May 31, 1994, its Quarterly Report on Form 10-Q for the quarter ended August
31, 1994, as amended by Amendment No. 1 on Form 10-Q/A filed on November 22,
1994, and its Current Report on Form 8-K filed on August 16, 1994, as amended
by Amendment No. 1 on Form 8-K/A filed on August 22, 1994 and Amendment No. 2
on Form 8-K/A filed on September 20, 1994.
All documents filed by Sensormatic and Knogo pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement--Prospectus and prior to the date of the Special Meeting shall be
deemed to be incorporated by reference into this Proxy
-v-
<PAGE> 15
Statement--Prospectus and to be a part of this Proxy Statement--Prospectus
from the respective dates of the filing of such documents. Any statement
contained in a document incorporated herein by reference shall be deemed to
be modified or superseded for purposes of this Proxy Statement--Prospectus
to the extent that a statement contained in this Proxy Statement--Prospectus
or in any other subsequently filed document which also is or is deemed to be
incorporated herein by reference modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement--Prospectus.
This Proxy Statement--Prospectus incorporates certain documents by
reference which are not presented herein or delivered herewith. Copies of such
documents (other than exhibits not specifically incorporated by reference into
the text of such documents) are available, without charge, to each person to
whom this Proxy Statement--Prospectus is delivered, on the written or oral
request of such person, in the case of documents relating to Sensormatic, to
Walter A. Engdahl, Secretary, Sensormatic Electronics Corporation, 500 N.W.
12th Avenue, Deerfield Beach, Florida 33442 (telephone (305) 420-2000), or, in
the case of documents relating to Knogo, to Knogo Corporation, 350 Wireless
Boulevard, Hauppauge, New York 11788, Attention: Robert T. Abbott, Chief
Financial Officer (telephone (516) 232-2100). In order to ensure timely
delivery of the documents, any request should be received by December 21, 1994.
-vi-
<PAGE> 16
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROXY STATEMENT--PROSPECTUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . v
INDEX OF DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Merger, the Divestiture and the Companies . . . . . . . . . . . . . . . . . . . . . . . . 1
Structure, Merger Consideration and Shareholder Approval . . . . . . . . . . . . . . . 1
The Companies--Sensormatic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Companies--Knogo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Companies--Knogo N.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Reasons for the Merger--Knogo . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Reasons for the Merger--Sensormatic . . . . . . . . . . . . . . . . . . . . . . . . . 6
Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Recommendation of the Board of Directors of Knogo . . . . . . . . . . . . . . . . . . 6
Opinion of Knogo's Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . 6
Certain Other Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Amendment, Waiver and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Comparative Rights of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Knogo Shareholder Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . 10
Price Range of Common Stock and Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Management After the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Sensormatic Summary Historical Financial Information . . . . . . . . . . . . . . . . . . . . . 14
Knogo Summary Historical Financial Information . . . . . . . . . . . . . . . . . . . . . . . . 15
Combined Sensormatic and Knogo International
Summary Pro Forma Combined Financial Information . . . . . . . . . . . . . . . . . . . . . 16
Comparative Per Share Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Purpose of the Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Voting and Revocation of Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Record Date; Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Matters Deemed Adopted, Approved or Ratified by Knogo Shareholders . . . . . . . . . . . . . . 21
THE DIVESTITURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
The Divestiture Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Supply and License Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
-vii-
<PAGE> 17
<TABLE>
<S> <C>
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Structure and Terms of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Reasons for the Merger--Knogo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Recommendation of the Knogo Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . 31
Reasons for the Merger--Sensormatic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Opinion of Knogo's Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Knogo Shareholder Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Knogo Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Resale of Sensormatic Common Stock Issued in the Merger; Affiliates . . . . . . . . . . . . . 38
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Management After the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Regulatory Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Possible Additional Adjustments in the Merger Consideration . . . . . . . . . . . . . . . . . 44
Delayed Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Alternative Merger; Other Alternative Structures . . . . . . . . . . . . . . . . . . . . . . . 46
Other Conditions to Consummation of the Merger . . . . . . . . . . . . . . . . . . . . . . . . 47
Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Expenses; Break-Up Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Consideration of Other Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Amendment, Waiver and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Conduct of Business Pending the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SENSORMATIC BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Industry Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Company Development and General Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Electronic Article Surveillance Products for Retail Use . . . . . . . . . . . . . . . . . . . 60
CCTV and Exception Monitoring Systems for Retail Use . . . . . . . . . . . . . . . . . . . . . 62
Non-Retail Users . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Marketing and Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Product Research, Development and Engineering . . . . . . . . . . . . . . . . . . . . . . . . 66
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Patent and Related Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
KNOGO BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Principal Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
International Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Patents and Other Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
</TABLE>
-viii-
<PAGE> 18
<TABLE>
<S> <C>
SENSORMATIC CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
PRO FORMA COMBINED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SENSORMATIC SELECTED HISTORICAL FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 82
KNOGO SELECTED HISTORICAL FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 85
DESCRIPTION OF SENSORMATIC CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
COMPARISON OF CERTAIN RIGHTS OF SHAREHOLDERS OF KNOGO AND SENSORMATIC . . . . . . . . . . . . . . . 88
Voting Rights of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Size and Classification of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . 89
Removal of Directors; Filling Vacancies on the Board of Directors . . . . . . . . . . . . . . 89
Shareholder Nominations of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Action by Written Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Shareholder Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Required Vote for Authorization of Certain Actions . . . . . . . . . . . . . . . . . . . . . . 92
State Antitakeover Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Amendment of Corporate Charter and By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Preferred Stock Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Limitation on Directors' Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Indemnification of Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Cumulative Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Conflict-Of-Interest Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Dividends and Other Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Duties of Directors in Certain Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . 99
Issuance of Rights or Options to Purchase Shares to Directors, Officers and Employees . . . . 99
Loans to Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Annex I Amended and Restated Agreement and Plan of Merger
Annex II-A Form of Contribution and Divestiture Agreement
II-B Form of License Agreement
II-C Form of Supply Agreement
Annex III Opinion of Smith Barney Inc.
Annex IV Sections 623 and 910 of the New York Business Corporation Law
Annex V Prospectus of Knogo North America Inc.
</TABLE>
-ix-
<PAGE> 19
INDEX OF DEFINITIONS
<TABLE>
<S> <C> <C> <C>
3M . . . . . . . . . . . . . . . . . . . . . . . . 65 Knogo N.A. Percentage . . . . . . . . . . . . . . . 37
Acquired Subsidiary . . . . . . . . . . . . . . . . 7 Knogo N.A. Sale . . . . . . . . . . . . . . . . . . i
Acquisition Transaction . . . . . . . . . . . . . . 8 Knogo N.A. Share Price . . . . . . . . . . . . . . 37
Additional Agreements . . . . . . . . . . . . . . . 7 Knogo N.A. Stock Distribution . . . . . . . . . . . i
Advanced Entry . . . . . . . . . . . . . . . . . . 58 Knogo N.A. Territory . . . . . . . . . . . . . . . 3
Affiliates . . . . . . . . . . . . . . . . . . . . 38 Knogo Option . . . . . . . . . . . . . . . . . . . 37
Agreements . . . . . . . . . . . . . . . . . . . . 32 Knogo Products . . . . . . . . . . . . . . . . . . 23
ALPS . . . . . . . . . . . . . . . . . . . . . . . 14 License Agreement . . . . . . . . . . . . . . . . . 7
Alternative Merger . . . . . . . . . . . . . . . . 2 Merger . . . . . . . . . . . . . . . . . . . . . . i
ASH . . . . . . . . . . . . . . . . . . . . . . . . 58 Merger Agreement . . . . . . . . . . . . . . . . . i
ASH Group . . . . . . . . . . . . . . . . . . . . . 58 Merger Consideration . . . . . . . . . . . . . . . 1
Average Sensormatic Share Price . . . . . . . . . . ii Merger Sub . . . . . . . . . . . . . . . . . . . . 46
BCA . . . . . . . . . . . . . . . . . . . . . . . . 93 MM . . . . . . . . . . . . . . . . . . . . . . . . 68
business combination . . . . . . . . . . . . . . . 93 NARM . . . . . . . . . . . . . . . . . . . . . . . 59
CCTV . . . . . . . . . . . . . . . . . . . . . . . 4 NYBCL . . . . . . . . . . . . . . . . . . . . . . . 8
Checkpoint . . . . . . . . . . . . . . . . . . . . 34 NYSE . . . . . . . . . . . . . . . . . . . . . . . ii
CI . . . . . . . . . . . . . . . . . . . . . . . . 65 Paxar . . . . . . . . . . . . . . . . . . . . . . . 59
Closing Date . . . . . . . . . . . . . . . . . . . 2 pick rate . . . . . . . . . . . . . . . . . . . . . 61
Commission . . . . . . . . . . . . . . . . . . . . iii POS . . . . . . . . . . . . . . . . . . . . . . . . 71
Comparable Companies . . . . . . . . . . . . . . . 34 Preferred Stock . . . . . . . . . . . . . . . . . . 87
Continental . . . . . . . . . . . . . . . . . . . . 58 Record Date . . . . . . . . . . . . . . . . . . . . ii
Contribution . . . . . . . . . . . . . . . . . . . 3 Registration Statement . . . . . . . . . . . . . . iii
Court . . . . . . . . . . . . . . . . . . . . . . . 54 Regulatory Prohibition . . . . . . . . . . . . . . 7
customer engineering . . . . . . . . . . . . . . . 58 Rights . . . . . . . . . . . . . . . . . . . . . . 10
Damages . . . . . . . . . . . . . . . . . . . . . . 22 Rights Agreement . . . . . . . . . . . . . . . . . 7
Designated Termination Event . . . . . . . . . . . 49 Robot Research . . . . . . . . . . . . . . . . . . 58
DGCL . . . . . . . . . . . . . . . . . . . . . . . 8 Securities Act . . . . . . . . . . . . . . . . . . iii
Divestiture . . . . . . . . . . . . . . . . . . . . i Security Specialists . . . . . . . . . . . . . . . 58
Divestiture Agreement . . . . . . . . . . . . . . . 3 Security Tag . . . . . . . . . . . . . . . . . . . 58
Dual RF . . . . . . . . . . . . . . . . . . . . . . 68 Selected Acquisitions . . . . . . . . . . . . . . . 35
EAP . . . . . . . . . . . . . . . . . . . . . . . . 3 Sensormatic . . . . . . . . . . . . . . . . . . . . i
EAS . . . . . . . . . . . . . . . . . . . . . . . . 3 Sensormatic Certificate . . . . . . . . . . . . . . 9
EBIT . . . . . . . . . . . . . . . . . . . . . . . 34 Sensormatic Common Stock . . . . . . . . . . . . . ii
EBITDA . . . . . . . . . . . . . . . . . . . . . . 34 SFAS . . . . . . . . . . . . . . . . . . . . . . . 14
Effective Time . . . . . . . . . . . . . . . . . . 1 Shareholders . . . . . . . . . . . . . . . . . . . ii
EPS . . . . . . . . . . . . . . . . . . . . . . . . 34 Smith Barney . . . . . . . . . . . . . . . . . . . 5
Escrow Agent . . . . . . . . . . . . . . . . . . . 45 Software House . . . . . . . . . . . . . . . . . . 58
Escrowed Business . . . . . . . . . . . . . . . . . 45 Source Imbedding . . . . . . . . . . . . . . . . . 70
Exchange Act . . . . . . . . . . . . . . . . . . . v Source Tagging . . . . . . . . . . . . . . . . . . 70
FTC . . . . . . . . . . . . . . . . . . . . . . . . 7 Special Meeting . . . . . . . . . . . . . . . . . . i
HSR Act . . . . . . . . . . . . . . . . . . . . . . 6 Substitute Knogo N.A. Option . . . . . . . . . . . 37
insolvent corporation . . . . . . . . . . . . . . . 56 Substitute Options . . . . . . . . . . . . . . . . 37
Internal Revenue Code . . . . . . . . . . . . . . . 3 Substitute Sensormatic Option . . . . . . . . . . . 37
KnoGlo . . . . . . . . . . . . . . . . . . . . . . 68 Supply Agreement . . . . . . . . . . . . . . . . . 7
Knogo . . . . . . . . . . . . . . . . . . . . . . . i Surviving Corporation . . . . . . . . . . . . . . . 2
Knogo Certificate . . . . . . . . . . . . . . . . . 9 Swept RF . . . . . . . . . . . . . . . . . . . . . 68
Knogo Common Stock . . . . . . . . . . . . . . . . ii Target Net Worth . . . . . . . . . . . . . . . . . 80
Knogo Delay . . . . . . . . . . . . . . . . . . . . 9 Total Transaction Consideration . . . . . . . . . . 34
Knogo International . . . . . . . . . . . . . . . . 75 Transaction . . . . . . . . . . . . . . . . . . . . 32
Knogo N.A. . . . . . . . . . . . . . . . . . . . . i Transfer . . . . . . . . . . . . . . . . . . . . . 56
Knogo N.A. Common Stock . . . . . . . . . . . . . . i USP . . . . . . . . . . . . . . . . . . . . . . . . 70
</TABLE>
-x-
<PAGE> 20
SUMMARY
This summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere or incorporated by reference
in this Proxy Statement--Prospectus and the Annexes hereto. Shareholders are
urged to review carefully the entire Proxy Statement--Prospectus, the documents
incorporated herein by reference and the Annexes hereto.
All information concerning Sensormatic included in this Proxy
Statement--Prospectus, the Annexes hereto and the documents incorporated herein
by reference has been furnished by Sensormatic and all information concerning
Knogo and Knogo N.A. included in this Proxy Statement--Prospectus, the Annexes
hereto and the documents incorporated herein by reference has been furnished by
Knogo.
THE MERGER, THE DIVESTITURE AND THE COMPANIES
Structure, Merger Consideration and Shareholder Approval.
Each share of Knogo Common Stock (including any related Rights
to purchase preferred stock--see "The Merger--Knogo Shareholders Rights Plan")
issued and outstanding immediately prior to the effective time of the Merger
(the "Effective Time") will be converted into the right to receive merger
consideration (the "Merger Consideration") in the form of a fraction of a
validly-issued, fully paid and non-assessable share of Sensormatic Common
Stock having a value of $18, based upon the Average Sensormatic Share Price
(i.e. the average of the closing prices of Sensormatic Common Stock on the NYSE
for the 20 trading days preceding the date on which the Effective Time occurs),
provided, that if the Average Sensormatic Share Price exceeds $33, such $18
value would be increased by an amount equal to 0.273 times such excess of the
Average Sensormatic Share Price over $33 (and subject to certain additional
adjustments described herein). Under the Merger Agreement, if the Average
Sensormatic Share Price is less than $28, Sensormatic has the right to pay the
Merger Consideration in cash, or a combination of cash and Sensormatic Common
Stock (valued at the Average Sensormatic Share Price), such that the aggregate
value per share of such cash and Sensormatic Common Stock equals $18, provided,
that in such event Knogo may nonetheless require Sensormatic to pay the Merger
Consideration entirely in Sensormatic Common Stock, valued for such purpose at
$28 per share (in which event the Merger Consideration would be .6429 shares of
Sensormatic Common Stock). There is no provision for termination of the Merger
Agreement in the event that the Average Sensormatic Share Price is less than or
exceeds specified amounts. Had the Effective Time occurred on November 21,
1994, the Average Sensormatic Share Price would have been $35.67 and the
exchange value of a share of Knogo Common Stock under the foregoing formula
(assuming that none of the adjustments described below are applicable) would
have been $18.73, yielding a conversion ratio of .5251 of a share of
Sensormatic Common Stock for each share of Knogo Common Stock.
Upon completion of the Divestiture (as more fully described
below) and the Merger, each outstanding share of Knogo Common Stock will in
effect be exchanged for a fraction of a share of Sensormatic Common Stock
having a value of $18 (subject to adjustments as described above) and, as a
result of the Knogo N.A. Stock Distribution, one share of Knogo N.A. Common
Stock. In the event that a Knogo N.A. Sale occurs in lieu of the Knogo N.A.
Stock Distribution, Knogo Shareholders would receive the benefit of such sale
in the form of increased Merger Consideration (appropriately adjusted to
reflect the net after-tax proceeds retained by Knogo from the Knogo N.A. Sale)
or, in certain circumstances, a distribution of such proceeds directly from
Knogo. Except as
-1-
<PAGE> 21
otherwise agreed by the parties, any additional amount reflected in the Merger
Consideration would be paid in Sensormatic Common Stock or cash, or a
combination thereof, as described above.
The Knogo N.A. Stock Distribution and the Merger are intended
to be tax-free transactions for federal income tax purposes. However, in the
event that the Average Sensormatic Share Price is less than $28, and
Sensormatic pays a sufficient part of the Merger Consideration in cash such
that (taking into account cash paid to dissenting Shareholders, cash paid in
lieu of fractional share interests, and Shareholders who dispose of either
their shares of Knogo Common Stock prior to, or shares of Sensormatic Common
Stock after, the Merger but as part of a plan with respect thereto) historic
Knogo Shareholders in the aggregate retain a number of shares of Sensormatic
Common Stock having a value that is less than 50% of the value of Knogo
immediately after the Divestiture, then the Merger may not qualify for tax-free
reorganization treatment. See "The Merger--Certain Federal Income Tax
Consequences". In such event, Sensormatic intends to exercise its right to
consummate the Merger by means of the Alternative Merger, as described below.
See "The Merger--Alternative Merger; Other Alternative Structures".
In the event that as of the Effective Time Sensormatic is
prevented by law or an injunction or similar legal prohibition from acquiring
certain of Knogo's international business interests in connection with the
Merger, the Merger Agreement provides that such business interests would be
placed in escrow and, if the aggregate annual revenues attributable to such
businesses exceed $15,000,000, that a corresponding portion of the Merger
Consideration would also be placed in escrow. In such event, the Merger
Consideration payable to the Shareholders would also include a pro rata,
non-transferable (except in certain limited circumstances) interest in any
portion of the Merger Consideration placed in escrow pending final
determination of the regulatory prohibition that delayed transfer of such
escrowed businesses, and such escrowed Merger Consideration would be released
from escrow and distributed to the Shareholders upon receipt of the requisite
regulatory clearances or otherwise dealt with as provided for in the Merger
Agreement. In the event that the terms of any of the additional agreements
contemplated in the Merger Agreement are amended in order to facilitate the
consummation of the transactions contemplated in the Merger Agreement or
otherwise, and such amendments have an impact on the value of the Knogo
businesses to be acquired by Sensormatic pursuant to the Merger, the Merger
Consideration as otherwise determined would be appropriately adjusted prior to
the Closing Date under the Merger Agreement (the "Closing Date") by mutual
agreement of Sensormatic and Knogo, or, if mutual agreement cannot be achieved,
by an investment banking firm appointed in accordance with the Merger
Agreement. The Merger Consideration could also be subject to adjustment in the
event of a Knogo N.A. Sale. See "The Merger--Regulatory Considerations";
"--Possible Additional Adjustments in the Merger Consideration"; and "--Delayed
Transfers".
Upon consummation of the Merger, Knogo will be merged with and
into Sensormatic, and the separate existence of Knogo will cease and
Sensormatic will continue as the surviving corporation (the "Surviving
Corporation"), except that if the Average Sensormatic Share Price is less than
$28 and Sensormatic elects to pay a sufficient amount of the Merger
Consideration in cash such that Sensormatic reasonably determines that the
Merger may not qualify as a tax-free reorganization, and Knogo does not
exercise its option to cause the Merger Consideration to consist entirely of
Sensormatic Common Stock, Sensormatic intends to elect to effect the Merger by
merging into Knogo a wholly-owned subsidiary of Sensormatic (the "Alternative
Merger"), in which event Knogo will continue as the Surviving Corporation and
become a wholly-owned subsidiary of Sensormatic. See "The Merger--Alternative
Merger; Other Alternative Structures".
As a result of the Merger, based on the Average Sensormatic
Share Price as of November 21, 1994, the Shareholders will own approximately
4.3% of the issued and outstanding shares of common stock of the Surviving
Corporation. The exact number of shares issued pursuant to the Merger will be
dependent upon factors in effect at the time of the Merger, including the
-2-
<PAGE> 22
Average Sensormatic Share Price, any adjustments in the $18 value to be
received by Knogo Shareholders for each share of Knogo Common Stock, the number
of shares, if any, held by Shareholders who elect to exercise their appraisal
rights, and the number of shares of Knogo Common Stock issued prior to the
Effective Time upon the exercise of employee stock options.
Approval of the Merger requires the affirmative vote of
Shareholders owning 66 2/3% of the Knogo Common Stock outstanding as of
November 28, 1994, the Record Date. As of the Record Date, the directors and
executive officers of Knogo were the beneficial owners of approximately 23.3%
of the outstanding shares of Knogo Common Stock, including shares held by
William A. Perlmuth as Executor of the Estate of Arthur Minasy and as trustee
under trusts for the benefit of Mr. Minasy's adult children, representing
approximately 21.1% of the outstanding Knogo Common Stock. All of such persons
have advised Knogo that they intend to vote "for" the proposed transactions.
No vote of the stockholders of Sensormatic is required for the consummation of
the Merger and Sensormatic does not intend to submit to its stockholders a
proposal to approve and adopt the Merger and the Merger Agreement. See
"Introduction--Vote Required".
If the Merger is approved by the Shareholders, pursuant to the
Merger Agreement, and as a condition to the consummation of the Merger, the
Divestiture will occur immediately prior to the Merger in accordance with the
terms of the Contribution and Divestiture Agreement to be entered into between
Knogo and Knogo N.A. (the form of which is attached hereto as Annex II) (the
"Divestiture Agreement"). In order to effect the Divestiture, (i) Knogo will
contribute to Knogo N.A. all of Knogo's right, title and interest in and to the
business operations and related goodwill of Knogo in the United States, Canada
and Puerto Rico (the "Knogo N.A. Territory"), Knogo's assets and properties
located in the Knogo N.A. Territory related to such business operations,
subject to certain exclusions, and the stock of Knogo's Puerto Rican
subsidiary, and (ii) Knogo N.A. will assume the obligations and liabilities,
other than bank debt, related to such assets and properties, all subject to the
terms and conditions of the Divestiture Agreement (the "Contribution").
Thereafter, and prior to the Merger, Knogo will distribute all of the capital
stock of Knogo N.A. to the Knogo Shareholders, as is currently intended, or
sell the stock or assets of Knogo N.A. to a third party, so that upon the
effectiveness of the Merger, Knogo's business interests outside the Knogo N.A.
Territory will be combined with those of Sensormatic. In connection with the
Divestiture, Knogo N.A. will enter into certain business arrangements with
Knogo (to which Sensormatic will succeed following the Merger) relating to the
supply of certain products and the license of certain patent rights and
technology. See "The Divestiture--Supply and License Agreements".
Pursuant to the Knogo N.A. Stock Distribution, Knogo
Shareholders will receive one share of Knogo N.A. Common Stock for each share
of Knogo Common Stock held. There is currently no trading market for the Knogo
N.A. Common Stock, although it is expected that a "when-issued" trading market
may develop for the Knogo N.A. Common Stock. Application has been made to have
the Knogo N.A. Common Stock listed on the American Stock Exchange, Inc. While
Knogo currently intends to distribute the stock of Knogo N.A. to Knogo
Shareholders in a transaction intended to be tax-free under Section 355 of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), Knogo
may, following the Contribution and prior to the Effective Time, sell all of
Knogo N.A.'s stock, or all or substantially all of its assets, in which event
the net after-tax proceeds thereof would be reflected in an increase in the
Merger Consideration, or distributed to the Knogo Shareholders. See "The
Divestiture" and "The Merger--Possible Additional Adjustments in the Merger
Consideration".
The Companies--Sensormatic. Sensormatic is a fully integrated
supplier of electronic security systems to retail and non-retail markets
worldwide. Sensormatic designs, manufactures, markets and services electronic
article surveillance ("EAS") and electronic asset protection ("EAP") systems
(including the reusable tags and disposable labels used with such
-3-
<PAGE> 23
systems), closed circuit television ("CCTV") systems (including
microprocessor-controlled CCTV systems and exception monitoring systems), and
access control systems. These loss prevention systems are principally used to
deter shoplifting, or internal or other theft, in a wide variety of soft and
hard goods retail stores and non-retail environments such as commercial and
industrial facilities, as well as for other security applications.
Sensormatic's multiple product lines, which have been developed for specific
targeted loss prevention applications, make use of the broad base of technology
it has developed or acquired. See "Sensormatic Business".
Sensormatic is a Delaware corporation organized in 1968 to
succeed its predecessor, an Ohio corporation founded in 1966. Sensormatic's
principal executive offices are located at 500 N.W. 12th Avenue, Deerfield
Beach, Florida 33442, and its telephone number is (305) 420-2000.
The Companies--Knogo. Knogo is a manufacturer of asset
protection devices. Knogo's principal business is the design, production,
marketing and servicing of EAS systems used to deter and detect shoplifting and
employee theft in supermarket, department, discount, specialty and other types
of retail stores, including bookstores, video, liquor, drug, shoe, sporting
goods and other stores. Knogo's EAS systems are also used in libraries and
museums to detect and deter theft, in office buildings to control the loss of
office equipment and other assets, in nursing homes for patient control, in
hospitals for control of linen supplies and in a variety of other hard goods
applications. See "Knogo Business".
Knogo was incorporated as a New York corporation in 1966.
Knogo's principal executive offices are located at 350 Wireless Boulevard,
Hauppauge, New York 11788, and its telephone number is (516) 232-2100.
The Companies--Knogo N.A. Following the Divestiture, Knogo
N.A. will succeed to the present North American operations of Knogo and will
continue to manufacture, sell, install and service a complete line of EAS
equipment in the Knogo N.A. Territory. Such products will be manufactured by
Knogo N.A. and/or purchased from existing third party suppliers. For a period
of 30 months following the Effective Time, Knogo N.A. will supply products
valued at $24 million in the aggregate to Sensormatic for sale outside the
Knogo N.A. Territory. Knogo N.A. and Sensormatic will also grant each other
licenses to certain patent rights and technology. See "The Divestiture--Supply
and License Agreements".
Knogo N.A. will have approximately 250 employees, a 68,000 sq.
ft. office, research, engineering and distribution facility in Hauppauge, New
York, a 55,000 sq. ft. manufacturing facility in Cidra, Puerto Rico, and a
6,000 sq. ft. office in suburban Chicago, Illinois. At the time of the
Contribution, Knogo N.A. will not have any bank debt and will have a net worth
of approximately $24 million, based on the historical carrying values of
Knogo's assets. It is anticipated that the adjusted opening net worth of Knogo
N.A. following the Contribution and certain write-downs will be approximately
$21 million.
Knogo N.A.'s business is subject to certain risks, including
the risk that growth in its supermarket and library businesses will not occur,
that Knogo N.A. will be unable to replace lost volume once its supply agreement
with Sensormatic terminates and will therefore be unable to maintain profitable
margins in its manufacturing operations, and that the recent decline in Knogo's
North American revenues will not be reversed. (See "Special Factors" in the
Knogo N.A. Prospectus attached hereto as Annex V, for a fuller description of
certain investment considerations relating to Knogo N.A.)
Knogo N.A. was incorporated in Delaware on August 12, 1994.
Knogo N.A.'s principal executive offices are located at 350 Wireless Boulevard,
Hauppauge, New York 11788, and its telephone number is (516) 232-2100.
-4-
<PAGE> 24
Additional Information. For additional information regarding
the businesses of Sensormatic and Knogo, see "Available Information" and
"Incorporation of Certain Information by Reference". For additional
information regarding Knogo N.A., see the Knogo N.A. Prospectus attached as
Annex V.
Background of the Merger. In August 1993, the investment
banking firm Smith Barney Inc. ("Smith Barney") was requested to solicit and
evaluate potential corporate transactions involving a strategic partner, a
significant investor, or a merger or sale of Knogo's business. On June 2,
1994, the senior management of Knogo and Sensormatic held preliminary telephone
discussions concerning the potential advantages of a combination of Sensormatic
and Knogo's businesses other than its business in the United States (including
Puerto Rico) and Canada. At a meeting on June 5, 1994, they concluded that
such a combination was of sufficient interest that detailed financial
information concerning the two companies and their respective businesses should
be exchanged and evaluated.
Discussions with Sensormatic continued over the next two
months; during such period, Knogo also continued discussions with several other
potential buyers. On June 27, 1994, in response to inquiries in the
marketplace, Knogo issued a press release announcing that it was holding
discussions regarding a possible corporate transaction, such as a merger or
acquisition or the addition of a significant investor. Following negotiations
regarding the elements of the proposed merger and divestiture transactions and
the agreements necessary to effectuate the contemplated transactions, on August
11, 1994, Sensormatic offered to pay, for each share of Knogo Common Stock
(following the Divestiture of Knogo N.A.), $18 in Sensormatic Common Stock on
the terms and conditions more fully described in this Proxy
Statement--Prospectus and in the Merger Agreement. On August 12, 1994, the
Board of Directors of Knogo considered the proposal made by Sensormatic and, on
August 14, 1994, unanimously approved the Merger Agreement. The parties entered
into the Merger Agreement on that date. See "The Merger--Background of the
Merger".
Reasons for the Merger--Knogo. Knogo's directors have
determined that the terms of the Merger, together with the Knogo N.A. Stock
Distribution, are fair to and in the best interest of Knogo and its
Shareholders. The Knogo Board has unanimously recommended that the Knogo
Shareholders approve and adopt the Merger Agreement and the transactions
contemplated thereby, including the Divestiture and the Merger.
The Board of Directors of Knogo believes that the Merger with
Sensormatic, if effected as an exchange of Knogo Common Stock for Sensormatic
Common Stock, will afford Knogo Shareholders a more favorable opportunity to
participate in earnings and anticipated growth, as compared with other
potential business combinations previously discussed by the Knogo Board of
Directors, or remaining independent. In deciding to enter into the Merger
Agreement and recommend that the Shareholders adopt the Merger Agreement and
approve the transactions contemplated thereby, including the Divestiture and
the Merger, the Knogo Board of Directors was mindful in particular of the
premium in any event represented by the offer of Sensormatic and the value of
the retained operations of Knogo N.A. over the market price of the Knogo Common
Stock (which was trading in the range of $10 to $10 1/2 when discussions with
Sensormatic began, closed at $12 1/8 on the trading date prior to Knogo's
press release on June 27, 1994 and closed at $15 7/8 on the trading date prior
to the announcement of the execution of the Merger Agreement), as well as the
intended tax-free nature of the proposed exchange of Knogo Common Stock for
Sensormatic Common Stock and the potential value to Knogo Shareholders of Knogo
N.A. as an independent company. See "The Merger--Background of the Merger" and
"--Reasons for the Merger" for a description of the various factors considered
by the Knogo Board in making its decision.
-5-
<PAGE> 25
Reasons for the Merger--Sensormatic. The Board of Directors
of Sensormatic believes that the acquisition of Knogo's business interests
outside the United States, Canada and Puerto Rico (i.e., outside the Knogo N.A.
Territory) will enhance Sensormatic's strategy of expanding its own markets
globally, while also affording Sensormatic operating and marketing synergies.
In particular, Knogo's presence in Western Europe, Eastern Europe and the
countries of the Pacific Rim is expected to complement Sensormatic's existing
efforts in those regions, leading to a cost efficient acceleration of its
marketing efforts there. In addition, Knogo's experienced sales and service
organization, management team and well established customer base in Europe is
expected to enhance sales in that competitive market and afford Sensormatic the
opportunity to explore new niche markets there. Sensormatic expects such
increased sales and efficiencies to lead to increased profits and earnings per
share. Sensormatic also believes that, to the extent some or all of the Merger
Consideration is paid in Sensormatic Common Stock, the long-term interests of
Knogo Shareholders could be served through the exchange of shares of
Sensormatic Common Stock for shares of Knogo Common Stock, thereby providing
Knogo Shareholders with the opportunity to participate in the growth and
earnings of Sensormatic, of which Knogo's business outside the Knogo N.A.
Territory would be a part.
Effective Time of the Merger. The Merger will become
effective as of the time of filing of a Certificate of Merger with the
Secretary of State of Delaware (i.e., the Effective Time). The Merger
Agreement provides that a corresponding Certificate of Merger will be filed
with the Secretary of State of New York on the same day. Such filings will
occur when all conditions to the Merger contained in the Merger Agreement,
including the requisite approval of the Knogo Shareholders, the consummation of
the Divestiture and the satisfaction of applicable regulatory requirements,
have been satisfied or waived. Sensormatic and Knogo currently anticipate that
the Effective Time will occur as soon as practicable after the Special Meeting.
See "The Merger--Regulatory Considerations" and "--Other Conditions to the
Merger".
Recommendation of the Board of Directors of Knogo. The Knogo
Board believes that the terms of the Merger and the Divestiture are fair to,
and in the best interests of, the Knogo Shareholders, has unanimously approved
the Merger Agreement and the transactions contemplated thereby, including the
Merger and the Divestiture, and recommends that the Shareholders approve and
adopt the Merger Agreement and the transactions contemplated thereby, including
the Merger and the Divestiture. The conclusions of the Knogo Board with
respect to the Merger are based upon a number of factors. See "The
Merger--Background of the Merger", "--Reasons for the Merger--Knogo",
"--Recommendation of the Board of Directors of Knogo" and "--Opinion of
Financial Advisor".
Opinion of Knogo's Financial Advisor. Smith Barney has
delivered a written opinion to the Knogo Board, dated August 14, 1994, to the
effect that, as of the date of such opinion and based upon and subject to
certain matters stated therein, the consideration to be received by the holders
of Knogo Common Stock in the Merger and the Knogo N.A. Stock Distribution,
taken together, was fair, from a financial point of view, to such holders. A
copy of Smith Barney's opinion, which sets forth the assumptions made, matters
considered and limitations on the review undertaken, is attached to this Proxy
Statement--Prospectus as Annex III and should be read carefully by the Knogo
Shareholders in its entirety. See "The Merger--Opinion of Knogo's Financial
Advisor".
Certain Other Terms and Conditions. In addition to the
foregoing matters, certain other terms and conditions of the Merger Agreement
are as follows:
Regulatory Considerations. The consummation of the
transactions contemplated by the Merger Agreement is subject to the
expiration or earlier termination of all applicable waiting periods
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the regulations thereunder (collectively, the "HSR Act").
Pre-merger
-6-
<PAGE> 26
notification and report forms with respect to the Merger were filed by
Sensormatic and Knogo under the HSR Act. On September 16, 1994, the
Federal Trade Commission (the "FTC") issued a request for additional
information and documents related to the Merger. Such request
extended the waiting period under the HSR Act, during which no
transaction can be consummated, until 20 days after Sensormatic and
Knogo deliver the additional information requested. Sensormatic has
agreed with the FTC staff to enter into a consent order intended to
take effect before the Effective Time. The consent order is subject
to acceptance by the full FTC. Compliance by Sensormatic and Knogo
with the request for additional information and termination of the
waiting period, as well as such acceptance by the FTC, are expected to
occur prior to the anticipated Effective Time. See "The
Merger--Regulatory Considerations".
The consummation of the transactions contemplated by the
Merger Agreement is not subject to compliance with any pre-merger
notification or waiting period in any jurisdiction outside the U.S.,
but is subject to there being no law, regulation, order, decree or
injunction then in effect binding on either Sensormatic or Knogo that
would prevent the consummation of the Merger or make it illegal (a
"Regulatory Prohibition"), which Regulatory Prohibition could not be
avoided pursuant to the terms of the Merger Agreement as described
below under "The Merger", and the violation of which would have a
material adverse consequence to either party. Neither Sensormatic nor
Knogo has learned or received notice of any such Regulatory
Prohibition or that a proceeding has been commenced to impose a
Regulatory Prohibition. Inquiries about the transaction have been
received from regulatory authorities of certain countries. There can
be no assurance that a proceeding, investigation or action will not be
commenced by regulatory authorities or other persons in foreign
jurisdictions with respect to the transfer of ownership of some or all
of the Knogo subsidiaries or their marketing rights or other assets,
whether before the Effective Time (in which event, provision has been
made in the Merger Agreement for delayed transfers of such
subsidiaries, rights or assets) or thereafter. See "The
Merger--Regulatory Considerations", "--Delayed Transfers" and
"--Possible Additional Adjustments in the Merger Consideration".
Other Conditions to the Merger. In addition to the approval
of the Merger and the Merger Agreement by Shareholders and
satisfaction of the regulatory considerations, as described above, the
consummation of the Merger is conditioned upon the satisfaction of
certain other conditions set forth in the Merger Agreement, including:
(i) the receipt by each party of various legal opinions, certificates,
consents, resolutions and reports from the other and from third
parties; (ii) the execution and delivery of the Divestiture Agreement
and the consummation of the Divestiture in all respects in accordance
with the Divestiture Agreement; (iii) the execution and delivery of a
supply agreement, pursuant to which Knogo N.A. will supply Sensormatic
for a period of 30 months with certain of its product needs (the
"Supply Agreement"); (iv) the execution and delivery of a license
agreement, pursuant to which Sensormatic and Knogo N.A. will license
certain patent rights and technology from each other for use in their
respective businesses (the "License Agreement"; together with the
Divestiture Agreement and the Supply Agreement, the "Additional
Agreements"); (v) the extinguishment pursuant to the Merger of all
rights to purchase preferred stock issued to Knogo shareholders
pursuant to Knogo's Rights Agreement dated as of July 27, 1987, as
amended as of December 1, 1987 (the "Rights Agreement"); (vi) the
effectiveness of the Registration Statement under the Securities Act,
and the absence of any stop order suspending such effectiveness or the
institution or threat of proceedings for such purpose; (vii) the
approval for listing on the NYSE, subject to official notice of
issuance, of the shares of Sensormatic Common Stock issuable to the
Knogo Shareholders pursuant to the Merger Agreement; (viii) the
resignation of certain officers and directors of Knogo, and those of
its subsidiaries to be acquired by Sensormatic in the Merger (each an
"Acquired Subsidiary"), as Sensormatic shall request; and (ix) the
making of arrangements for the release of any
-7-
<PAGE> 27
bank liens on those assets of Knogo that are to be transferred to
Knogo N.A. in the Contribution. See "The Merger--Other Conditions to
Consummation of the Merger".
Consideration of Other Proposals. The Merger Agreement
provides that Knogo shall not, directly or indirectly, through any
officer, director, employee, agent or otherwise, solicit or initiate
the submission of proposals or offers from any person relating to any
acquisition, purchase or sale of all or a material amount of the
assets of, or any securities of, or any merger, consolidation or
business combination, liquidation, reorganization or similar
transaction with, Knogo or any material Acquired Subsidiary (an
"Acquisition Transaction"), or otherwise participate in such a
proposal or offer. Notwithstanding the foregoing, (i) Knogo may
furnish information concerning its business, properties or assets
which prior thereto had been furnished to Sensormatic to a person or
group that makes a bona fide inquiry or proposal concerning any
Acquisition Transaction, subject to a confidentiality agreement on
terms substantially the same as that entered into between Sensormatic
and Knogo, and (ii) Knogo may enter into discussions or negotiations
with any such person or group concerning any proposed Acquisition
Transaction, if the Board of Directors of Knogo determines in good
faith that (A) such person or group has the ability to consummate an
Acquisition Transaction that is more favorable to the Knogo
shareholders than the transactions contemplated by the Merger
Agreement and (B) providing such information or entering into such
discussions or negotiations will be in the best interests of Knogo and
its shareholders. In addition, Knogo may explore potential
transactions for the sale of the capital stock of Knogo N.A., provided
that such transactions and the negotiations of Knogo with respect
thereto cannot reasonably be expected to impair or interfere with, or
delay the consummation of, the transactions contemplated by the Merger
Agreement. Subject to the payment of certain expenses (see "The
Merger--Expenses; Certain Fees"), Knogo may terminate the Merger
Agreement prior to the Special Meeting upon receipt of a firm written
offer to consummate such an Acquisition Transaction, if the Board of
Directors of Knogo has determined in good faith that such termination
is in the best interests of Knogo and its shareholders and, after
receipt of the written opinion of counsel to such effect, that their
fiduciary duties require that the Merger Agreement be terminated.
Since the announcement of the Merger Agreement, no such inquiry, offer
or proposal has been received by Knogo, nor is Knogo engaged in any
such discussions or negotiations.
Amendment, Waiver and Termination. The Merger Agreement
(including any Exhibits thereto, which includes the form of each Additional
Agreement) may be amended at any time before or after its approval by the
Shareholders, to the extent permitted under the General Corporation Law of the
State of Delaware (the "DGCL") and the New York Business Corporation Law (the
"NYBCL"). In addition, the Merger Agreement provides that either Sensormatic
or Knogo may waive, in whole or in part, any of the conditions to the other's
performance set forth in the Merger Agreement.
The Merger Agreement may be terminated at any time prior to
the Effective Time (a) by mutual written consent of Knogo and Sensormatic, (b)
by either Knogo or Sensormatic, if the transactions contemplated by the Merger
Agreement shall not have been consummated by May 11, 1995, (c) by Knogo at any
time after December 12, 1994, if Knogo determines in good faith, which
determination shall be concurred in by its counsel and after consultation with
Sensormatic and Sensormatic's counsel, that it is unlikely that any applicable
waiting period under the HSR Act will expire or be terminated, (d) by either
Knogo or Sensormatic, if the Merger Agreement shall have been voted upon by the
Shareholders at the Special Meeting (which includes any adjournment or
postponement thereof) without the requisite shareholder approval being
obtained, (e) by Knogo, if its Board of Directors agrees to enter into an
Acquisition Transaction with another party, in accordance with the Merger
Agreement, or (f) by Sensormatic, by two business days' advance written notice
to Knogo, at any time after the 15th business day following commencement by
Knogo or its representatives of any discussions or negotiations, or receipt by
Knogo of any offer,
-8-
<PAGE> 28
with respect to a potential Acquisition Transaction, if following
commencement of such discussions or negotiations, or receipt of such offer,
Knogo fails or delays to timely and diligently carry out any of its
pre-closing obligations under the Merger Agreement, which failure or delay is
attributable, in whole or in part, to Knogo's participation in such
discussions or negotiations or consideration of such offer (a "Knogo Delay"),
unless prior to the end of such two-business day notice period, Knogo notifies
Sensormatic that such discussions or negotiations have been terminated and any
such offer has been withdrawn or rejected. See "The Merger--Amendment, Waiver
and Termination".
Comparative Rights of Shareholders. If the Merger is
consummated, the Knogo Shareholders will become shareholders of Sensormatic and
their rights will be governed by the Sensormatic Restated Certificate of
Incorporation, as amended (the "Sensormatic Certificate"), and the Sensormatic
By-Laws, which differ in certain material respects from the Knogo Amended and
Restated Certificate of Incorporation (the "Knogo Certificate") and the Knogo
By-Laws. As shareholders of Sensormatic, the rights of former Knogo
shareholders will be governed by the DGCL instead of the NYBCL.
Size and Classification of the Board of Directors. Pursuant
to the Sensormatic Certificate, Sensormatic's Board of Directors is
divided into three classes of directors, each consisting as nearly as
possible of one-third of the total number of directors. The term of
office of one of the three classes terminates each year, and each
class is elected for a three-year term. As long as the number of
directors does not exceed nine, Knogo's Board of Directors is divided
into two classes of directors, as nearly equal in number as possible,
in any case apportioned so that the difference in the number of
directors in the classes shall not exceed one. Knogo directors serve
staggered two-year terms.
Required Vote for Authorization of Certain Actions. The
Sensormatic Certificate provides that the holders of a least 80% of
the outstanding voting stock of Sensormatic must approve any merger or
consolidation with, any disposition of a substantial part of the
assets of Sensormatic or any subsidiary to, or any issuance or sale by
Sensormatic or a subsidiary of any stock of Sensormatic or a
subsidiary to, a beneficial owner of 5% or more of the outstanding
voting stock of Sensormatic, unless such transaction is approved by
the Board of Directors of Sensormatic and a majority of the directors
so approving are continuing directors (as defined in the Sensormatic
Certificate). The corresponding provision in the Knogo Certificate
requires that the holders of at least 80% of the outstanding voting
shares approve any merger or consolidation with, or any disposition of
a substantial part of the assets of, Knogo, or any issuance or sale by
Knogo of any shares of Knogo to beneficial owners of 10% or more of
the outstanding voting shares of Knogo, unless certain fair price and
other provisions are complied with. The Sensormatic Certificate also
provides that the holders of at least 80% of the outstanding voting
stock of Sensormatic must approve any amendments to the Sensormatic
Certificate or Sensormatic's By-Laws regarding the number,
classification, term of office, qualifications, election and removal
of directors and the filling of vacancies and newly created
directorships, or to provisions to the effect that shareholders may
not take action by written consent, or any changes in the Sensormatic
Certificate regarding the limitation of liability of directors or the
indemnification of officers and directors, or any change to the super
majority voting provisions, unless such change is submitted to the
stockholders with the unanimous recommendation of the entire
Sensormatic Board of Directors. The Knogo Certificate contains
similar provisions with respect to classification and term of office
but does not by its terms prohibit action by written consent.
Approval of at least 80% of outstanding shares is not required
regarding qualifications, election and removal of directors, the
filling of vacancies and newly created directorships, or amendments to
provisions regarding the limitation of liability of directors or the
indemnification of officers and directors, but 80% approval is
required to change the supermajority voting provisions unless such
change is declared advisable by the Knogo
-9-
<PAGE> 29
Board of Directors by the affirmative vote of two-thirds of the entire
Knogo Board of Directors.
State Antitakeover Statutes. Knogo is subject to the
antitakeover provisions of the NYBCL, and Sensormatic is subject to
the antitakeover provisions of the DGCL, both of which require that,
in certain circumstances, business combinations with interested
shareholders (defined as owners of 20% of the voting stock in the case
of the NYBCL and 15% in the case of the DGCL) be approved by specified
majorities of the disinterested shareholders. In addition,
Sensormatic is headquartered in the State of Florida, which has
adopted certain statutes applicable to transactions involving certain
corporations located in that State.
See "Description of Sensormatic Capital Stock--Common Stock"
and "Comparison of Certain Rights of Shareholders of Knogo and Sensormatic" for
a more detailed description of the foregoing provisions, various additional
provisions of the Sensormatic Certificate and the Sensormatic By-Laws and
corresponding provisions of the Knogo Certificate and the Knogo By-Laws, and
certain provisions of the DGCL and NYBCL.
Knogo Shareholder Rights Plan. The rights (the "Rights") of
Knogo shareholders to purchase preferred stock of Knogo in certain events,
which were previously granted with respect to each share of Knogo Common Stock
pursuant to the Rights Agreement, will be exchanged (together with the
corresponding shares of Knogo Common Stock) for the Merger Consideration
pursuant to the Merger and thereby extinguished. There are no comparable
rights associated with the Sensormatic Common Stock to be received by the
Shareholders in the Merger. See also "Comparison of Certain Rights of
Shareholders of Knogo and Sensormatic".
Fractional Shares. No fractional shares of Sensormatic Common
Stock will be issued in connection with the Merger. In lieu thereof, each
Shareholder otherwise entitled to a fraction of a share of Sensormatic Common
Stock pursuant to the terms of the Merger Agreement will be paid, in cash, an
amount equal to such fraction multiplied by the Average Sensormatic Share Price
as soon as practicable following the effective time of the Merger.
Appraisal Rights. Knogo Shareholders who follow the
procedures in Section 623 of the NYBCL will each have certain appraisal rights
as a result of the Merger to demand payment for the "fair value" of the shares
of Knogo Common Stock (after giving effect to the Divestiture) if they do not
vote for the approval and adoption of the Merger Agreement (which approval
would include submitting a signed proxy card without voting instructions),
timely object to the Merger in writing prior to the Special Meeting and
strictly comply with certain other requirements. Failure to take any of the
steps required on a timely basis may result in the loss of appraisal rights.
The amount obtainable upon the valid exercise of appraisal rights would be
determined by judicial proceedings, the result of which cannot be predicted.
See "The Merger--Appraisal Rights", Sections 623 and 910 of the NYBCL attached
hereto as Annex IV and "Comparative Rights of Shareholders--Appraisal or
Dissenters' Rights".
Certain Federal Income Tax Consequences. Provided that the
shares of Knogo N.A. are distributed to the shareholders of Knogo and unless,
if the Average Sensormatic Share Price is less than $28, a sufficient portion
of the Merger Consideration is payable in cash such that the Merger may not
qualify as a tax-free reorganization, Knogo will receive at closing an opinion
of its counsel, Stroock & Stroock & Lavan, to the effect that (i) the
Contribution and the Divestiture will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a)(1)(D) of the
Internal Revenue Code; (ii) Knogo will recognize no gain or loss as a result of
the Contribution; (iii) Knogo will recognize no gain or loss on the Knogo N.A.
Stock Distribution, as provided in Section 355(c) of the Internal Revenue Code;
(iv) the Merger will constitute a tax-free reorganization within the meaning of
Section 368(a)(1)(A) of the Internal Revenue Code and (v) no
-10-
<PAGE> 30
gain or loss will be recognized by Sensormatic or Knogo as a result of the
Merger. See "The Merger--Certain Federal Income Tax Consequences".
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Sensormatic Common Stock is traded on the NYSE under the
symbol SRM, and Knogo Common Stock is traded on the NYSE under the symbol KNO.
The following table sets forth for the periods indicated the high and low sale
prices for Sensormatic Common Stock (adjusted to reflect a three-for-two stock
split effected in November 1993) and closing prices for Knogo Common Stock as
reported by the NYSE.
<TABLE>
<CAPTION>
Sensormatic Common Stock
---------------------------------
High Low
-------- -------
<S> <C> <C>
Fiscal Year Ended June 30, 1995
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $35 3/8 $28 1/2
Second Quarter (through November 23, 1994) . . . . . . . . . . . . . . . . . 37 7/8 31 1/2
Fiscal Year Ended June 30, 1994
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5/12 24
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 27 3/4
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 7/8 33
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 5/8 27 1/2
Fiscal Year Ending June 30, 1993
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 1/6 15 1/6
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 11/12 15
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 11/12 20
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 24 7/12
Knogo Common Stock
---------------------------------
High Low
-------- -------
Fiscal Year Ending February 28, 1995
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11 1/2 $ 8 7/8
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1/8 10
Third Quarter (through November 23, 1994) . . . . . . . . . . . . . . . . . . 19 3/8 18
Fiscal Year Ended February 28, 1994
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1/4 9 5/8
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5/8 8
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1/2 9
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 7/8 10 5/8
Fiscal Year Ended February 28, 1993
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1/4 6 5/8
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3/4 5 1/8
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 6 1/2
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5/8 8 3/4
</TABLE>
As of the Record Date, there were approximately 4,500
stockholders of record of Sensormatic Common Stock. Sensormatic paid regular
semiannual cash dividends of $0.017 per share of Sensormatic Common Stock from
December 1978 through January 1990 and regular quarterly cash dividends of
$0.05 per share from April 1990 through November 1993, and has paid a regular
quarterly cash dividend of $0.055 per share since February 1994. The
declaration and
-11-
<PAGE> 31
payment of future dividends will be determined by the Board of Directors of
Sensormatic in light of conditions then existing, including Sensormatic's
earnings, financial condition, contractual debt covenants and capital
requirements.
As of the Record Date, there were approximately 600
shareholders of record of Knogo Common Stock. Knogo paid a quarterly cash
dividend from July 1987 through December 1991 and has not paid any dividends
since.
On August 12, 1994, the last trading day prior to the date
that Sensormatic and Knogo publicly announced that they had executed the Merger
Agreement, the last reported sale price for a share of Sensormatic Common Stock
on the NYSE Composite Tape was $32.00 and the last reported sale price for a
share of Knogo Common Stock on the NYSE Composite Tape was $15 7/8. If the
Merger had occurred on such date, the equivalent value of a share of Knogo
Common Stock pursuant to the Merger Agreement, after giving effect to the Knogo
N.A. Stock Distribution, would have been $18 plus the value of a share of Knogo
N.A. Common Stock that would have been issued in connection with the Knogo N.A.
Stock Distribution.
On November 23, 1994, the last reported sale price for a share
of Sensormatic Common Stock on the NYSE Composite Tape was $32 1/8 and the
last reported sale price for a share of Knogo Common Stock on the NYSE
Composite Tape was $18 3/4. Had the Merger become effective on November 25,
1994, the last trading day prior to the date of this Proxy
Statement--Prospectus, the Average Sensormatic Share Price would have been
$35.375; if the Average Sensormatic Share Price at the Effective Time were
$35.375, the equivalent value of a share of Knogo Common Stock pursuant to
the Merger Agreement, after giving effect to the Knogo N.A. Stock Distribution,
would be $18.65, plus the value of a share of Knogo N.A. Common Stock, when
issued. See "Comparative Per Share Data" below in this Summary. No assurance
can be given as to the market price of Sensormatic Common Stock at the
Effective Time.
MANAGEMENT AFTER THE MERGER
At the Effective Time, the Board of Directors and executive
officers of the Surviving Corporation will consist of directors and officers of
Sensormatic. See "The Merger--Management After the Merger".
INTERESTS OF CERTAIN PERSONS IN THE MERGER
William A. Perlmuth, a director of Knogo, is the beneficial
owner of 1,187,455 shares (approximately 21.1%) of Knogo Common Stock,
consisting of 906,655 shares held by Mr. Perlmuth as Executor of the Estate of
Mr. Arthur J. Minasy, the former Chairman and Chief Executive Officer of the
Company, 266,800 shares held by Mr. Perlmuth as trustee under trusts for the
benefit of Mr. Minasy's adult children, 4,000 shares beneficially owned by Mr.
Perlmuth, and 10,000 shares issuable upon the exercise of stock options
exercisable pursuant to a stock option agreement dated December 13, 1988
between Knogo and Mr. Perlmuth, as amended.
As of the Record Date, the directors and executive officers of
Knogo, and affiliates, as a group, beneficially own approximately 23.3% of the
outstanding shares of Knogo Common Stock entitled to vote at the Special
Meeting, including shares held by William A. Perlmuth, as Executor of the
Estate of Arthur Minasy and as trustee under trust for the benefit of Mr.
Minasy's adult children as described in the preceding paragraph. All of such
persons have advised Knogo that they intend to vote "for" the approval and
adoption of the Merger Agreement and the consummation of the transactions
contemplated thereby. Such shares will be converted in the
-12-
<PAGE> 32
Merger on the same terms and conditions as apply to all shares of Knogo Common
Stock. See "Introduction--Vote Required".
Certain executive officers of Knogo are parties to employment
agreements providing for certain benefits upon consummation of the Merger, and
such officers and certain additional executive offices of Knogo are expected to
enter into employment agreements with Knogo N.A. simultaneously with the Knogo
N.A. Stock Distribution. See "The Merger--Interests of Certain Persons in the
Merger".
-13-
<PAGE> 33
SENSORMATIC
SUMMARY HISTORICAL FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED MAY 31, YEARS ENDED JUNE 30, SEPTEMBER 30,
---------------------------- -------------------- -------------
1990 1991(1)(2) 1992 1993(1)(3) 1994(2) 1993(2) 1994
---- ----------- ---- ---------- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS DATA:
Total revenues . . . . . . . $ 191.3 $ 239.2 $ 309.9 $ 487.3 $ 656.0 $ 143.3 $ 190.9
Operating income . . . . . . 22.8 29.3 43.6 71.0 104.8 22.3 28.4
Income from continuing
operations . . . . . . . . 20.0 24.7 31.5 54.1 72.1 14.8 20.1
Net income . . . . . . . . . 20.0 24.7 31.5 54.1 72.1 14.8 20.1
Primary earnings per
common share:
Continuing operations
and net income . . . . . . $ 0.48 $ 0.60 $ 0.73 $ 0.97 $ 1.16 $ 0.25 $ 0.29
Fully diluted earnings per
common share:
Continuing operations
and net income . . . . . . 0.48 0.60 0.73 0.93 1.13 0.24 0.29
Cash dividends per
common share . . . . . . . 0.123 0.20 0.20 0.15(4) 0.21 0.05 0.055
BALANCE SHEET DATA
(AT END OF PERIOD):
Total assets . . . . . . . . $ 265.1 $ 421.8 $ 467.3 $ 926.9 $ 1,155.5 $ 1,011.5 $ 1,257.6
Total debt(5) . . . . . . . . 20.0 148.7 150.6 308.4 219.2 326.9 273.2
Total stockholders' equity . 199.8 222.2 255.7 489.8 727.7(5) 522.1 781.7(5)
</TABLE>
- -------------------------
(1) In fiscal 1993, Sensormatic acquired the European EAS, CCTV and
exception monitoring loss prevention systems division of Automated
Security (Holdings) PLC ("ALPS") and the outstanding common stock of
Security Tag Systems, Inc. and in fiscal 1991, it acquired the
outstanding common stock of American Dynamics.
(2) In fiscal 1994, Sensormatic adopted Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes".
In fiscal 1991, Sensormatic adopted SFAS No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions".
(3) Selected financial data for and as of the end of the one month ended
June 30, 1992 is as follows: total revenues - $21.0; operating loss
- $3.3; loss from continuing operations and net loss - $2.5; primary
and fully diluted loss per common share for continuing operations
and net loss - $0.06; total assets - $462.2; total debt - $150.3 and
total stockholders' equity - $258.3.
(4) Fourth quarter dividend of $0.05 per share of Common Stock was
declared in July 1993.
(5) In fiscal 1994, the outstanding $114.1 million of the $115 million
principal amount of 7% convertible subordinated debentures, issued
in fiscal 1991, were converted to approximately 7.3 million shares
of Common Stock and in fiscal 1993, Sensormatic issued $135 million
aggregate principal amount of Senior Notes.
-14-
<PAGE> 34
KNOGO
SUMMARY HISTORICAL FINANCIAL INFORMATION1
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Six Months
Year ended the last day of February Ended August 31,
----------------------------------------------------------- ----------------
(Unaudited)
1990 1991 1992 1993(2) 1994 1993 1994
---- ---- ---- ---- ---- ---- ----
SUMMARY OF OPERATIONS
<S> <C> <C> <C> <C> <C> <C> <C>
DATA:
Revenues . . . . . . . . $ 67,008 $ 80,005 $ 80,695 $ 94,382 $ 89,302 $ 46,371 $ 38,808
Cost of security
devices sold . . . . 24,522 29,780 30,611 34,808 32,620 17,155 14,177
Depreciation and
amortization
expenses . . . . . . 5,084 5,750 6,108 6,806 4,590 2,588 2,412
Selling, general and
administrative
expenses . . . . . . 29,379 37,055 41,316 41,054 41,356 20,891 20,857
Business restructuring
charges . . . . . . . -- -- 9,850 -- -- -- --
Operating profit (loss) . 5,483 4,777 (10,279) 8,186 7,186 3,774 (1,419)
Interest expense--net
of interest income . . 2,397 3,078 2,645 2,187 1,913 1,042 787
Income (loss) before
income taxes . . . . 2,670 1,920 (13,555) 3,573 4,537 2,513 (2,386)
Net income (loss) . . . . 480 1,491 (14,177) 2,744 3,614 1,885 (2,566)
Net income (loss) per
common share . . . . .09 .28 (2.70) .51 .65 .34 (.48)
Cash dividends paid
per share . . . . . .30 .30 .075 -- -- -- --
SELECTED BALANCE SHEET
DATA (AT END OF PERIOD):
Total assets . . . . . $ 124,653 $ 138,764 $ 113,372 $ 116,972 $ 114,451 $ 113,367 $ 110,756
Net investment in
sales-type leases . . 13,778 16,275 17,854 20,228 25,819 22,059 27,510
Security devices on
lease, net . . . . . 9,539 9,890 8,505 6,101 5,145 4,598 5,987
Notes payable, banks . . 35,655 40,882 32,448 32,160 26,150 28,313 23,083
Shareholders' equity . . 71,512 77,915 59,426 61,364 64,257 61,066 65,289
</TABLE>
- ----------------------------
(1) This summary historical financial information does not reflect the
Merger and Divestiture as described in this Registration Statement.
See "Pro Forma Combined Financial Information".
(2) Restated to reflect adoption of SFAS 109 "Accounting for Income Taxes".
See Note 1 to Notes to Consolidated Financial Statements of Knogo.
-15-
<PAGE> 35
COMBINED SENSORMATIC AND KNOGO INTERNATIONAL
SUMMARY PRO FORMA COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
September 30,(2)
Year Ended ---------------------
June 30, 1994(1) 1993 1994
---------------- ------ ------
<S> <C> <C> <C>
SUMMARY OF OPERATIONS DATA(3):
Total revenues . . . . . . . . . . . . . $ 726,054 $ 161,506 $ 205,842
Operating income . . . . . . . . . . . . 120,080 26,407 29,207
Net income . . . . . . . . . . . . . . . 79,942 16,999 20,138
Primary earnings per common share . . . . 1.23 0.27 0.28
Fully diluted earnings per
common share . . . . . . . . . . . . . 1.19 0.26 0.28
BALANCE SHEET DATA(3) (AT END OF
PERIOD):
Total assets . . . . . . . . . . . . . . $ 1,431,320
Debt . . . . . . . . . . . . . . . . . . 295,688
Total stockholders' equity . . . . . . . 890,940
</TABLE>
- --------------------
(1) Includes Knogo International, adjusted to reflect the Divestiture, for
the twelve-month period ended May 31, 1994.
(2) Includes Knogo International, adjusted to reflect the Divestiture, at
August 31, 1994 and for the three-month periods ended August 31, 1994
and 1993.
(3) The above pro forma information is presented as if the Knogo N.A.
Stock Distribution and Merger had been consummated with respect to the
statements of income on July 1, 1993 and with respect to the balance
sheet as of September 30, 1994.
See "Pro Forma Combined Financial Information" and Notes thereto.
-16-
<PAGE> 36
COMPARATIVE PER SHARE DATA
The following table sets forth for Sensormatic Common Stock
and Knogo Common Stock certain historical, unaudited pro forma and unaudited
pro forma equivalent per share financial information to reflect consummation of
the Merger (following the Knogo N.A. Stock Distribution), based upon the
historical financial statements of Sensormatic and Knogo. The information
presented herein should be read in conjunction with the Unaudited Pro Forma
Combined Financial Information, including the Notes thereto, appearing
elsewhere in the Proxy Statement--Prospectus and the separate historical
consolidated financial statements of Sensormatic and Knogo which are included
elsewhere herein or incorporated herein by reference.
<TABLE>
<CAPTION>
AS OF OR FOR THE THREE AS OF OR FOR THE
MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1994(1) JUNE 30, 1994(2)
--------------------- ------------------
<S> <C> <C> <C>
Sensormatic Common Stock
- ------------------------
Income per share from continuing operations:
Historical (primary) . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.29 $ 1.16
Historical (fully diluted) . . . . . . . . . . . . . . . . . . . . . . 0.29 1.13
Pro forma (Sensormatic and Knogo International)
(primary)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.28 1.23
Pro forma (Sensormatic and Knogo International)(fully diluted)(3) . . . 0.28 1.19
Cash Dividends per shares:
Historical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.055 $ 0.21
Pro forma (Sensormatic and Knogo International)(3) . . . . . . . . . . 0.055 0.21
Book value per share at period-end:
Historical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11.35 $ 10.76
Pro forma (Sensormatic and Knogo International)(3) . . . . . . . . . . 12.38 11.84
Average Sensormatic Share Price (assuming the
Effective Time occurred on November 21, 1994) . . . . . . . . . . . . . . . . . . . . . . $ 35.67
Knogo Common Stock
- ------------------
Income (loss) per share from continuing operations:
Historical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.43) $ 0.43
Pro forma equivalent (primary)(3) . . . . . . . . . . . . . . . . . . . 0.15 0.66
Pro forma equivalent (fully diluted)(3) . . . . . . . . . . . . . . . . 0.15 0.64
Cash Dividends per share:
Historical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Pro forma equivalent(3) . . . . . . . . . . . . . . . . . . . . . . . . $ 0.029 $ 0.11
Book value per share at period-end:
Historical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12.07 $ 12.18
Pro forma equivalent(3) . . . . . . . . . . . . . . . . . . . . . . . . 6.50 6.22
Market value per share at November 18, 1994
(historical) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19.00
Pro forma equivalent market value per share
at November 21, 1994 (does not include value of
Knogo N.A. Common Stock to be received in Knogo
N.A. Stock Distribution) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18.73
</TABLE>
See Accompanying Notes and "Pro Forma Combined Financial Information".
-17-
<PAGE> 37
NOTES TO COMPARATIVE PER SHARE DATA
(1) Includes Knogo information at and for the three-month period ended August
31, 1994.
(2) Includes Knogo information at and for the twelve-month period ended May 31,
1994.
(3) The above pro forma information with respect to Sensormatic and Knogo
assumes that the merger of Knogo into Sensormatic had been consummated on
July 1, 1993, with respect to Income per Share from Continuing Operations
and Cash Dividends per Share. With respect to Book Value per Share at
September 30, 1994 and June 30, 1994, the above pro forma information
assumes that the merger of Knogo into Sensormatic had been consummated on
September 30, 1994 and June 30, 1994, respectively.
-18-
<PAGE> 38
INTRODUCTION
SOLICITATION OF PROXIES
This Proxy Statement--Prospectus and the accompanying proxy
card are furnished in connection with the solicitation by the Knogo Board of
Directors of proxies to be used at the Special Meeting, which will be held on
December 29, 1994 at 10:00 A.M., local time, at Knogo Corporation, 350 Wireless
Boulevard, Hauppauge, New York, including any adjournments or postponements
thereof. Only holders of Knogo Common Stock at the close of business on the
Record Date are entitled to notice of, and to vote at, the Special Meeting,
whether in person or by proxy.
The expense of soliciting proxies, including the cost of
assembling and mailing this proxy material to Knogo Shareholders, will be borne
by Knogo. In addition to solicitation of proxies for the Special Meeting by
use of the mails, Knogo may use the services of its directors, officers and
employees to solicit proxies personally or by telephone, without additional
salary or compensation to them. Knogo has also retained the services of
Georgeson & Company, Inc. to assist in the solicitation of proxies for a fee
estimated at $5,000, plus reimbursement of out-of-pocket expenses. Brokerage
houses, custodians, nominees and fiduciaries will be requested to forward the
proxy soliciting materials to the beneficial owners of Knogo's shares held of
record by such persons, and Knogo will reimburse such persons for reasonable
out-of-pocket expenses incurred by them related thereto.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, Knogo Shareholders will be asked to
consider a proposal to approve and adopt the Merger Agreement pursuant to which
Knogo will be merged with Sensormatic (or a subsidiary of Sensormatic), subject
to and following the Divestiture. Approval of the Merger Agreement will also
constitute approval of the transactions contemplated thereby, including the
Merger and the Divestiture. In the Divestiture, Knogo will contribute to Knogo
N.A. all of Knogo's business interests (subject to certain exclusions) in the
United States, Canada and Puerto Rico, and distribute the stock of Knogo N.A.
to the Shareholders, as is currently intended, or otherwise dispose of the
stock or assets of Knogo N.A. In the Merger, the separate existence of Knogo
will cease and each outstanding Knogo Common Share will be converted into the
right to receive the Merger Consideration (i.e., the fraction of a share of
Sensormatic Common Stock having a value of $18, based upon the Average Price of
Sensormatic Common Stock, subject to adjustment as more fully described herein,
to be received by Knogo Shareholders in the Merger). For a more complete
description of the Merger Agreement and the forms of agreement annexed thereto,
the manner of determining the Merger Consideration, the other terms of the
Merger and the Divestiture and related matters, see "The Divestiture" and "The
Merger".
Knogo Shareholders are requested to complete, date and sign
the enclosed proxy card and return it promptly to Knogo. Shareholders who
attend the Special Meeting in person may vote their stock personally, even if
they have previously mailed a proxy.
VOTING AND REVOCATION OF PROXY
If a proxy is properly executed and timely returned, it will
be voted in accordance with the instructions contained therein and, in the
absence of specific instructions, will be voted to approve and adopt the Merger
Agreement and the transactions contemplated thereby, including the Merger and
the Divestiture, and for authorizing the person or persons voting the proxies
to vote in favor of adjournment or postponement of the Special Meeting if
management of Knogo determines that such adjournment or postponement is
necessary or appropriate. In
-19-
<PAGE> 39
addition, properly executed proxies that are timely returned will be voted in
accordance with the judgment of the person or persons voting the proxies on any
other matter that may properly be brought before the Special Meeting. Any
proxy may be revoked at any time before it is voted by (i) attending the
Special Meeting and voting in person or (ii) delivering a written revocation or
a later dated proxy to the Secretary of Knogo at or prior to the Special
Meeting.
If fewer shares of Knogo Common Stock have been voted in favor
of the approval and adoption of the Merger Agreement than the number required
for approval and adoption as of the date of the Special Meeting, it is expected
that the Special Meeting will be adjourned or postponed in order to allow
additional time for obtaining additional proxies or votes. At any subsequent
reconvening of the Special Meeting, all proxies obtained prior to such
adjournment or postponement will be voted in such manner as such proxies would
have been voted at the original convening of the Special Meeting (except for
any proxies which shall have been theretofore effectively revoked or
withdrawn), notwithstanding that they may have been effectively voted on the
same or any other matter at a previous meeting.
RECORD DATE; VOTING RIGHTS
The Knogo Board has set November 28, 1994 as the Record Date
to determine those record owners of Knogo Common Stock entitled to notice of,
and to vote at, the Special Meeting. At that date, there were approximately
600 shareholders of record, all of whom are entitled to vote on the proposal to
approve and adopt the Merger Agreement and the transactions contemplated
thereby, who held an aggregate of 5,634,673 issued and outstanding shares of
Knogo Common Stock. Each share is entitled to one vote with respect to the
matters to be voted upon at the Special Meeting.
QUORUM
Knogo's By-Laws provide that the holders of more than a
majority of the shares of Knogo Common Stock outstanding and entitled to vote
must attend the Special Meeting in person or be represented by proxy in order
for a quorum to be properly constituted at the Special Meeting. Abstentions
will be counted as present for purposes of determining whether a quorum is
present.
VOTE REQUIRED
Under the NYBCL and the Knogo Certificate, approval and
adoption of the Merger Agreement and the transactions contemplated thereby
requires the affirmative vote of Shareholders owning 66-2/3% of the outstanding
shares of Knogo Common Stock as of the Record Date. Abstentions and broker
non-votes will have the same effect as negative votes. As of the Record Date,
directors and executive officers of Knogo were the beneficial owners of
approximately 23.3% of the outstanding shares of Knogo Common Stock, including
shares held by William A. Perlmuth, as Executor of the Estate of Arthur Minasy
and as trustee under trusts for the benefit of Mr. Minasy's adult children
representing approximately 21.1% of the outstanding Knogo Common Stock. All of
such persons have advised Knogo that they intend to vote "for" the approval and
adoption of the Merger Agreement and the consummation of the transactions
contemplated thereby and "for" authorizing the person or persons voting the
proxies to vote in favor of adjournment or postponement of the Special Meeting
if management of Knogo determines that such adjournment or postponement is
necessary or appropriate. (Additional information concerning the ownership of
Knogo Common Stock is contained in the Knogo N.A. Prospectus which is attached
to this Proxy Statement--Prospectus as Annex V, under the captions
"Management--Stock Ownership of Executive Officers and Directors" and
"Principal Stockholders of Knogo and Knogo N.A.".)
-20-
<PAGE> 40
No vote of the shareholders of Sensormatic is required for
consummation of the Merger.
MATTERS DEEMED ADOPTED, APPROVED OR RATIFIED BY KNOGO SHAREHOLDERS
Adoption and approval of the Merger Agreement by the Knogo
Shareholders will also constitute approval of the Merger and the Divestiture
and authorization, adoption and ratification of the various agreements to be
entered into by Knogo pursuant to the Merger Agreement, including the
Divestiture Agreement, the Supply Agreement and the License Agreement, each as
defined in the Merger Agreement.
THE DIVESTITURE
The Divestiture is to be effected in accordance with the terms
and conditions set forth in the Divestiture Agreement, the form of which and
the forms of License Agreement and Supply Agreement referred to therein are
attached hereto as Annex II-A, II-B and II-C, respectively, and incorporated
herein by reference. The execution of the Divestiture Agreement, the Supply
Agreement and the License Agreement in such forms, or as amended by mutual
agreement of the parties, is a condition to the consummation of the Merger.
The following brief description does not purport to be complete and is
qualified in its entirety by reference to such Agreements.
THE DIVESTITURE AGREEMENT
The Merger Agreement provides that if the Merger is approved
by the Shareholders and certain other conditions to the Merger are satisfied,
the Divestiture would occur immediately prior to the Merger, in accordance with
the terms of the Divestiture Agreement. Pursuant to the Divestiture Agreement,
immediately prior to the Divestiture, Knogo will make the Contribution, i.e.,
contribute to Knogo N.A. all of the right, title and interest of Knogo in and
to the business operations and related goodwill of Knogo in the Knogo N.A.
Territory, Knogo's assets and properties located in the Knogo N.A. Territory
related to such business operations (subject to certain exclusions) and the
stock of Knogo Caribe, Inc., Knogo's subsidiary in Puerto Rico (after certain
of its financial assets are contributed to Knogo or its other subsidiaries),
subject to and as more particularly described in the Divestiture Agreement.
Simultaneously with the Contribution, Knogo N.A. will assume and agree to pay,
perform and discharge obligations and liabilities (including contingent
liabilities) of Knogo directly relating to the employees retained by it, its
customers in the Knogo N.A. Territory, Knogo's products sold or leased to such
customers and its assets and properties located in the Knogo N.A. Territory,
subject to and as more particularly described in the Divestiture Agreement.
The Divestiture Agreement provides that, as of the time of the Contribution,
Knogo N.A. will not have any bank debt and will have a net worth of
approximately $24 million, based on the historical carrying values of Knogo's
assets and liabilities. It is anticipated that the adjusted opening net worth
of Knogo N.A. following the Contribution and certain write-downs will be
approximately $21 million (approximately $3.73 per share, based on 5,634,673
shares of Knogo N.A. Common Stock assumed to be outstanding).
Following the Contribution and related assumption of
liabilities and prior to the Merger, Knogo would either (i) carry out the Knogo
N.A. Stock Distribution, i.e., distribute to its Shareholders, in a
distribution intended to be a tax-free spin-off under Section 355 of the
Internal Revenue Code, the shares of Knogo N.A. Common Stock, or (ii) carry out
the Knogo N.A. Sale, i.e., sell the shares of Knogo N.A. Common Stock, in
either case subject to and as contemplated by the terms of the Divestiture
Agreement. Knogo currently intends to effect the Knogo N.A.
-21-
<PAGE> 41
Stock Distribution. Prior to and in connection with the Knogo N.A. Stock
Distribution, Knogo is required to use its reasonable efforts to register the
Knogo N.A. Common Stock under the Exchange Act and, if necessary or
appropriate, under the Securities Act, and to cause the Knogo N.A. Common Stock
to be listed or quoted on a national securities exchange or trading market.
Pursuant to the Knogo N.A. Stock Distribution, Knogo
Shareholders will receive one share of Knogo N.A. Common Stock for each share
of Knogo Common Stock held. There is currently no trading market for the Knogo
N.A. Common Stock, although it is expected that a "when-issued" trading market
will develop for the Knogo N.A. Common Stock. Application has been made to
have the Knogo N.A. Common Stock listed on the American Stock Exchange, Inc.
While Knogo currently intends to distribute the stock of Knogo N.A. to Knogo
Shareholders in a transaction intended to be tax-free under Section 355 of the
Internal Revenue Code, Knogo may, following the Contribution and prior to the
Effective Time, sell all of Knogo N.A.'s stock, or all or substantially all of
its assets (i.e., a Knogo N.A. Sale), in which event the Merger Consideration
would be appropriately increased to reflect the after-tax net proceeds thereof
(in an amount determined by mutual agreement of the parties or, failing such
agreement, by an investment banking firm appointed in accordance with the
Merger Agreement), or such proceeds would be distributed to the Knogo
Shareholders. See "The Merger--Possible Additional Adjustments in the Merger
Consideration". Whether the Divestiture is effected in the form of the Knogo
N.A. Stock Distribution, as is currently intended, or a possible Knogo N.A.
Sale, the business interests included in Knogo N.A. will not be acquired by
Sensormatic in the Merger and the Shareholders will retain the benefit thereof,
either in the form of shares of Knogo N.A. Common Stock or in the form of an
increase in the Merger Consideration to reflect the net after-tax proceeds of a
Knogo N.A. Sale (or, in certain circumstances, the distribution to the
Shareholders of such proceeds).
In the event of a Knogo N.A. Sale, an alternative to the sale
of the stock of Knogo N.A., such as the sale of all or substantially all of
Knogo N.A.'s assets, may be agreed upon by the parties. See "The
Merger--Alternative Merger; Other Alternative Structures". The Merger
Agreement provides that in no event shall the Knogo N.A. Sale or any
alternative transaction cause Knogo (or Sensormatic) to control another entity,
or impair or delay consummation of the Merger, as contemplated by the Merger
Agreement. The terms of the Knogo N.A. Sale may not commit Knogo to any
liability for representations or warranties, or any indemnity or other
obligations, that survive the closing other than Knogo's obligations under the
Divestiture Agreement, Supply Agreement and License Agreement.
Pursuant to the Divestiture Agreement, for a period of five
years, Knogo N.A. may not compete with Knogo (or Sensormatic, as its successor)
outside the Knogo N.A. Territory, including in the manufacture (except for sale
in the Knogo N.A. Territory in certain instances), marketing, sale, or license
of EAS, CCTV or other products to deter and detect shoplifting and employee
theft, or license any intellectual property contributed to Knogo N.A. pursuant
to the Divestiture Agreement.
Pursuant to the Divestiture Agreement, Knogo and Sensormatic
will indemnify Knogo N.A. against losses, liabilities, damages and expenses
(including reasonable attorneys' fees and costs) ("Damages") arising out of the
breach of any covenant of Knogo thereunder, or arising out of or in connection
with Knogo's business, other than those Damages related to the liabilities
assumed by Knogo N.A. thereunder, as well as certain liabilities under the
federal securities laws (except to the extent arising out of or based upon
information furnished by Knogo). Knogo N.A. will indemnify Knogo and
Sensormatic against Damages arising out of the breach of any covenant of Knogo
N.A. under the Divestiture Agreement, arising out of or in connection with the
Divestiture (except with respect to liabilities or obligations of Knogo or
Sensormatic under the Divestiture Agreement) or arising out of or in connection
with those
-22-
<PAGE> 42
liabilities assumed by Knogo N.A. pursuant to the Divestiture Agreement, as
well as certain liabilities under the federal securities laws (to the extent
arising out of or based upon information furnished by Knogo or Knogo N.A.).
The Divestiture Agreement also provides that the parties will make appropriate
arrangements to obtain and maintain insurance for certain of such liabilities.
The Divestiture Agreement also contains further provisions
relating to the Divestiture and the dealings between Knogo N.A. and Knogo
following the Divestiture, including, without limitation, the provision by
Knogo N.A. of certain interim administrative services following the Divestiture
and obligations of Knogo N.A. as to confidentiality. Following the Effective
Time, Sensormatic, as the Surviving Corporation, will succeed to and be
entitled to all rights, benefits and remedies of, and will be subject to all
obligations of, Knogo under the Divestiture Agreement, the License Agreement
and the Supply Agreement.
SUPPLY AND LICENSE AGREEMENTS
Supply Agreement. Knogo's factory and production facilities
in Cidra, Puerto Rico are among the assets located in the Knogo N.A. Territory
which will be contributed to Knogo N.A. pursuant to the Divestiture Agreement.
The Supply Agreement provides for Knogo (and Sensormatic, as its successor) to
purchase products currently produced or marketed by Knogo or hereafter produced
or marketed by Knogo N.A. ("Knogo Products") from Knogo N.A., for sale outside
the Knogo N.A. Territory, in a minimum aggregate dollar amount of $12,000,000
during the first 12 months and an additional $12,000,000 during the ensuing 18
months, subject to certain quarterly and monthly minimums and maximums. The
Supply Agreement provides that such Knogo Products will be priced such that
Knogo N.A.'s gross profit margin on the sale of such Knogo Products will be
35%. In the event that Sensormatic fails to purchase the required minimum
amount of Knogo Products, Sensormatic would be liable to pay liquidated damages
in the amount of 35% of the shortfall, except that to the extent that such
failure is caused by Sensormatic contemporaneously producing such Knogo
Products for itself, the applicable percentage would be 50%.
License Agreement. The Divestiture Agreement provides that
Knogo will contribute to Knogo N.A. the United States and Canadian patents and
trademarks owned by Knogo. Knogo will retain ownership of its patents and
trademarks outside the United States and Canada. Know-how and other
intellectual property will be commonly owned by Knogo and Knogo N.A., provided
that Knogo N.A. will have the exclusive right to make or have made, use,
market, distribute, sell, lease, install, service and market Knogo Products
within the Knogo N.A. Territory and Knogo will have such exclusive rights
outside the Knogo N.A. Territory, all as subject to the provisions of the
License Agreement. The License Agreement provides that shortly after the
Divestiture, Knogo N.A. will deliver to Sensormatic all know-how in its
possession which Knogo is entitled to retain, and perform certain ongoing
training and consulting services in connection therewith, without additional
consideration.
Pursuant to the License Agreement, Knogo (and Sensormatic, as
its successor) and Knogo N.A. will grant to each other certain perpetual,
fully-paid licenses under the patents and other technology to be contributed to
Knogo N.A. or retained by Knogo (as applicable), including (i) a non-exclusive
license from Knogo N.A. to Knogo to manufacture or have manufactured Knogo
Products in the Knogo N.A. Territory (and to apply the Knogo trademarks and
trade names thereto), provided that such products are marketed, distributed,
sold or leased outside of the Knogo N.A. Territory for use outside of the Knogo
N.A. Territory; (ii) a non-exclusive license from Knogo N.A. to Knogo to use,
make, have made, market, distribute, sell or lease SuperStrip in the Knogo N.A.
Territory; (iii) a non-exclusive license from Knogo to Knogo N.A. to make or
have made Knogo Products and SuperStrip outside the Knogo N.A. Territory but
-23-
<PAGE> 43
only for marketing, distribution, sale or use in the Knogo N.A. Territory; and
(iv) certain cross-licenses of improvements developed by the parties during the
five years following the date of the Divestiture.
Notwithstanding any of the territorial restrictions referred
to above, each of the parties has the further right to sell material used for
source labeling (i.e., embedding or affixing label materials in or to
merchandise at the point of manufacture or distribution) to manufacturers or
distributors located outside their respective territories, but only to be
embedded in or affixed to merchandise for source labeling purposes, and only if
such merchandise is to be sold by such manufacturers or distributors for sale
and use in accordance with the territorial restrictions otherwise applicable to
the party supplying such material.
The License Agreement also provides that following a "Change
in Control" (as defined in the License Agreement) of Knogo N.A., if Sensormatic
has licensed or assigned rights in SuperStrip to a party other than an
affiliate, distributor, dealer or a party manufacturing for Sensormatic or such
persons, Knogo N.A. or its successor will have the right to obtain a similar
non-exclusive license outside the Knogo N.A. Territory on terms no less
favorable than those available to any such licensee. The License Agreement
also contains provisions giving each party the right to purchase SuperStrip
from the other if the selling party is manufacturing SuperStrip or having
SuperStrip manufactured by others under contract to such selling party.
THE MERGER
This section of the Proxy Statement--Prospectus describes
certain aspects of the proposed Merger. The following description does not
purport to be complete and is qualified in its entirety by reference to the
Merger Agreement, which is attached as Annex I to this Proxy
Statement--Prospectus and is incorporated herein by reference.
STRUCTURE AND TERMS OF THE MERGER
On August 14, 1994, the Merger Agreement was executed by
Sensormatic, Knogo and Knogo N.A. Pursuant to the Merger Agreement, at the
Effective Time, and assuming that the Knogo N.A. Stock Distribution has
occurred, each share of Knogo Common Stock issued and outstanding immediately
prior to the Effective Time will be converted into the right to receive the
Merger Consideration, which is equal to a fraction of a share of Sensormatic
Common Stock having a value equal to $18, based upon the Average Sensormatic
Share Price (i.e., the average of the closing prices of Sensormatic Common
Stock on the NYSE for the 20 trading days preceding the date on which the
Effective Time occurs), provided, that if such Average Sensormatic Share Price
exceeds $33, the $18 value would be increased by an amount equal to 0.273 times
such excess of the Average Sensormatic Share Price over $33 (and subject to
certain additional adjustments described herein). Under the Merger Agreement,
if the Average Sensormatic Share Price is less than $28, Sensormatic has the
right to pay the Merger Consideration in cash, or a combination of cash and
Sensormatic Common Stock (valued at the Average Sensormatic Share Price), such
that the aggregate value per share of such cash and Sensormatic Common Stock
equals $18, provided, that in such event Knogo may nonetheless require
Sensormatic to pay the Merger Consideration entirely in Sensormatic Common
Stock, valued for such purpose at $28 per share (in which event the Merger
Consideration would be .6429 shares of Sensormatic Common Stock). There is no
provision for termination of the Merger Agreement in the event that the Average
Sensormatic Share Price is less than or exceeds specified amounts. The Merger
Consideration, however, could be further adjusted in certain other events. See
"The Merger--Possible Additional Adjustments in the Merger Consideration".
-24-
<PAGE> 44
Upon completion of the Divestiture (as more fully described
under "The Divestiture" above) and the Merger, each outstanding share of Knogo
Common Stock will in effect be exchanged for a fraction of a share of
Sensormatic Common Stock having a value of $18 (subject to adjustments as
described above) and, as a result of the Knogo N.A. Stock Distribution, one
share of Knogo N.A. Common Stock. In the event that a Knogo N.A. Sale occurs
in lieu of the Knogo N.A. Stock Distribution, Knogo Shareholders would receive
the benefit of such sale in the form of increased Merger Consideration
(appropriately adjusted to reflect the net after-tax proceeds retained by Knogo
from the Knogo N.A. Sale) or, in certain circumstances, a distribution of such
proceeds directly from Knogo. (See "The Divestiture--The Divestiture
Agreement".) Except as otherwise agreed by the parties, any additional amount
reflected in the Merger Consideration would be paid in Sensormatic Common Stock
or cash, or a combination thereof, as described above.
The Knogo N.A. Stock Distribution and the Merger are intended
to be tax-free transactions for federal income tax purposes. However, in the
event that the Average Sensormatic Share Price is less than $28, and
Sensormatic pays a sufficient part of the Merger Consideration in cash such
that (taking into account cash paid to dissenting Shareholders, cash paid in
lieu of fractional share interests, and Shareholders who dispose of either
their shares of Knogo Common Stock prior to, or shares of Sensormatic Common
Stock after, the Merger but as part of a plan with respect thereto) historic
Knogo Shareholders in the aggregate retain a number of shares of Sensormatic
Common Stock having a value that is less than 50% of the value of Knogo
immediately after the Divestiture, then the Merger may not qualify for tax-free
reorganization treatment. See "The Merger--Certain Federal Income Tax
Consequences". In such event, Sensormatic intends to exercise its right to
consummate the Merger by means of the Alternative Merger, as described in the
following paragraph.
Upon and following the Effective Time, the separate existence
of Knogo will cease and Sensormatic will continue as the Surviving Corporation,
except that if the Average Sensormatic Share Price is less than $28, and
Sensormatic elects to pay a sufficient amount of the Merger Consideration in
cash, such that Sensormatic reasonably determines that the Merger may not
qualify as a tax-free reorganization for federal income tax purposes, and Knogo
does not exercise its option to cause the Merger Consideration to consist
entirely of Sensormatic Common Stock, Sensormatic may elect to effect the
Merger by consummating the Alternative Merger (i.e., merging a newly-formed New
York corporation which is a wholly-owned subsidiary of Sensormatic with and
into Knogo), in order that the Merger would be treated for federal income tax
purposes as the purchase by Sensormatic of all of the outstanding stock of
Knogo. In such event, Knogo would be the surviving corporation of such
Alternative Merger. See "The Merger--Alternative Merger; Other Alternative
Transaction Structures".
Pursuant to the Merger Agreement, and as a condition to the
consummation of the Merger, the Divestiture will occur immediately prior to the
Merger in accordance with the terms of the Divestiture Agreement. See "The
Divestiture--The Divestiture Agreement."
BACKGROUND OF THE MERGER
In May 1993, Knogo retained Smith Barney to assist Knogo in
seeking financing, among other things, to further develop and exploit its
SuperStrip technology. Knogo believed that following the restructuring charges
taken in the fiscal year ended February 29, 1992, its lender banks, which
already had substantial loans outstanding to Knogo, would not be willing to
increase substantially their loans to Knogo as might be required for Knogo to
develop SuperStrip and related technologies, if Knogo were to proceed with the
development on its own, and to significantly expand its participation in the
industry's development of source labeling, which it believed would be an
important part of the future of EAS. Consequently, Knogo requested that
-25-
<PAGE> 45
Smith Barney contact certain third parties to determine whether such parties
would have an interest in providing financing to Knogo in the range of $25
million to $30 million. Based on preliminary discussions, Knogo's management
believed that such financing was unlikely to be available.
In August 1993, Smith Barney was requested to solicit and
evaluate potential corporate transactions involving a strategic partner, a
significant investor, or a merger or sale of Knogo's business. In determining
to pursue such transactions, the Knogo Board of Directors considered such
factors as: Knogo's need for additional financing to develop and exploit its
products, to establish and coordinate domestic and international MIS systems
and to enhance its competitiveness; the deteriorating health of its chairman,
chief executive officer and founder, Arthur J. Minasy, who died on May 10,
1994, and the fact that Knogo's international business had been initiated and
nurtured by Mr. Minasy and was largely dependent on his continued involvement;
the need to augment Knogo's international executive force if Mr. Minasy were to
become inactive; and the desire of Mr. Minasy and his family eventually to
diversify his estate and make it less dependent on his Knogo holdings. The
Board was also cognizant of the facts that Knogo's earnings record had been
erratic, that its share price was less than it had been five years before and
had not kept pace with increases in the S&P 500 Index and the S&P Electrical
Equipment Index, that its shares sold at a lower multiple of earnings than
other companies in its industry and that a corporate transaction or merger
might enhance shareholder value.
Accordingly, the search for a merger partner or significant
investor was commenced. During late 1993 and into 1994, numerous entities were
contacted on a confidential basis. Expressions of interest in various
transactions were received from a number of parties and exploratory discussions
were conducted with each of these entities. Discussions with several of these
entities continued through all or part of the period during which discussions
were underway with Sensormatic.
Mr. Minasy invited Ronald G. Assaf, Chairman of the Board and
chief executive officer of Sensormatic, to visit Mr. Minasy at Mr. Minasy's
residence in Belgium to discuss possible mutual business interests in Europe.
During the visit, which took place during the week of February 7, 1994, Messrs.
Minasy and Assaf discussed in general terms the possibility of jointly
developing an electromagnetic label product for use in Europe. Mr. Minasy also
mentioned his concern about his expected transition from an active management
role with Knogo, and raised the possibility of Sensormatic's buying Knogo.
There were no significant follow-up conversations as to these possibilities
prior to Mr. Minasy's death in May 1994.
On June 2, 1994, Michael E. Pardue, Sensormatic's Executive
Vice President, telephoned Thomas A. Nicolette, Knogo's President and chief
executive officer, concerning the potential advantages of a combination of
Sensormatic and Knogo's businesses other than its business in the United States
(including Puerto Rico) and Canada. Sensormatic's focus on such businesses
outside the United States and Canada, which generated the substantial portion
of Knogo's revenues and profits, was consistent with Sensormatic's strategy of
expanding its business globally, as well as obtaining operating and marketing
synergies with Knogo's subsidiaries in Europe and the Pacific Rim. As
negotiations developed, it appeared to both parties that there would be more
value to an independent company than the value Sensormatic would have placed on
the U.S. and Canadian operations of Knogo. It was also anticipated by the
parties that in view of Sensormatic's focus, divesting Knogo's businesses in
the United States and Canada would facilitate clearance under the HSR Act
(expiration of the waiting periods under the HSR Act being one of two principal
contingencies to the consummation of the transaction, the other being
shareholder approval).
-26-
<PAGE> 46
On June 5, 1994, the chief executives and certain directors
and advisors of Knogo and Sensormatic met to discuss a potential transaction
involving the two companies and to provide Sensormatic with an overview of
Knogo's operations. In attendance at that meeting were Mr. Nicolette, Robert
Abbott, Senior Vice President-Finance of Knogo, William Perlmuth, a member of
the law firm of Stroock & Stroock & Lavan and a director of Knogo, and a
representative of Smith Barney, on behalf of Knogo, and Mr. Assaf, Mr. Pardue,
James Lineberger, Chairman of the Executive Committee of the Sensormatic Board,
and Jerome LeWine, a member of the law firm of Christy & Viener and a member of
the Executive Committee of the Sensormatic Board, on behalf of Sensormatic.
Knogo and Sensormatic concluded that such a combination was of sufficient
interest that detailed financial information concerning the two companies and
their respective businesses should be exchanged and evaluated, subject to a
confidentiality agreement that had been entered into in advance of the meeting.
Thereafter, Knogo and Sensormatic, through their senior management and
respective legal and financial advisors, exchanged, evaluated and discussed
such information and the possible structure and terms of a potential
transaction.
On June 14, 1994, Mr. Abbott, Peter Mundy, Vice President and
Corporate Controller of Knogo, and a representative of Smith Barney, met with
Lawrence Simmons, Vice President-Finance of Sensormatic. At such meeting,
Knogo provided Sensormatic with information concerning Knogo's sales revenue
recognition policy; taxes and tax audits; manufacturing; product cost methods
(without disclosing product costs); inventory levels; Knogo's Hauppauge
facility; and personnel matters.
Shortly after the June 14, 1994 meeting, Sensormatic indicated
that, subject to further negotiation and due diligence, it estimated the value
of Knogo's international operations, including Knogo's Puerto Rican subsidiary
and manufacturing operations, for purposes of a potential transaction at
approximately $100,000,000. Shortly thereafter, Knogo had a draft term sheet
prepared describing its view of certain structural aspects of a potential
transaction. The draft term sheet contemplated that the Puerto Rico subsidiary
and manufacturing facility would remain with Knogo N.A. and introduced the
concept of a supply agreement providing for minimum purchases by Sensormatic
from Knogo N.A. over a specified period, but did not include certain key terms
for the transaction, such as price and break-up fees. On June 23, 1994, the
draft term sheet was forwarded to Sensormatic's financial advisors and on June
27, 1994, Knogo's and Sensormatic's financial advisors met to discuss the
transaction.
Discussions continued over the next two months with
Sensormatic and several other potential buyers. On June 27, 1994, in response
to inquiries in the marketplace, Knogo issued a press release announcing that
it was holding discussions regarding a possible corporate transaction, such as
a merger or acquisition or the addition of a significant investor. By July
1994, Knogo and Sensormatic elected to have representatives of the two
companies, together with their financial, legal and accounting advisors,
conduct a more detailed review of the businesses and operations of the two
companies for purposes of evaluating a potential combination of Sensormatic
with the businesses of Knogo outside the United States (including Puerto Rico)
and Canada. Following this more detailed exchange and discussion of financial,
business and operational information, Knogo and Sensormatic and their
representatives entered into negotiations regarding the elements of the
proposed merger and divestiture transactions and the agreements necessary to
effectuate the contemplated transactions.
On August 11, 1994, Sensormatic offered to pay, for each share
of Knogo Common Stock (following the Divestiture of Knogo N.A.), $18 in
Sensormatic Common Stock on the terms and conditions more fully described below
and in the Merger Agreement. The Knogo Board of Directors, at meetings on
August 12 and 14, 1994, considered the proposal made by Sensormatic. In its
discussions the Knogo Board determined that a merger transaction with
-27-
<PAGE> 47
Sensormatic, together with the Divestiture, on the terms set forth in the
Merger Agreement and the Divestiture Agreement, would afford the Knogo
Shareholders greater value for their shares than was likely to be realized by
them if Knogo remained an independent company or was sold to or merged with
other potential parties. The Knogo Board took into consideration that the
value being placed by Sensormatic on the Knogo Common Stock in the Merger,
together with the estimated minimum value of the Divestiture, was significantly
greater than the highest market price for Knogo Common Stock in recent years
and was approximately 100% above the range at which Knogo Common Stock was
trading when discussions with Sensormatic began and approximately 80% above the
price at which it closed on the trading date prior to Knogo's press release on
June 27, 1994. The Knogo Board also noted that Knogo's Shareholders would have
the potential opportunity to participate in the growth of EAS products through
the growth of Sensormatic's business as well as through the separate growth and
development of Knogo N.A., including the marketing by Knogo N.A. of the
SuperStrip technology in the Knogo N.A. Territory, as a result of the Knogo
N.A. Stock Distribution. The Knogo Board further noted that the transactions
were intended to be tax-free for federal income tax purposes.
The Knogo Board further considered that the Merger Agreement
provides for the payment by Sensormatic to Knogo of a fee of $10,000,000 in the
event of a termination of the Merger Agreement other than under certain
specified circumstances and for payment of a fee of $4,000,000 in the event of
a termination of the Merger Agreement under other specified circumstances. The
Knogo Board also considered that the Merger Agreement also provides for the
payment by Knogo to Sensormatic of a fee of $4,000,000 or more in the event the
Merger Agreement is terminated by Knogo under certain specified circumstances.
See "Expenses; Break-Up Fees" under this heading.
The Knogo Board also noted that, pursuant to the Merger
Agreement, (i) the Knogo Board may consider bona fide inquiries and proposals
received after the date of the Merger Agreement or enter into discussions or
negotiations with the person or group making such inquiry or proposal if the
Knogo Board determines in good faith that such person or group has the ability
to consummate a transaction that is more favorable to Knogo Shareholders than
the transaction contemplated under the Merger Agreement and that the Board's
consideration of such inquiry or proposal or its entering into such discussions
or negotiations is in the best interest of Knogo and Knogo Shareholders, and
(ii) Knogo may terminate the Merger Agreement in the event that a firm offer to
consummate an acquisition transaction other than as contemplated by the Merger
Agreement is received prior to the Special Meeting and the Knogo Board has
determined in good faith that such termination is in the best interests of
Knogo and its Shareholders and, after receipt of the written opinion of counsel
to such effect, that the Board's fiduciary duties require that the Merger
Agreement be terminated, subject to certain conditions. See "Consideration of
Other Proposals" under this heading. Since the announcement of the Merger
Agreement, no such inquiries, proposals or offers have been received to date.
The Knogo Board also considered that if Knogo terminates the Merger Agreement
with Sensormatic pursuant to the Merger Agreement and consummates within nine
months a transaction pursuant to another proposal, Knogo will be obligated to
pay to Sensormatic a fee according to a formula set forth in the Merger
Agreement.
At the Board meeting on August 14, 1994 and prior to the
execution and delivery of the Merger Agreement, Knogo received from Smith
Barney an oral opinion (which was subsequently confirmed in writing) to the
effect that, as of such date and based upon and subject to certain matters, the
consideration to be received by Knogo Shareholders in the proposed Knogo N.A.
Stock Distribution and Merger, taken together, was fair, from a financial point
of view, to such Shareholders. See "Opinion of Knogo's Financial Advisor"
below under this heading.
-28-
<PAGE> 48
At the August 14, 1994 meeting, the Board inquired as to
whether Smith Barney was able to estimate the market price for shares of Knogo
N.A. Common Stock after the Merger and the Knogo N.A. Stock Distribution. The
Smith Barney representative noted that, as stated in its opinion, Smith Barney
expressed no opinion as to, among other things, the price at which the Knogo
N.A. Common Stock will trade subsequent to the Merger and the Knogo N.A. Stock
Distribution, but that Smith Barney had assumed, for purposes of its opinion,
based on management's projections and Smith Barney's financial analyses, a per
share value for the Knogo N.A. Common Stock of between $2.00 to $8.00. See
"Opinion of Knogo's Financial Advisor--Discounted Cash Flow Analyses".
The Board also inquired as to the "collar" provision in the
Merger Agreement. The Smith Barney representative noted that the collar was
favorable in that it was structured so that the $18 exchange value of Knogo
Common Stock would be adjusted upward if the average market price of
Sensormatic Common Stock exceeded $33.00 prior to the Merger and that,
regardless of decreases in the market price of Sensormatic Common Stock, Knogo
shareholders would receive that number of shares of Sensormatic Common Stock
having a value of not less than $18 per share (although Knogo Shareholders
might receive cash for all of a portion of their Knogo Common Stock if the
average share price of Sensormatic Common stock fell below $28 per share). In
addition, the Merger Agreement did not provide Sensormatic with the right to
terminate the Merger Agreement in the event that the average market price of
Sensormatic Common Stock were to fall below certain levels. See "The
Merger--Structure and Terms of the Merger".
The Board also requested to be updated as to the status of
negotiations with other potential buyers. The Smith Barney representative
reviewed with the Board the process undertaken by Knogo in connection with its
search for a merger partner and the status of discussions with the interested
prospects, noting that no firm offer had been received from any other prospect.
The Board asked the Smith Barney representative how Knogo
Shareholders would participate in the potential value of the SuperStrip
technology under the terms of the Merger. The representative replied that
Knogo Shareholders could participate in such potential value through the shares
of Sensormatic Common Stock received in the Merger and through the distribution
of shares of Knogo N.A. Common Stock pursuant to the Knogo N.A. Stock
Distribution. The representative also noted that, under the terms of the
License Agreement, Knogo N.A. had a right to purchase SuperStrip from
Sensormatic at Sensormatic's cost for a five-year period after closing. See
"The Divestiture--Supply and License Agreements".
The Board of Directors of Knogo unanimously approved the
Merger Agreement on August 14, 1994 and the parties entered into such Agreement
on that date. The proposed transactions were publicly announced on August 15,
1994.
REASONS FOR THE MERGER--KNOGO
Knogo's directors have determined that the terms of the
Merger, including the Knogo N.A. Stock Distribution, are fair to and in the
best interest of Knogo and its Shareholders. The Knogo Board has unanimously
recommended that the Knogo Shareholders approve and adopt the Merger Agreement
and the transactions contemplated thereby, including the Divestiture and the
Merger.
The Knogo Board of Directors, in its consideration of the
Merger Agreement, received presentations from and reviewed the terms and
conditions of the Merger Agreement with members of Knogo's management, Knogo's
counsel and Knogo's financial advisor, Smith
-29-
<PAGE> 49
Barney. After such review, the Board of Directors of Knogo concluded that the
Merger with Sensormatic will afford Knogo Shareholders a more favorable
opportunity as compared with other potential business combinations previously
discussed by the Knogo Board of Directors or if Knogo were to remain
independent. If effected as an exchange of Knogo Common Stock for Sensormatic
Common Stock, Knogo Shareholders will derive the additional benefit of
participating in the earnings and anticipated growth of Sensormatic.
In deciding that the consideration to be received in the
Merger and Knogo N.A. Stock Distribution is fair to Knogo Shareholders, the
Knogo Board considered the following factors:
(i) the terms of the Merger Agreement and the
transactions contemplated thereby, including the amount and form of
consideration to be paid by Sensormatic and the valuation of the
shares of Knogo N.A. to be distributed in the Knogo N.A. Stock
Distribution;
(ii) government regulatory considerations and the
likelihood of the transactions being consummated;
(iii) historical information regarding the market
prices of Knogo Common Stock;
(iv) information concerning the financial
performance, condition, business operations and prospects of Knogo,
Knogo N.A. (on a pro forma basis) and Sensormatic;
(v) current market and economic conditions
affecting the businesses of Knogo and Sensormatic;
(vi) the protection afforded Knogo Shareholders in
the event the market price of Sensormatic Common Stock was below $28
at the effective time of the Merger;
(vii) the comparison of the proposed Merger with
possible alternatives available to Knogo, including potential
transactions with other third parties as explored by Smith Barney at
the direction of the Knogo Board, and continuation as an independent
public company;
(viii) the fact that the terms of the Merger
Agreement were the result of arm's length negotiations between
representatives of Knogo and Sensormatic; and
(ix) the fairness opinion of its financial
advisor, Smith Barney.
The Knogo Board also considered the following additional benefits of the
transactions contemplated by the Merger Agreement in deciding that the Merger
and Knogo N.A. Stock Distribution are in the best interests of the Knogo
Stockholders.
(i) the opportunity to participate in the
earnings and anticipated growth of Sensormatic being offered to Knogo
Shareholders through ownership of Sensormatic Common Stock;
-30-
<PAGE> 50
(ii) the opportunities afforded to the
Shareholders through an interest in Knogo N.A., a company with a
favorable financial condition and no bank debt following the
Divestiture;
(iii) the structure of the Knogo N.A. Stock
Distribution and Merger, which (except in the case of the Alternative
Merger) would permit Knogo Shareholders to exchange all their Knogo
Common Stock for Sensormatic Common Stock, and to receive Knogo N.A.
Common Stock, on a tax-free basis; and
(iv) that the Knogo Shareholders would continue to
have investment liquidity since their Sensormatic shares are listed on
the NYSE and the Knogo N.A. shares are expected to be listed or quoted
on a national securities exchange or trading system (although there
can be no assurance as to the establishment or continuity of a public
trading market for the Knogo N.A. shares).
In view of the wide variety of factors considered in
connection with its evaluation of the Merger and Merger Consideration, the
Board of Directors of Knogo did not find it practical to assign relative
weights to the factors considered in reaching its decision, and therefore, the
Board of Directors of Knogo did not quantify or otherwise attach relative
weights to the specific factors considered by the Board of Directors.
In deciding to enter into the Merger Agreement and recommend
that the Shareholders adopt the Merger Agreement and approve the transactions
contemplated thereby, including the Divestiture and the Merger, the Knogo Board
of Directors was mindful in particular of the premium represented in any event
by the offer of Sensormatic and the value of the retained operations of Knogo
N.A. over the market price of the Knogo Common Stock (which was trading in the
range of $10 to $10 1/2 when discussions with Sensormatic began, closed at $12
1/8 on the trading date prior to Knogo's press release on June 27, 1994 and
closed at $15 7/8 on the trading date prior to the announcement of the
execution of the Merger Agreement), as well as the added advantage of the
intended tax-free nature of the proposed exchange of Knogo Common Stock for
Sensormatic Common Stock, and also the potential value to Knogo Shareholders of
Knogo N.A. as an independent company.
On the basis of the foregoing factors and for reasons
discussed in greater detail under "Background of the Merger", above, the Knogo
Board of Directors concluded that the proposed Merger with Sensormatic and the
Divestiture would afford the Knogo Shareholders greater value for their shares
than was likely to be realized by them through the other available alternatives
and, accordingly, was fair to and in the best interests of the Knogo
Shareholders.
RECOMMENDATION OF THE KNOGO BOARD OF DIRECTORS
KNOGO'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT KNOGO
SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND OF
THE DIVESTITURE AND MERGER CONTEMPLATED THEREBY. Knogo's Board of Directors
further unanimously recommends that Knogo Shareholders vote "FOR" authorizing
the person or persons voting to vote in favor of adjournment or postponement of
the Special Meeting if management of Knogo determines that such adjournment or
postponement is necessary or appropriate.
REASONS FOR THE MERGER--SENSORMATIC
The Board of Directors of Sensormatic believes that the
acquisition of Knogo's business interests outside of the United States, Canada
and Puerto Rico will enhance
-31-
<PAGE> 51
Sensormatic's strategy of expanding its own markets globally, while also
affording Sensormatic operating and marketing synergies. In particular,
Knogo's presence in Western Europe, Eastern Europe and the countries of the
Pacific Rim is expected to complement Sensormatic's existing efforts in those
regions, leading to a cost efficient acceleration of its marketing efforts
there. In addition, Knogo's experienced sales and service organization,
management team and well established customer base in Europe is expected to
enhance sales in that competitive market and afford Sensormatic the opportunity
to explore new niche markets there. Sensormatic expects such increased sales
and efficiencies to lead to increased profits and earnings per share.
Sensormatic also believes that, to the extent some or all of the Merger
Consideration is paid in Sensormatic Common Stock, the long-term interests of
Knogo shareholders could be served through the exchange of shares of
Sensormatic Common Stock for shares of Knogo Common Stock, thereby providing
Knogo shareholders with the opportunity to participate in the growth and
earnings of Sensormatic, of which Knogo's business interests outside of the
Knogo N.A. Territory would be a part.
OPINION OF KNOGO'S FINANCIAL ADVISOR
Smith Barney was retained by Knogo to act as its financial
advisor in connection with the transactions contemplated by the Merger
Agreement. In connection with such engagement, Knogo requested that Smith
Barney evaluate the fairness, from a financial point of view, to Knogo
Shareholders of the consideration to be received by such Shareholders in the
Merger and the Knogo N.A. Stock Distribution (collectively, the "Transaction").
On August 14, 1994, Smith Barney rendered to the Knogo Board of Directors an
oral opinion (subsequently confirmed by a written opinion dated such date) to
the effect that, as of such date and based upon and subject to certain matters,
the consideration to be received by the holders of Knogo Common Stock in the
Merger and the Knogo N.A. Stock Distribution, taken together, was fair, from a
financial point of view, to such holders. All of the members of the Knogo
Board of Directors were present at the August 14, 1994 meeting at which Smith
Barney rendered such oral opinion.
In arriving at its opinion, Smith Barney reviewed the Merger
Agreement and the Divestiture Agreement (collectively, the "Agreements") and
certain related agreements, and held discussions with certain senior officers,
directors and other representatives and advisors of Knogo and certain senior
officers and other representatives and advisors of Sensormatic concerning the
businesses, operations and prospects of Knogo, Knogo N.A. and Sensormatic.
Smith Barney examined certain publicly available business and financial
information relating to Knogo and Sensormatic and certain business and pro
forma financial information relating to Knogo N.A. as well as certain financial
forecasts and other data for Knogo, Knogo N.A. and Sensormatic which were
provided by the respective managements of Knogo and Sensormatic. Smith Barney
reviewed the financial terms of the Transaction as set forth in the Agreements
in relation to, among other things: current and historical market prices and
trading volume of Knogo Common Stock and Sensormatic Common Stock; the
historical and projected earnings of Knogo and Sensormatic and the pro forma
historical and projected earnings of Knogo N.A.; and the respective companies'
capitalization and financial condition. Smith Barney considered, to the extent
publicly available, the financial terms of certain other similar transactions
recently effected, and analyzed certain financial and other publicly available
information relating to the businesses of other companies, in Knogo's industry.
In connection with its engagement, Smith Barney also approached, and held
preliminary discussions with, certain third parties to solicit indications of
interest in a possible acquisition of Knogo. In addition to the foregoing,
Smith Barney conducted such other analyses and examinations and considered such
other financial, economic and market criteria as Smith Barney deemed necessary
to arrive at its opinion.
-32-
<PAGE> 52
In rendering its opinion, Smith Barney assumed and relied,
without independent verification, upon the accuracy and completeness of the
financial and other information publicly available or furnished to or otherwise
discussed with Smith Barney. With respect to financial forecasts and other
information provided to or otherwise discussed with Smith Barney, Smith Barney
assumed that such forecasts and other information were reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
management of Knogo and Sensormatic as to expected future financial performance
of Knogo, Knogo N.A. and Sensormatic. Smith Barney also relied upon the
analysis of Knogo's legal counsel as to the potential tax consequences of the
Transaction. Smith Barney did not express any opinion as to what the value of
the Sensormatic Common Stock actually will be when issued to Knogo Shareholders
pursuant to the Merger, what the value of the shares of Knogo N.A. Common Stock
actually will be when issued to Knogo Shareholders pursuant to the Knogo N.A.
Stock Distribution, or the prices at which the Sensormatic Common Stock or the
Knogo N.A. Common Stock will trade subsequent to the Transaction. In addition,
Smith Barney did not make or obtain an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of Knogo, Knogo N.A. or
Sensormatic nor did Smith Barney make any physical inspection of the properties
or assets of Knogo, Knogo N.A. or Sensormatic. Although Smith Barney evaluated
the consideration to be received by the holders of Knogo Common Stock in the
Transaction from a financial point of view, Smith Barney was not asked to and
did not recommend the specific consideration to be paid by Sensormatic in the
Merger. No other limitations were imposed by Knogo on Smith Barney with
respect to the investigations made or procedures followed by Smith Barney in
rendering its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SMITH BARNEY DATED
AUGUST 14, 1994, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS ANNEX III TO THIS
PROXY STATEMENT--PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. KNOGO
SHAREHOLDERS ARE URGED TO READ THIS OPINION CAREFULLY IN ITS ENTIRETY. SMITH
BARNEY'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE CONSIDERATION TO BE
RECEIVED BY THE HOLDERS OF KNOGO COMMON STOCK IN THE TRANSACTION AND HAS BEEN
PROVIDED SOLELY FOR THE USE OF THE KNOGO BOARD OF DIRECTORS IN ITS EVALUATION
OF THE TRANSACTION, DOES NOT ADDRESS ANY OTHER ASPECT OF THE TRANSACTION OR ANY
RELATED TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY KNOGO
SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SPECIAL MEETING. THE
SUMMARY OF THE OPINION OF SMITH BARNEY SET FORTH IN THIS PROXY
STATEMENT--PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
In preparing its opinion to the Board of Directors of Knogo,
Smith Barney performed a variety of financial and comparative analyses,
including those described below. The summary of such analyses does not purport
to be a complete description of the analyses underlying Smith Barney's opinion.
The preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. In arriving at its opinion, Smith Barney did not
attribute any particular weight to any analysis considered by it, but rather
made qualitative judgments as to the significance and relevance of each
analysis. Accordingly, Smith Barney believes that its analyses must be
considered as a whole and that selecting portions of its analyses and factors,
without considering all analyses and factors, could create a misleading or
incomplete view of the processes underlying such analyses and its opinion. In
its analyses, Smith Barney made numerous assumptions with respect to Knogo,
Knogo N.A. and Sensormatic, industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of Knogo, Knogo N.A. and Sensormatic. The estimates contained in such
analyses are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less favorable
than those suggested by such analyses. In addition, analyses relating to the
value of
-33-
<PAGE> 53
businesses or securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold. Accordingly,
such analyses and estimates are inherently subject to substantial uncertainty.
Comparable Company Analysis. Using publicly available
information, Smith Barney analyzed, among other things, the market value and
trading multiples of Knogo, and compared such multiples to those of Sensormatic
and Checkpoint Systems, Inc. ("Checkpoint" and, together with Sensormatic, the
"Comparable Companies"). The Comparable Companies were selected because such
companies were the only U.S. publicly traded security companies (other than
Knogo) whose operations where predominantly focused on EAS. Smith Barney
compared market values as multiples of, among other things, historical earnings
per share ("EPS") and projected calendar 1994 and 1995 EPS. The multiples of
latest twelve months EPS and projected calendar 1994 and 1995 EPS of
Sensormatic were 28.4x, 25.6x and 20.6x, respectively, and the multiples of
projected calendar 1994 and 1995 EPS of Checkpoint were 32.5x and 23.8x,
respectively. Checkpoint's latest twelve months EPS was not deemed meaningful
for comparative purposes because of Checkpoint's marginally profitable
performance on a latest twelve months basis. As a result of its depressed
historical earnings, it was assumed that Checkpoint's market valuation was
based on its projected earnings. In order to establish a range of value for
the total consideration to be received by Knogo shareholders from both the
Merger and the Knogo N.A. Stock Distribution (the "Total Transaction
Consideration"), Smith Barney also analyzed the range of potential values for
Knogo N.A. Common Stock based on the results of its discounted cash flow
analysis. Given the strong projected earnings growth for Knogo N.A. relative
to the Comparable Companies, it was believed that a discounted cash flow
analysis would more accurately reflect the potential value for Knogo N.A.
Common Stock than would a trading multiple analysis of historical or near-term
projected earnings. Assuming a per share value range for the Knogo N.A. Common
Stock of between $2.00 to $8.00 (see "Discounted Cash Flow Analyses" below),
which equates to a Total Transaction Consideration of between $20.00 to $26.00
per share, the multiples of latest twelve months EPS and projected fiscal years
ended February 1995 and 1996 EPS implied by the Total Transaction Consideration
were between 39.8x to 52.1x, 37.5x to 49.1x and 21.8x to 28.6x, respectively.
Smith Barney also compared adjusted market values (common
equity market value, plus the book value of debt and preferred stock, less cash
and cash equivalents) to latest twelve months earnings before interest, taxes,
depreciation and amortization ("EBITDA") and earnings before interest and taxes
("EBIT") implied by the Total Transaction Consideration, and compared those
multiples to the trading multiples of EBITDA and EBIT of the Comparable
Companies. The multiples of latest twelve months EBITDA and EBIT of the
Comparable Companies which were deemed meaningful were 16.9x and 22.6x,
respectively, while the multiples implied by the Total Transaction
Consideration, using the same range of per share equity values for the Knogo
N.A. Common Stock described above, were between 12.4x to 15.7x and 21.3x to
27.1x, respectively. Checkpoint's latest twelve months EBITDA and EBIT
multiples were not deemed to be meaningful for comparative purposes because of
Checkpoint's marginally profitable performance on a latest twelve months basis.
Smith Barney noted that, in general, the multiple ranges
implied by the Total Transaction Consideration compared favorably with those of
the Comparable Companies and, taken together with the other analyses performed
and factors considered by Smith Barney, supported Smith Barney's opinion as to
the fairness of the consideration to be received by Knogo Shareholders in the
Transaction from a financial point of view.
Selected Mergers and Acquisitions Analysis. Using publicly
available information, Smith Barney analyzed the equity purchase prices and
implied transaction multiples in the following selected mergers and acquisition
transactions in the EAS industry:
-34-
<PAGE> 54
Sensormatic/Security Tag Systems, Inc. and Sensormatic/ALPS Division of
Automated Security (Holdings) PLC (the "Selected Acquisitions"). Smith Barney
analyzed equity purchase prices as multiples of, among other things, net income
and book value and transaction values (equity purchase price plus book value of
debt and preferred stock, less cash and cash equivalents) as multiples of
revenue, EBITDA and EBIT, and compared these multiples to the multiples of
Knogo's performance implied by the Total Transaction Consideration. The mean
multiples of book value, revenue, EBITDA and EBIT were 2.7x, 2.2x, 9.5x and
11.7x, respectively, as compared to book value, revenue, EBITDA and EBIT
multiple ranges implied by the Total Transaction Consideration of between 1.7x
to 2.3x, 1.5x to 1.9x, 12.4x to 15.7x and 21.3x to 27.1x, respectively. Due to
the marginally profitable performance reported for Security Tag and ALPS, net
income multiples for those acquisitions were not deemed to be meaningful for
comparative purposes.
Smith Barney noted that, in general, the multiple ranges
implied by the Total Transaction Consideration compared favorably with those of
the Selected Acquisitions and, taken together with the other analyses performed
and factors considered by Smith Barney, supported Smith Barney's opinion as to
the fairness of the consideration to be received by Knogo Shareholders in the
Transaction.
No company, transaction or business used in the comparable
company and selected merger and acquisition transactions analyses is identical
to Knogo, Knogo N.A., Sensormatic or the Transaction. Accordingly, an analysis
of the results of the foregoing is not entirely mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics and other factors that could affect the
acquisition or public trading value of the comparable companies or the business
segment or company to which they are being compared.
Discounted Cash Flow Analyses. Smith Barney performed a
discounted cash flow analysis of the projected free cash flow of Knogo for the
period beginning June 1, 1994 through fiscal year 1999, assuming, among other
things, discount rates ranging from 10.0% to 14.0% and terminal multiples of
projected net income ranging from 13.0x to 22.0x. This analysis resulted in a
range of per share values for Knogo Common Stock of between $12.85 to $28.04.
Smith Barney noted that the Total Transaction Consideration range of $20.00 to
$26.00 per share compared favorably with such range of per share values and,
taken together with the other analyses performed and factors considered by
Smith Barney, supported Smith Barney's opinion as to the fairness of the
consideration to be received by Knogo Shareholders in the Transaction from a
financial point of view.
Smith Barney also performed a discounted cash flow analysis of
the projected free cash flow of Knogo N.A. for the period beginning June 1,
1994 through fiscal year 1999, assuming, among other things, discount rates
ranging from 20.0% to 30.0% and terminal multiples of net projected income
ranging from 13.0x to 22.0x. Higher discount rates were utilized for Knogo
N.A. than those assumed for Knogo due to, among other things, the risks
associated with the fact that Knogo N.A. had not conducted operations
historically as a stand-alone entity. Smith Barney performed this analysis on
three sets of operating projections: a "Base Case" which reflected
management's current operating plan, an "Upside Case" which reflected a 50%
improvement each year in operating income over the Base Case, and a "Downside
Case" which reflected a 50% reduction each year in the operating income in the
Base Case. These analyses resulted in the following ranges of values per share
of Knogo N.A. Common Stock: (i) Base Case: $3.42 to $7.82 (ii) Upside Case:
$5.20 to $11.86; and (iii) Downside Case: $1.63 to $3.78. After taking into
account these results and other factors that may influence the future operating
performance and market valuation of Knogo N.A., Smith
-35-
<PAGE> 55
Barney assumed, for purposes of this analysis, a per share value for the Knogo
N.A. Common Stock of between $2.00 to $8.00.
Other Factors and Comparative Analyses. In rendering its
opinion, Smith Barney considered certain other factors and conducted certain
other comparative analyses, including, among other things, a review of (i)
Knogo's historical and projected financial results and Knogo N.A.'s pro forma
historical and projected financial results; (ii) the history of trading prices
and trading volume for Knogo Common Stock and Sensormatic Common Stock; and
(iii) the implied value per share to be received by Knogo shareholders in the
Merger based on a range of assumed Average Sensormatic Share Prices.
Pursuant to the terms of Smith Barney's engagement, Knogo has
agreed to pay Smith Barney for its services in connection with the Transaction
an aggregate financial advisory fee equal to 1% of the total consideration to
be paid in the Transaction plus the liabilities to be assumed by Sensormatic in
the Merger and the fair market value of certain unsold assets. Knogo also has
agreed to reimburse Smith Barney for reasonable travel and other out-of-pocket
expenses incurred by Smith Barney in performing its services, including the
reasonable fees and expenses of its legal counsel, and to indemnify Smith
Barney and related persons against certain liabilities, including liabilities
under the federal securities laws, arising out of Smith Barney's engagement.
Upon completion of the Transaction, Knogo's obligations to Smith Barney will be
payable by Sensormatic as the Surviving Corporation.
Smith Barney has advised Knogo that, in the ordinary course of
business, it may actively trade the securities of Knogo and Sensormatic for its
own account or for the account of customers and, accordingly, may at any time
hold a long or short position in such securities.
Smith Barney is a nationally recognized investment banking
firm and was selected by Knogo based on Smith Barney's experience and
expertise. Smith Barney regularly engages in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive bids, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes.
FRACTIONAL SHARES
No fractional shares of Sensormatic Common Stock will be
issued in connection with the Merger. In lieu thereof, each Shareholder
otherwise entitled to a fraction of a share of Sensormatic Common Stock
pursuant to the terms of the Merger Agreement will be paid, in cash, an amount
equal to such fraction multiplied by the Average Sensormatic Share Price as
soon as practicable following the Effective Time. No fractional share interest
shall entitle the owner thereof to vote or to any rights of a stockholder of
Sensormatic.
KNOGO SHAREHOLDER RIGHTS PLAN
The Rights of Knogo Shareholders to purchase preferred stock
of Knogo in certain events, which were previously granted with respect to each
share of Knogo Common Stock pursuant to the Rights Agreement, will be exchanged
(together with the corresponding shares of Knogo Common Stock) for the Merger
Consideration pursuant to the Merger and thereby extinguished. There are no
comparable rights associated with the Sensormatic Common Stock to be received
by the Shareholders in the Merger.
-36-
<PAGE> 56
KNOGO STOCK OPTIONS
Each stock option for employees and non-employee directors of
Knogo (a "Knogo Option") outstanding and unexercised as of the Effective Time
will be cancelled and the holder thereof will become entitled to receive two
substitute options ("Substitute Options"), consisting of (i) a non-qualified
stock option to purchase Sensormatic Common Stock (a "Substitute Sensormatic
Option") and (ii) a qualified stock option (or a non-qualified stock option in
the case of any non-employee director) under the stock option plan to be
adopted by Knogo N.A. prior to the Effective Time (a "Substitute Knogo N.A.
Option"), subject to the following terms and conditions.
A Substitute Sensormatic Option will be an option to purchase
a number of whole shares of Sensormatic Common Stock determined by multiplying
(A) the Merger Consideration (assuming, for this purpose, that the Merger
Consideration consists entirely of Sensormatic Common Stock) by (B) the number
of shares of Knogo Common Stock issuable pursuant to such Knogo Option. With
respect to holders of Knogo Options who become employees or directors of Knogo
N.A. upon the Effective Time, or who become employees of the Surviving
Corporation upon the Effective Time but whose employment is terminated by the
Surviving Corporation within 30 days following the Effective Time, such holders
will become entitled to receive, in lieu of such Substitute Sensormatic Option,
a number of shares of Sensormatic Common Stock (and/or cash, in the same
proportion as the cash included in the Merger Consideration per share) equal to
(i) the product of (A) the number of shares of Sensormatic Common Stock subject
to the Substitute Sensormatic Option that otherwise would have been issued to
such holder multiplied by (B) the excess, if any, of the Average Sensormatic
Share Price over the exercise price of such Substitute Sensormatic Option, (ii)
divided by the Average Sensormatic Share Price.
A Substitute Knogo N.A. Option will be an option to purchase a
number of whole shares of Knogo N.A. Common Stock that would have been issued
in the Divestiture to a shareholder owning the number of shares of Knogo Common
Stock subject to such Knogo Option. With respect to holders of Knogo Options
who become employees of the Surviving Corporation upon the Effective Time
(including any such employees whose employment is terminated after the
Effective Time), such holders will become entitled to receive, in lieu of a
Substitute Knogo N.A. Option, a number of shares of Knogo N.A. Common Stock
equal to (i) the product of (A) the number of shares of Knogo N.A. Common Stock
subject to the Substitute Knogo N.A. Option that otherwise would have been
issued to such holder multiplied by (B) the excess, if any, of the Knogo N.A.
Share Price (as defined below) over the exercise price of such Substitute Knogo
N.A. Option, (ii) divided by the Knogo N.A. Share Price. The "Knogo N.A. Share
Price" means the average of the closing prices, if available, and otherwise the
average of the high and low sale prices, of Knogo N.A. Common Stock for the
first 10 business days following the Effective Time.
The aggregate exercise price under each Substitute Knogo N.A.
Option will be a percentage (the "Knogo N.A. Percentage") of the exercise
price of the cancelled Knogo Option equal to the Knogo N.A. Share Price divided
by $10.50. The aggregate exercise price under each Substitute Sensormatic
Option will be a percentage of the exercise price of the cancelled Knogo Option
equal to 100% minus the Knogo N.A. Percentage. The respective exercise prices
per share of such Substitute Options will be determined by dividing the
aggregate exercise prices thereof by the respective number of shares issuable
pursuant to such Substitute Options. Fractional shares that would be issuable
pursuant to a Substitute Option will be settled in cash, less the exercise
price allocable thereto. The foregoing provisions may be modified if required
in order to comply with the requirements of Section 16(b) of the Exchange Act
(and related rules) or in order to reflect alternate forms of the transactions
described herein. See "The
-37-
<PAGE> 57
Merger--Alternative Merger; Other Alternative Structures". Except as set forth
above or as required by the terms of each such Substitute Option, the terms of
such Substitute Options will remain unchanged from those of the corresponding
Knogo Option, subject, in the case of any Substitute Sensormatic Option granted
under a Sensormatic stock option plan, to such other amendments as may be
determined by Sensormatic in order to conform such Substitute Option to the
terms of such plan.
As of November 28, 1994, there were outstanding options to
purchase 264,875 shares of Knogo Common Stock under Knogo's stock option plan.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the time of filing of a
Certificate of Merger with the Secretary of State of Delaware (i.e., the
Effective Time). The Merger Agreement provides that a corresponding
Certificate of Merger will be filed with the Secretary of State of New York on
the same day. Such filings will occur when all conditions to the Merger
contained in the Merger Agreement, including the requisite approval of the
Knogo Shareholders, the consummation of the Divestiture and the satisfaction of
applicable regulatory requirements, have been satisfied or waived. Sensormatic
and Knogo currently anticipate that such filings will be made and that the
Effective Time will occur as soon as practicable after the Special Meeting.
See "The Merger--Regulatory Considerations" and "The Merger--Other Conditions
to Consummation of the Merger". See also "The Merger--Alternative Merger;
Other Alternative Structures".
RESALE OF SENSORMATIC COMMON STOCK ISSUED IN THE MERGER; AFFILIATES
The Sensormatic Common Stock to be issued to the Shareholders
in connection with the Merger will be freely transferable under the Securities
Act, except for shares of Sensormatic Common Stock issued to any person deemed
to be an affiliate of Knogo for purposes of Rule 145 under the Securities Act
at the time of the Special Meeting ("Affiliates"). Affiliates may not sell
their shares of Sensormatic Common Stock acquired in connection with the Merger
except pursuant to an effective registration statement under the Securities Act
covering such shares, or in compliance with Rule 145 promulgated under the
Securities Act or another applicable exemption from the registration
requirements of the Securities Act.
Knogo has represented that there is no plan or intention on
the part of the shareholders of Knogo who own 5% or more of the outstanding
Knogo Common Stock and, to the knowledge of Knogo's management, on the part of
the remaining holders of Knogo Common Stock to sell, exchange or otherwise
dispose of their Knogo Common Stock prior to the Effective Time, the Knogo N.A.
Common Stock received by them as a result of the Divestiture, or the
Sensormatic Common Stock received by them pursuant to the Merger, such that the
remaining Knogo shareholders will retain, in the aggregate, less than 50% of
the Knogo N.A. Common Stock or a number of shares of Sensormatic Common Stock
having a value equal to 50% of the value of Knogo immediately after the
Divestiture.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
If the Merger Consideration Consists of Sensormatic Common
Stock and Does Not Include a Substantial Amount of Cash. It is a condition to
the obligation of Knogo to consummate the Merger that Knogo shall have received
an opinion of Stroock & Stroock & Lavan, counsel to Knogo, to the effect that,
among other things, the contribution by Knogo of assets to Knogo N.A. and the
Divestiture will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a)(1)(D) of the Internal Revenue Code; and
that Knogo will recognize no gain or loss as a result of the contribution of
assets to Knogo N.A. and of the distribution of Knogo N.A. Common Stock to its
shareholders. The foregoing opinion will
-38-
<PAGE> 58
not be a condition to the obligation of Knogo to consummate the Merger if (i)
the Divestiture is effected pursuant to a Knogo N.A. Sale, or (ii) if the
Average Sensormatic Share Price is less than $28 and Sensormatic exercises its
right to pay a substantial portion of the Merger Consideration in cash and
Knogo does not exercise its right in such event to require that the Merger
Consideration consist entirely of Sensormatic Common Stock.
Assuming Sensormatic does not have a right to pay a
substantial portion of the Merger Consideration in cash, or does not exercise
such right if it arises, and the Divestiture is effected pursuant to the Knogo
N.A. Stock Distribution, the federal income tax consequences of the Divestiture
will be as follows:
No gain or loss will be recognized by reason of the Knogo N.A.
Stock Distribution to Knogo or to Knogo's Shareholders who receive
shares of Knogo N.A. Common Stock when distributed by Knogo;
The tax basis of the shares of Knogo N.A. Common Stock
received by Knogo's Shareholders and of the shares of Knogo Common
Stock which they retain immediately after the Knogo N.A. Stock
Distribution will be determined by allocating between them the basis
of each Shareholder in his shares of Knogo Common Stock held
immediately before the Knogo N.A. Stock Distribution, in proportion to
the relative fair market values immediately after the Knogo N.A. Stock
Distribution of the Knogo Common Stock and the Knogo N.A. Common
Stock; and such fair market values will, in general, be based on the
Merger Consideration and the trading price of the Knogo N.A. Common
Stock on the date of the Knogo N.A. Stock Distribution, respectively;
and
The holding period of the shares of Knogo N.A. Common Stock
acquired by each Knogo Shareholder will include the period for which
such Shareholder held the shares of Knogo Common Stock with respect to
which the shares of Knogo N.A. Common Stock are distributed, provided
that the shares of Knogo Common Stock are held as a capital asset at
the time of the Knogo N.A. Stock Distribution.
Under certain circumstances (see "The Merger--Possible
Additional Adjustments in the Merger Consideration"), Knogo may sell the stock
of Knogo N.A. and distribute the proceeds thereof to Knogo's Shareholders, in
lieu of distributing the Knogo N.A. Common Stock to them. Any such
distribution would be treated as a dividend to the Shareholders to the extent
of Knogo's current and accumulated earnings and profits, which would include
any gain recognized by Knogo as a result of the sale of Knogo N.A. The amount
of any distribution in excess of Knogo's current and accumulated earnings and
profits would in general be treated as a nontaxable return of capital.
However, to the extent such excess attributable to a share of Knogo Common
Stock is greater than the Shareholder's basis in that share, the Shareholder
would recognize gain. That gain would be capital gain, provided that the share
of Knogo Common Stock was held as a capital asset at the time of the
distribution, and would be long-term capital gain if the share of Knogo Common
Stock was held for more than one year at such time.
Assuming Sensormatic does not pay a substantial portion of the
Merger Consideration in cash, the federal income tax consequences of the Merger
will be as follows:
The Shareholders will not recognize gain or loss as a result
of the Merger with respect to shares of Knogo Common Stock converted
solely into Sensormatic Common Stock;
-39-
<PAGE> 59
The tax basis of the Sensormatic Common Stock received by the
Shareholders in the Merger will be the same as the tax basis of the
Knogo Common Stock surrendered in exchange therefor, after being
adjusted for the effect of the Divestiture;
The payment of cash to the Shareholders in lieu of fractional
shares of Sensormatic Common Stock will be treated as if the
fractional shares were distributed as part of the Merger exchange and
then redeemed by Sensormatic; the Shareholders will recognize gain or
loss for federal income tax purposes as a result thereof, measured by
the difference between the amount of cash received and the portion of
the basis of the share of Knogo stock allocable to such fractional
share interest; and such gain or loss will be capital gain or loss,
provided that such share of Knogo Common Stock was held as a capital
asset at the Effective Time, and will be long-term capital gain or
loss if such share of Knogo Common Stock has been held for more than
one year;
The holding period of the shares of Sensormatic Common Stock
received in the Merger by the Shareholders will include the period
during which the shares of Knogo Common Stock surrendered in exchange
therefor were held, provided that such shares of Knogo Common Stock
were held as capital assets at the Effective Time; and
No gain or loss will be recognized by Knogo as a result of the
Merger.
If the Merger Consideration Includes Substantial Cash
Consideration. In the event that the Average Sensormatic Share Price is less
than $28, and Sensormatic pays a sufficient part of the Merger Consideration in
cash such that (taking into account cash paid to dissenting Shareholders, cash
paid in lieu of fractional share interests, and Shareholders who dispose of
either their shares of Knogo Common Stock prior to, or shares of Sensormatic
Common Stock after, the Merger but as part of a plan with respect thereto)
historic Knogo Shareholders in the aggregate retain a number of shares of
Sensormatic Common Stock having a value that is less than 50% of the value of
Knogo immediately after the Divestiture, then the Merger may not qualify for
tax-free reorganization treatment. In such event, Sensormatic intends to
exercise its right to consummate the Merger by means of the Alternative Merger
(see "The Merger--Alternative Merger; Other Alternative Structures"). If the
Alternative Merger is consummated, the Shareholders will be treated for federal
income tax purposes as if they had sold their shares of Knogo Common Stock to
Sensormatic at a price equal to the Merger Consideration. The Shareholders
will recognize gain or loss for federal income tax purposes as a result
thereof, measured by the difference between the Merger Consideration and the
basis of their shares of Knogo Common Stock, after being adjusted for the
effect of the Divestiture. Such gain or loss will be capital gain or loss,
provided that such shares of Knogo Common Stock were held as a capital asset at
the Effective Time, and will be long-term capital gain or loss if such shares
of Knogo Common Stock had been held for more than one year.
In the event that the Merger of Knogo into Sensormatic does
not qualify as a tax-free reorganization, the Knogo N.A. Stock Distribution
likely will not qualify for tax-free treatment. In such event, the tax
consequences of the Knogo N.A. Stock Distribution will be as follows:
Knogo will recognize gain (but not loss) upon the distribution
to its Shareholders of the Knogo N.A. Common Stock, measured generally
by the excess of the fair market value of the Knogo N.A. Common Stock
over Knogo's basis in the assets contributed to Knogo N.A.;
Knogo's Shareholders will recognize dividend income equal to
the fair market value of the Knogo N.A. Common Stock, but not in
excess of Knogo's current and
-40-
<PAGE> 60
accumulated earnings and profits (which would include the gain
recognized as a result of the Knogo N.A. Stock Distribution);
The excess, if any, of the fair market value of the Knogo N.A.
Common Stock over Knogo's current and accumulated earnings and profits
will in general be treated as a nontaxable return of capital; however,
to the extent such excess attributable to a share of Knogo Common
Stock is greater than the Shareholder's basis in that share, the
Shareholder will recognize gain; and that gain will be capital gain,
provided that the share of Knogo Common Stock was held as a capital
asset at the Effective Time, and will be long-term capital gain if the
share of Knogo Common Stock was held for more than one year;
The tax basis of each share of Knogo N.A. Common Stock
received by Knogo's Shareholders will be its fair market value as of
receipt;
The tax basis of a share of Knogo Common Stock immediately
after the Knogo N.A. Stock Distribution will equal its tax basis
immediately prior thereto, minus the amount treated as a return of
capital with respect to that share; and
The holding period of the Knogo N.A. Common Stock will begin
as of the Knogo N.A. Stock Distribution.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DIVESTITURE AND THE MERGER, AND
DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL TAX
EFFECTS RELEVANT TO A DECISION AS TO WHETHER TO VOTE IN FAVOR OF APPROVAL OF
THE DIVESTITURE OR THE MERGER. THE DISCUSSION DOES NOT ADDRESS THE TAX
CONSEQUENCES THAT MAY BE RELEVANT TO A PARTICULAR SHAREHOLDER SUBJECT TO
SPECIAL TREATMENT UNDER CERTAIN FEDERAL INCOME TAX LAWS, SUCH AS DEALERS IN
SECURITIES, BANKS, INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS, NON-UNITED
STATES PERSONS AND SHAREHOLDERS WHO ACQUIRED THEIR SHARES OF KNOGO COMMON STOCK
PURSUANT TO THE EXERCISE OF KNOGO OPTIONS OR OTHERWISE AS COMPENSATION, NOR ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR FOREIGN
JURISDICTION. TAX CONSEQUENCES TO HOLDERS OF KNOGO OPTIONS ARE NOT DISCUSSED.
THE DISCUSSION IS BASED UPON THE INTERNAL REVENUE CODE, TREASURY REGULATIONS
THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT DECISIONS AS OF THE DATE
HEREOF. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD
AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. KNOGO SHAREHOLDERS ARE URGED
TO CONSULT WITH THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES OF THE DIVESTITURE AND THE MERGER TO THEM.
Neither Sensormatic nor Knogo has requested an advance ruling
from the Internal Revenue Service as to the tax consequences of the Divestiture
or the Merger.
ACCOUNTING TREATMENT
The Merger will be accounted for under the "purchase" method.
MANAGEMENT AFTER THE MERGER
The Board of Directors and executive officers of Sensormatic
prior to the Effective Time will be the Board of Directors and executive
officers of the Surviving Corporation, except that if the Alternative Merger is
effected, the Board of Directors and executive officers of the Sensormatic
subsidiary to be merged into Knogo prior to the Effective Time will be the
Board of Directors and executive officers of the Surviving Corporation, which
would be a wholly-owned subsidiary of Sensormatic in such event. See "The
Merger--Alternative Merger; Other
-41-
<PAGE> 61
Alternative Structures". Information about such persons is contained in
Sensormatic's Proxy Statement for its 1994 Annual Meeting of Stockholders,
relevant portions of which are incorporated by reference to Sensormatic's
Annual Report on Form 10-K for the fiscal year ended June 30, 1994, which
Report is incorporated herein by reference. Both documents are available from
Sensormatic without charge. See "Available Information" and "Incorporation of
Certain Documents by Reference".
INTERESTS OF CERTAIN PERSONS IN THE MERGER
William A. Perlmuth, a director of Knogo, is the beneficial
owner of 1,187,455 shares (approximately 21.1%) of Knogo Common Stock,
consisting of 906,655 shares held by Mr. Perlmuth as Executor of the Estate of
Mr. Arthur J. Minasy, the former Chairman and Chief Executive Officer of the
Company, 266,800 shares held by Mr. Perlmuth as trustee under trusts for the
benefit of Mr. Minasy's adult children, 4,000 shares beneficially owned by Mr.
Perlmuth, and 10,000 shares issuable upon the exercise of stock options
exercisable pursuant to a stock option agreement dated December 13, 1988
between Knogo and Mr. Perlmuth, as amended.
As of the Record Date, the directors and executive officers of
Knogo, and their affiliates, as a group, beneficially own approximately 23.3%
of the outstanding shares of Knogo Common Stock entitled to vote at the Special
Meeting, including the shares held by William A. Perlmuth as Executor of the
Estate of Arthur Minasy and as the trustee under trusts for the benefit of Mr.
Minasy's adult children as described in the preceding paragraph. All of such
persons have advised Knogo that they intend to vote "for" the approval and
adoption of the Merger Agreement and the consummation of the transactions
contemplated thereby. Such shares will be converted in the Merger on the same
terms and conditions as apply to all shares of Knogo Common Stock. See
"Introduction--Vote Required".
Upon consummation of the Merger, Thomas A. Nicolette,
President and CEO of Knogo, and Robert Abbott, Senior Vice President - Finance
of Knogo, will receive $600,000 and $120,000, respectively, pursuant to their
existing employment agreements with Knogo. Additionally, Mr. Nicolette's
options to purchase 47,000 shares of Knogo Common Stock, which are 80% vested,
will, under the terms of Mr. Nicolette's existing employment agreement, become
fully vested.
As of the Knogo N.A. Stock Distribution, Mr. Nicolette's
employment with Knogo will terminate and a new employment agreement with Knogo
N.A. will become effective. The employment agreement between Knogo N.A. and
Mr. Nicolette is expected to be for a term of three years, subject to automatic
extensions for successive twenty-four month periods until terminated by either
party. In addition to establishing Mr. Nicolette's annual compensation of
$150,000 per year, the use of an automobile and the receipt of life insurance
in the amount of $1,000,000, the agreement will provide that Knogo N.A. will
grant to Mr. Nicolette options to acquire approximately 100,000 shares of Knogo
N.A. Common Stock on terms set forth in Mr. Nicolette's employment agreement.
Knogo N.A. and Mr. Abbott, Peter J. Mundy, Vice President--Corporate Controller
of Knogo, and Peter Y. Zhou, Senior Vice President--Technology of Knogo, have
each agreed in principle to enter into employment agreements for a term of one
year, subject to automatic extension for successive one-year periods until
terminated by either party. The employment agreements of Messrs. Abbott and
Mundy and Dr. Zhou will provide for annual salaries of $120,000, $103,800, and
$120,000, respectively. Additionally, each of Messrs. Abbott and Mundy and Dr.
Zhou will receive options to acquire 40,000 shares of Knogo N.A. Common Stock
on terms similar to those set forth in Mr. Nicolette's employment agreement.
The employment agreements of Messrs. Nicolette, Abbott and Mundy and Dr. Zhou
each provide for a cost of living adjustment to the base amount salary of each
executive calculated based on the percentage increase of the Consumer Price
Index.
-42-
<PAGE> 62
The employment agreements of Messrs. Nicolette, Abbott and
Mundy and Dr. Zhou will provide that in the event of a change in control (as
defined in such agreements) of Knogo N.A., the term of their employment will be
automatically extended for the period ending two years (in the case of Mr.
Nicolette's agreement) and one year (in the case of the other agreements),
following the date of such change in control. Following such change in
control, each of such persons will have the right to terminate his employment
for Good Reason (as defined in such agreements) while continuing to receive the
salary and bonus otherwise payable thereunder for the remainder of the
employment term. Additionally, the employment agreements will provide that in
the event of a change in control all options held by each of such persons,
whether or not then vested, would fully vest. If the change in control were
not approved by a majority of the Continuing Directors (as defined in Knogo
N.A.'s Amended and Restated Certificate of Incorporation), each such officer
would be entitled to receive cash in cancellation of such options in an amount
equal to the difference between the exercise price of such options and the
market price of the Knogo N.A. Common Stock at the time of cancellation.
The foregoing agreements (other than the existing employment
agreements of Messrs. Nicolette and Abbott with Knogo) would become effective
following the Knogo N.A. Stock Distribution. In the event the Divestiture were
effected in the form of a Knogo N.A. Sale, such agreements would not be
applicable and any arrangements relating to the employment of the foregoing
individuals would be determined on the basis of negotiations between the
applicable parties.
No benefits will be payable under Knogo's Plan for Severance
Compensation by reason of the Merger. Pursuant to the terms of the Merger
Agreement, the Board of Directors of Knogo will take all possible action on its
part such that the Merger will not be deemed a "Change in Control" for purposes
of such Plan.
REGULATORY CONSIDERATIONS
Under the Merger Agreement, the parties' respective
obligations to consummate the Merger are subject to the expiration or
termination of the requisite waiting periods under the HSR Act. Pursuant to
the HSR Act and the rules promulgated thereunder, on August 19, 1994,
Sensormatic and Knogo filed notification and report forms under the HSR Act
regarding the Merger. On September 16, 1994, the FTC issued a request for
additional information and documents related to the Merger. Such request
extended the waiting period under the HSR Act, during which no transaction can
be consummated, until 20 days after Sensormatic and Knogo deliver the
additional information requested.
In order to avoid a likely delay in consummating the Merger
and the substantial additional expense to comply fully with the FTC's request,
Sensormatic entered into discussions with the FTC staff with a view to finding
a mutually acceptable basis for reducing the scope of the FTC's investigation
and shortening the waiting period. As a result of these discussions,
Sensormatic has agreed with the FTC staff to enter into a consent order
intended to take effect before the anticipated Effective Time. The agreement
would limit, in a manner not expected to be material to Sensormatic,
Sensormatic's right to acquire certain companies engaged in, or assets used in,
the research, development or manufacture of disposable labels designed or used
for source labeling and sold in the United States by requiring that Sensormatic
obtain the prior approval of the FTC for such acquisitions.
The consent order is subject to acceptance by the full FTC.
Compliance by Sensormatic and Knogo with the request for additional information
and termination of the waiting period, as well as such acceptance by the FTC,
are expected to occur prior to the anticipated Effective Time. While the FTC
reserves the right to withdraw such acceptance at the
-43-
<PAGE> 63
end of a 60-day period following publication of the consent order in the
Federal Register, and the receipt of public comments, such 60-day period will
not prevent or delay the consummation of the Divestiture and the Merger. The
agreement with the FTC does not constitute an admission that any law has been
violated or that the facts alleged by the FTC in its draft complaint
accompanying the consent order (other than jurisdictional facts) are true.
The consummation of the transactions contemplated by the
Merger Agreement is not subject to compliance with any pre-merger notification
or waiting period in any jurisdiction outside the U.S., but is subject to there
being no Regulatory Prohibition (i.e., a law, regulation, order, decree or
injunction then in effect binding on either Sensormatic or Knogo that would
prevent the consummation of the Merger or make it illegal), which could not be
avoided pursuant to the terms of the Merger Agreement as described below under
the subheading "Delayed Transfers," and the violation of which would have a
material adverse consequence to either party. In the event a Regulatory
Prohibition were, and remained, in effect as of the Closing Date of the Merger
with respect to subsidiaries of Knogo or their marketing rights or other assets
to be acquired by Sensormatic pursuant to the Merger, the Merger Agreement
provides that the stock of such subsidiaries or such rights or assets would be
placed in escrow prior to the Merger and, if the escrowed businesses account
for more than $15,000,000 in annual revenues and subject to certain additional
conditions, the portion of the Merger Consideration applicable thereto would
also be placed in escrow, in order to permit the consummation of such portion
of the transactions described herein that are not the subject of any such
Regulatory Prohibition. Neither Sensormatic nor Knogo has learned or received
notice of any such Regulatory Prohibition or that a proceeding has been
commenced to impose a Regulatory Prohibition. Inquiries about the transaction
have been received from regulatory authorities of certain countries. There can
be no assurance that a proceeding, investigation or action will not be
commenced by regulatory authorities or other persons in foreign jurisdictions,
whether before the Effective Time or thereafter, with respect to the transfer
of ownership of some or all of the Knogo subsidiaries or their marketing rights
or other assets. Sensormatic also has the right, without any adjustment in the
Merger Consideration, to delay the transfer of subsidiaries of Knogo or their
marketing rights or other assets to be acquired pursuant to the Merger in the
event that a regulatory authority commences a proceeding or investigation, or
issues an objection, or any other party commences any other action, with
respect to such transfer, or in similar circumstances. See "Possible
Additional Adjustments in the Merger Consideration" and "Delayed Transfers"
immediately below.
POSSIBLE ADDITIONAL ADJUSTMENTS IN THE MERGER CONSIDERATION
Pursuant to the Merger Agreement, the amount of the Merger
Consideration is subject to the following further adjustments:
In the event that the terms of any of the Additional
Agreements are amended in order to facilitate the consummation of the
transactions contemplated in the Merger Agreement or otherwise, and such
amendments have an impact on the value of the Knogo businesses to be acquired
by Sensormatic pursuant to the Merger, the Merger Consideration as otherwise
determined would be appropriately adjusted prior to the Closing Date by mutual
agreement of Sensormatic and Knogo, or, if mutual agreement cannot be achieved,
by an investment banking firm appointed in accordance with the Merger
Agreement.
In the event the Divestiture is effected pursuant to the Knogo
N.A. Sale and the proceeds of such sale are retained by Knogo through the
consummation of the Merger, the Merger Consideration as otherwise determined
would be appropriately increased to reflect the after-tax net proceeds of such
sale retained by Knogo. If the proceeds of any such sale include securities or
other non-cash consideration, Sensormatic may require that Knogo either (i)
sell
-44-
<PAGE> 64
such securities or non-cash consideration in order to fix the value of such
consideration for the purposes of adjusting the Merger Consideration, or (ii)
distribute such securities or other consideration to the Knogo Shareholders, in
lieu of increasing the Merger Consideration with respect thereto. Any dispute
as to the proper amount of the foregoing adjustment, including the computation
of after-tax net proceeds, would be resolved by mutual agreement or, if the
parties are unable to reach agreement, by an investment banking firm appointed
in accordance with the Merger Agreement.
In the event that certain of Knogo's subsidiaries or their
marketing rights or other assets are not able to be transferred to Sensormatic
at the Effective Time because of a Regulatory Prohibition and are deemed to be
Escrowed Businesses (as defined below under the subheading "Delayed
Transfers"), and such Escrowed Businesses account for, in the aggregate, at
least $15,000,000 of annual revenues, the Merger Consideration as otherwise
determined would be reduced by an amount equal to such value times a fraction,
the numerator of which is the aggregate annual revenues attributable to all
such Escrowed Businesses and the denominator of which is the total annual
revenues for all of the Knogo businesses to have been acquired in connection
with the Merger. A corresponding amount of the aggregate Merger Consideration
would be placed into escrow. In such event, the Merger Consideration payable
to the Shareholders would also include a pro rata, non-transferable (except in
certain limited circumstances) interest in any portion of the Merger
Consideration placed in escrow pending final determination of the Regulatory
Prohibition that delayed transfer of such Escrowed Businesses, and such
escrowed Merger Consideration would be released from escrow and distributed to
the Shareholders upon receipt of the requisite regulatory clearances or
otherwise dealt with as provided for in the Merger Agreement. See "Delayed
Transfers" immediately below.
In the case of any of the foregoing adjustments, except as
otherwise agreed by the parties, the Merger Consideration as so adjusted would
be paid in the form of Sensormatic Common Stock or cash, or a combination
thereof, as described above under this heading under the subheading "Structure
and Terms of the Merger".
DELAYED TRANSFERS
The Merger Agreement provides that if a Regulatory Prohibition
should be in effect on the Closing Date, then Knogo will transfer the stock of
each affected Knogo subsidiary, or its affected rights or assets (the "Escrowed
Business"), to an escrow agent designated by Sensormatic and Knogo (the "Escrow
Agent") to hold such Escrowed Business in trust. Until released, any Escrowed
Businesses would be managed by such qualified management firm or person as
Sensormatic designates, with the approval of Knogo N.A. In the event that the
Escrowed Businesses account, in the aggregate, for annual revenues exceeding
$15,000,000, the Merger Consideration to be paid to Shareholders at the
immediately above Effective Time would be reduced (see "Possible Additional
Adjustments in Merger Consideration" immediately above) and the aggregate
amount of such reduction would be paid into escrow, pending either the
resolution of any such proceeding or action that resulted in the delayed
transfer or the abandonment of Sensormatic's efforts to effect such transfer.
At such time as any Escrowed Business is able to be transferred to Sensormatic,
the Merger Consideration applicable thereto would be delivered to the
Shareholders. In the event that it is finally determined that such Escrowed
Business will not be transferred to Sensormatic (which determination is
required to be made on or before the first anniversary of the Effective Time,
unless extended by mutual agreement of Sensormatic and Knogo N.A., which
agreement may not be unreasonably withheld), Sensormatic may direct the Escrow
Agent either (i) to sell such Escrowed Business, delivering the net proceeds
thereof to Sensormatic and the related Merger Consideration to the
Shareholders, or (ii) on behalf of the Shareholders, deliver such Escrowed
Business to Knogo N.A., in which case the related Merger Consideration would be
redelivered to Sensormatic and
-45-
<PAGE> 65
the Knogo N.A. Territory, non-competition and other provisions of the
Divestiture Agreement would be modified by the parties as may be necessary to
equitably adjust their respective rights and obligations to enable Knogo N.A.
to operate such business. Any such distribution of Merger Consideration would
include any related dividends, other distributions or interest received with
respect thereto while in escrow.
In the event that the annual revenues attributable to the
Escrowed Businesses are less than $15,000,000, the Merger Consideration would
not be adjusted and would be distributed to the Shareholders at the Effective
Time (and any Escrowed Businesses would be transferred or disposed of in
accordance with the preceding paragraph). In the event that the Escrowed
Businesses held in escrow, together with any thereof disposed of in accordance
with clause (ii) in the preceding paragraph, account for annual revenues of
less than $15,000,000 in the aggregate, the remaining escrowed Merger
Consideration, together with any related dividends, other distributions or
interest received with respect thereto while in escrow, would be distributed to
the Shareholders and such Escrowed Businesses would be disposed of in the
manner contemplated by the second-to-last paragraph under this sub-heading.
The respective interests of the Shareholders to receive Merger
Consideration placed in escrow as described above are not transferable, except
by demise or pursuant to the laws of descent and distribution or other similar
laws.
The Merger Agreement also provides that in the event that,
prior to the Closing Date, any regulatory authority or private party in any
jurisdiction outside the United States has commenced any proceeding,
investigation or action in any such jurisdiction in respect of the transfer to
Sensormatic of the ownership of some or all of Knogo subsidiaries or their
marketing rights or assets to be acquired by Sensormatic pursuant to the
Merger, or other similar circumstances exist which lead Sensormatic to
determine that it is not advisable to proceed with the transfer of such
ownership on such date, then, at Sensormatic's request and with no reduction in
the Merger Consideration, Knogo will transfer the stock of such subsidiaries or
such other rights or assets to either Knogo N.A. or to such other party as
Sensormatic designates to hold in trust for Knogo (and for Sensormatic as
successor to Knogo in the Merger), pending the transfer to Sensormatic or other
disposition of such stock or other rights or assets.
Knogo N.A. and Sensormatic have agreed to use their best
efforts to remove or vacate any legal prohibition or impediment (including any
Regulatory Prohibition) to the consummation of the transactions contemplated by
the Merger Agreement.
ALTERNATIVE MERGER; OTHER ALTERNATIVE STRUCTURES
If the Average Sensormatic Share Price is less than $28 and
Sensormatic determines to pay a sufficient amount of the Merger Consideration
in cash, as permitted in such event under the Merger Agreement, and reasonably
determines, in consultation with its and Knogo's counsel, that consummation of
the Merger as otherwise contemplated by the Merger Agreement may not qualify as
a tax-free reorganization under the applicable provisions of the Internal
Revenue Code, provided Knogo does not exercise its right in such event to
require that the Merger Consideration consist entirely of Sensormatic Common
Stock at a fixed valuation of $28 per share, the Merger Agreement provides that
Sensormatic may require that the Merger be effected instead by consummating the
Alternative Merger (i.e., merging a newly-formed New York corporation which is
a wholly-owned subsidiary of Sensormatic (the "Merger Sub") with and into
Knogo). In such event, all of the provisions of the Merger and the Divestiture
described herein would remain the same, with the following modifications: (i)
the Effective Time for the Alternative Merger would be the time of the filing
with the New York Secretary of State of a Certificate of Merger with respect to
the Alternative Merger; (ii) upon and following the
-46-
<PAGE> 66
Alternative Merger, the separate existence of the Merger Sub would cease and
Knogo would continue as the Surviving Corporation; (iii) from and after the
Effective Time of the Alternative Merger until further amended in accordance
with the NYBCL, the Certificate of Incorporation of Knogo, as in effect at the
Effective Time, would be the Certificate of Incorporation of the Surviving
Corporation; (iv) the By-laws of Knogo, as in effect at the Effective Time,
would be the By-laws of the Surviving Corporation until altered, amended or
repealed in accordance with law; (v) the directors and officers of Merger Sub
as of the Effective Time would be the directors and officers of the Surviving
Corporation; and (vi) at the Effective Time, each issued and outstanding share
of the Merger Sub's Common Stock would remain outstanding as one fully paid and
non-assessable share of Common Stock of the Surviving Corporation, and each
certificate theretofore representing shares of Merger Sub's Common Stock would
continue to represent the same number of issued and outstanding, fully paid and
non-assessable shares of the Surviving Corporation's Common Stock. If the
Alternative Merger is consummated, references elsewhere in this Proxy
Statement--Prospectus to the "Merger" shall be deemed to refer to the
Alternative Merger, adjusted as appropriate to reflect the form of the
Alternative Merger.
With respect to the Divestiture, should Knogo request to
effect the Knogo N.A. Sale in the form of a sale of all or substantially all of
the assets or in another form other than the sale of stock of Knogo N.A., the
parties have agreed to cooperate to effect such alternative form of transaction
(and amend the Merger Agreement and the Additional Agreements accordingly),
provided that the respective rights and obligations of Knogo, Sensormatic and
Knogo N.A. (or a successor) under the Merger Agreement, the Additional
Agreements and the transactions contemplated thereby, as so modified, would be
the same in all substantive respects as those contemplated by the Merger
Agreement and the Additional Agreements in the case of a Knogo N.A. Sale. The
Additional Agreements may also be amended to facilitate the consummation of the
transactions contemplated by the Merger Agreement, subject to a possible
adjustment in the Merger Consideration as described above under the subheading
"Possible Additional Adjustments in the Merger Consideration". The Merger
Agreement also contemplates that the parties may, by mutual agreement prior to
the Special Meeting, otherwise revise the form of the transactions contemplated
in the Merger Agreement.
OTHER CONDITIONS TO CONSUMMATION OF THE MERGER
In addition to the requisite approval of the Merger and the
Merger Agreement by the Shareholders and satisfaction of the conditions
described above under the subheading "Regulatory Considerations", the
consummation of the Merger is subject to the satisfaction or waiver of the
following conditions set forth in the Merger Agreement: (i) the respective
representations and warranties of Knogo and Sensormatic contained in the Merger
Agreement must be true and correct in all material respects; (ii) the
respective obligations of Knogo, Knogo N.A., and Sensormatic required by the
Merger Agreement to have been performed at or prior to the Effective Time must
have been performed in all material respects; (iii) the Divestiture Agreement
must have been executed and delivered by Knogo and Knogo N.A. and the
Divestiture must have occurred in all respects in accordance therewith; (iv)
each of the License Agreement and the Supply Agreement must have been executed
and delivered by Knogo and Knogo N.A., and acknowledged and accepted, as of the
Effective Time, by Sensormatic; (v) all Rights of Knogo Shareholders arising
under the Rights Agreement must be extinguished pursuant to the Merger; (vi)
each of Sensormatic and Knogo must have received various legal opinions,
certificates, consents, resolutions and reports from the other and from third
parties, as applicable; (vii) the shares of Sensormatic Common Stock issuable
pursuant to the Merger Agreement must have been approved for listing on the
NYSE, subject to official notice of issuance; (viii) the Registration Statement
must have become effective under the Securities Act and must not be the subject
of any stop order or of proceedings, either instituted or threatened, seeking
a stop order; (ix) Sensormatic must have received resignations of certain
officers and
-47-
<PAGE> 67
directors of Knogo and the Acquired Subsidiaries, as requested by Sensormatic;
and (x) any bank liens on those assets of Knogo that are to be transferred to
Knogo N.A. in the Contribution must have been released, or provision must have
been made for such release.
No assurance can be given as to when all of the conditions to
the Merger can or will be satisfied. Except as limited by applicable law, any
party to the Merger Agreement may waive any of the conditions to such party's
obligations thereunder.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary
representations and warranties relating to, among other things, (i) each of
Sensormatic's, Knogo's and Knogo's subsidiaries' organization and similar
corporate matters; (ii) Knogo's and its subsidiaries' capital structures; (iii)
delivery of certain corporate documents; (iv) authorization, execution,
delivery, performance and enforceability of the Merger Agreement and the
Additional Agreements and related matters; (v) receipt of an opinion from the
financial advisor of Knogo as to the fairness from a financial point of view of
the consideration to be received pursuant to the Transaction; (vi) absence of
conflicts under charters or by-laws and of violations of any instruments or
law; (vii) required governmental and third-party consents, approvals and
authorizations; (viii) financial statements; (ix) liens on assets and principal
properties; (x) documents filed by Sensormatic and Knogo with the Commission
and the accuracy of information contained therein; (xi) absence of certain
material changes through the date of the Merger Agreement; (xii) validity of
permits, certificates, approvals and other authorizations of governmental
authorities necessary to operate Knogo's business, and compliance with laws
generally; (xiii) tax matters relating to Knogo; (xiv) Knogo's employee benefit
plans; (xv) litigation; (xvi) Knogo's material agreements; (xvii) Knogo's
patents, trademark and trade name registrations and copyright registrations;
(xviii) brokers used in connection with the Merger; (xix) the accuracy of
information supplied by Sensormatic and Knogo, respectively, in connection with
the Registration Statement and this Proxy Statement--Prospectus; (xx) the lack
of any plan or intent of Knogo Shareholders to dispose of, in the aggregate,
50% or more of any Knogo Common Stock, or of any Knogo N.A. Common Stock to be
received by them in the Divestiture or Sensormatic Common Stock to be received
by them in the Merger; (xxi) the accuracy of the representations and warranties
and other information set forth in the Merger Agreement and any schedule or
exhibit thereto by Knogo and Sensormatic, respectively; and (xxii) due
authorization, issuance, and listing of the Sensormatic Common Stock to be
issued pursuant to the Merger.
EXPENSES; BREAK-UP FEES
The Merger Agreement provides that if the Merger is
consummated, all reasonable costs, expenses, and fees incurred in connection
with the transactions contemplated in the Merger Agreement (including the Knogo
N.A. Stock Distribution but not including a Knogo N.A. Sale, if any) will be
paid by Sensormatic.
If the Merger Agreement is terminated for any reason
whatsoever (other than those enumerated below), then Sensormatic has agreed to
pay to Knogo within 30 days after such termination an amount equal to
$10,000,000; provided that Sensormatic will not be obligated to pay such
$10,000,000 fee if the Merger Agreement is terminated at any time prior to the
Effective Time (a) by mutual written consent of Knogo and Sensormatic; (b) by
either Knogo or Sensormatic if the Knogo Shareholders shall not have approved
the Merger in accordance with the applicable requirements of Section 903 of the
NYBCL; (c) by Knogo if it shall have accepted a firm written offer to
consummate a potential Acquisition Transaction in accordance with the
procedures relating to such action set forth in the Merger Agreement; (d) by
Sensormatic, in response to a Knogo Delay; (e) by Sensormatic if Knogo fails to
perform its
-48-
<PAGE> 68
obligations under the Merger Agreement on or prior to May 11, 1995; or (f) as a
result of a Designated Termination Event (as defined below).
If the Merger Agreement is terminated as a result of the
occurrence of a Designated Termination Event, then Sensormatic has agreed to
pay to Knogo within 30 days after such termination an amount equal to
$4,000,000. A "Designated Termination Event" is any of the following: (a)
Knogo exercising its right to terminate the Merger Agreement based on its
determination, in good faith concurred in by its counsel and after consultation
with Sensormatic's counsel, after December 12, 1994 that it is unlikely that
the requirements under the HSR Act with respect to the Merger would be
satisfied; or (b) either Knogo or Sensormatic terminating the Merger Agreement
because the Merger has not been consummated on or prior to May 11, 1995 as a
result of either (i) the institution of an action or proceeding by the FTC to
enjoin the consummation of the Merger and/or the Divestiture and,
notwithstanding the parties cooperating to the fullest extent and taking all
other actions to facilitate the Merger, the FTC will not terminate such action
or proceeding or terminate or allow to expire any applicable waiting period
under the HSR Act with respect to the transactions contemplated by the Merger
Agreement, or (ii) a Regulatory Prohibition is in effect which could not be
avoided pursuant to the applicable provisions of the Merger Agreement and the
violation of which would have material adverse consequences to the other party.
If the Merger Agreement is terminated either by (a) Knogo
because it has accepted an offer to consummate a potential Acquisition
Transaction in accordance with the procedures relating to such action set forth
in the Merger Agreement, or (b) Sensormatic, if Knogo fails to perform its
obligations under the Merger Agreement on or prior to May 11, 1995, and an
Acquisition Transaction is consummated by Knogo with a third party within nine
months of such termination, then Knogo has agreed to pay to Sensormatic within
30 days after such termination (in the case of clause (a)) or 30 days after
such consummation (in the case of clause (b)) an amount equal to $4,000,000.
In addition, if such an Acquisition Transaction is consummated within nine
months after any termination referred to in the preceding sentence, then Knogo
has agreed to pay to Sensormatic within 30 days after such consummation an
amount equal to 50% of the aggregate fair market value of the consideration
received by Knogo and/or its shareholders (and including holders of Knogo
Options, after adjustment for the exercise price of such Options) as a result
of such Acquisition Transaction in excess of the aggregate Merger
Consideration, as such aggregate amounts are more particularly determined in
the Merger Agreement, minus (ii) $4,000,000.
CONSIDERATION OF OTHER PROPOSALS
The Merger Agreement provides that Knogo will not, directly or
indirectly, through any officer, director, employee, agent or otherwise,
solicit or initiate the submission of proposals or offers from any person
relating to any Acquisition Transaction, or otherwise participate in such a
proposal or offer. Notwithstanding the foregoing, (i) Knogo may furnish
information concerning its business, properties or assets which prior thereto
had been furnished to Sensormatic to a person or group that makes a bona fide
inquiry or proposal concerning any Acquisition Transaction, subject to a
confidentiality agreement on terms substantially the same as that entered into
between Sensormatic and Knogo, and (ii) Knogo may enter into discussions or
negotiations with any such person or group concerning any proposed Acquisition
Transaction, if the Board of Directors of Knogo determines in good faith that
(A) such person or group has the ability to consummate an Acquisition
Transaction that is more favorable to the Knogo shareholders than the
transactions contemplated by the Merger Agreement and (B) that providing such
information or entering into such discussions or negotiations will be in the
best interests of Knogo and its shareholders. In addition, Knogo may explore
potential transactions for the sale of the capital stock of Knogo N.A.,
provided that such transactions and the negotiations of Knogo
-49-
<PAGE> 69
with respect thereto, cannot reasonably be expected to impair or interfere
with, or delay the consummation of, the transactions contemplated by the Merger
Agreement. Subject to the payment of certain expenses, Knogo may terminate the
Merger Agreement prior to the Special Meeting upon receipt of a firm written
offer to consummate such an Acquisition Transaction, if the Board of Directors
of Knogo has determined in good faith that such termination is in the best
interests of Knogo and its shareholders, and, after receipt of the written
opinion of counsel to such effect, that their fiduciary duties require that the
Merger Agreement be terminated. Since the Merger Agreement was announced, no
such inquiry, offer or proposal has been received by Knogo, nor is Knogo
engaged in any such discussions or negotiations.
AMENDMENT, WAIVER AND TERMINATION
The Merger Agreement (including any Exhibits thereto, which
includes the form of each Additional Agreement) may be amended at any time
before or after its approval by the Shareholders, to the extent permitted under
the DGCL and the NYBCL.
The Merger Agreement provides that either Sensormatic or Knogo
N.A. may waive, in whole or in part, any of the conditions to its performance
set forth in the Merger Agreement.
The Merger Agreement may be terminated at any time prior to
the Effective Time (a) by mutual written consent of Knogo and Sensormatic, (b)
by either Knogo or Sensormatic, if the transactions contemplated by the Merger
Agreement shall not have been consummated by May 11, 1995, (c) by Knogo at any
time after December 12, 1994, if Knogo determines in good faith, which
determination shall be concurred in by its counsel and after consultation with
Sensormatic and Sensormatic's counsel, that it is unlikely that any applicable
waiting period under the HSR Act with respect to the transactions contemplated
by the Merger Agreement will expire or be terminated, (d) by either Knogo or
Sensormatic, if the Merger Agreement shall have been voted upon by the
Shareholders at the Special Meeting (which includes any adjournment or
postponement thereof) without the requisite Shareholder approval being
obtained, (e) by Knogo, if its Board of Directors agrees to enter into an
Acquisition Transaction with another party, in accordance with the Merger
Agreement, or (f) by Sensormatic, by two business days' advance written notice
to Knogo, at any time after the 15th business day following commencement by
Knogo or its representatives of any discussions or negotiations, or receipt by
Knogo of any offer, with respect to a potential Acquisition Transaction, if
following commencement of such discussions or negotiations, or receipt of such
offer, there occurs a Knogo Delay--i.e., Knogo fails or delays to timely and
diligently carry out any of its pre-closing obligations under the Merger
Agreement, which failure or delay is attributable, in whole or in part, to
Knogo's participation in such discussions or negotiations or consideration of
such offer--unless prior to the end of such two-business day notice period,
Knogo notifies Sensormatic that such discussions or negotiations have been
terminated and any such offer has been withdrawn or rejected.
CONDUCT OF BUSINESS PENDING THE MERGER
The Merger Agreement provides that until the Effective Time,
Knogo shall in all material respects, except in connection with the Divestiture
and/or its exploration of the sale of Knogo N.A., or actions to be taken
pursuant to the express provisions of the Merger Agreement, (a) preserve
substantially intact the business organization of Knogo and use its best
efforts to keep available the services of Knogo's present officers and key
employees and preserve Knogo's present relationships with persons having
significant business relations therewith and (b) conduct Knogo's business only
in the ordinary course.
-50-
<PAGE> 70
In addition, except in connection with the Divestiture and/or
its exploration of the sale of Knogo N.A., or actions to be taken pursuant to
the express provisions of the Merger Agreement, Knogo may not, and may not
permit any of its subsidiaries to, without the prior written consent of
Sensormatic in each instance, (i) except pursuant to Knogo Options in effect on
August 14, 1994, issue any shares of its capital stock, any security
convertible into or exchangeable for its capital stock or any option, warrant
or other right to acquire its capital stock, (ii) declare, set aside, or pay
any dividend or make any distribution with respect to any shares of Knogo
Common Stock or other capital stock of Knogo or any of its subsidiaries, except
from any such subsidiary to Knogo or any Acquired Subsidiary, (iii) directly or
indirectly redeem, purchase or otherwise acquire or commit to acquire any
shares of Knogo Common Stock or other capital stock or other ownership interest
of any party (except transfers among Knogo's subsidiaries and Knogo, other than
to Knogo N.A. or Knogo Caribe Inc.), (iv) effect a split or reclassification of
its capital stock, or a recapitalization, (v) amend its Certificate of
Incorporation or By-laws, (vi) except as required by law, (A) grant or make any
change in control, severance or termination payments to any officer or employee
except pursuant to plans or agreements in existence on the date hereof, (B)
enter into any option, employment, deferred compensation or other similar
agreement (or enter into any amendment to any such existing agreement) with any
officer, director, employee or consultant, (C) increase benefits payable under
any existing severance or termination pay policies or agreements, or (D) pay,
provide for, or grant any increase in (or commit, orally or in writing, to
increase) the rate or terms (including, without limitation, any acceleration of
the right to receive payment) of compensation payable to or to become payable
to, or of any bonus, insurance, pension or other employee benefit plan
benefitting any director, officer, employee or consultant, except for normal
merit and cost of living increases, and except as required by the terms of
contracts or agreements in effect on the date hereof, (vii) merge or
consolidate with any other corporation or acquire a material amount of assets
constituting all or substantially all of the assets of any person, or otherwise
enter into any material transaction, contract or commitment other than in the
ordinary course of business, (viii) assume or guarantee any debt for borrowed
money other than in the ordinary course of business, on terms consistent with
past practice, (ix) sell, lease, license, encumber or otherwise dispose of any
material properties or assets other than the sale or lease of inventory in the
ordinary course and consistent with past practice, (x) make any revaluation of
the assets of Knogo or any of its subsidiaries, including, without limitation,
write-downs of inventory or write-offs of accounts receivable, other than in
the ordinary course of business and consistent with past practice, or (xi)
except as required by GAAP, change any of its accounting methods, principles or
practices. In addition, Knogo is required to use its best efforts to maintain
in full force and effect insurance policies providing coverage and amounts of
coverage comparable to the coverage and amounts of coverage provided under the
policies of insurance now in effect for Knogo.
During such period, Knogo is required to consult with
Sensormatic as to all substantive operational decisions of Knogo (excepting
matters relating to its operations in the Knogo N.A. Territory), and Knogo is
further required to keep Sensormatic fully informed, and provide to Sensormatic
such access to its premises, employees and information as it requests, with
respect to Knogo's business outside the Knogo N.A. Territory.
APPRAISAL RIGHTS
Holders of Knogo Common Stock are entitled to appraisal rights
under Sections 623 and 910 of the NYBCL. The following summary of the
applicable provisions of Sections 623 and 910 of the NYBCL is not intended to
be a complete statement of such provisions and is qualified in its entirety by
reference to the full text of Sections 623 and 910 of the NYBCL, copies of
which are attached to this Proxy Statement--Prospectus as Annex IV. A PERSON
HAVING A BENEFICIAL INTEREST IN KNOGO SHARES THAT ARE HELD OF RECORD
-51-
<PAGE> 71
IN THE NAME OF ANOTHER PERSON, SUCH AS A BROKER OR NOMINEE, AND WISHING TO
EXERCISE APPRAISAL RIGHTS MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO
FOLLOW THE STEPS SUMMARIZED BELOW PROPERLY AND IN A TIMELY MANNER TO PERFECT
WHATEVER APPRAISAL RIGHTS THE BENEFICIAL OWNER MAY HAVE.
THIS DISCUSSION AND ANNEX IV SHOULD BE REVIEWED CAREFULLY BY
ANY SHAREHOLDER OF KNOGO WHO WISHES TO EXERCISE STATUTORY APPRAISAL RIGHTS OR
WHO WISHES TO PRESERVE THE RIGHT TO DO SO BECAUSE FAILURE TO COMPLY STRICTLY
WITH ANY OF THE PROCEDURAL REQUIREMENTS OF SECTION 623 OR SECTION 910 OF THE
NYBCL MAY RESULT IN A TERMINATION OR WAIVER OF APPRAISAL RIGHTS UNDER SECTION
623 AND SECTION 910 OF THE NYBCL.
A record holder of shares of Knogo Common Stock as of the
record date for the Special Meeting who elects to dissent from the approval and
adoption of the Merger Agreement and who has not voted in favor thereof is
entitled under the provisions of Sections 623 and 910 of the NYBCL, as an
alternative to receiving the applicable Merger Consideration for such holder's
shares of Knogo Common Stock, to a judicial determination of the fair value in
cash of such holder's shares of Knogo Common Stock (after giving effect to the
Knogo N.A. Stock Distribution). PROVIDED THE KNOGO N.A. STOCK DISTRIBUTION
OCCURS, A HOLDER OF KNOGO COMMON STOCK AS OF THE RECORD DATE FOR THE KNOGO N.A.
STOCK DISTRIBUTION WILL BE ENTITLED TO RECEIVE, FOR EACH SHARE OF KNOGO COMMON
STOCK HELD, ONE SHARE OF KNOGO N.A. COMMON STOCK WHETHER OR NOT SUCH
SHAREHOLDER EXERCISES APPRAISAL RIGHTS. The Merger Agreement provides that if
any dissenting Shareholder fails to perfect or effectively withdraws or loses
the right to dissent, the shares of Knogo Common Stock held by such dissenting
Shareholder will thereupon be treated as though such shares had been exchanged
pursuant to the Merger Agreement.
Any Shareholder who elects to exercise such Shareholder's
dissenter's rights with respect to the Merger Agreement must file a written
objection to the Merger with Knogo before the Special Meeting, or at the
Special Meeting but before the vote on the Merger is taken, which objection
includes (i) a notice of such Shareholder's election to dissent, (ii) such
Shareholder's name and residence address, (iii) the number of shares of Knogo
Common Stock as to which such Shareholder dissents and (iv) a demand for
payment of the fair value of such shares if the Merger is consummated. Such
objection is not required from any holder of Knogo Common Stock to whom Knogo
did not give notice of the Special Meeting in accordance with the NYBCL. For
purposes of perfecting dissenters' rights pursuant to Section 623 of the NYBCL,
the written objection of a Shareholder which is addressed as provided below
shall be deemed filed with Knogo upon receipt of such objection by Knogo.
Neither voting against nor failure to vote for the Merger Agreement will
constitute the written objection required to be filed by an objecting
Shareholder. Failure to vote against the Merger Agreement, however, will not
constitute a waiver of rights under Sections 623 and 910 of the NYBCL, provided
that a written objection has been properly filed. A Shareholder voting to
approve the Merger will be deemed to have waived such Shareholder's dissenter's
rights. Any proxy may be revoked before it is voted by filing with the
Secretary of Knogo a written notice of revocation or a duly executed proxy
bearing a later date or by attending the Special Meeting and voting in person.
The return of a signed proxy without instructions as to the Merger will be
deemed a vote in favor of the Merger Agreement. See "The Special
Meeting--Voting and Revocation of Proxies".
A Shareholder may not dissent as to less than all the shares
of Knogo Common Stock held of record that such Shareholder beneficially owns.
A nominee or fiduciary may not dissent on behalf of any beneficial owner as to
less than all the shares of Knogo Common Stock of such beneficial owner, as to
which such nominee or fiduciary has a right to dissent, held of record by such
nominee or fiduciary. Furthermore, if the shares of Knogo Common Stock are
-52-
<PAGE> 72
owned of record in a fiduciary capacity, such as by a trustee, guardian, or
custodian, the demand must be made in that capacity, and if the shares of Knogo
Common Stock are owned of record by more than one person, as in a joint tenancy
or tenancy in common, the demand must be made by or for all owners of record.
An authorized agent, including one of two or more joint owners, may execute the
demand for appraisal for a holder of record; however, such agent must identify
the record owner or owners and expressly state, in such demand, that the agent
is acting as agent for the record owner or owners of such shares of Knogo
Common Stock.
A record holder, such as a broker or an agent, who holds
shares of Knogo Common Stock as a nominee for beneficial owners, some of whom
desire to demand appraisal, must exercise appraisal rights on behalf of such
beneficial owners who desire to demand appraisal with respect to the shares of
Knogo Common Stock held for such beneficial owners.
All notices of election to dissent should be addressed to
Knogo Corporation at 350 Wireless Boulevard, Hauppauge, New York 11788,
Attention: Robert T. Abbott, Secretary.
Within ten days after the date of the Shareholders' vote
approving the Merger, Knogo or the Surviving Corporation, as the case may be,
will give written notice of such approval by registered mail to each holder of
shares of Knogo Common Stock who timely filed a written objection to the
Merger, or from whom written objection was not required, and who did not vote
in favor of the Merger.
At the time of filing a notice of election to dissent or
within one month thereafter, a dissenting Shareholder must submit the
certificate or certificates representing such Shareholder's shares of Knogo
Common Stock to Knogo or its transfer agent, with a conspicuous notation
thereon of the election to dissent, after which such certificates will be
returned to such Shareholder or other person who submitted them on behalf of
such Shareholder. American Stock Transfer & Trust Company serves as the
transfer agent for the shares of Knogo Common Stock, and its address is 40 Wall
Street, 46th Floor, New York, New York 10005. Any such Shareholder who fails
to submit such certificates for notation will, at the election of Knogo or the
Surviving Corporation, exercised by written notice to such holder within 45
days from the date of filing of the notice to dissent, lose such Shareholder's
dissenter's rights unless a court, for good cause shown, otherwise directs.
Within 15 days after the expiration of the period within which
Shareholders may file their notice of election to dissent, or within 15 days
after the Effective Time, whichever is later (but in no case later than 90 days
after the Shareholders' vote approving the Merger), Knogo or the Surviving
Corporation, as the case may be, is required to make a written offer by
registered mail to each Shareholder who has filed a notice of election to
dissent to pay for such Shareholder's shares of Knogo Common Stock at a
specified price which Knogo or the Surviving Corporation, as the case may be,
considers to be their fair value. Such offer will be accompanied by a
statement setting forth the aggregate number of shares of Knogo Common Stock
with respect to which notices of election to dissent from approval and adoption
of the Merger Agreement have been received and the aggregate number of holders
of such shares. If the Merger has been consummated at the time such offer is
made, such offer will also be accompanied by (i) advance payment to each
dissenting Shareholder who had submitted such Shareholder's certificates to
Knogo for notation thereon of such Shareholder's election to dissent of an
amount equal to 80% of the amount of such offer, or (ii) as to each dissenting
Shareholder who has not yet submitted such certificates for such notation, a
statement that advance payment to such Shareholder of an amount equal to 80% of
the amount of such offer will be made by the Surviving Corporation promptly
upon submission of such certificates. If the Merger has not been consummated
at the time of such offer, such advance payment or statement as to advance
payment will be sent to each dissenting Shareholder entitled thereto forthwith
upon
-53-
<PAGE> 73
consummation of the Merger. Every advance payment or statement as to advance
payment will include advice to such Shareholder that acceptance of such advance
payment by a dissenting Shareholder will not constitute a waiver of such
holder's dissenter's rights. If the Merger has not been consummated by the
expiration of the above-mentioned 90-day period, Knogo's offer may be
conditioned upon the consummation of the Merger. If within 30 days after the
making of a written offer by Knogo or the Surviving Corporation, as the case
may be, Knogo or the Surviving Corporation, as the case may be, and any
dissenting holder agree upon the price to be paid for such shareholder's shares
of Knogo Common Stock, payment therefor will be made within 60 days after the
making of such offer or the Effective Time, whichever is later, upon the
surrender of the certificates representing such shares of Knogo Common Stock.
From and after the Effective Time, any payments with respect to any demands for
appraisal or in settlement of any such demands will be made by the Surviving
Corporation in all circumstances, but only to the extent not prohibited by
Section 623(j) of the NYBCL, which is described below.
If Knogo or the Surviving Corporation, as the case may be,
fails to make such an offer within the 15-day period described in the preceding
paragraph, or if it makes such an offer but Knogo or the Surviving Corporation,
as the case may be, and a dissenting Shareholder does not agree within 30 days
of the making of the offer upon the price to be paid for such Shareholder's
shares of Knogo Common Stock, Knogo or the Surviving Corporation, as the case
may be, must, within 20 days of such 15- or 30-day period, as the case may be,
institute a special proceeding in the New York Supreme Court, Suffolk County
(the "Court"), to determine the rights of dissenting Shareholders and fix the
fair value of their shares of Knogo Common Stock. It is the current intention
of Knogo or the Surviving Corporation, as the case may be, to institute any
such proceeding within the 20-day period; however, if Knogo or the Surviving
Corporation, as the case may be, does not institute such proceeding within the
20-day period, any dissenting holder may, within 30 days after the expiration
of such 20-day period, institute a proceeding for the same purpose. If such
proceeding is not instituted within such 30-day period, dissenting Shareholders
who have not agreed with Knogo or the Surviving Corporation, as the case may
be, as to the price to be paid for their shares of Knogo Common Stock will lose
their dissenters' rights, unless the Court, for good cause shown, otherwise
directs.
All dissenting Shareholders, other than those who shall have
agreed with Knogo or the Surviving Corporation, as the case may be, as to the
price to be paid for their shares of Knogo Common Stock, will be made parties
to such appraisal proceeding. The Court will determine whether each dissenting
Shareholder, as to whom Knogo or the Surviving Corporation, as the case may be,
requests the Court to make such determination, is entitled to receive payment
for such Shareholder's shares of Knogo Common Stock. If Knogo or the Surviving
Corporation, as the case may be, does not request any such determination or if
the Court finds that such dissenting Shareholder is so entitled, the Court will
then determine the fair value of such Shareholder's shares of Knogo Common
Stock as of the close of business on the day prior to the date the Merger
Agreement was approved by the Shareholders of Knogo. In fixing the fair value
of the shares of Knogo Common Stock, the Court will consider the nature of the
transaction giving rise to the Shareholder's right to receive payment for such
shareholder's shares of Knogo Common Stock under the NYBCL, the effects of such
transaction on Knogo and its Shareholders, the concepts and methods then
customary in the relevant securities and financial markets for determining the
fair value of shares of a corporation engaging in a similar transaction under
comparable circumstances, and all other relevant factors. Within 60 days after
the final determination of any such Court proceeding, Knogo or the Surviving
Corporation, as the case may be, will be required to pay to each dissenting
Shareholder the amount found to be due such Shareholder, with interest thereon
at such rate as the Court finds to be equitable, from the date the Merger is
consummated to the date of payment, upon surrender to Knogo or the Surviving
Corporation, as the case may be, by such holder of the certificates
representing such shares of Knogo Common Stock. If the Court finds that the
refusal of any dissenting
-54-
<PAGE> 74
Shareholder to accept the offer of Knogo was arbitrary, vexatious, or otherwise
not in good faith, no interest will be allowed to such Shareholder. From and
after the Effective Time, any amount found to be due to dissenting
Shareholders, and any interest allowed thereon, will be paid by the Surviving
Corporation to the extent not prohibited by Section 623(j) of the NYBCL.
The parties to such appraisal proceeding will bear their own
costs and expenses, including the fees and expenses of their counsel and any
experts employed by them, except that the Court, in its discretion, (i) may
apportion and assess all or any part of the costs, expenses, and fees incurred
by dissenting Shareholders against Knogo or the Surviving Corporation, as the
case may be, if, among other things, the Court finds that the fair value of the
shares of Knogo Common Stock materially exceeds the offer by Knogo or the
Surviving Corporation, as the case may be, or (ii) may apportion and assess all
of any part of the costs, expenses, and fees incurred by Knogo or the Surviving
Corporation, as against all of the dissenting Shareholders, including any
dissenting Shareholders who have withdrawn their notices of election to dissent
from the Merger, who the Court finds were arbitrary, vexatious, or otherwise
not acting in good faith in refusing any offer of payment Knogo or the
Surviving Corporation, as the case may be, may have made.
Any Shareholder who has filed a notice of election to dissent
will not, after the Effective Time, have any of the rights of a Shareholder
with respect to such Shareholder's shares of Knogo Common Stock, other than the
right to be paid the fair value of such shares under the NYBCL and any other
right provided under the NYBCL for shareholders who have filed such a notice.
Any notice of election to dissent may be withdrawn by a dissenting Shareholder
at any time prior to such Shareholder's acceptance in writing of an offer made
by Knogo or the Surviving Corporation, as the case may be, as described above,
but in no case later than 60 days after the Effective Time (or if Knogo or the
Surviving Corporation, as the case may be, fails to make a timely offer to pay
such Shareholder the fair value of such Shareholder's shares of Knogo Common
Stock as described above, at any time within 60 days after any date such an
offer is made, or thereafter with the written consent of the Surviving
Corporation. In order to be effective, withdrawal of a notice of election to
dissent must be accompanied by the return to the Surviving Corporation of any
advance payment to the Shareholder made by the Surviving Corporation, as
described above. Any dissenting Shareholder who withdraws such Shareholder's
notice of election to dissent or otherwise loses such Shareholder's dissenter's
rights will thereupon have only the right to receive the applicable Merger
Consideration for each of such holder's Knogo Shares.
Under Section 623(j) of the NYBCL, no payment may be made to
dissenting Shareholders by the Surviving Corporation if the Surviving
Corporation were to be insolvent or if such payment would render the Surviving
Corporation insolvent. In that event, each dissenting Shareholder would be
required either to (i) withdraw such Shareholder's notice of election to
dissent, or (ii) retain such Shareholder's status as a claimant against the
Surviving Corporation. If a dissenting Shareholder were to elect to remain a
claimant against the Surviving Corporation, such dissenting Shareholder's
rights would be subordinated to the rights of the Surviving Corporation's
creditors but would be superior to those of non-dissenting shareholders, should
the Surviving Corporation be liquidated. If the Surviving Corporation were not
liquidated, the dissenting Shareholder would retain such holder's right to
payment for such Shareholder's shares of Knogo Common Stock, which obligation
the Surviving Corporation would be required to satisfy once it was no longer
insolvent and if such payment would not render the Surviving Corporation
insolvent. If a dissenting Shareholder fails to exercise either of such
options within 30 days after the Surviving Corporation has given such holder
written notice that payment cannot be made because of the restrictions of
Section 623(j) of the NYBCL, the Surviving Corporation would be required to
exercise such option by written notice to such holder within 20 days after the
expiration of such period of 30 days. For purposes of NYBCL Section 623(j), an
-55-
<PAGE> 75
"insolvent corporation" is a corporation that is unable to pay its debts as
they come due in the usual course of its business.
If a court in a lawsuit by an unpaid creditor or
representative of creditors, such as a trustee in bankruptcy, were to find
that, at the time the Surviving Corporation makes any payment in respect of
fair value of any dissenting shares (each a "Transfer"), the Surviving
Corporation (a) made the Transfer with intent to hinder, delay or defraud
creditors or (b) received less than a reasonably equivalent value or fair
consideration for the Transfer and (i) was insolvent at the time of the
Transfer, (ii) was rendered insolvent by reason of the Transfer, (iii) was
engaged or about to engage in a business or transaction for which the assets
remaining with the Surviving Corporation constituted unreasonably small capital
to carry on its business, or (iv) intended to incur, or believed that it would
incur, debts beyond its ability to pay as such debts matured, the court could
find that the Transfer constituted a "fraudulent conveyance" under applicable
federal or state law. If the Transfer were determined to be a fraudulent
conveyance, there is a risk that dissenting Shareholders, as recipients of the
Transfers, would be ordered to turn over to the Surviving Corporation, its
creditors or its trustee in bankruptcy, all or a portion of the payment in
respect of dissenting Shareholders. The measure of insolvency for purposes of
the foregoing will vary depending upon the law of the jurisdiction which is
being applied. Generally, however, the Surviving Corporation would be
considered insolvent if at the time of the Transfer in question the fair value
(or fair saleable value) of its assets was less than the amount required to pay
its total debts and liabilities (including contingent liabilities) as they
become absolute and matured, or if the sum of the Surviving Corporation's debts
(including any contingent liabilities) at the time of the Transfer is greater
than the fair value of all of the Surviving Corporation's properties. The
Transfers could be deemed to be a fraudulent conveyance even if the Surviving
Corporation is not deemed to be an "insolvent corporation" for purposes of the
NYBCL.
SENSORMATIC BUSINESS
Sensormatic is a fully integrated supplier of electronic
security systems to retail and non-retail markets worldwide. Sensormatic
designs, manufactures, markets and services EAS and EAP systems (including the
reusable tags and disposable labels used with such systems), CCTV systems
(including microprocessor-controlled CCTV systems and exception monitoring
systems) and access control systems. These loss prevention systems are
principally used to deter shoplifting, or internal or other theft, in a wide
variety of soft and hard goods retail stores and non-retail environments such
as commercial and industrial facilities, as well as for other security
applications. Sensormatic's multiple product lines, which have been developed
for specific targeted loss prevention applications, make use of a broad base of
technology it has developed or acquired.
INDUSTRY BACKGROUND
Retail and non-retail businesses utilize loss prevention
products to improve profitability. In retail environments, use of EAS products
has increasingly become a standard operating practice as such products have
been proven for over twenty years to be a cost effective method of reducing
inventory shrinkage. Inventory shrinkage is often the second largest variable
operating expense of retailers, after payroll costs. Shrinkage in retail
stores will vary depending on a number of factors, but will normally range from
1% to 5% of sales. An effective EAS program can reduce the loss from shrinkage
by over 50%, and at the same time increase the productivity of the retailers
employees by reducing their efforts aimed at detecting shoplifting. In
addition, EAS products can increase the retailers' sales volume by allowing
-56-
<PAGE> 76
retailers to display their merchandise, which was previously displayed in
locked cases, behind sales counters or protected with cables and chains, in a
more attractive, open manner.
EAS products were first used by retailers to protect soft
goods (apparel merchandise). Due to advances in technology applications in
recent years, hard goods merchandise (which is generally packaged merchandise)
can also be economically and effectively protected by EAS products. Hard goods
retailers such as supermarkets, hypermarkets and home improvement centers, as
well as drug, mass merchandise, optical, music, hardware, book and video
stores, have increasingly become users of EAS products.
Several of the newer applications of the technologies used by
hard goods retailers can also be used by non-retail businesses to protect
assets such as personal computers, facsimile and copy machines, telephones,
artwork, limited access files, and portable laboratory equipment and tools from
loss by unauthorized removal. Other specialized applications include the
protection of newborn infants in hospitals and patients in nursing homes and
other long-term care facilities.
Retail and non-retail businesses also make extensive use of
CCTV products to enhance security. Sensormatic has developed or acquired a
broad range of CCTV products for use in retail and commercial and industrial
applications. Non-retail businesses in particular are increasingly receptive
to Sensormatic's ability to design, supply, install and service systems
integrating the combination of EAP and CCTV products as well as access control
products, another product line offered by Sensormatic to enhance security.
COMPANY DEVELOPMENT AND GENERAL STRATEGIES
Sensormatic's initial EAS systems were designed for use by
department and specialty store retailers to protect soft goods merchandise. As
a result of its sales and marketing expertise and the technological advantages
of its products, Sensormatic gained and has maintained the position of world
leader in supplying EAS products for soft goods retailers.
For nearly the past decade Sensormatic has implemented a
strategy of product, customer and geographic market diversification to
substantially increase its growth potential. Through the combination of
substantial increases in research, development and engineering activities and
selected strategic acquisitions, Sensormatic now offers, to both retailers and
non-retail users, a broad array of products based on a number of distinct EAS
technologies, as well as CCTV, exception monitoring and access control systems.
Sensormatic's newer EAS product lines have been developed and
targeted for specific hard goods retail applications and Sensormatic has become
the leading supplier of EAS products to hard goods retailers. Hard goods
retailers are estimated to be a substantially larger potential user group than
soft goods retailers and have only begun to use significantly EAS products
during the last few years. Further, hard goods retailers primarily use EAS
disposable labels which are affixed to merchandise. Use of the hard goods EAS
systems creates a continuing need on the part of retailers for additional
disposable labels to be affixed to new merchandise resulting in a major source
of recurring revenues for Sensormatic.
CCTV products are used to protect against inventory shrinkage
and other losses due to internal or employee theft in retail businesses, and
are also used for the protection and monitoring of personnel and assets in
office and manufacturing complexes, warehouses, gaming establishments (e.g.,
casinos) and numerous other non-retail facilities. Additionally, the CamEra
division in the United Kingdom (acquired in connection with the acquisition of
ALPS in July 1992, discussed below) markets packaged, lower cost CCTV systems
for retail and commercial
-57-
<PAGE> 77
businesses. In fiscal 1994, Sensormatic began to market such CamEra systems in
France and the United States. Revenues generated from all of Sensormatic's
CCTV product lines were approximately $174 million, $97 million and $43 million
in fiscal 1994, 1993 and 1992, respectively.
Sensormatic has greatly expanded its efforts in recent years
to market CCTV and access control products to commercial, industrial and other
non-retail customer groups. This strategy is evidenced both by the expansion
of Sensormatic's direct sales force and selected niche acquisitions including
in fiscal 1994 the acquisitions of Advanced Entry Systems, Inc. ("Advanced
Entry") and Security Specialists of San Francisco, Inc. ("Security
Specialists"), two U.S. regional electronic security systems integrators
experienced in designing, supplying, installing and servicing systems which
meet the security needs of a variety of non-retail customers.
The growth of revenue from commercial, industrial and other
non-retail customers results from the strategy of broadening Sensormatic s
customer base by adding new proprietary CCTV and access control products and
the establishment of new distribution channels. This strategy is demonstrated
by Sensormatic's extensive internal product research, development and
engineering activities and the acquisitions of Robot Research Inc. ("Robot
Research") and American Dynamics, CCTV systems manufacturers, and Software
House, Inc. ("Software House") and Continental Instruments Corporation
("Continental"), access control developers.
Sensormatic is diversifying the geographic areas in which it
markets its products by expanding into new geographic areas and increasing its
presence in existing areas. Sensormatic has greatly expanded its direct sales
and service ("customer engineering") efforts in North America, Europe, and
certain Asia Pacific and Latin America countries in recent years through the
acquisitions of the ALPS' distribution organization based in the U.K.
(discussed further below) and Sensormatic's distributors in the Scandinavian
countries, Mexico and Puerto Rico (including the Caribbean Basin). The
proposed Merger with Knogo is a further outgrowth of this strategy.
Sensormatic's international strategy also involves the use of
distribution agreements with independent parties, with Sensormatic maintaining
a 51% ownership control. Currently Sensormatic utilizes this concept in
Brazil, Peru and Turkey and plans to expand it to China and certain countries
in the Middle East, Latin America, Africa and eastern Europe.
In July 1992, Sensormatic acquired from Automated Security
(Holdings) PLC ("ASH"; together with its subsidiaries, the "ASH Group") the ASH
Group's European EAS, CCTV and exception monitoring loss prevention systems
division ("ALPS"). With the acquisition of ALPS, previously a large European
distributor of EAS and CCTV products, Sensormatic can offer an expanded base of
European customers a full range of EAS technologies well suited to virtually
any retail application, together with a broad range of CCTV, exception
monitoring and access control products, backed by the combined sales and
service organizations of Sensormatic and ALPS.
In connection with the acquisition of ALPS, Sensormatic
acquired the ASH Group's interest of approximately 30% in Security Tag Systems,
Inc. ("Security Tag"), a U.S.-based manufacturer of loss prevention products.
Prior to June 1993, Sensormatic distributed Security Tag's products outside
North and South America under an exclusive distribution agreement between
Sensormatic and Security Tag. In June 1993, Sensormatic acquired the remaining
interest in Security Tag (approximately 70%).
-58-
<PAGE> 78
Another principal strategy of Sensormatic is to expand its
base of recurring revenues. Recurring revenues are generated by sales of
disposable labels to the hard goods retailers, maintenance agreements entered
into in connection with the sale or lease of systems and rental revenues from
operating leases, a particular focus of the marketing efforts of certain of its
European and Asia/Pacific subsidiaries. Total recurring revenues were
approximately $120 million, $106 million and $69 million in fiscal 1994, 1993
and 1992, respectively.
Sensormatic took a major step forward in its efforts to
increase future recurring label revenues through its Universal Product
Protection (UPP(SM)) program where EAS labels (or tags) are incorporated into or
affixed to the merchandise to be protected during the process of manufacturing,
packaging or distribution rather than at the retail store (also referred to as
source labeling or source tagging).
In fiscal 1994, a prominent home center retailer became the
first major retailer to embrace the concept of source tagging on a chain-wide
basis. It is expected that by late 1994 approximately 70 manufacturers
worldwide will apply Sensormatic's Ultra.Max(R) labels to merchandise
delivered to this retailer's stores in the U.S. Additionally, in fiscal 1994,
other top retailers from the homecenter and discount industries met with their
manufacturers to outline a framework for source labeling.
In June 1994, Sensormatic and Paxar Corporation ("Paxar"), a
manufacturer of fabric labels and tags for apparel and other retail markets,
introduced the initial prototypes of a combination clothing label and an EAS
anti-theft label. Sensormatic intends to use its strategic alliance with Paxar
to introduce source labeling to the soft goods industry.
In March 1993, the National Association of Recording
Merchandisers ("NARM") recommended Sensormatic's acousto-magnetic Ultra.Max
product line as the industry standard for use in source labeling of
pre-recorded music. Sensormatic committed to NARM that it would cross-license
its acousto-magnetic technology to other companies supplying the music
industry. In November 1993, the six major music manufacturers objected to
implementing EAS source labeling of pre-recorded music using Sensormatic's
acousto-magnetic technology as recommended by NARM, principally on the grounds
of test results obtained by the manufacturers which they claimed showed some
degradation of the sound quality of certain audio cassette tapes from the
magnetic deactivation devices used. Compact discs, which are the most
susceptible to shrinkage of the pre-recorded music formats carried by music
retailers, have not been subject to any controversy over alleged degradation in
sound quality. The manufacturers also expressed concerns relating to possible
problems with label placement and automated manufacturing processes. NARM,
together with an independent test laboratory engaged by them and two others
engaged by Sensormatic, evaluated the test reports furnished by the
manufacturers in support of their position and raised a number of issues about
the testing methodology and performance criteria used and the conclusions
reached. NARM requested that the manufacturers re-evaluate their test results
and perform new tests as required, and reconsider their conclusions, using
better defined criteria and standard test procedures. In January 1994, all but
one of the manufacturers rejected NARM's request. NARM expressed
disappointment with the manufacturers' lack of cooperation, and continued to
evaluate the viability of source labeling for music retailers. After further
consideration, NARM reconfirmed its recommendation of Ultra.Max in June 1994
for use with, among other things, compact discs and certain types of
audiotapes. While it is unclear whether NARM and the music retailers will
reach agreement in the near future, music retailers are continuing to expand
their use of Sensormatic's acousto-magnetic Ultra.Max products. Sales to
U.S. music retailers account for approximately 2% of Sensormatic's total
fiscal 1994 consolidated revenues.
-59-
<PAGE> 79
ELECTRONIC ARTICLE SURVEILLANCE PRODUCTS FOR RETAIL USE
Sensormatic's EAS systems consist of electronic detection
units, housed in pedestals or overhead units or concealed in the walls,
ceilings or floors, and placed at exits of stores or departments within stores
or at checkout aisles. These units are used in conjunction with specially
designed and sensitized reusable tags and disposable labels, which are affixed
to the merchandise to be protected. After the protected merchandise has been
purchased, its tag or label is then removed or deactivated by a sales person
using a specially designed detacher or deactivator, enabling the merchandise to
be taken through the controlled zone without incident. Alternatively, if the
label is not to be deactivated, the merchandise is passed around the controlled
zone by the sales person. However, if the protected merchandise passes through
a controlled zone with the tag or label still affixed and active, the tag or
label will be identified by the electronic detectors, causing an alarm to
sound, a light to activate and/or other suitable control devices to be set into
operation.
Soft Goods Retailers. Sensormatic's traditional EAS system,
based on high radio frequency technology, is marketed for use primarily by soft
goods department, specialty and other retail stores, for the protection of
clothing and other soft goods merchandise. Various models of reusable soft or
hard plastic tags are available for use with these traditional EAS systems.
Introduced in 1973, Sensormatic's Alligator(R) tag became the most widely
recognized hard plastic reusable tag. Introduced in the mid-1980's, the
smaller, lighter MicroGator(R) tag has surpassed the Alligator tag as the
industry standard. In June 1994 Sensormatic introduced Super Tag(TM), which
has a patented rotary clamp intended to make unauthorized removal more
difficult than conventional tags. The Security Tag EAS systems for use
primarily by smaller soft goods retailers and based on a low radio frequency
technology, consist of antennae which transmit a scanning signal, a reusable
tag containing an active frequency divider which is tuned to receive the
scanning signal and to transmit a presence signal at a designated frequency,
and a control unit which activates an alarm when a presence signal is detected.
Sensormatic's Sensor.Ink(R) and Inktag(R) products are
designed to be used separately or in conjunction with Sensormatic's existing
reusable tags to provide an incremental level of security for soft goods
retailers. Unauthorized removal of tags affixed to merchandise with Sensor.Ink
and Inktag causes vials of ink inside the unit to break and stain the would-be
shoplifter and merchandise, identifying the shoplifter as well as rendering the
merchandise unfit for use.
Sensormatic also markets to soft goods retailers its
TellTag(R) product line providing the highest level of EAS protection for high
value apparel merchandise. The TellTag product line is comprised of electronic
detectors and reusable "intelligent" tags which contain an internal alarm.
This alarm is activated when unauthorized removal of the tag from the garment
is attempted and is effective in providing protection against unauthorized
removal of EAS tags in fitting rooms.
Hard Goods Retailers. The sale of new EAS products to hard
goods retailers has been a prime factor in the growth of Sensormatic in the
last several years. These retailers include supermarkets, hypermarkets and
home improvement centers, as well as drug, mass merchandise, optical, hardware,
book, music and video stores. Sensormatic's success in supplying products to
these retailers is attributable to its broad array of new products, each
designed and marketed to meet the particular needs of a specific application.
Sensormatic believes that the revenues and earnings potential
of supplying products to hard goods retailers is significantly greater than
supplying products to soft goods retailers. Unlike apparel merchandise which
is protected with reusable plastic tags, hard goods
-60-
<PAGE> 80
merchandise is protected with self-adhesive stick-on labels which leave the
store with the merchandise. Use of these hard goods EAS systems creates a
continuing need on the part of the retailers for additional disposable labels
to be affixed to new merchandise, resulting in a major source of recurring
revenues to Sensormatic.
Following is a brief description of Sensormatic's hard goods
EAS product lines:
The Ultra.Max product line, which utilizes a proprietary
acousto-magnetic technology, is marketed primarily to music stores, drugstores,
home improvement centers, mass merchandise stores and specialty hard goods
retailers. Hard goods retailers use the Ultra.Max product line in conjunction
with the Rattler(R) label. Additionally, soft goods retailers are using
Ultra.Max with Ultra.Gator(R) products. Its success with retailers is
attributable to its unique features, which include freedom from false alarms,
unobstructed coverage of wide exits, a high "pick rate" or ability to detect
labels or tags and ease of deactivation. The system's sophisticated electronic
capability can distinguish and filter out items which can cause false alarms, a
problem which may be encountered by retailers using competitive products.
Ultra.Max disposable labels are deactivated by sales clerks upon checkout. The
Ultra.Max product line includes a variety of label deactivation devices,
including the Speed Station(R) deactivator, which doubles as a bagging station,
allowing merchandise to be conveniently bagged and, upon completion of bagging,
permitting all labels affixed to the bagged merchandise to be simultaneously
deactivated. This allows the customer to utilize an EAS system without slowing
down the checkout process to deactivate individual items.
The AisleKeeper(R) product line, which uses a proprietary
magnetostrictive technology, was developed specifically for use in supermarkets
and hypermarkets. These businesses generally contain the retail industry's
harshest environment for EAS systems, as the checkout aisle area where systems
are usually placed can be in close proximity to bar code scanners, point of
sale terminals, conveyor belts and metal counters, all of which may adversely
impact the effectiveness of the electronics in many EAS systems. Further, the
systems are subjected to physical damage caused by shopping carts passing
through the aisles and harsh chemical cleaning solutions. The AisleKeeper
system, which consists of two transceiver pedestals (containing transmitting
and reception coils, a shield and alarm circuits) that are covered with durable
plastic to resist staining and physical damage, and has rubber bumpers on the
edges and a wear bumper along the pedestal face, successfully addresses these
environmental problems. The AisleKeeper label is a thin micromagnetic wire
encapsulated in transparent tape attached to protected merchandise which is
passed around the system during the checkout process or, with certain versions,
may be deactivated by means of a deactivation pad which fits in the conveyor
belt.
The Standard and Enhanced Magnetic product lines, utilizing an
electromagnetic technology, are used extensively in video rental, book retail
and library applications. In use, video cassettes or books with labels affixed
are passed around the EAS system by the salesperson at the point of sale.
The System One(R) product line, using a low radio frequency
technology, is comprised of electronic detectors, hard reusable tags or soft
disposable self-adhesive labels for use with hard goods merchandise (and in
certain environments, with soft goods merchandise) and is marketed to smaller
independent retailers. Bar coded price information, promotional and
merchandising details can be printed on the label.
Sensormatic has the broadest and most flexible line of EAS
systems, tags, labels and accessories, such as applicators and deactivators,
for use by soft and hard goods retailers. Through June 30, 1994, Sensormatic
had sold or leased worldwide approximately 223,000 EAS
-61-
<PAGE> 81
systems and approximately 911 million reusable tags, and sold approximately 1.5
billion, 1.1 billion and 750 million disposable labels in fiscal 1994, 1993 and
1992, respectively. Revenues generated by the marketing of EAS product lines
to retailers in fiscal 1994, 1993 and 1992 were $406 million, $330 million and
$220 million, respectively.
CCTV AND EXCEPTION MONITORING SYSTEMS FOR RETAIL USE
Sensormatic's SensorVision(R) systems, which are
microprocessor-based CCTV systems, are used to protect against inventory
shrinkage and other losses due to internal or employee theft in retail
businesses, and are also used in commercial, industrial and other non-retail
environments (see "Non-Retail Users" immediately below). The SensorVision
systems, including the highly acclaimed SpeedDome(R), consist of special
ceiling domes, which conceal small, high resolution, high speed cameras, and
monitoring and control consoles specially designed for the programming,
identification and recording of monitored activities or areas. The
SensorVision systems can be programmed to monitor merchandise and cash handling
at point-of-sale stations in retail environments (as well as warehouse,
shipping and other activities in retail and non-retail environments) in an
"unattended mode". The systems can also be interfaced with cash registers to
monitor and electronically record predetermined "exception" transactions (such
as cash or credit card sales over specified dollar amounts, customer sales
credits, and purchases by pre-identified employees) by utilizing Sensormatic's
Point of Sale Exception Monitoring (POS/EM(TM)(R)) products; such exception
monitoring applications include supermarkets and hypermarkets, as well as other
retail environments where cash registers are used. Additionally, the
SensorVision systems are often used in conjunction with EAS systems to produce
a more effective and comprehensive overall loss prevention program.
Through June 30, 1994, Sensormatic had sold or leased
approximately 63,000 CCTV domes, principally to retailers in the United States.
Revenues generated by the marketing of all CCTV product lines to retailers
(including exception monitoring systems, but excluding CamEra(TM) systems (see
"Non-Retail Users" immediately below)) in fiscal 1994, 1993 and 1992 were $73
million, $41 million and $25 million, respectively.
NON-RETAIL USERS
Sensormatic's products and technologies are also being used in
non-retail environments. Sensormatic's U.S.-based Commercial/ Industrial Group
markets EAP systems, SensorVision and other CCTV systems and access control
systems to U.S. based commercial, industrial and other non-retail customers.
These Sensormatic products are marketed primarily for the protection,
monitoring and control of people and assets in large-scale office and
manufacturing complexes, warehouses, hospitals and nursing homes, nurseries,
transportation centers, colleges and universities, casinos, nuclear power
plants and numerous other non-retail facilities. Assets which are protected or
controlled by Sensormatic's EAP products include limited access files, computer
magnetic tapes and disks, portable computers, facsimile and copy machines and
other portable office equipment, hospital portable equipment, garments and
supplies, and many other valuable items. Non-retail businesses are
increasingly receptive to systems integrating combinations of these various
products, furnished and serviced by a single supplier. In order to improve its
system integration capabilities and expand its direct sales to non-retail
businesses, Sensormatic acquired Advanced Entry and Security Specialists during
fiscal 1994 and intends to acquire several similar U.S. regional systems
integrators in the next few years.
Sensormatic is committed to broadening its electronic security
product lines for non-retail users by adding new proprietary products and
distribution methods. This commitment is evidenced by its extensive internal
product research, development and engineering activities
-62-
<PAGE> 82
as well as the acquisitions of American Dynamics, Continental, Robot Research,
Advanced Entry, Security Specialists and Software House.
American Dynamics, a leading U.S. manufacturer of CCTV
components, was acquired in February 1991. It markets its products principally
to non-retail users through a network of manufacturer's representatives in the
United States and through selected distributors in Europe. Such products
include large switching systems capable of controlling hundreds of cameras from
a central location, sophisticated video motion detectors, and quad splitters
which allow the display of images from up to four cameras on a single monitor.
Robot Research, a U.S. based manufacturer and marketer of
sophisticated CCTV display and Transmission Systems, was acquired in September
1993. It is a leader in the design, manufacture and sale of digital video
signal processing equipment and has gained worldwide recognition in the field
of security, productivity management and other visual communication
applications. Robot Research markets its products by a network of manufacturer
representatives who sell to dealers and distributors worldwide. Sensormatic
also utilizes Robot Research and America Dynamics' products in the design and
configuration of large, sophisticated CCTV systems which it markets through the
Commercial/Industrial Group in the U.S. and specialized international sales
efforts.
Continental, a supplier of proprietary electronic access
control systems, was acquired in July 1989. Its electronic access control
product line is marketed to small and medium sized industrial businesses and is
distributed through a network of dealers in the United States and Europe.
Sensormatic, using one of the Continental products as a technology platform,
has developed a sophisticated access control system for sale to large
commercial and industrial businesses having multiple locations and thousands of
employees which it markets through the Commercial/Industrial Group in the U.S.
and specialized international sales efforts.
Software House, a leading U.S. designer and marketer of
mid-range to high-end access control products, was acquired in July 1994. It
designs, develops, markets and services mid-range to high-end access control
systems for use in office buildings, airports and universities. Software House
markets its products through distributors and system integrators. Sensormatic
intends to utilize Software House's products in the design and configuration of
large, sophisticated access control systems which it will market through the
Commercial/Industrial Group in the U.S. and specialized international sales
efforts.
Advanced Entry and Security Specialists, two U.S. regional
electronic security system integrators, were acquired in fiscal 1994. These
companies specialize in integrating products from a variety of manufacturers to
meet the particular security needs of a customer. Advanced Entry and Security
Specialists sell, install and service such integrated systems and integrate the
application of these products at the customer's facility. These companies have
been fully integrated into the direct sales and service organization of the
Commercial/Industrial Group.
Revenues generated from the sale of CCTV, EAP and access
control systems (including installation revenues) by the Commercial/Industrial
Group in the U.S. and specialized international sales efforts in fiscal 1994,
1993 and 1992 were $120 million, $65 million and $28 million, respectively,
(including CamEra(TM) systems to non-retail users, discussed below).
Sensormatic's CamEra systems (acquired in connection with the
acquisition of ALPS) consist principally of packaged, low cost CCTV systems,
primarily for use by smaller retail and commercial businesses. A typical
CamEra system consists of one or two stationary cameras, a monitor and a video
cassette recorder, and may be interfaced with Sensormatic's
-63-
<PAGE> 83
exception monitoring products which are similar in nature to the POS/EM
product. In fiscal 1994, Sensormatic began to market these systems in France
and the United States. Through June 30, 1994, approximately 29,000 CamEra
systems had been installed. Revenues generated from the marketing of CamEra
systems to retail and non-retail users in fiscal 1994 and 1993, primarily in
the United Kingdom, were approximately $48 and $31 million, respectively.
MARKETING AND SALES
General. Sensormatic operates under the name Sensormatic(R)
throughout the world. Sensormatic markets its products directly throughout
North America, Europe and certain Asia/Pacific countries, and through its 51%
owned subsidiaries in Brazil, Peru and Turkey. In over 30 other countries,
Sensormatic sells its products to distributors for resale or lease principally
to retailers. For each of the three fiscal years in the period ended June 30,
1994, no single customer accounted for 10% or more of Sensormatic's
consolidated revenues.
Marketing. Sensormatic markets its EAS products primarily to
soft goods (apparel merchandise) retailers and hard goods (packaged
merchandise) retailers through its worldwide direct sales organization,
discussed below under this subheading. Historically, Sensormatic has marketed
its traditional EAS products to high end soft goods retailers (for example,
large department stores and national chains) throughout the world. Security
Tag EAS systems are primarily targeted at smaller, independent soft goods
retail customers. Sensormatic's traditional and Security Tag EAS systems, the
TellTag product line and the Sensor.Ink tag, Inktag, and related accessories,
all used primarily by soft goods retailers, generated approximately 25% of
fiscal 1994 consolidated sales and lease revenues. With the introduction of
the MicroLabel(R) product in the late 1980's, however, the traditional EAS
system can be used by hard goods retailers. The AisleKeeper and the Standard
and Enhanced Magnetic product lines, used primarily by hard goods retailers,
generated approximately 14% of fiscal 1994 consolidated sales and lease
revenues, while the Ultra.Max product line, used by both soft and hard goods
retailers, generated approximately 22% of fiscal 1994 consolidated sales and
lease revenues.
Sensormatic's CCTV, EAP and access control systems are
marketed by the Commercial/Industrial Group in the U.S. and specialized
international sales effort (see discussion below under this subheading).
Sensormatic's CamEra products are marketed through specialized sales
organizations in France, the United Kingdom and the U.S. Sensormatic's CCTV
systems are used by both retail customers and non-retail customers (i.e.,
commercial, industrial and other non-retail customers) and generated
approximately 26% of fiscal 1994 consolidated revenues.
Sales and Service Organizations. Sensormatic, at June 30,
1994, employed worldwide a total of over 2,300 sales and customer engineering
personnel to market and service its products throughout North America, Europe
and certain Asia/Pacific countries (see the discussion of International
Operations below under this subheading). At June 30, 1994, Sensormatic's
products were also marketed and serviced elsewhere in the world by over 325
sales and customer engineering personnel employed by international distributors
(see "International Operations"). Sales and service personnel for
Sensormatic's products are presently directed from offices located throughout
the United States and in more than 54 countries. Sensormatic believes that a
major factor in its success has been the high quality of its extensive and
experienced sales and service organization.
Over the past several years, Sensormatic has restructured its
sales force to establish specialized sales groups to market its products to
particular types of users. For example, in the United States, specialized
sales groups have been created to increase penetration of the supermarket
industry and to focus on non-retail users (see discussion below
-64-
<PAGE> 84
under this subheading). In Europe, such sales specialization has been
concentrated, to date, on self-service stores and hypermarkets, and certain
CCTV and exception monitoring systems primarily for smaller retail and
commercial businesses. In fiscal 1994, Sensormatic began to develop a
specialized sales effort and identify specific dealers aimed at marketing
its products to the commercial, industrial and non-retail customers in Europe
and certain other parts of the world. Sensormatic will continue to specialize
its sales force and believes such specialization will accelerate its success in
marketing to the targeted user groups.
Commercial/Industrial ("CI") Group. Sensormatic's new product
development and marketing efforts directed to commercial, industrial and other
non-retail users are a further outgrowth of Sensormatic's strategic plan.
Sensormatic's CI Group includes a U.S. direct sales effort (including the sales
efforts of the recently acquired Advanced Entry and Security Specialists) aimed
at large multi-location businesses, and manages the marketing and sales
activities of Continental, American Dynamics, Robot Research and Software
House. The CI Group markets on a direct basis and through dealers and
manufacturer representatives. The CI Group offers EAP systems, SensorVision
and other CCTV systems, and access control systems to various customers,
including a number of the largest companies in the United States. In March
1994, Sensormatic became a Sponsor and the Official Electronic Security
Supplier of the 1996 Olympic Games in Atlanta. Sensormatic's involvement in
the Olympics will heighten its visibility and recognition in the commercial and
industrial marketplace.
International Operations. Sensormatic presently sells, leases
and services its products through wholly-owned subsidiaries operating in
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Hungary, Italy, Mexico, The Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland and the United Kingdom. Sensormatic's
products are also marketed and serviced through exclusive distributors in
Argentina, Chile, Columbia, Indonesia, Japan, Saudi Arabia, South Africa,
Taiwan, Venezuela and a number of other countries. Sensormatic also markets
EAS and CCTV products in Brazil, Peru and Turkey through its 51% owned
subsidiaries. Sales and service personnel for Sensormatic's products are now
based in more than 54 countries.
LEASES
Sensormatic also leases equipment under non-cancelable
operating leases. Such leases are generally for terms of 36 to 54 months.
Currently, substantially all of Sensormatic's lease revenues are generated by
certain of its European subsidiaries. Additionally, Sensormatic generates
revenues from the maintenance and servicing of its equipment. Leases generally
provide for Sensormatic to maintain and service the leased equipment.
COMPETITION
The loss prevention industry is highly competitive. There are
many alternatives available to deter theft, in addition to the use of EAS and
CCTV systems, including, among other things, guards and private detective
services, mirrors, burglar alarms and other magnetic and electronic devices,
and services combining some or all of the above elements. To Sensormatic's
knowledge, there are several other companies that market, directly or through
distributors, EAS equipment to retail stores, of which Knogo, Checkpoint and
Minnesota, Mining and Manufacturing Company ("3M") in the U.S., and Actron
(part of ADT - Britannia), Checkpoint, Esselte Meto, Knogo (see "Sensormatic
Business--Company Development and General Strategies"). Nedap B.V. and 3M in
Europe are Sensormatic's principal competitors. With respect to CCTV products,
there are numerous companies, including Burle Industries, Inc., Panasonic,
Pelco and Vicon Industries, Inc. that market directly or through distributors
such
-65-
<PAGE> 85
equipment to both retail and non-retail customers; however, to Sensormatic's
knowledge, there is no single principal competitor marketing CCTV products.
There can be no assurance that other firms with greater
financial and other resources may not enter into, or expand their direct
competition with, Sensormatic. Sensormatic competes in marketing EAS, CCTV,
EAP and access control systems principally on the basis of product performance,
multiple technologies and service.
PRODUCT RESEARCH, DEVELOPMENT AND ENGINEERING
Sensormatic has significantly increased its research,
development, and engineering expenditures during the past decade. The increase
in these activities has resulted in the continued broadening of the product
lines offered by Sensormatic resulting in the expansion of the applications and
customer base for Sensormatic's products. A large portion of Sensormatic's
recent growth in revenue can be attributed to the products and technologies
resulting from these efforts.
Sensormatic has significantly strengthened its research,
development and engineering activities by increasing its investment in
sophisticated engineering equipment, expanding key consulting relationships
throughout the world, and substantially increasing its professional engineering
staff, with particular emphasis on magnetic materials research and software
development skills. Several of Sensormatic's EAS products depend on the use of
magnetic materials. Software is a major element in Sensormatic's new product
designs and manufacturing processes. At June 30, 1994, Sensormatic employed a
staff of 223 on the engineering payroll of which 174 were degreed engineers,
including 47 with advanced Masters and Ph.D. degrees.
Another important source of new products and technologies has
been Sensormatic's strategic acquisitions of companies and products during the
last few years. Sensormatic will continue to make acquisitions of related
businesses or products consistent with its overall product and marketing
strategies.
MANUFACTURING
Sensormatic manufactures most of its products in facilities
located in Puerto Rico and Florida and has developed over the years a highly
integrated manufacturing capability. Sensormatic's manufacturing strategy is
to rely primarily on in-house capability and to vertically integrate
manufacturing processes to the extent possible and economically practical.
This integration and in-house capability provides significant control over
costs, quality and responsiveness to the demands of the market which results in
a distinct competitive advantage.
Sensormatic utilizes independent suppliers in procuring
various component products and materials required to manufacture its products.
Certain of the magnetic material for the Ultra.Max labels and tags is
purchased from a single vendor under a supply agreement. Sensormatic also
contracts with independent parties for the manufacture of certain products,
such as the Aisle Keeper and Standard Magnetic Labels made to Sensormatic's
specifications. Additionally, certain OEM equipment and mechanical and
component parts, supplies and accessories (such as cables, cameras, VCRs and
television monitors related to the SensorVision system), are purchased from
independent suppliers. With respect to products developed or acquired in the
future, Sensormatic may manufacture such products or, if deemed appropriate,
may contract for the manufacture of such products.
-66-
<PAGE> 86
Certain of the tags used with the Security Tag EAS systems are
manufactured by a Hong Kong based supplier under a manufacturing agreement.
Additionally, the CamEra CCTV accessories and components are purchased, under
Sensormatic's specifications, from approximately 10-15 large international
electronics manufacturers.
Sensormatic has improved, and expects to continue to improve,
its production efficiencies through increased automation and improved cost
reducing product designs. Such increased automation, particularly to increase
capacity and lower production costs of disposable labels, will require
additional capital expenditures for new production equipment. In July 1993,
Sensormatic moved its 63,000 square foot U.S. manufacturing facility, primarily
used in the manufacture of labels, to a newly constructed 120,000 square foot
facility in Boca Raton, Florida. Sensormatic is in the process of constructing
a 100,000 square foot addition to this facility which is required to meet its
current and anticipated label manufacturing needs (principally the Ultra.Max
label).
Additionally, in early fiscal 1994, Sensormatic completed the
process of consolidating the majority of its 270,000 square foot Puerto Rico
manufacturing operations into a 325,000 square foot facility located in
Aguadilla, Puerto Rico. Over 70% of the value of EAS and CCTV products sold by
Sensormatic is currently produced in Puerto Rico, contributing significantly to
the relatively low effective tax rate enjoyed by Sensormatic due to the
favorable income tax status of the Puerto Rico operations.
In February 1994 Sensormatic announced plans to begin
manufacturing operations in an 80,000 square foot leased facility located in
Cork, Ireland. This facility will allow Sensormatic to manufacture certain EAS
and CCTV products (including tags and labels) closer to its large European
customer base. Additionally, Sensormatic finalized an agreement with the
Industrial Development Agency of Ireland with respect to wage and training tax
credits, and rent subsidies.
PATENT AND RELATED RIGHTS
Sensormatic owns or is the exclusive licensee of over 166
patents issued by the United States Patent Office. These patents cover a
variety of inventions including Sensormatic's traditional EAS system as well
as its electromagnetic, acousto-magnetic, CCTV and low radio frequency
systems. Patents corresponding to many of these United States patents have
been issued or are pending in various foreign countries. Sensormatic is a
non-exclusive licensee under certain patents issued in the United States and
various foreign countries relating to the manufacture, use and sale of certain
labels for use with its electromagnetic systems, for which license
Sensormatic pays royalties. Sensormatic has over 50 patent applications
pending in the United States for various other inventions relating to its
products. Patent applications for some of these inventions are also pending in
other countries. There can be no assurance that any patents will be issued to
Sensormatic on any of its pending applications.
Sensormatic does not make any representation as to the scope,
validity or value of any patents which have been or may be issued or licensed
to it or as to the possible infringement by its products on patents owned by
others. Although Sensormatic's patent program is important, Sensormatic
believes that because of its technical knowledge and experience and the
abilities of its established and experienced sales and service organization, it
is not dependent upon patent protection to maintain its leadership in the
electronic security industry.
Additional information concerning Sensormatic is contained in
Sensormatic's Annual Report on Form 10-K for the fiscal year ended June 30,
1994, and its Quarterly Report
-67-
<PAGE> 87
on Form 10-Q for the quarter ended September 30, 1994 (which are incorporated
herein by reference) and Sensormatic's Proxy Statement for its 1994 Annual
Meeting of Shareholders, each of which are available from Sensormatic without
charge, and Sensormatic's 1994 Annual Report to Shareholders and First Quarter
Report to Stockholders for the quarter ended September 30, 1994, copies of
which accompany this Proxy Statement--Prospectus. See "Available Information"
and "Incorporation of Certain Documents by Reference".
KNOGO BUSINESS
Knogo is engaged primarily in the business of manufacturing,
marketing and servicing EAS systems. The EAS systems that Knogo manufactures
are based upon three distinct technologies. One system, the Swept Radio
Frequency ("Swept RF") system, uses medium frequency transmissions in the two
to nine megahertz range. The second system, the Dual Radio Frequency ("Dual
RF") system, uses two ultrahigh frequency radio signals of approximately 905
megahertz and 925 megahertz. The third system, Magnetics ("MM"), uses very low
frequency electromagnetic signals in the range of 218 hertz to 9 kilohertz.
Knogo also manufactures a non-electronic dye-stain pin ("KnoGlo(TM)"). In
addition, Knogo markets a CCTV system, or CCVS, known as "The KNOGO
Surveillor(TM)," and manufactures a hardware/software package allowing
merchants simultaneously to record data from point-of-sale terminals together
with a video image of the employee and customer.
Of Knogo's worldwide bookings for fiscal year 1994,
approximately 29% were attributable to the Swept RF System, 6% to the Dual RF
System, 60% to the MM System, 1% to the KnoGlo(TM) System and 4% to the CCVS
System. Of Knogo's bookings outside the Knogo N.A. Territory for fiscal year
1994, approximately 32% were attributable to the Swept RF System, 1% to the
Dual RF System, 64% to the MM System, 1% to the KnoGlo(TM) System and 2% to the
CCVS System. For the fiscal years 1993 and 1992 worldwide, approximately 36%
of Knogo's bookings in each year were attributable to the Swept RF system, 7%
in each year to the Dual RF System, 52% and 51%, respectively, to the MM
System, 1% in each year to the KnoGlo(TM) System and 4% and 5%, respectively,
to the CCVS System. For the fiscal years 1993 and 1992 outside the Knogo N.A.
Territory, approximately 35% and 39% respectively, of bookings were
attributable to the Swept RF system, 4% and 1%, respectively, to the Dual RF
System, 51% and 57%, respectively, to the MM System, 1% in each year to the
KnoGlo(TM) System, and 2% in each year to the CCVS System. Knogo's bookings
represent the gross value of orders accepted during the year.
The principal application of Knogo's products is to detect and
deter shoplifting and employee theft in supermarket, department, discount,
specialty and various other types of retail stores including bookstores, video,
liquor, drug, shoe, sporting goods and other stores. The use of these products
reduces inventory shrinkage by deterring shoplifting, increases sales potential
by permitting the more open display of greater quantities of merchandise,
reduces surveillance responsibilities of sales and other store personnel and,
as a result, increases profitability for the retailer. In addition, Knogo's
EAS systems are used in libraries and museums to detect and deter theft, in
office buildings to control the loss of office equipment and other assets, in
nursing homes for patient control, in hospitals to prevent theft of newborns
and for control of linen supplies and in a variety of other hard goods
applications.
PRINCIPAL PRODUCTS
Knogo's EAS systems consist of detection sensors which are
triggered by articles or persons tagged with wafers or tags manufactured by
Knogo. The principal application of the Swept RF and Dual RF systems is to
detect and deter theft of soft goods such as clothing,
-68-
<PAGE> 88
while the MM systems are primarily used to detect and deter theft of hard goods
including packaged goods and books.
At February 28, 1994, the approximate number of Knogo's Swept
RF and Dual RF systems sold or leased worldwide exceeded 46,000 (approximately
37,700 outside the Knogo N.A. Territory). At that date, the approximate number
of Knogo's MM systems sold or leased worldwide exceeded 35,000 (approximately
29,500 outside the Knogo N.A. Territory).
Swept and Dual Radio Frequency Detection Systems. Since 1966,
Knogo has been engaged in the manufacture and distribution of the Swept RF
system, the principal application of which is to detect and deter shoplifting
and employee theft of clothing in retail establishments. In 1988, Knogo began
to make available to customers the Dual RF system which uses a technology
wherein two separate radio frequencies are triggered in a wafer or tag,
achieving a singular, recognizable signal. The Dual RF system is particularly
useful and cost efficient for soft-goods retail stores with wide mall-type exit
areas which ordinarily would require multiple Swept RF systems to adequately
protect the retail establishment. The Swept RF and Dual RF systems consist of
radio signal monitoring equipment activated by wafers or tags containing
precise electronic circuitry. When merchandise with a wafer or tag attached is
transported through the monitored zone, its circuitry interferes with the radio
signals continually transmitted through the monitoring system, thereby
triggering alarms such as flashing lights, buzzers or indicators at a central
control point, or transmitting an alarm directly to the security force.
The wafers and tags are manufactured by Knogo in a variety of
sizes and types and are attached directly to the articles to be protected by
means of specially designed fastener assemblies. A wafer or tag is removed
from the protected article, usually by a clerk at the checkout or wrapping
desk, by use of a decoupling device specially designed to facilitate the
removal of the fastener assemblies with a minimum of effort. Removal of the
wafer or tag without a decoupler is difficult and unauthorized removal will
usually damage the protected article and thereby reduce its value to a
shoplifter. Knogo offers an optional reminder station which, by means of
audiovisual indicators, automatically reminds the store clerk to remove the
wafer or tag when the article is placed on the cashier's desk. Knogo offers a
portable verifier which is capable of identifying a person with tagged
merchandise in the event that a number of persons pass through the control
point at the same time. Knogo has also developed alarms capable of alerting
security personnel to the unauthorized removal of wafers or tags in dressing
rooms and, in multi-level stores, the movement of tagged merchandise in
elevators and on escalators.
Monitoring devices are installed at exits of protected areas,
such as doorways, elevator entrances and escalator ramps. The devices are
generally located in panels or pedestals anchored to the floor for a vertical
arrangement or mounted in or suspended from the ceiling and mounted in or on
the floor for a horizontal arrangement. The panels or pedestals can be custom
designed to harmonize with the decor of the store. By means of multiple
installations of horizontal Swept RF systems or a single installation of one
Dual RF system, Knogo has the ability to protect any size entrance or exit.
Knogo has adapted its Swept RF and Dual RF systems for use in
industrial establishments and office buildings for asset control, in nursing
homes and hospitals for patient control and in other institutions for personnel
control. The systems consist of a small electronic target which is detected by
monitoring equipment when a person wearing the target or carrying the protected
item leaves or enters a restricted area.
-69-
<PAGE> 89
Knogo's Swept RF and Dual RF systems generally have a useful
life of six years (although many of Knogo's systems have been operating for
longer periods), have a negligible false alarm rate and are adaptable to meet
the diversified article surveillance needs of individual retailers.
Magnetic Detection Systems. Knogo manufactures and
distributes its MM systems, the primary application of which is to detect and
deter theft in "hard goods" applications such as libraries, bookstores,
hypermarkets and supermarkets, in video, drug, liquor, shoe, record, sporting
goods and similar stores and in museums, hospitals and airlines.
Knogo's MM systems use detection monitors which are activated
by electromagnetically sensitized strips. The MM targets are attached to the
articles to be protected when price tags are affixed and are easily camouflaged
on a wide array of products. The magnetic targets, including Knogo's ultra
thin thread, trade-named "Electro-Thread(R)," can be supplied in many forms and
are attractively priced, making them suitable for a variety of retail
applications. In addition, the MM targets can be manufactured to be activated
and deactivated repeatedly while attached to the articles to be protected,
which is a particularly desirable feature for use with items such as books,
records and videotapes which are "checked-out" and later returned. Accurate
deactivation is also very important when the item to be protected is a personal
accessory that will be carried by its owner from place to place, such as pocket
books, pens, lipstick, shoes and camera film and cameras.
The MM system offers retailers several features not available
in its Swept RF and Dual RF systems. Since the Electro-Thread(R) is very
small, hair-thin, relatively inexpensive and may be inserted at the point of
manufacture or packaging, it provides retailers with a great deal of
flexibility and is practical for permanent attachment to a wide variety of hard
goods, especially low profit-margin products. The Electro-Thread(R) target can
be automatically deactivated at check-out, eliminating the risk of triggering
alarms when merchandise leaves the store and saving sales personnel valuable
time. Since the Electro-Thread(R) targets can be incorporated directly into a
price tag, they are convenient to use.
While targets are typically attached by the retailer at the
point of sale, the practices of applying the target at the distribution point
("Source Tagging"), or within the protected item ("Source Imbedding"), are
increasing. This program, Universal Source Protection ("USP"), reduces
significantly the retailer's target purchase and application costs, while
increasing the anti-theft effectiveness of the system. Knogo has developed and
is now manufacturing its patented, new MM strip, trade-named "SuperStrip(TM)".
Knogo believes that SuperStrip's extremely small size, unique physical,
mechanical and detection properties, compatibility with earlier generation MM
systems and very low cost make it an ideal candidate for either Source Tagging
or Source Imbedding.
The detection monitors used by the MM systems are installed at
three to five foot intervals at the exits of protected areas. The monitors are
activated when the items to which the targets are attached pass through the
monitored zone, thereby triggering alarms similar to those used with the Swept
RF and Dual RF systems.
KnoGlo(TM). KnoGlo(TM), a non-electronic, dye-stain pin,
releases an indelible liquid when tampered with. Used with passive locking
mechanisms without electronics, KnoGlo(TM) is often a retailer's first step in
loss prevention. KnoGlo(TM) is also employed in stores with EAS systems as an
extra layer of protection. Such protection is useful in problem areas (near
mall door-openings, for example) or where users must maximize selling space.
-70-
<PAGE> 90
Closed Circuit Video Systems. Knogo also markets its CCVS
system, known as "The KNOGO Surveillor(TM)". The KNOGO Surveillor(TM) enhances
the protection of retail stores from shoplifting and employee theft by
providing retailers with optical surveillance of the premises. Knogo believes
that, while less profitable than its traditional EAS products, the CCVS
complements its other EAS systems and provides retailers with further
protection against internal employee theft and external shoplifting activities.
The Knogo Data Displayer(TM) allows users of CCVS a method of
detecting employee thefts which occur at retailers' point-of-sale ("POS")
terminals. The Knogo Data Displayer(TM) collects cash register data (from up
to 16 registers simultaneously), converts it from digital to video signals,
combines it with a video input and records the POS data and video image on a
videocassette as a permanent video record of the transaction.
PRODUCTION
Knogo produces its Swept RF, Dual RF and MM systems or their
components at its facilities in Mons, Belgium and Cidra, Puerto Rico. Knogo
manufactures the detection monitors, wafers, tags, detection strips and other
targets used in each system by assembling electronic and mechanical components
and printed circuitry which it purchases from various suppliers. Knogo's
specially designed tools, plastic cases for the wafers, and the target bands
used in Knogo's system for patient and personnel control are produced to
Knogo's specifications by independent contractors using Knogo's molds and
tooling. The Knogo Surveillor(TM) systems are manufactured to Knogo's
specifications and assembled by an independent contractor. Knogo Data
Displayers(TM) consist of components manufactured by others. Knogo is not
dependent on any one supplier or group of suppliers of components for its
systems and has no long-term arrangements with any of its suppliers. Knogo's
policy is to maintain its inventory at a level which is sufficient to meet
projected demand for its products. Such demand is usually higher in the fall
months than at other times. Knogo does not anticipate any difficulties in
continuing to obtain suitable components at competitive prices in sufficient
quantities as and when needed.
Following the Divestiture, Knogo N.A. will succeed to the
present North American operations of Knogo, including the manufacturing
facility in Cidra, Puerto Rico, and will manufacture and sell to Sensormatic,
as successor to Knogo, certain electronic article surveillance products
pursuant to the Supply Agreement which is to be entered into by Knogo and Knogo
N.A. in connection with the Divestiture. Under the Supply Agreement, for a
period of 30 months, products valued at $24 million in the aggregate will be
manufactured in the Knogo N.A.-owned plant in Puerto Rico or purchased from
existing third party suppliers and supplied to Sensormatic operations in Europe
and Australia. See "The Divestiture--Supply and License Agreements".
Shipments to European, Far Eastern, African, Australian and
Near Eastern customers are primarily made from Knogo's manufacturing and
distribution facility in Belgium.
MARKETING
Knogo markets its systems within the Knogo N.A. Territory
through the direct sales efforts of approximately 29 salespersons located in
selected metropolitan areas and outside the Knogo N.A. Territory through the
direct efforts of approximately 85 salespersons employed by Knogo's
subsidiaries and through dealers in various countries.
Knogo's EAS systems are marketed on both a lease and direct
sales basis. The terms of the standard leases are generally from one to seven
years. The sales prices and lease
-71-
<PAGE> 91
rates vary based upon the type of system purchased or leased, number and types
of targets included, the sophistication of the system employed and, in the case
of a lease, its term. In the case of the MM systems, detection targets which
are permanently attached to the item to be protected are sold to the customer
even when the system is leased. Therefore, in the case of either a sale or
lease of an MM system, as the customer replenishes its inventory, additional
targets will be required for those items to be protected. Knogo also markets a
more expensive, removable, reusable detection tag for use with its MM systems
on certain products such as clothing and other soft goods.
In order to meet competition, Knogo also selectively offers
EAS systems on a deferred billing arrangement and, in some instances, on a
short-term introductory basis. At the end of such period the retailer has the
option to lease or purchase the equipment.
During the fiscal year ended February 28, 1994, Knogo placed
in service approximately 9,300 of its Swept RF, Dual RF, and MM systems
(approximately 7,800 outside the Knogo N.A. Territory). Knogo does not believe
that the loss of any one customer would have a material adverse effect on its
business.
Knogo from time to time sells leases it originates to third
party leasing companies.
SERVICE
Installation, repair and maintenance services are performed
primarily by Knogo's personnel and by Knogo's distributors or agents. All
products sold or leased are covered either by a short warranty period or an
extended warranty period. After the initial warranty period, Knogo also offers
to its customers the option of entering into a maintenance contract with Knogo
or paying for service on a per call basis.
INTERNATIONAL OPERATIONS
Knogo's operations in Europe and Australia are conducted
through various foreign subsidiaries and in various foreign countries through
dealers. Knogo's international revenues (excluding intercompany sales) and
Knogo's total revenues were $70.6 million and $89.3 million, respectively, for
the fiscal year ended February 28, 1994, $71.9 million and $94.4 million,
respectively, for the fiscal year ended February 28, 1993, and $56.5 million
and $80.7 million, respectively, for the fiscal year ended February 29, 1992.
For further information with respect to Knogo's foreign and domestic operations
for fiscal years 1994, 1993 and 1992, see Note 12 of Notes to Consolidated
Financial Statements in Knogo's Annual Report on Form 10-K for the fiscal year
ended February 28, 1994, as amended, incorporated herein by reference.
COMPETITION
Knogo operates in a highly competitive market with many
companies engaged in the business of furnishing security services designed to
protect against shoplifting and theft. In addition to EAS systems using the
concept of tagged merchandise, such services use, among other things, closed
circuit video systems, mirrors, guards, private detectives and combinations of
the foregoing. Knogo competes principally on the basis of the nature and
quality of its products and the adaptability of these products (by Knogo's
engineering staff) to meet specific customer needs and price requirements.
To Knogo's knowledge, there are several other companies that
market, directly or through distributors, EAS equipment, of which Sensormatic,
Checkpoint, Actron (part of ADT-
-72-
<PAGE> 92
Britannia), Esselte Meto, Nedap B.V. and 3M are Knogo's principal competitors
outside the Knogo N.A. Territory. In addition, a number of other smaller
competitors exist, primarily in Europe. Some of Knogo's competitors have
greater financial resources, have more experienced marketing organizations and
have a greater number of employees than Knogo.
PATENTS AND OTHER INTELLECTUAL PROPERTY
Knogo has certain United States and foreign patents and patent
applications relating to (i) the method and apparatus for the detection of
movement of articles and persons and accessory equipment employed by Knogo in
its Swept RF, Dual RF and MM systems, (ii) various specific improvements used
in Knogo's Swept RF, Dual RF and MM systems and (iii) various electrical theft
detection methods, apparatus and improvements not presently used in any of
Knogo's EAS systems. Although patent protection is advantageous to Knogo,
management does not consider any single patent or patent license owned or held
by it to be material to Knogo's current operations, but believes that Knogo's
competitive position ultimately will depend on its experience, know-how and
proprietary data, engineering, marketing and service capabilities and business
reputation, all of which are outside the scope of patent protection.
Following the Divestiture, Knogo (and Sensormatic, as its
successor) and Knogo N.A. will license certain patent rights and technology to
each other pursuant to the License Agreement which is to be entered into by
Knogo and Knogo N.A. in connection with the Divestiture. See "The
Divestiture--Supply and License Agreements".
Additional information concerning Knogo and its products is
contained in Knogo's Annual Report on Form 10-K for the fiscal year ended
February 28, 1994 as amended by Amendment No. 1 on Form 10-K/A filed June 28,
1994 and Amendment No. 2 on Form 10- K/A filed November 22, 1994, its Quarterly
Report on Form 10-Q for the quarter ended May 31, 1994, its Quarterly Report on
Form 10-Q for the quarter ended August 31, 1994, as amended by Amendment No. 1
on Form 10-Q/A filed on November 22, 1994, and its Current Report on Form 8-K,
as amended by Amendment No. 1 on Form 8-K/A filed August 22, 1994, and
Amendment No. 2 on Form 8-K/A filed on September 20, 1994, which are
incorporated herein by reference. Copies of such Annual Report on Form 10-K
and Quarterly Report on Form 10-Q accompany this Proxy Statement--Prospectus.
See "Available Information" and "Incorporation of Certain Documents by
Reference".
-73-
<PAGE> 93
SENSORMATIC CAPITALIZATION
The following table sets forth, as of September 30, 1994, (i) the
actual capitalization of Sensormatic and (ii) the capitalization of Sensormatic
as adjusted to reflect the Merger with Knogo following the Divestiture.
<TABLE>
<CAPTION>
As of September 30, 1994
-------------------------------------
As adjusted
Actual for the Merger
----------- ----------------
(in thousands)
<S> <C> <C>
Existing Sensormatic debt1: $ 273,212 $ 273,212
Existing Knogo debt2: -- 22,476
---------- ----------
273,212 295,688
---------- ----------
Shareholders' equity:
Preferred Stock, $.01 par value,
10,000,000 shares authorized,
none issued . . . . . . . . . . . -- --
Common Stock, $.01 par value,
125,000,000 shares authorized3 582,085 691,282
Retained earnings . . . . . . . . . 253,847 253,847
Other . . . . . . . . . . . . . . . (54,189) (54,189)
---------- ----------
Total stockholders' equity . . . . 781,743 890,940
Total capitalization . . . . . . $1,054,955 $1,186,628
========== ==========
Debt-to-equity capitalization ratio . . .26 .25
</TABLE>
- --------------------------------
(1) Represents Senior Notes due 2003 ($135,000,000), short-term working
capital borrowings primarily by Sensormatic's international subsidiaries
($118,400,000), and obligations under capital leases, notes or other
amounts payable in connection with previous acquisitions and various other
loans payable secured by equipment and buildings ($19,800,000).
(2) Represents two term loan agreements, various informal short-term lines of
credit, overdraft facilities and other debt at August 31, 1994.
(3) Issued and outstanding shares of Sensormatic Common Stock were 68,900,524
(actual), and 71,967,434 (as adjusted) and do not include 1,095,149 shares
held in treasury or by a subsidiary. The as adjusted number of shares
issued and outstanding assumes the issuance of 3,066,910 shares of
Sensormatic Common Stock upon consummation of the Merger (assuming that
the Average Sensormatic Share Price is $35.67 (which is equal to the
average closing price of Sensormatic Common Stock for the 20 trading days
preceding November 21, 1994) and that 5,410,346 shares of Knogo Common
Stock and 489,202 Knogo Stock Options (which represents all such shares
held on September 30, 1994) were converted in the Merger). Of the
authorized and unissued shares of Sensormatic Common Stock, (i) 4,444,627
shares were reserved for issuance upon the exercise of stock options or
other stock awards granted, or which may be granted, pursuant to stock
incentive and option plans; (ii) 783,158 shares were reserved for issuance
pursuant to Sensormatic's Employee Stock Purchase Plan; and (iii) 525,000
shares were reserved for issuance upon exercise of outstanding warrants
issued in connection with an acquisition.
-74-
<PAGE> 94
PRO FORMA COMBINED FINANCIAL INFORMATION
INTRODUCTORY NOTE
The following tables set forth certain unaudited condensed pro
forma combined financial information for Sensormatic after giving effect to the
Knogo N.A. Stock Distribution and the Merger, using the purchase method of
accounting as if such transactions had been consummated, with respect to the
statements of income, on July 1, 1993 and, with respect to the balance sheet,
as of September 30, 1994. See "Sensormatic Selected Financial Information" in
this Proxy Statement--Prospectus. The information contained in the following
tables does not purport to be indicative of the results of operations and
financial position of Sensormatic which may have been obtained had the Knogo
N.A. Stock Distribution and the Merger with Knogo been consummated on the dates
assumed.
The unaudited Knogo historical financial statements for the
12-month period ended May 31, 1994 and the three-month periods ended August 31,
1994 and 1993 have been adjusted to reflect the Knogo N.A. Stock Distribution
and the reversal of intercompany transactions and balances (including the
related income tax effect thereon) eliminated as part of determining the Knogo
historical financial statements. The resulting balances (under the heading
"Knogo International") are combined with Sensormatic in the accompanying pro
forma financial information.
The unaudited condensed pro forma combined financial
information reflects a preliminary allocation of the purchase price of Knogo
and, accordingly, is subject to change upon, among other things, completion of
the Divestiture and the Merger with Knogo. A final determination of required
purchase accounting adjustments, including the allocation of the purchase price
to the assets acquired and liabilities assumed based on their respective fair
values, has not yet been made. Accordingly, the purchase accounting
adjustments made in connection with the development of the unaudited condensed
pro forma combined financial information appearing in this Proxy
Statement--Prospectus are preliminary and have been made solely for purposes of
developing such pro forma combined financial information.
The pro forma information with respect to the Merger assumes
that 3,066,910 shares of Sensormatic Common Stock were issued to the
Shareholders and Knogo option holders at an Average Sensormatic Share Price of
$35.67 (which is equal to the average closing price of a share of Sensormatic
Common Stock on the NYSE Composite Tape for the 20 trading days preceding
November 21, 1994). If the Average Sensormatic Share Price for these purposes
had been $28.00, pro forma primary and fully diluted earnings per share for the
fiscal year ended June 30, 1994 and the three months ended September 1994 and
1993 would have been $1.22 and $1.18; $0.27 and $0.27; and $0.27 and $0.26;
respectively.
This information should be read in conjunction with the
historical consolidated financial statements and accompanying notes of
Sensormatic contained in its Annual Report on Form 10-K for the fiscal year
ended June 30, 1994 and its Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994, which are incorporated herein by reference, and the
historical consolidated financial statements and accompanying notes of Knogo
contained in its Annual Report on Form 10-K for the fiscal year ended February
28, 1994, as amended by Amendment No. 1 on Form 10-K/A filed on June 28, 1994,
and Amendment No. 2 on Form 10-K/A filed on November 22, 1994, and its
Quarterly Report on Form 10-Q for the quarter ended August 31, 1994, as amended
by Amendment No. 1 on Form 10-Q/A filed on November 22, 1994, which are
incorporated herein by reference. See "Incorporation of Certain Documents by
Reference".
-75-
<PAGE> 95
UNAUDITED CONDENSED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
SENSORMATIC
KNOGO PRO FORMA AND KNOGO
SENSORMATIC INTERNATIONAL(1)(A) ADJUSTMENTS INTERNATIONAL(1)
----------- ------------------- ----------- ----------------
<S> <C> <C> <C> <C>
ASSETS
Cash and marketable securities . . . . . . . . . . . . . $ 55,827 $ 7,275 $ (315)(b) $ 62,787
Trade and other receivables and
investment in sales-type leases, net . . . . . . . . . 335,654 45,088 380,742
Inventories, net . . . . . . . . . . . . . . . . . . . . 177,986 14,174 2,235 (b) 194,395
Revenue equipment and other
property, plant and equipment, net . . . . . . . . . . 175,147 13,860 189,007
Deferred charges, patents and other assets, net . . . . . 140,418 3,040 (657)(b) 142,801
Costs in excess of net assets
acquired, net . . . . . . . . . . . . . . . . . . . . . 372,532 -- 89,056 (c) 461,588
---------- ------- --------- ----------
Total assets . . . . . . . . . . . . . . . . $1,257,564 $83,437 $ 90,319 $1,431,320
========== ======= ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts and income taxes payable
and accrued liabilities . . . . . . . . . . . . . . . . $ 202,609 $24,755 $ 17,328 (b)(c) $ 244,692
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . 273,212 22,476 295,688
Common stock . . . . . . . . . . . . . . . . . . . . . . 582,085 -- 109,197 (c) 691,282
Retained earnings . . . . . . . . . . . . . . . . . . . . 253,847 36,206 (36,206)(c) 253,847
Other stockholders' equity . . . . . . . . . . . . . . . (54,189) -- (54,189)
---------- ------- --------- ----------
Total stockholders' equity . . . . . . . . . 781,743 36,206 72,991 890,940
---------- ------- --------- ----------
Total liabilities and
stockholders' equity . . . . . . . . . . . $1,257,564 $83,437 $ 90,319 $1,431,320
========== ======= ========= ==========
</TABLE>
- ------------------
(1) Includes Knogo International at August 31, 1994.
See Accompanying Notes to Unaudited Condensed Pro Forma Combined Financial
Information.
UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED JUNE 30, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMBINED
SENSORMATIC
KNOGO PRO FORMA AND KNOGO
SENSORMATIC INTERNATIONAL(1)(A) ADJUSTMENTS INTERNATIONAL
----------- ------------------- ----------- -------------
<S> <C> <C> <C> <C>
Total revenues . . . . . . . . . . . . . . . . . . . . . $655,966 $70,088 $726,054
Cost of revenues . . . . . . . . . . . . . . . . . . . . 270,977 29,885 $(3,600)(d) 297,262
Operating expenses . . . . . . . . . . . . . . . . . . . 280,202 34,584 (6,074)(e)(f) 308,712
-------- ------- ------- --------
Operating income . . . . . . . . . . . . . . . . . . . . 104,787 5,619 9,674 120,080
Other expenses, net . . . . . . . . . . . . . . . . . . . (8,822) (1,960) (10,782)
-------- ------- ------- --------
Income before income taxes . . . . . . . . . . . . . . . 95,965 3,659 9,674 109,298
Provision for income taxes . . . . . . . . . . . . . . . 23,900 395 5,061 (g)(h) 29,356
-------- ------- ------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 72,065 $ 3,264 $ 4,613 $ 79,942
======== ======= ======= ========
Primary earnings per common share . . . . . . . . . . . . $ 1.16 $ 1.23
Fully diluted earnings per common share . . . . . . . . . $ 1.13 $ 1.19
Common shares used in the
computation of:
Primary earnings per common share . . . . . . . . . . 61,885 64,952
======== ========
Fully diluted earnings per
common share . . . . . . . . . . . . . . . . . . . . 68,343 71,410
======== ========
</TABLE>
- -----------------------
(1) Includes Knogo International for the 12-month period ended May 31,
1994.
See Accompanying Notes to Unaudited Condensed Pro Forma Combined Financial
Information.
-76-
<PAGE> 96
UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMBINED
SENSORMATIC
KNOGO PRO FORMA AND KNOGO
SENSORMATIC INTERNATIONAL(1)(A) ADJUSTMENTS INTERNATIONAL
----------- ------------------- ----------- -------------
<S> <C> <C> <C> <C>
Total revenues . . . . . . . . . . . . . . . . . . . . . $190,882 $14,960 $205,842
Cost of revenues . . . . . . . . . . . . . . . . . . . . 79,051 7,507 $ (900)(d) 85,658
Operating expenses . . . . . . . . . . . . . . . . . . . 83,427 9,093 (1,543)(e)(f) 90,977
-------- ------- ------- --------
Operating income (loss) . . . . . . . . . . . . . . . . . 28,404 (1,640) 2,443 29,207
Other expenses, net . . . . . . . . . . . . . . . . . . . (1,613) (621) (2,234)
-------- ------- ------- --------
Income (loss) before income taxes . . . . . . . . . . . . 26,791 (2,261) 2,443 26,973
Provision for income taxes . . . . . . . . . . . . . . . 6,700 77 58 (g)(h) 6,835
-------- ------- ------- --------
Net income (loss) . . . . . . . . . . . . . . . . . . . . $ 20,091 $(2,338) $ 2,385 $ 20,138
======== ======= ======= ========
Primary earnings per common share . . . . . . . . . . . . $ 0.29 $ 0.28
Fully diluted earnings per common share . . . . . . . . . $ 0.29 $ 0.28
Common shares used in the
computation of:
Primary earnings per common share . . . . . . . . . 69,868 72,935
======== ======
Fully diluted earnings per
common share . . . . . . . . . . . . . . . . . . . 70,026 73,093
======== ======
</TABLE>
- ------------------
(1) Includes Knogo International for the 3-month period ended August 31,
1994.
See Accompanying Notes to Unaudited Condensed Pro Forma Combined Financial
Information.
UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMBINED
SENSORMATIC
KNOGO PRO FORMA AND KNOGO
SENSORMATIC INTERNATIONAL(1)(A) ADJUSTMENTS INTERNATIONAL
----------- ------------------- ----------- -------------
<S> <C> <C> <C> <C>
Total revenues . . . . . . . . . . . . . . . . . . . . . $143,284 $18,222 $161,506
Cost of revenues . . . . . . . . . . . . . . . . . . . . 59,006 7,943 $(1,000)(d) 65,949
Operating expenses . . . . . . . . . . . . . . . . . . . 62,008 8,485 (1,343)(e)(f) 69,150
-------- ------- ------- --------
Operating income . . . . . . . . . . . . . . . . . . . . 22,270 1,794 2,343 26,407
Other expenses, net . . . . . . . . . . . . . . . . . . . (2,464) (464) (2,928)
-------- ------- --- --------
Income before income taxes . . . . . . . . . . . . . . . 19,806 1,330 2,343 23,479
Provision for income taxes . . . . . . . . . . . . . . . 5,000 464 1,016 (g)(h) 6,480
-------- ------- ------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 14,806 $ 866 $ 1,327 $ 16,999
======== ======= ======= ========
Primary earnings per common share . . . . . . . . . . . . $ 0.25 $ 0.27
Fully diluted earnings per common share . . . . . . . . . $ 0.24 $ 0.26
Common shares used in the
computation of:
Primary earnings per common share . . . . . . . . . . 60,272 63,338
======== ========
Fully diluted earnings per
common share . . . . . . . . . . . . . . . . . . . 67,589 70,655
======== ========
</TABLE>
- -----------------
(1) Includes Knogo International for the 3-month period ended August 31,
1993.
See Accompanying Notes to Unaudited Condensed Pro Forma Combined Financial
Information.
-77-
<PAGE> 97
NOTES TO UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL INFORMATION
The following pro forma adjustments have been made:
(a) The unaudited Knogo Historical financial statements as of August
31, 1994, for the 12-month period ended May 31, 1994, and for the three-month
periods ended August 31, 1994 and 1993, have been adjusted to reflect the Knogo
N.A. Stock Distribution (including the Contribution pursuant to the Divestiture
Agreement). Knogo Corporation is referred to as Knogo International after the
Knogo N.A. Stock Distribution.
CONSOLIDATED BALANCE SHEET
AUGUST 31, 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
LESS KNOGO HISTORICAL AS
KNOGO KNOGO N.A. ADJUSTED ("KNOGO
HISTORICAL HISTORICAL ADJUSTMENTS(*) INTERNATIONAL")
---------- ---------- -------------- ---------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and marketable securities . . . . . . . . . . $ 8,474 $ 1,199 $ 7,275
Trade and other receivables and
investment in sales-type leases,
net . . . . . . . . . . . . . . . . . . . . . . . 50,765 5,677 45,088
Inventories . . . . . . . . . . . . . . . . . . . . 21,261 8,660 $ 1,573 14,174
Revenue equipment and other
property, plant and equipment,
net . . . . . . . . . . . . . . . . . . . . . . . 25,958 13,538 1,440 13,860
Intangibles and other assets . . . . . . . . . . . 4,298 1,258 3,040
-------- ------- ------- -------
$110,756 $30,332 $ 3,013 $83,437
======== ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts and income taxes
payable and accrued liabilities . . . . . . . . . $ 22,384 $ 4,837 $ 7,208 $24,755
Debt . . . . . . . . . . . . . . . . . . . . . . . 23,083 607 22,476
-------- ------- ------- -------
45,467 5,444 7,208 47,231
Stockholders' equity . . . . . . . . . . . . . . . 65,289 32,096 3,013 36,206
Less: Due from affiliates . . . . . . . . . . . . -- (7,208) (7,208) --
-------- ------- ------- -------
Total stockholders' equity . . . . . . . . . . . . 65,289 24,888 (4,195) 36,206
-------- ------- ------- -------
$110,756 $30,332 $ 3,013 $83,437
======== ======= ======= =======
</TABLE>
- -------------------------
* Adjustments represent primarily the reversal of intercompany
transactions and balances (including the related income tax effect
thereon) eliminated as part of determining the Knogo Historical
financial statements.
-78-
<PAGE> 98
CONSOLIDATED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED MAY 31, 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
LESS
KNOGO KNOGO N.A. KNOGO
HISTORICAL(*) HISTORICAL ADJUSTMENTS(**) INTERNATIONAL
------------- ---------- --------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Total revenues . . . . . . . . . . . . . . . . . $85,313 $27,149 $11,924 $70,088
COSTS AND EXPENSES:
Cost of revenues . . . . . . . . . . . . . . . . 30,380 13,786 13,291 29,885
Operating expenses . . . . . . . . . . . . . . . 49,496 12,752 (2,160) 34,584
------- ------- ------- -------
Operating income . . . . . . . . . . . . . . . . 5,437 611 793 5,619
Other expenses, net . . . . . . . . . . . . . . . 2,483 523 1,960
------- ------- ------- -------
Income before income taxes . . . . . . . . . . . 2,954 88 793 3,659
Provision for income taxes . . . . . . . . . . . 544 504 355 395
------- ------- ------- -------
Net income (loss) . . . . . . . . . . . . . . . . $ 2,410 $ (416) $ 438 $ 3,264
======= ======= ======= =======
</TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1994 AND AUGUST 31, 1993
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
LESS
KNOGO KNOGO N.A. KNOGO
HISTORICAL HISTORICAL ADJUSTMENTS(**) INTERNATIONAL
------------ ---------- --------------- -------------
<S> <C> <C> <C> <C>
1994:
REVENUES:
Total revenues . . . . . . . . . . . . . . . . . $18,875 $7,329 $3,414 $14,960
COSTS AND EXPENSES:
Cost of revenues . . . . . . . . . . . . . . . . 7,418 4,005 4,094 7,507
Operating expenses . . . . . . . . . . . . . . . 12,879 3,327 459 9,093
------- ------ ------ -------
Operating income (loss) . . . . . . . . . . . . . (1,422) (3) 221 (1,640)
Other expenses, net . . . . . . . . . . . . . . . 625 4 621
------- ------ ------ -------
Income (loss) before income taxes . . . . . . . . (2,047) (7) 221 (2,261)
Provision for income taxes . . . . . . . . . . . 248 66 105 77
------- ------ ------ -------
Net income (loss) . . . . . . . . . . . . . . . . $(2,295) $ (73) $ 116 $(2,338)
======= ====== ====== =======
1993:
REVENUES:
Total revenues . . . . . . . . . . . . . . . . . $22,449 $7,331 $3,104 $18,222
COSTS AND EXPENSES:
Cost of revenues . . . . . . . . . . . . . . . . 8,156 3,727 3,514 7,943
Operating expenses . . . . . . . . . . . . . . . 12,271 3,248 (538) 8,485
------- ------ ------ -------
Operating income . . . . . . . . . . . . . . . . 2,022 356 128 1,794
Other expenses, net . . . . . . . . . . . . . . . 753 289 464
------- ------ ------ -------
Income before income taxes . . . . . . . . . . . 1,269 67 128 1,330
Provision for income taxes . . . . . . . . . . . 317 76 223 464
------- ------ ------ -------
Net income (loss) . . . . . . . . . . . . . . . . $ 952 $ (9) $ (95) $ 866
======= ====== ====== =======
</TABLE>
- ---------------------
* Knogo's historical year end is the last day of February. These
amounts represent Knogo's operating results for the year ended
February 28, 1994, minus the quarter ended May 31, 1993, plus the
quarter ended May 31, 1994.
** Adjustments represent primarily (i) the reversal of intercompany
transactions and balances (including the related income tax effect
thereon) eliminated as part of determining the Knogo Historial
financial statement and (ii) an adjustment to reclassify depreciation
on security devices from operating expenses to cost of revenues to
conform to the presentation used in the Sensormatic financial
statements.
-79-
<PAGE> 99
(b) Adjustments pursuant to the Divestiture Agreement which
provides that, at the time of the divestiture, Knogo N.A. will have a net
worth of approximately $24 million (the "Target Net Worth") based on the
historical carrying value of Knogo's assets and liabilities at the divestiture
date. The Target Net Worth at the divestiture date will be achieved by a
combination of Knogo N.A.'s net loss through the divestiture date as well as
the transfer of certain assets and the assumption of certain liabilities,
amounting in the aggregate to a reduction of Knogo N.A.'s historical net worth
in the amount of $877,000. The actual adjustments on the divestiture date will
be different due to the current operations of Knogo N.A.
(c) An adjustment to record the preliminary allocation of the
costs of the Merger ($109.4 million), the estimated acquisition costs
(approximately $3.0 million) and the amount of stock issuance costs ($200,000).
This adjustment also records costs in excess of net assets acquired ($89.1
million) and eliminates the historical Knogo International retained earnings
($36.2 million), and records additional purchase accounting reserves and
adjustments, including incremental costs related to the supply agreement
between Sensormatic and Knogo N.A. These additional purchase accounting
reserves and adjustments were approximately $21.0 million, net of related
income tax benefits.
(d) An adjustment for the reversal of incremental costs related to
supply agreement between Sensormatic and Knogo N.A. recorded as purchase
accounting adjustments (see (c) above). This adjustment was approximately $3.6
million for the year ended June 30, 1994, and approximately $900,000 and $1.0
million for the 3 months ended September 30, 1994 and 1993, respectively.
(e) An adjustment to record the amortization of the costs in
excess of net assets acquired related to the Merger (approximately $89.1
million) over 40 years. Amortization expense was approximately $2.2 million
for the year ended June 30, 1994, and approximately $560,000 for the quarters
ended September 30, 1994 and 1993.
(f) An adjustment to record an estimate of the cost savings
associated with the implementation by Sensormatic of a formal plan to reduce
duplicative operating expenses arising from the Merger. This adjustment was
approximately $8.3 million for the year ended June 30, 1994, and $2.1 million
and $1.9 million for the 3 months ended September 30, 1994 and 1993,
respectively.
(g) To eliminate the income tax benefits for the year ended June
30, 1994 and the 3 months ended September 30, 1993 related to net operating
losses of historical Knogo International existing prior to the Merger, which
will be accounted for as a reduction of costs in excess of net assets acquired.
This elimination was approximately $1.0 million for the year ended June 30,
1994, and $55,000 for the 3 months ended September 30, 1993. To record the
income tax benefit of approximately $1.0 million for the 3 months ended
September 30, 1994, related to Knogo International's operating losses.
(h) Adjustments to record the income tax effect of the pro forma
adjustments, as applicable.
-80-
<PAGE> 100
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA COMBINED FINANCIAL CONDITION
Pro Forma Combined Financial Condition at September 30, 1994
Giving effect to the Merger with Knogo, the financial condition of
Sensormatic on a pro forma combined basis remained strong. As of September 30,
1994, pro forma combined cash and marketable securities were approximately
$62.8 million and pro forma combined total debt was approximately $295.7
million. After giving effect to the Merger with Knogo, the pro forma combined
debt-to-total capitalization ratio of Sensormatic as of September 30, 1994 was
.25 to 1.0.
Following the Merger with Knogo, Sensormatic anticipates that it will
be well positioned to meet anticipated future capital requirements through the
use of funds to be generated by operating activities, existing cash and
marketable securities (approximately $62.8 million on a pro forma combined
basis as of September 30, 1994) and funds available from unutilized worldwide
credit lines.
Pro Forma Three Months ended September 30, 1994 compared to Three Months
ended September 30, 1993
Pro forma combined revenues of $205.8 million for the three months
ended September 30, 1994 increased $44.3 million or 27% over the pro forma
combined revenues for the three months ended September 30, 1993 after giving
effect to the proposed merger with Knogo. The revenue growth resulted from an
increase of $47.6 million in worldwide Sensormatic revenues, primarily from
higher retail EAS and CCTV revenues and higher revenues from the
Commercial/Industrial Group, which markets EAS, CCTV and access control systems
to non-retail customers; offset in part by a decrease of $3.3 million in Knogo
International revenues primarily due to customer uncertainty regarding the
Merger of Knogo and Sensormatic and continued technical problems related to the
improved magnetic systems for hypermarkets which resulted in delayed orders.
The 11% increase in pro forma combined operating income for the three
months ended September 30, 1994, compared to the three months ended September
30, 1993, occurred principally due to an increase in revenues, offset in part
by a decline in pro forma combined gross profit on revenues. The decline was
primarily attributable to a relative increase in Sensormatic's sales of lower
margin products (such as CCTV products and labels), and lower selling prices
and higher unit manufacturing costs for Knogo International products. Pro
forma combined operating expenses as a percentage of revenue increased from 43%
to 44%, primarily due to higher amortization expense for Sensormatic and lower
than expected Knogo International revenues.
Pro forma combined other expenses decreased by $700,000 in the first
three months of fiscal 1995 compared to the first three months of fiscal 1994,
principally due to a decrease in Sensormatic's interest expense resulting from
the conversion of 7% convertible subordinated debentures, in May 1994. The
effective tax rate on pro forma combined pretax income for the first three
months of fiscal 1994 decreased to 25% from 28% when compared to the three
months ended September 30, 1993, due to the decline in Knogo International's
earnings, in fiscal 1995, which are subject to a higher effective tax rate than
Sensormatic's earnings.
Pro forma combined net income (and retained primary and fully diluted
earnings per share) for the first three months of fiscal 1995 increased $3.1
million (and $0.01 and $0.02, respectively), versus the three months ended
September 30, 1993, based primarily on the factors previously discussed.
-81-
<PAGE> 101
SENSORMATIC SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial information presented below for and
as of the end of each of the five years in the period ended June 30, 1994, with
the exception of balance sheet data at June 30, 1992 and other data, is derived
from the Consolidated Financial Statements of Sensormatic, which financial
statements have been audited by Ernst & Young LLP, independent certified public
accountants. The Consolidated Financial Statements as of June 30, 1994 and
1993, and for each of the two years in the period ended June 30, 1994, the
month ended June 30, 1992 and the year ended May 31, 1992, and the report of
Ernst & Young LLP thereon, are included in Sensormatic's Annual Report on Form
10-K for the fiscal year ended June 30, 1994 (File Number 1-10739),
incorporated herein by reference. The selected historical financial presented
below as at September 30, 1994 and 1993 and for the three months ended
September 30, 1994 and 1993, with the exception of the balance sheet data at
September 30, 1993 and other data, is derived from the unaudited condensed
consolidated financial statements of Sensormatic, included in Sensormatic's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994 (File
Number 1-10739), incorporated herein by reference, which in the opinion of
Sensormatic management includes all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the information set forth
therein. This selected historical financial information should be read in
conjunction with the consolidated financial statements, related notes,
management's discussion and analysis of financial condition and results of
operations and other financial information incorporated herein by reference.
The results of operations for the three months ended September 30, 1994 are not
necessarily indicative of results that can be expected for the full year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED MAY 31, YEARS ENDED JUNE 30, SEPTEMBER 30,
---------------------------- ----------------------- -------------------
1990 1991(1)(2) 1992 1993(1)(3) 1994(2) 1993(2) 1994
---- ---------- ---- ---------- ------- ------- ----
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS DATA:
Total revenues . . . . . . . . . . . . $191.3 $239.2 $309.9 $487.3 $656.0 $143.3 $190.9
Cost of revenues . . . . . . . . . . . 86.8 106.6 134.7 203.5 271.0 59.0 79.1
Operating expenses . . . . . . . . . . 81.7 103.3 131.6 212.8 280.2 62.0 83.4
------ ------ ------ ------ ------ ------ ------
Operating income . . . . . . . . . . . 22.8 29.3 43.6 71.0 104.8 22.3 28.4
Other income (expenses), net . . . . . 2.2 1.9 (2.6) 1.0 (8.8) (2.5) (1.6)
------ ------ ------ ------ ------ ------ ------
Income from continuing
operations before income
taxes and equity in losses of
affiliates . . . . . . . . . . . . . 25.0 31.2 41.0 72.0 96.0 19.8 26.8
Provision for income
taxes . . . . . . . . . . . . . . . . 5.0 6.5 9.5 17.9 23.9 5.0 6.7
------ ------ ------ ------ ------ ------ ------
Income from continuing
operations . . . . . . . . . . . . . $ 20.0 $ 24.7 $ 31.5 $ 54.1 $ 72.1 $ 14.8 $ 20.1
====== ====== ====== ====== ====== ====== ======
Primary earnings per
common share from
continuing operations and
net income . . . . . . . . . . . . . $ 0.48 $ 0.60 $ 0.73 $ 0.97 $ 1.16 $ 0.25 $ 0.29
Fully diluted earnings per
common share from
continuing operations and
net income . . . . . . . . . . . . . 0.48 0.60 0.73 0.93 1.13 0.24 0.29
</TABLE>
-82-
<PAGE> 102
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED MAY 31, YEARS ENDED JUNE 30, SEPTEMBER 30,
------------------------------- ----------------------- ------------------
1990 1991(1)(2) 1992 1993(1)(3) 1994(2) 1993(2) 1994
---- ---------- ---- ---------- ------- ------- ----
(in millions, except per share amounts or as indicated)
<S> <C> <C> <C> <C> <C> <C> <C>
Common shares used in
the computation of:
Primary earnings per
common share from
continuing operations . . . . . . . . 41.7 41.2 43.1 56.0 61.9 60.3 69.9
Fully diluted earnings per
common share from
continuing operations . . . . . . . . 42.0 41.4 50.5 63.6 68.3 67.6 70.0
Cash dividends per
common share . . . . . . . . . . . . $ 0.123 $ 0.20 $ 0.20 $ 0.15(4) $ 0.21 $ 0.05 $ 0.055
OTHER DATA:
Capital expenditures,
net(5) . . . . . . . . . . . . . . . $ 8.6 $ 14.5 $ 15.0 $ 26.7 $ 51.8 $ 18.2 $ 13.3
Increase in revenue
equipment and inventories,
net(5). . . . . . . . . . . . . . . . $ 11.8 $ 38.4 $ 25.4 $ 41.5 $ 73.4 $ 4.5 $ 2.9
EAS systems installed (in thousands). . 18.0 17.4 23.6 25.0 30.0 6.5 8.0
CCTV domes installed (in thousands) . . 6.3 4.0 8.0 10.0 17.0 3.6 6.1
Reusable tags sold or
leased (in thousands) . . . . . . . . 40,000 65,000 75,000 101,000 147,000 30,000 48,000
Disposable labels sold (in thousands) . 350,000 650,000 750,000 1,100,000 1,500,000 292,000 560,000
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and marketable
securities . . . . . . . . . . . . . $ 26.9 $ 102.4 $ 62.7 $ 117.9 $ 54.5 $ 102.3 $ 55.8
Revenue equipment and
other property, plant and
equipment, net . . . . . . . . . . . 49.7 65.4 83.5 121.1 165.5 139.4 175.1
Total assets . . . . . . . . . . . . . 265.1 421.8 461.7 926.9 1,155.5 1,011.5 1,257.6
Senior debt(6) . . . . . . . . . . . . 20.0 33.7 35.6 194.2 219.2 212.7 273.2
Convertible subordinated
debentures(6) . . . . . . . . . . . . -- 115.0 115.0 114.2 -- 114.2 --
Total stockholders' equity . . . . . . 199.8 222.2 255.7 489.8 727.7(6) 522.1 781.7
</TABLE>
- ---------------------------------
(1) In fiscal 1993, Sensormatic acquired ALPS and the outstanding common
stock of Security Tag and in fiscal 1991, it acquired the outstanding
common stock of American Dynamics.
(2) In fiscal 1994, Sensormatic adopted SFAS No. 109 "Accounting for
Taxes". In fiscal 1991, Sensormatic adopted SFAS No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions".
(3) Selected financial data for and as of the end of the one month ended
June 30, 1992 is as follows: total revenues - $21.0; operating loss -
$3.3; loss from continuing operations and net loss - $2.5; primary and
fully diluted loss per common share for continuing operations and net
loss - $0.06; total assets - $462.2; total debt - $150.3; and total
stockholders' equity - $258.3.
(4) Fourth quarter dividend of $0.05 per share of Common Stock was
declared in July 1993.
(5) Excludes effects of acquisitions and foreign currency adjustments.
-83-
<PAGE> 103
(6) In fiscal 1994, the outstanding $114.1 million of the $115 million
principal amount of 7% convertible subordinated debentures, issued in
fiscal 1991, were converted to approximately 7.3 million shares of
Common Stock and in fiscal 1993, Sensormatic issued $135 million
aggregated principal amount of Senior Notes.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations of Sensormatic" contained in Sensormatic's Annual Report on Form
10-K for the fiscal year ended June 30, 1994 and Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994, which are incorporated herein by
reference.
-84-
<PAGE> 104
KNOGO SELECTED HISTORICAL FINANCIAL INFORMATION(1)
The selected historical financial information presented below for and
as of the end of each of the five years in the period ended February 28, 1994,
is derived from the Consolidated Financial Statements of Knogo. The
Consolidated Financial Statements as of February 28, 1994 and 1993, and for
each of the three years in the period ended February 28, 1994, and the report
of Deloitte & Touche LLP thereon, are included in Knogo's Annual Report on Form
10-K, as amended on Form 10-K/A, for the fiscal year ended February 28, 1994
(File Number 1-7856), incorporated herein by reference. The selected
historical financial information for the six-month period ended August 31, 1993
and 1994 have been derived from the unaudited consolidated financial statements
included in Knogo's Quarterly Report on Form 10-Q for the quarters ended August
31, 1994, as amended on Form 10-Q/A, incorporated herein by reference. This
selected historical financial information should be read in conjunction with
the consolidated financial statements, related notes, management's discussion
and analysis of financial condition and results of operations and other
financial information incorporated herein by reference. The results of
operations for the six months ended August 31, 1994 are not necessarily
indicative of results that can be expected for the full year.
-85-
<PAGE> 105
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED THE LAST DAY OF FEBRUARY ENDED AUGUST 31,
---------------------------------------------------- --------------------
1990 1991 1992 1993(2) 1994 1993 1994
-------- -------- -------- -------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS DATA:
Revenues . . . . . . . . . . . . $ 67,008 $ 80,005 $ 80,695 $ 94,382 $ 89,302 $ 46,371 $ 38,808
Cost of security
devices sold . . . . . . . . . 24,522 29,780 30,611 34,808 32,620 17,155 14,177
Depreciation and
amortization expenses . . . . . 5,084 5,750 6,108 6,806 4,590 2,588 2,412
Selling, general and
administrative expenses . . . . 29,379 37,055 41,316 41,054 41,356 20,891 20,857
Business restructuring
charges . . . . . . . . . . . . -- -- 9,850 -- -- -- --
Operating profit (loss) . . . . . 5,483 4,777 (10,279) 8,186 7,186 3,774 (1,419)
Interest expense-net
of interest income . . . . . . 2,397 3,078 2,645 2,187 1,913 1,042 787
Income (loss) before
income taxes . . . . . . . . . 2,670 1,920 (13,555) 3,573 4,537 2,513 (2,386)
Net income (loss) . . . . . . . . 480 1,491 (14,177) 2,744 3,614 1,885 (2,566)
Net income (loss) per
common share . . . . . . . . . .09 .28 (2.70) .51 .65 .34 (.48)
Cash dividends paid
per share . . . . . . . . . . . .30 .30 .075 -- -- -- --
SELECTED BALANCE SHEET
DATA (AT END OF PERIOD):
Total assets . . . . . . . . . . $124,653 $138,764 $113,372 $116,972 $114,451 $113,367 $110,756
Net investment in
sales-type leases . . . . . . . 13,778 16,275 17,854 20,228 25,819 22,059 27,510
Security devices on
lease, net . . . . . . . . . . 9,539 9,890 8,505 6,101 5,145 4,598 5,987
Notes payable, banks . . . . . . 35,655 40,882 32,448 32,160 26,150 28,313 23,083
Shareholders' equity . . . . . . 71,512 77,915 59,426 61,364 64,257 61,066 65,289
</TABLE>
- ------------------------
(1) This selected historical financial information does not reflect the
Merger and Divestiture as described in this Registration Statement. See
"Pro Forma Combined Financial Information".
(2) Restated to reflect adoption of SFAS 109 "Accounting for Income Taxes".
See Note 1 to Notes to Consolidated Financial Statements.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in Knogo's 1994 Annual Report on Form
10-K, as amended, and Quarterly Report on Form 10-Q, as amended, for the
quarter ended August 31, 1994, which are incorporated herein by
reference.
-86-
<PAGE> 106
DESCRIPTION OF SENSORMATIC CAPITAL STOCK
Sensormatic's authorized capital stock consists of 125,000,000 shares of
Sensormatic Common Stock and 10,000,000 shares of Preferred Stock, par value
$.01 per share ("Preferred Stock").
COMMON STOCK
Holders of Sensormatic Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders.
There are no cumulative voting rights. Unless otherwise required by law, the
affirmative vote of a majority of the votes cast is required to authorize
stockholder actions, except that a plurality of the votes cast determines the
election of directors and the affirmative vote of at least 80% of the voting
stock of Sensormatic is required to authorize certain other actions as
described below. The Sensormatic Common Stock has no preemptive, conversion,
redemption or other similar rights. Upon liquidation of Sensormatic, subject
to any preferential liquidation rights of any then outstanding shares of
Preferred Stock, the holders of the Sensormatic Common Stock would be entitled
to share ratably in the net assets available for distribution to stockholders.
Subject to any preferential dividend rights of any outstanding Preferred
Stock, the holders of the Sensormatic Common Stock are entitled to such
dividends as may be declared by the Board of Directors of Sensormatic out of
funds legally available therefor.
Sensormatic's Board of Directors is classified into three classes of
directors, each consisting as nearly as possible of one-third of the total
number of directors. The term of office of one of the three classes
terminates each year, and each class is elected for a three-year term.
Under certain circumstances, the holders of at least 80% of the
outstanding voting stock of Sensormatic must approve (a) any merger or
consolidation with, any disposal of a substantial part of the assets of
Sensormatic or any subsidiary to, or any issuance or sale by Sensormatic or a
subsidiary of any stock of Sensormatic or a subsidiary to, a beneficial owner
of 5% or more of the outstanding voting stock of Sensormatic, unless such
transaction is approved by the Board of Directors and a majority of the
directors so approving are continuing directors (as defined in the
Sensormatic Certificate), (b) any dissolution of Sensormatic, any offer by
Sensormatic to purchase its shares, or any reclassification, recapitalization
or other transaction designed to decrease the number of holders of shares of
Sensormatic's voting stock, if any person or entity is then the beneficial
owner of 5% or more of the outstanding voting stock of Sensormatic, unless
such action is approved by the Board of Directors and a majority of the
directors so approving are continuing directors, (c) any change in the
provisions of the Sensormatic Certificate or Sensormatic's By-Laws regarding
the number, classification, term of office, qualifications, election and
removal of directors and the filling of vacancies and newly created
directorships, or the provision to the effect that stockholders of Sensormatic
may not take action by written consent, or any changes in the provisions of
the Sensormatic Certificate regarding the limitation of liability of directors
or the indemnification of officers and directors, unless such change is
submitted to the stockholders with the unanimous recommendation of the entire
Board of Directors, or (d) any amendment to the foregoing supermajority voting
requirements, unless such amendment is submitted to the stockholders with the
unanimous recommendation of the entire Board of Directors.
Certain of the foregoing provisions of the Sensormatic Certificate may
make more difficult, and therefore discourage, attempts to acquire control of
Sensormatic through acquisitions of shares of Sensormatic Common Stock or
otherwise, in transactions not
-87-
<PAGE> 107
approved by Sensormatic's Board of Directors. As a result of these
provisions, transactions or proposed transactions which might have the
short-term effect of increasing the market price of Sensormatic Common Stock
may be discouraged, and management of Sensormatic may be able to resist
changes which the stockholders might otherwise have the power to impose. The
division of Sensormatic's Board of Directors into three classes could
discourage third parties from seeking to acquire control of the Board of
Directors and could impede proxy contests or other attempts to change
Sensormatic's management.
The transfer agent and registrar for Sensormatic Common Stock is The
First National Bank of Boston.
PREFERRED STOCK
The Board of Directors of Sensormatic is authorized, without further
action by the stockholders, to provide for the issuance of shares of Preferred
Stock from time to time, in different series, and to fix before issuance the
powers, designation, preferences and relative rights of each series, the
qualifications, limitations or restrictions thereof, and the number of shares
included in each series. There presently are no outstanding shares of
Preferred Stock nor has the Board of Directors fixed the terms of any series
of Preferred Stock to be issued in the future.
COMPARISON OF CERTAIN RIGHTS OF SHAREHOLDERS OF
KNOGO AND SENSORMATIC
Upon consummation of the Merger, the shareholders of Knogo will become
shareholders of Sensormatic and their rights will be governed by the
Sensormatic Certificate and the Sensormatic By-Laws, which differ in certain
material respects from the Knogo Certificate and the Knogo By-Laws. In
addition, as Stockholders of Sensormatic, the rights of former Knogo
shareholders will be governed by the DGCL, under which Sensormatic was
incorporated, rather than the NYBCL, under which Knogo was incorporated.
The following comparison of the DGCL, the Sensormatic Certificate and the
Sensormatic By-Laws, on the one hand, and the NYBCL, the Knogo Certificate and
the Knogo By-Laws, on the other, is not intended to be complete and is
qualified in its entirety by reference to the relevant provisions of the DGCL
and the NYBCL, the Sensormatic Certificate, the Sensormatic By-Laws, the Knogo
Certificate and the Knogo By-Laws. Copies of the Sensormatic Certificate and
Sensormatic By-Laws are available for inspection at the offices of Sensormatic
and copies will be sent to Knogo Shareholders upon request. Copies of the
Knogo Certificate and Knogo By-Laws are available for inspection at the
principal executive offices of Knogo and copies will be sent to Knogo
Shareholders upon request. See also "Description of Sensormatic Capital Stock"
in this Proxy Statement--Prospectus and "Description of Capital Stock of the
Company--Certain Charter and By-Law Provisions" in the Knogo N.A. Prospectus
attached to this Proxy Statement--Prospectus as Annex V.
VOTING RIGHTS OF COMMON STOCK
Each issued and outstanding share of Sensormatic Common Stock is accorded
one vote with respect to each matter properly presented to a vote of the
Sensormatic shareholders, and all shares of Sensormatic Common Stock are
identical in all other respects.
Each issued and outstanding share of Knogo Common Stock is accorded one
vote and each fractional share of Knogo Common Stock is accorded a
corresponding
-88-
<PAGE> 108
fractional vote with respect to each matter properly presented to a vote of
Knogo shareholders, and all shares of Knogo Common Stock are identical in all
other respects.
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
Knogo. Pursuant to the Knogo Certificate, the Knogo Board of Directors
is divided into two classes and directors are elected to serve staggered two-
year terms. There are currently four Knogo directors, two in each class.
Sensormatic. Under the DGCL, the board of directors may be divided into
up to three classes, with terms expiring in successive years. Sensormatic's
Board of Directors is classified into three classes, two of which are
comprised of two directors and the third of which is comprised of three
directors. Each director serves for a three-year term, unless such director
otherwise resigns or is removed.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS
Knogo. Any director, at any time prior to the expiration of his term in
office, may be removed from office only for cause by the Knogo shareholders
only upon the affirmative vote of a majority of the voting power of shares of
capital stock of Knogo Corporation entitled to vote generally in the election
of directors or by the affirmative vote of a majority of the entire Knogo
Board of Directors. The Knogo By-Laws provide that in case a vacancy occurs
in any class of directors, it may be filled only by the vote of a majority of
the directors remaining in office, although less than a quorum, or by the sole
remaining director. Any director so elected shall hold office until the next
annual meeting of shareholders and until his successor is elected and
qualified.
Sensormatic. Under the DGCL, any director or the entire Board of
Directors may be removed, with or without cause, with the approval of a
majority of the outstanding shares entitled to vote, except that (i) in the
case of a corporation having a classified board, unless the certificate of
incorporation provides otherwise, stockholders may effect such removal only
for cause, and (ii) in the case of a corporation having cumulative voting, if
less than the entire board is to be removed, no director may be removed
without cause if the votes against his removal would be sufficient to elect
him if then cumulatively voted at an election of the board of directors. The
Sensormatic By-Laws provide that a director may be removed at any time, but
only for cause, by the affirmative vote of the holders of a majority of the
outstanding shares of stock entitled to vote for the election of directors, at
a meeting of stockholders called and held for that purpose.
SHAREHOLDER NOMINATIONS OF DIRECTORS
Knogo. The By-Laws of Knogo establish procedures that must be followed
for shareholders to nominate individuals for election to the Knogo Board of
Directors. Nominations by shareholders of individuals for election to the
Knogo Board of Directors must be made by delivering written notice of such
nomination to the secretary of Knogo not less than 60 days nor more than 90
days prior to the date of the meeting at which directors will be elected;
provided, however, that if Knogo has given less than 75 days' public notice of
the date of the meeting, shareholders must give such notice so that it is
received by Knogo not later than 15 days after the public notice is given.
The nomination notice must set forth certain background information about the
persons to be nominated, including information concerning the nominees'
principal occupation or employment and the class and number of shares of Knogo
that are beneficially owned by such person. If the presiding officer at the
-89-
<PAGE> 109
shareholders' meeting determines that a nomination was not made in accordance
with these procedures, he may so declare at the meeting and the nomination may
be disregarded.
Sensormatic. The By-Laws of Sensormatic establish procedures that must
be followed for shareholders to nominate individuals for election to the
Sensormatic Board. Nominations by shareholders of individuals for election to
the Sensormatic Board must be made by delivering written notice of such
nomination to the Secretary of Sensormatic not less than 60 days nor more than
90 days prior to the date of the meeting at which the directors will be
elected; provided, however, that if less than 70 days' notice or prior public
disclosure of the date of the meeting is given or mailed to shareholders,
shareholders must give such notice so that it is received by Sensormatic not
later than 15 days after the date the notice is mailed or public disclosure
made. The nomination notice must set forth certain information about the
persons to be nominated, including the name, age, business and residence
addresses and principal occupation or employment of such person, the class and
number of shares of Sensormatic that are beneficially owned by such person,
other information that would be required to be disclosed in a proxy statement
soliciting proxies for the election of such person as a director and the
written consent of such person of such as a director, if elected. Such notice
must also set forth the name and address of such shareholder, as they appear
on Sensormatic's stock transfer books, and the number of shares of
Sensormatic stock beneficially owned by such shareholder. If the presiding
officer at the shareholders' meeting determines that a nomination was not made
in accordance with these procedures, such nomination may be voided and
disregarded.
ACTION BY WRITTEN CONSENT
Knogo. Under the NYBCL, whenever shareholders are required or permitted
to take any action by vote, such action may be taken without a meeting on
written consent, setting forth the action so taken, signed by the holders of
all shares, unless the articles of incorporation authorize written consent of
the holders of less than all outstanding shares. The Knogo Certificate does
not authorize action by less than all such holders, and, as a practical
matter, since action by written consent must be unanimous, shareholders of
Knogo cannot act by written consent.
Sensormatic. Under the DGCL, whenever shareholders are required or
permitted to take any action by vote, such action may be taken without a
meeting by written consent, setting forth the action so taken, signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be required to authorize or take such action at a meeting of
shareholders, unless otherwise provided in the certificate of incorporation.
The Sensormatic Certificate and the Sensormatic By-Laws do not permit
shareholders of Sensormatic to take action by written consent without a
meeting.
MEETINGS OF SHAREHOLDERS
Knogo. Pursuant to the Knogo By-Laws, the annual meeting shall be called
by the directors, by any officer instructed by the Board of Directors to call
a meeting or by the President, provided that each successive annual meeting
shall be held within thirteen months of the preceding annual meeting. Special
Meetings of Knogo Shareholders may be called by the directors or by the
President except in those instances where the NYBCL requires that the
directors call a Special Meeting or confers upon shareholders the right to
demand the call of such meetings.
Except for a special election of directors pursuant to Section 603(b) of
the NYBCL, a quorum for a meeting of the shareholders of Knogo generally is a
majority of the
-90-
<PAGE> 110
outstanding shares entitled to vote for the transaction of any business,
except that only a plurality of the votes cast is required for the election of
directors. Except as described below under the subheading "Required Vote for
Authorization of Certain Actions," a majority of the votes cast is generally
required for an action by such laws of Knogo except that only a plurality of
the votes cast is required for election of directors. The NYBCL provides that
these quorum requirements may be increased or decreased by a change to the
Certificate of Incorporation or By-Laws of Knogo (which may be effected by the
Knogo Board of Directors), so long as the requirement for a quorum does not
fall below one-third of the shares entitled to vote.
Sensormatic. The DGCL does not require that shareholders be given the
right to call special meetings of shareholders. The Sensormatic By-Laws
provide that the annual meeting of shareholders shall be held on the first
Friday of November in each year, or such other date as may be fixed by the
Sensormatic Board of Directors and that special meetings of shareholders may
be called at any time only by the Chairman of the Board or the President of
Sensormatic.
A quorum for a meeting of the shareholders of Sensormatic is one-third of
the outstanding shares of Sensormatic entitled to vote. Except as described
below under the subheading "Required Vote for Authorization of Certain
Actions", a majority of the votes cast is generally required for an action by
the shareholders of Sensormatic, except that only a plurality of the votes
cast is required for elections of directors. The DGCL provides that quorum
and voting requirements may be increased or decreased by a change to the
Certificate of Incorporation or By-Laws of Sensormatic (which may be effected
by the Sensormatic Board of Directors), so long as the requirement for a
quorum does not fall below one-third of the shares entitled to vote and
subject to provisions of the DGCL in respect of the vote required for certain
specified actions, such as mergers.
SHAREHOLDER PROPOSALS
Knogo. The By-Laws of Knogo establish procedures that must be followed
for a shareholder to submit a proposal at an annual meeting of the
shareholders of Knogo. No proposal for a shareholder vote may be submitted to
the shareholders by a shareholder unless such submitting shareholder has
timely filed with the Secretary of Knogo a written statement setting forth
specified information, including the names and addresses of the persons making
the proposal, the class and number of shares of capital stock of Knogo
beneficially owned by such persons, a description of the proposal and the
reasons for bringing such business before the annual meeting and any material
interest of the shareholders in such business. The statement must be filed no
later than the latest date for filing a nomination notice as described above
under "Shareholder Nominations of Directors". If the presiding officer at any
shareholders' meeting determines that any such proposal was not made in
accordance with these procedures or is otherwise not in accordance with the
law, he will so declare at the meeting and such defective proposal will be
disregarded.
Sensormatic. The By-Laws of Sensormatic also establish procedures that
must be followed for a shareholder to submit a proposal to a vote of the
shareholders of Sensormatic at the annual meeting of stockholders. No
business may be proposed by a shareholder at the annual meeting of
shareholders without giving written notice to Sensormatic not less than 60
days nor more than 90 days prior to the date of the meeting; provided,
however, that if less 70 days' notice or prior public disclosure of the date
of the meeting is given or made to shareholders, shareholders must give such
notice so that it is received by Sensormatic not later than 15 days after the
date the notice is mailed or public disclosure is made. Such written notice
from the shareholder-proponent must set forth
-91-
<PAGE> 111
specified information, including the names and addresses of the persons making
the proposal, the class and number of shares of capital stock of Sensormatic
beneficially owned by such persons, a brief description of the business
desired to be brought before the annual meeting, the reasons for conducting
such business at the annual meeting and any material interest of the
shareholder in such business. If presiding officer of an annual meeting
determines and declares that any such proposal was not made in accordance with
these procedures, such defective proposal will be disregarded.
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
Knogo. Under the NYBCL, subject to the provisions of the NYBCL described
below under the subheading "State Antitakeover Statutes", the recommendation
of the Board of Directors and the approval of two-thirds of the outstanding
shares entitled to vote thereon are required to effect a merger or
consolidation or to sell, lease or exchange substantially all of a
corporation's assets. The Knogo Certificate provides that the affirmative
vote of the holders of record of outstanding shares representing at least 80%
of the voting power of all shares entitled to vote generally in the election
of directors is required to effect a merger or consolidation, to sell, lease
or exchange substantially all of Knogo's assets, or to issue or transfer any
securities in Knogo or any subsidiary to certain persons owning 10 percent or
more of Knogo's outstanding voting shares.
Certain "business combinations" involving "interested stockholders"
(defined generally to be holders of 10% or more of Knogo Common Stock) require
approval by vote of holders of at least 80% of shares eligible to vote if not
previously approved by a majority of the disinterested members of the Knogo
Board of Directors unless certain minimum price criteria and procedural
requirements are satisfied. In a business combination involving cash or other
consideration being paid to Knogo's shareholders, the consideration would be
required to be either cash or the same type of consideration used by the
interested stockholder in acquiring the largest portion of its shares prior to
the first public announcement of the terms of the proposed business
combination. In the case of payments to holders of Knogo Common Stock, the
per share fair market value of such payments would generally have to be at
least equal in value to the higher of (i) the highest per share price paid by
the interested shareholder in acquiring any share of Knogo Common Stock during
the two years prior to such announcement date (although not an interested
stockholder at the time of any such acquisitions) or in the transaction in
which it became an interested stockholder (whichever is higher) or (ii) in the
fair market value per share of Knogo Common Stock on such announcement date or
on the date on which the interested stockholder became an interested
stockholder, whichever is higher, in either case appropriately adjusted for
any stock dividend, stock split or combination of shares. Unless a business
combination is approved by a majority of disinterested directors, it would be
subject to the 80% shareholder vote requirement, even if it satisfied the
minimum price criteria, if the interested stockholder acquired any additional
shares of Knogo Common Stock, directly from Knogo or otherwise, in any
transaction subsequent to the transaction pursuant to which it became an
interested stockholder. The Knogo Certificate also contains an "anti-
greenmail" provision prohibiting certain purchases of shares by Knogo from
interested stockholders without a majority vote of disinterested stockholders.
Sensormatic. Under the DGCL, subject to the provisions of the DGCL
described below under the subheading "State Anti-Takeover Statutes", an
agreement of merger or consolidation must be approved by the directors of each
constituent corporation and adopted by the affirmative vote of the holders of
a majority of the outstanding shares entitled to vote thereon, or by a greater
vote as provided in the certificate of incorporation. Similarly, the sale,
lease or exchange of all or substantially all of a corporation's assets must
-92-
<PAGE> 112
be approved by the directors of such corporation and by the affirmative vote
of the holders of a majority of the outstanding shares entitled to vote
thereon, or by a greater vote as provided in the certificate of incorporation.
The Sensormatic Certificate provides that the holders of a least 80% of
the outstanding voting stock of Sensormatic must approve any merger or
consolidation with, any disposition of a substantial part of the assets of
Sensormatic or any subsidiary to, or any issuance or sale by Sensormatic or a
subsidiary of any stock of Sensormatic or a subsidiary to, a beneficial owner
of 5% or more of the outstanding voting stock of Sensormatic, unless such
transaction is approved by the Board of Directors of Sensormatic and a
majority of the directors so approving are continuing directors (as defined in
the Sensormatic Certificate). See "Description of Sensormatic Capital
Stock".
STATE ANTITAKEOVER STATUTES
Knogo. Section 912 of the NYBCL would prohibit a "business combination"
(as defined in Section 912, generally including mergers, sales and leases of
assets, issuances of securities and similar transactions) by Knogo or a
subsidiary with an "interested shareholder" (as defined in Section 912,
generally the beneficial owner of 20% or more of Knogo's voting stock) within
five years after the person or entity becomes an interested shareholder,
unless (i) prior to the person or entity becoming an interested shareholder,
the business combination or the transaction pursuant to which such person or
entity became an interested shareholder shall have been approved by the Knogo
Board, or (ii) the business combination is approved by the holders of a
majority of the outstanding voting stock of Knogo, excluding shares held by
the interested shareholder, at a meeting called for such purpose no earlier
than five years after such interested shareholder's stock acquisition date.
In connection with approving the Merger Agreement, the Knogo Board of
Directors approved the Merger, so that the Merger is not subject to the
limitations set forth in Section 912.
Sensormatic. Section 203 of the DGCL provides that a "person" (as
defined therein) who owns 15% or more of the outstanding voting stock of a
Delaware corporation (an "Interested Shareholder") may not consummate a merger
or other business combination transaction with such corporation at any time
during the three-year period following the date such person became an
Interested Shareholder. The term "business combination" is defined to cover a
wide range of corporate transactions including mergers, sales of assets,
issuances of stock, transactions with subsidiaries and the receipt of
disproportionate financial benefits. The statute exempts the following
transactions from the requirements of Section 203: (i) any business
combination if, prior to the date a person became an Interested Shareholder,
the Board of Directors of the corporation approved either the business
combination or the transaction which resulted in the shareholder becoming an
Interested Shareholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Shareholder, calculated without regard to those
shares owned by the corporation's directors who are also officers or certain
employee stock plans; (iii) any business combination with an Interested
Shareholder that is approved by the Board of Directors of the corporation and
by a two-thirds vote of the outstanding voting stock not owned by the
Interested Shareholder; and (iv) certain business combinations that are
proposed after the corporation had received other acquisition proposals and
which are approved or not opposed by a majority of certain continuing members
of the Board of Directors of the corporation.
Certain provisions of the Florida Business Corporation Act (the "BCA")
have the effect of requiring that mergers, consolidations and certain other
transactions involving a corporation and any person who beneficially owns more
than 10% of any class of such
-93-
<PAGE> 113
corporation's voting shares be approved by the holders of two-thirds of such
corporation's remaining voting shares, unless such transaction has been
approved by a majority of such corporation's disinterested directors or other
specified conditions are satisfied. The transactions subject to these
provisions include, without limitation, a merger, consolidation, or
disposition of 5% or more of such corporation's assets, an issuance or
transfer of shares having a value equal to 5% or more of the total value of
such corporation's shares, a plan of liquidation or dissolution, a
reclassification of securities or a loan, advance or guarantee. In addition,
certain other provisions of the BCA could have the effect of restricting or
diminishing the voting rights of a corporation's shares held by a shareholder
whose aggregate beneficial ownership enables such shareholder to exercise
voting control in the election of directors of at least one-fifth of the
voting power of such corporation in the election of directors. Such
provisions apply, by their terms, to corporations that are organized in
jurisdictions other than Florida, provided such corporations are authorized to
do business in Florida, have 500 or more employees resident in Florida, an
annual Florida payroll of $5,000,000 or more, have principal offices or
substantial assets in Florida and meet certain other tests relating to
ownership of their shares by Florida residents. Sensormatic currently meets
all of such tests. Statutes in other states purporting to govern corporate
acquisitions and business combinations involving corporations organized in
foreign states have in some instances been held invalid in cases brought
before federal courts; however, there are no reported opinions to such effect
with respect to the above provisions of the BCA.
AMENDMENT OF CORPORATE CHARTER AND BY-LAWS
Knogo. Under the NYBCL, an amendment to the Knogo Certificate requires
the approval of the majority of the votes cast except where the NYBCL or the
Knogo Certificate prescribes a different proportion of votes. The Knogo
Certificate prescribes that the holders of at least 80% of the outstanding
voting shares of Knogo must approve any amendment to the Knogo Certificate
regarding the number of directors, classification of the board of directors,
and term of office of directors or any change to the supermajority voting
provisions unless such change is declared advisable by the Knogo Board by the
affirmative vote of two-thirds of the entire Knogo Board.
The Knogo By-Laws may be amended at any meeting of shareholders provided
that notice of the proposed change is given in accordance with the By-Laws.
Except as provided in the Knogo Certificate, the shareholders entitled to vote
in the election of directors may amend or repeal the By-Laws and may adopt new
By-Laws. The directors may not amend or adopt any new By-Law, the statutory
control over which is vested exclusively in the shareholders or the
incorporators. Subject to the power of the shareholders to alter, amend or
repeal any By-Laws made by the Board, the Knogo Board may amend the By-Laws.
Sensormatic. Under the DGCL, an amendment to the certificate of
incorporation must be approved by a majority of the shares entitled to vote
thereon, unless the certificate of incorporation requires approval by a
greater proportion of votes. In addition, an amendment must be separately
approved by a majority vote of all outstanding shares of any class, whether or
not otherwise entitled to vote, if the amendment would increase or decrease
the aggregate number of authorized shares of such class (unless class voting
with respect thereto is waived in the certificate of incorporation), increase
or decrease the par value of the shares of such class, or change the powers,
preferences or special rights of the shares of such class so as to affect them
adversely.
The Sensormatic Certificate provides that the holders of at least 80% of
the outstanding voting stock of Sensormatic must approve any amendments to the
Sensormatic Certificate or Sensormatic's By-Laws regarding the number,
classification, term of office,
-94-
<PAGE> 114
qualifications, election and removal of directors and the filling of vacancies
and newly created directorships, or to provisions to the effect that
shareholders may not take action by written consent, or any changes in the
Sensormatic Certificate regarding the limitation of liability of directors or
the indemnification of officers and directors, or any change to the
supermajority voting provisions, unless such change is submitted to the
shareholders with the unanimous recommendation of the entire Board of
Directors.
Subject to the preceding paragraph, Sensormatic's By-Laws may be amended
or repealed, or new By-Laws adopted by majority vote of the shareholders
represented at the meeting, provided that notice of the proposed change is
given in the notice of meeting. The By-Laws of Sensormatic may also be
further amended by the Sensormatic Board of Directors, subject to amendment or
repeal by the stockholders in accordance with the preceding sentence. See
also "Description of Sensormatic Common Stock".
APPRAISAL RIGHTS
Knogo. The NYBCL provides appraisal rights to holders entitled to vote
thereon for (i) certain mergers and consolidations; (ii) dispositions of
assets requiring shareholder approval; and (iii) certain amendments to the
certificate of incorporation of a corporation which adversely affect the
rights of such shareholder. See "The Merger--Appraisal Rights".
Sensormatic. Under the DGCL, appraisal rights are available with respect
to certain mergers, but are not available with respect to a sale of all or
substantially all of a corporation's assets or any amendment of its charter
unless such corporation's certificate of incorporation expressly provides for
appraisal rights in such instances. The Sensormatic Certificate does not
contain such a provision.
Unless otherwise provided in its certificate of incorporation,
shareholders of a Delaware corporation have no appraisal rights in the case of
a merger or consolidation if their shares are either (i) listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. (such as the NASDAQ National Market System) or (ii) held of
record by more than 2,000 shareholders or the corporation is the survivor of a
merger that did not require the shareholders to vote for its approval;
provided, however, that appraisal rights will be available in such instances,
if shareholders are required under the merger or consolidation to accept for
their shares anything other than shares of stock of the surviving corporation,
shares of stock of a corporation either (i) listed on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. (such
as the NASDAQ National Market System) or (ii) held of record by more than
2,000 shareholders, cash in lieu of fractional shares, or any combination of
the foregoing. Both the Sensormatic Common Stock and Knogo Common Stock are
listed on the NYSE, a national securities exchange.
PREFERRED STOCK RIGHTS PLAN
Knogo. Knogo has a Shareholders Rights Plan, providing for the
distribution of Rights to shareholders at the rate of one Right for each share
of Knogo Common Stock held. Each Right, when exercisable, entitles the holder
to purchase 1/100th of a Series A Preferred Share and to vote such fractional
share on an equivalent basis with one whole share of the Knogo Common Stock.
The Rights Plan could limit shareholders' participation in certain types of
business combinations or other transactions that might be proposed in the
future, whether
-95-
<PAGE> 115
or not such transactions were favored by a majority of shareholders, and could
enhance the ability of officers and directors to retain their positions.
Sensormatic. Sensormatic does not have a shareholder rights plan or
similar plan.
LIMITATION ON DIRECTORS' LIABILITY
Knogo. Under Section 402 of the NYBCL, a corporation may limit or
eliminate the personal liability of directors to the corporation or its
shareholders for damages for breach of duty in such capacity. This limitation
on liability is not available for acts or omissions by a director which (i)
were in bad faith, (ii) involved intentional misconduct or a knowing violation
of law, (iii) involved financial profit or other advantage to which the
director was not entitled or (iv) resulted in a violation of a statute
prohibiting certain dividend declarations, certain payments to shareholders
after dissolution and particular types of loans. The Knogo Certificate
provides for the limitation on directors' liability as permitted by this
statute.
Sensormatic. Section 102 of the DGCL allows a corporation to limit or
eliminate the personal liability of directors to the corporation and its
shareholders for monetary damages for breach of fiduciary duty as director.
However, this provision excludes any limitation on liability (i) for any
breach of the director's duty of loyalty to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for intentional or
negligent payment of unlawful dividends or stock purchase or redemption or
(iv) for any transaction from which the director derived an improper personal
benefit. The Sensormatic Certificate provides for the limitation on
directors' liability as permitted by this statute but does not limit a
director's liability under the federal securities laws nor does it apply to
actions or omissions of directors in their capacities as officers of
Sensormatic.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Knogo. The NYBCL authorizes a New York corporation to indemnify any
person who is, or is threatened to be made, a party in any civil or criminal
proceeding (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another entity, against judgments,
fines, amounts paid in settlement and reasonable expenses (including
attorneys' fees), actually and reasonably incurred by such person as a result
of such action or proceeding or any appeal therein. With respect to actions
by or in the rights of the corporation, the NYBCL authorizes indemnification
of such person against reasonable expenses, including attorneys' fees and
amounts paid in settlement. To be entitled to indemnification, a person must
have acted in good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. Court approval is required as a prerequisite to
indemnification of expenses in respect of any claim as to which a person has
been adjudged liable to the corporation. The NYBCL requires indemnification
against expenses actually and reasonably incurred by any director, officer,
employee or agent in connection with a proceeding against such person for
action in such capacity to the extent that the person has been successful on
the merits or otherwise. Advancement of expenses (i.e., payment prior to a
determination on the merits) is permitted, but not required, by the NYBCL,
which further requires that any director or officer must undertake to repay
such expenses if it is ultimately determined that he is not entitled to
indemnification. The disinterested members of the board of directors (or
independent legal counsel or the
-96-
<PAGE> 116
shareholders) must determine, in each instance where indemnification is not
required by the NYBCL, that such director, officer, employee or agent is
entitled to indemnification. The NYBCL provides that the indemnification
provided by statute is not exclusive.
The Knogo By-Laws require Knogo to indemnify persons to the fullest
extent permitted by law, as from time to time in effect, for expenses,
liability or loss (including, without limitation, attorneys' fees, judgments,
fines, penalties, assessments, and amounts paid or to be paid in settlement),
in connection with proceedings (including any suits or threatened suit brought
in the right of the corporation to procure a judgment in its favor) by reason
of the fact that such person is or was a director or officer of Knogo or, at
the request of Knogo, is or was serving as a director or officer of another
entity unless it is established that the acts of the indemnitee or
indemnitee's decedent were committed in bad faith or were the result of active
and deliberate dishonesty and were material to the cause of action so
adjudicated, or that the indemnitee or his decedent personally gained in fact
a financial profit or other advantage to which the indemnitee or his decedent
was not legally entitled. Knogo's By-Laws prohibit indemnification only to
the extent that indemnification may be prohibited under the NYBCL.
Sensormatic. The DGCL authorizes a Delaware corporation to indemnify any
person who is, or is threatened to be made, a party in any civil, criminal,
administrative or investigative proceeding (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another entity, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with any threatened, pending or completed action, suit or
proceeding. With respect to actions by or in the right of the corporation,
the DGCL authorizes indemnification of such person against expenses, but not
judgments, fines or amounts paid in settlement. To be entitled to
indemnification, a person must have acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Court approval is
required as a prerequisite to indemnification of expenses in respect of any
claim as to which a person has been adjudged liable to the corporation. The
DGCL mandates indemnification against expenses actually and reasonably
incurred by any director, officer, employee or agent in connection with a
proceeding against such person for actions in such capacity to the extent that
the person has been successful on the merits or otherwise. Advancement of
expenses (i.e., payment prior to a determination on the merits) is permitted,
but not required, by the DGCL, which further requires that any director or
officer must undertake to repay such expenses if it is ultimately determined
that he is not entitled to indemnification. The disinterested members of the
board of directors (or independent legal counsel or the shareholders) must
determine, in each instance where indemnification is not mandated by the DGCL,
that such director, officer, employee or agent is entitled to indemnification.
The DGCL provides that the indemnification provided by statute is not
exclusive.
The Sensormatic Certificate and Sensormatic By-Laws require Sensormatic
to indemnify persons to the fullest extent permitted by law, as from time to
time in effect, for expenses, liability or loss (including, without
limitation, attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement), in connection with proceedings
by reason of the fact that such person is or was a director or officer of
Sensormatic or, at the request of Sensormatic, is or was serving as a director
or officer of another entity. In addition, the Sensormatic Certificate and
Sensormatic By-Laws require advancement of expenses.
-97-
<PAGE> 117
The Sensormatic Certificate and Sensormatic By-Laws further provide that
the right to indemnification is a contract right, and accordingly, set forth
certain procedural and evidentiary standards applicable to the enforcement of
an indemnification claim, including a claim for the advancement of expenses.
Such provisions include, among other things, that Sensormatic shall have the
burden of proof that a director or officer is not entitled to indemnification
in any particular case, and that the person entitled to be indemnified is to
be reimbursed for the expenses of prosecuting successfully any such claim
against Sensormatic. Sensormatic By-Laws set forth the procedures which must
be followed by a director or officer seeking indemnification, the manner in
which determinations as to the payment of indemnification by Sensormatic are
to be made and provisions applicable to the challenge of such determinations.
CUMULATIVE VOTING
Neither the Knogo Certificate nor the Sensormatic Certificate provides
for cumulative voting.
CONFLICT-OF-INTEREST TRANSACTIONS
Knogo. The NYBCL generally permits transactions involving a New York
corporation and an interested director of that corporation if (i) the material
facts are disclosed and a majority of disinterested directors consents; (ii)
if the material facts are disclosed and a majority of shares entitled to vote
thereon consents or (iii) if the party or parties thereto establish
affirmatively that the contract or transaction is fair to the corporation at
the time it is authorized by the Board of Directors, a committee or the
shareholders. The Knogo Certificate and By-laws do not contain any special
provisions regulating or prohibiting conflict-of-interest transactions.
Sensormatic. The DGCL generally permits transactions involving a
Delaware corporation and an interested director of that corporation if (i) the
material facts are disclosed and a majority of disinterested directors
consents; (ii) the material facts are disclosed and a majority of shares
entitled to vote thereon consents or (iii) the transaction is fair to the
corporation at the time it is authorized by the Board of Directors, a
committee, or the shareholders. The Sensormatic Certificate and By-Laws do
not contain any special provisions regulating or prohibiting conflict-of-
interest transactions.
DIVIDENDS AND OTHER DISTRIBUTIONS
Knogo. The NYBCL generally allows dividends to be paid out of surplus of
the corporation only, so that the net assets of the corporation remaining
after such payment shall be at least equal the amount of its stated capital.
Knogo paid a regular quarterly cash dividend from July 1987 through December
1991. Knogo has not paid any dividends since December 1991.
Sensormatic. The DGCL generally allows dividends to be paid out of
surplus of the corporation or out of the net profits of the corporation for
the current fiscal year and/or the prior fiscal year.
Sensormatic paid regular semiannual cash dividends (adjusted for
Sensormatic's November 1993 three-for-two stock split) of $0.017 per share of
Common Stock from December 1978 through January 1990 and regular quarterly
dividends of $0.05 per share from April 1990 through December 1993 and has
paid a regular quarterly cash dividend of $0.055 per share since February
1994. The declaration and payment of future
-98-
<PAGE> 118
dividends will be determined by the Board of Directors of Sensormatic in light
of conditions then existing, including Sensormatic's earnings, financial
conditions, contractual debt covenants and capital requirements.
DUTIES OF DIRECTORS IN CERTAIN CIRCUMSTANCES
Knogo. Section 717(b) of the NYBCL permits a board of directors to
consider, including in connection with a change or potential change in control
of the corporation, both the long term and short term effects of the decision
on the corporation and, specifically, the effects on; (i) the potential
growth, development, productivity and profitability of the corporation; (ii)
current employees; (iii) retired employees and other beneficiaries of the
corporation still entitled to receive, directly or indirectly, benefits from
the corporation; (iv) customers and creditors of the corporation; and (v) the
ability of the corporation to continuously provide goods, services, employment
opportunities and benefits and make any other contributions to the communities
in which it does business.
Sensormatic. The DGCL does not contain a specific provision elaborating
the duties of a board of directors with respect to the best interests of the
corporation. Delaware courts have permitted directors to consider various
constituencies provided that there be some rationally related benefit to the
shareholders.
ISSUANCE OF RIGHTS OR OPTIONS TO PURCHASE SHARES TO DIRECTORS, OFFICERS AND
EMPLOYEES
Knogo. The NYBCL requires that the issuance to directors, officers
and/or employees of rights or options to purchase shares must be authorized by
a majority of all outstanding shares entitled to vote thereon.
Sensormatic. The DGCL does not contain any provision requiring the
issuance of rights or options to officers, directors and employees to be
approved by a shareholder vote.
LOANS TO DIRECTORS
Knogo. The NYBCL requires that any loan made by a corporation to any
director must be authorized by a vote of the shareholders. For purposes of
this authorization, the shares held by the director who would be the borrower
are not entitled to vote.
Sensormatic. The DGCL allows loans to and guarantees of obligations of
officers and directors without any shareholder approval.
LEGAL OPINIONS
The validity of the shares of Sensormatic Common Stock offered hereby
will be passed upon for Sensormatic by Christy & Viener, New York, New York.
Jerome M. LeWine, Esq., a partner in the firm of Christy & Viener
participating in the work on this matter, is a director of Sensormatic. Mr.
LeWine holds options to purchase 168,500 shares of Sensormatic Common Stock.
Certain of the tax consequences of the Merger to the Knogo Shareholders
(see "The Merger--Certain Federal Income Tax Consequences") will be passed
upon at the Effective Time, as a condition to the Merger, by Stroock & Stroock
& Lavan. William A. Perlmuth, Esq., a member of Stroock & Stroock & Lavan, is
a director of Knogo. Mr. Perlmuth is also the beneficial owner of 1,187,445
shares of Knogo Common Stock, including
-99-
<PAGE> 119
1,173,455 shares beneficially owned as the Executor of the Estate of Arthur J.
Minasy and Trustee under the Trust for the benefit of Mr. Minasy's adult
children.
EXPERTS
The consolidated financial statements and schedules of Sensormatic
appearing in Sensormatic's Annual Report (Form 10-K) for the year ended June
30, 1994, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The financial statements and the related financial statement schedules
incorporated in this prospectus by reference from Knogo's Annual Report on
Form 10-K for the year ended February 28, 1994, as amended, have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report,
which is incorporated herein by reference, and have been so incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
-100-
<PAGE> 120
ANNEX I
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
Dated as of August 14, 1994
among
SENSORMATIC ELECTRONICS CORPORATION,
KNOGO CORPORATION
and
KNOGO NORTH AMERICA INC.
<PAGE> 121
Table of Contents
<TABLE>
<S> <C> <C>
1. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Certificate of Incorporation and By-laws of Surviving Corporation . . . . . . 2
1.4 Sensormatic Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Conversion, Exchange and Cancellation of Company Shares . . . . . . . . . . . 2
1.6 Exchange of Certificates; Fractional Shares . . . . . . . . . . . . . . . . . 4
1.7 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.8 Stock Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.9 Treatment of Company Common Stock Options . . . . . . . . . . . . . . . . . . 6
1.10 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.11 Alternative Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2. Divestiture of Knewco. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.1 Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2 Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.3 Other Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.4 Spin-Off or Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.5 Additional Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3. Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . 11
3.1 Due Incorporation and Qualification of the Company. . . . . . . . . . . . . 11
3.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4 Authority; Due Authorization; Valid Obligation; Fairness Opinion . . . . . 12
3.5 No Conflicts or Defaults . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.6 Copies of Charter Documents and Stock Records . . . . . . . . . . . . . . . 13
3.7 Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.8 Periodic Filings; Financial Statements . . . . . . . . . . . . . . . . . . 14
3.9 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.10 Ordinary Course; No Material Adverse Effect . . . . . . . . . . . . . . . . 15
3.11 Permits; Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . 15
3.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.13 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.15 Agreements and Commitments . . . . . . . . . . . . . . . . . . . . . . . . 18
3.16 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.17 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.18 Information Supplied . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.19 Disposition by Stockholders . . . . . . . . . . . . . . . . . . . . . . . . 19
3.20 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4. Representations and Warranties of Sensormatic . . . . . . . . . . . . . . . . . . . . 19
4.1 Due Incorporation and Qualification . . . . . . . . . . . . . . . . . . . . 19
4.2 Authority; Due Authorization; Valid Obligation . . . . . . . . . . . . . . 20
4.3 No Conflicts or Defaults . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.4 Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.6 SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.7 Ordinary Course; No Material Adverse Change . . . . . . . . . . . . . . . . 21
</TABLE>
(i)
<PAGE> 122
<TABLE>
<S> <C> <C>
4.8 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.9 Sensormatic Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.10 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5. Pre-Closing Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.1 Preserve the Company's Business . . . . . . . . . . . . . . . . . . . . . . 22
5.2 Preserve Accuracy of Representations and Warranties; Updates . . . . . . . 23
5.3 Further Investigation and Information . . . . . . . . . . . . . . . . . . . 23
5.4 Consents, Waivers and Filings . . . . . . . . . . . . . . . . . . . . . . . 23
5.5 Subsequent Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.6 Preparation of Registration Statement . . . . . . . . . . . . . . . . . . . 23
5.7 Accountants' Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.8 Stockholders' Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.9 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.10 Board Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.11 Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6. Conditions to the Obligations of Sensormatic . . . . . . . . . . . . . . . . . . . . . 25
6.1 Due Performance; Accuracy of Representations and Warranties. . . . . . . . 25
6.2 Corporate Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.3 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.4 Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.5 Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.6 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.7 Governmental Action; No Prohibition . . . . . . . . . . . . . . . . . . . . 26
6.8 Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7. Conditions to the Obligations of the Company . . . . . . . . . . . . . . . . . . . . . 26
7.1 Due Performance; Accuracy of Representations and Warranties . . . . . . . . 26
7.2 Corporate Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.3 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.4 Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.5 Registration Statement; NYSE Listing . . . . . . . . . . . . . . . . . . . 27
7.6 Governmental Action; No Prohibition. . . . . . . . . . . . . . . . . . . . 27
7.7 Release of Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8. Termination; Amendment; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.2 Effect of Termination; Representations and Warranties . . . . . . . . . . . 28
8.3 Amendment; Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . 28
9. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10. Delayed Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.1 Pending Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.2 Prohibited Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.3 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.3 No Assignment; Successors and Assigns . . . . . . . . . . . . . . . . . . . 33
11.4 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.5 Survival of Representations, Warranties and Agreements . . . . . . . . . . 33
11.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
(ii)
<PAGE> 123
<TABLE>
<S> <C>
11.7 Alternate Structures . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.8 Governing Law; Consent to Jurisdiction . . . . . . . . . . . . . . . . . . 35
11.9 Savings Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.11 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.12 Valuation Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Exhibits:
Exhibit A - Form of Delaware Certificate of Merger
Exhibit B - Form of New York Certificate of Merger
Exhibit C - Form of Contribution and Divestiture Agreement
</TABLE>
(iii)
<PAGE> 124
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of August
14, 1994, among SENSORMATIC ELECTRONICS CORPORATION, a Delaware corporation
("Sensormatic"), KNOGO CORPORATION, a New York corporation (the "Company"), and
KNOGO NORTH AMERICA INC., a Delaware corporation ("Knewco").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Sensormatic, the
Company and Knewco have approved this Agreement and the merger of the Company
with and into Sensormatic pursuant to the terms and conditions this Agreement;
and
WHEREAS, the parties intend that the Merger (as such term is defined
in Section 1.1) qualify as a tax-free reorganization under Section 368(a)(1)(A)
of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, it is a condition to the Merger that certain of the assets
and liabilities of the Company relating to its operations in the United States,
Canada and Puerto Rico be assigned to or assumed by Knewco, and that the stock
of Knewco be distributed to the stockholders of the Company or sold immediately
prior to the Merger, as contemplated by Section 2 and in accordance with the
Divestiture Agreement referred to therein (the "Divestiture"); and
WHEREAS, the Company is engaged principally in the business of
developing, manufacturing and marketing electronic article surveillance,
closed-circuit television and other products to deter and detect shoplifting
and employee theft (the "Business");
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. THE MERGER.
1.1 THE MERGER. On the Closing Date (as such term is defined in
Section 1.10) or as soon as practicable thereafter, and subject to the terms
and conditions of this Agreement, the parties shall file a Certificate of
Merger substantially in the form of Exhibit A (the "Delaware Certificate of
Merger") with the Secretary of State of the State of Delaware under the General
Corporation Law of the State of Delaware (the "GCL") and a Certificate of
Merger substantially in the form of Exhibit B (the "New York Certificate of
Merger") with the Secretary of State of the State of New York under the
Business Corporation Law of the State of New York (the "BCL"). Effective as of
the filing of the Delaware Certificate of Merger (the "Effective Time"), the
Company shall be merged with and into Sensormatic (the "Merger"). Upon and
following the Merger, the separate existence of the Company shall cease and
Sensormatic shall continue as the surviving corporation (the "Surviving
Corporation").
1.2 EFFECT OF THE MERGER. The separate corporate existence of
Sensormatic, as the Surviving Corporation, with all its purposes, objects,
rights, privileges, powers, certificates and franchises, shall continue
unimpaired by the Merger. The Surviving Corporation shall succeed, insofar as
permitted by law, to all rights, assets, liabilities and obligations of the
Company in accordance with the GCL and the BCL.
<PAGE> 125
1.3 CERTIFICATE OF INCORPORATION AND BY-LAWS OF SURVIVING
CORPORATION.
(a) From and after the Effective Time until further amended in
accordance with the GCL, the Certificate of Incorporation of Sensormatic, as in
effect at the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation.
(b) The By-laws of Sensormatic, as in effect at the Effective
Time, shall be the By-laws of the Surviving Corporation until altered, amended
or repealed in accordance with law.
(c) The directors and officers of Sensormatic as of the
Effective Time shall be the directors and officers of the Surviving
Corporation.
1.4 SENSORMATIC COMMON STOCK. At the Effective Time, each
issued and outstanding share of Common Stock, par value $.01 per share, of
Sensormatic ("Sensormatic Common Stock") shall remain outstanding as one
validly issued, fully paid and non- assessable share of Common Stock, par value
$.01 per share, of the Surviving Corporation.
1.5 CONVERSION, EXCHANGE AND CANCELLATION OF COMPANY SHARES.
(a) At the Effective Time, by virtue of the Merger and without
any action on the part of the holders thereof, each share of Common Stock, par
value $.01 per share, of the Company, including any Rights (as such term is
defined in Section 3.2) incident thereto (each such share, together with its
related Rights, being referred to herein as a "Company Share" and,
collectively, as the "Company Shares"), issued and outstanding immediately
prior to the Effective Time (other than Company Shares, if any, to be cancelled
pursuant to Section 1.5(b) and other than the Dissenting Shares, as defined in
Section 1.7, except as set forth therein) shall be converted into the right to
receive the Merger Consideration per Share (as hereinafter defined). Except as
provided below in this paragraph, the term "Merger Consideration per Share"
shall mean that fraction of a share of Sensormatic Common Stock as shall be
equal to the quotient resulting from dividing the Exchange Value (as
hereinafter defined) by the Average Closing Price (as hereinafter defined),
rounded to not more than four decimal places, together with the Escrow Interest
(as defined below), if applicable. For all purposes of this Agreement, (i) the
"Average Closing Price" shall mean the average of the closing prices (last
sale) of Sensormatic Common Stock on the New York Stock Exchange for each of
the twenty trading days immediately prior to the date on which the Effective
Time occurs and (ii) the "Exchange Value" shall mean $18.00, increased, if the
Average Closing Price as of the date on which the Effective Time occurs is
greater than $33.00, by 0.273 times the excess of such Average Closing Price
over $33.00, and subject to further adjustment as provided below in this
Section 1.5(a). Notwithstanding the foregoing, if the Average Closing Price as
of the date on which the Effective Time occurs is less than $28.00: Sensormatic
shall have the right, in its sole discretion, to pay some or all of the merger
consideration hereunder in cash or a combination of cash and Sensormatic Common
Stock, such that (x) that fraction of a share of Sensormatic Common Stock
issued in the exchange for each Company Share, multiplied by the Average
Closing Price, plus (y) the amount of cash delivered in the exchange with
respect to such Company Share, shall be equal in the aggregate to the Exchange
Value; provided, however, that the Company nevertheless may require that the
Merger Consideration per Share be paid entirely in Sensormatic Common Stock
with the Average Closing Price for purposes of this Section 1.5(a) being deemed
to equal $28.00. In the event that Sensormatic pays all or some of the Merger
Consideration per Share in cash pursuant to the preceding sentence, the term
"Merger Consideration per Share" shall be deemed to refer to the combination of
cash and Sensormatic Common Stock to be exchanged for each Company Share
pursuant to the preceding sentence, together with the Escrow Interest, if
applicable.
I-2
<PAGE> 126
For purposes of determining the Merger Consideration per Share, the
Exchange Value as otherwise determined above pursuant to this Section 1.5(a)
shall be subject to adjustment as follows:
(1) In the event that the terms of the Divestiture Agreement, License
Agreement or Supply Agreement are amended in order to facilitate the
consummation of the transactions contemplated hereby or otherwise, the Exchange
Value shall, to the extent that such amendments have an impact on the value of
the Company and the Acquired Subsidiaries (as such term is defined in Section
3.3(a)), be appropriately adjusted prior to the Closing Date by mutual
agreement of Sensormatic and the Company, or, if mutual agreement cannot be
achieved, pursuant to Section 11.12.
(2) In the event of a Knewco Sale (as defined in Section 2.4), the
proceeds of which are retained by the Company through the consummation of the
Merger, the Exchange Value shall be appropriately increased on a per share
basis to reflect the after-tax net proceeds thereof retained by the Company in
an amount equal to the amount of such net proceeds, net of the Company's
effective tax rate. In the event that the proceeds of the Knewco Sale include
securities or other non-cash consideration, Sensormatic may require the sale of
such securities or non-cash consideration in a commercially reasonable manner
to fix the value thereof for the purposes of this clause (2) or, in lieu of
increasing the Merger Consideration per Share with respect thereto, the
distribution of such securities or other consideration to the holders of
Company Shares. Any dispute as to the proper amount of the foregoing
adjustment, including the computation of after-tax net proceeds, shall be
resolved pursuant to Section 11.12.
(3) In the event that the Annual Revenues (as defined below) in the
countries in which the Escrowed Businesses, as defined in Section 10.2, if any,
are organized exceed in the aggregate $15,000,000, the Exchange Value as
otherwise determined above shall be reduced by an amount equal to the Exchange
Value times a fraction, the numerator of which is the aggregate Annual Revenues
for the countries in which such Escrowed Businesses are organized and the
denominator of which is the Total Annual Revenues (as defined below). If this
clause (3) is applicable, the Merger Consideration per Share shall also include
a pro rata interest (the "Escrow Interest") in the Deferred Merger
Consideration (as such term is defined in Section 10.2(b)) equal to 1.00
divided by the total number of Company Shares outstanding immediately prior to
the Effective Time (excluding Company Shares to be cancelled pursuant to
Section 1.5(b) hereof and Dissenting Shares excluded from operation of this
Section 1 pursuant to Section 1.7) (the "Outstanding Shares"). Deferred Merger
Consideration shall be released from escrow as required by Sections 10.2(c),
10.2(d)(i) and 10.2(e) and delivered to the Company's stockholders as provided
in such Sections. The "Annual Revenues" for each country are as indicated on
line 16 of the FAS 13 Schedule (as defined in Section 3.8(c)) and the "Total
Annual Revenues" shall equal the sum of the Annual Revenues set forth on the
FAS 13 Schedule excluding the Annual Revenues listed for the United States and
Canada.
As of the Effective Time, each stockholder of the Company shall be
entitled to receive (i) a whole number of shares of Sensormatic Common Stock
determined by multiplying the number of Company Shares held by such stockholder
by that fraction of a share of Sensormatic Common Stock included in the Merger
Consideration per Share, (ii) an amount of cash determined by multiplying the
number of Company Shares held by such stockholder by the amount of cash
included in the Merger Consideration per Share, and (iii) cash for any
fractional share resulting from such multiplication in the amount determined
pursuant to Section 1.5(c). As of the Effective Time, all Company Shares shall
be converted into the right to receive Sensormatic Common Stock and cash as
hereinabove set forth, and each holder of a certificate representing any
Company Shares shall cease to have any rights with respect thereto, except the
right to receive the shares of Sensormatic Common Stock and cash to be issued
in exchange therefor (and cash in lieu of any fractional share)
I-3
<PAGE> 127
upon surrender of such certificate in accordance with Section 1.6, together
with the Escrow Interest, if any.
(b) All Company Shares, if any, that are owned by the Company as
treasury stock as of the Effective Time shall be cancelled and retired and
shall cease to exist and no stock of Sensormatic or other consideration shall
be delivered in exchange therefor.
(c) Neither certificates nor scrip for fractional shares of
Sensormatic Common Stock will be issued in connection with the Merger, but in
lieu thereof, each holder of Company Shares otherwise entitled to a fractional
share of Sensormatic Common Stock pursuant to Section 1.5(a) shall be paid in
cash an amount equal to such fraction multiplied by the Average Closing Price,
without any interest thereon. No fractional share interest shall entitle the
owner thereof to vote or to any rights of a stockholder of Sensormatic.
(d) If, between the date of this Agreement and the Effective Time,
the outstanding shares of Sensormatic Common Stock shall have been changed into
a different number of shares or a different class by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares
or readjustment, distribution other than Sensormatic's regular quarterly
dividend or a stock dividend thereon shall be declared with a record date
within said period, such that the amount of the Merger Consideration per Share
as calculated in accordance with Section 1.5(a) would be affected thereby, the
Merger Consideration per Share shall be correspondingly adjusted.
1.6 EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES.
(a) After the Effective Time, subject to the filing of the New York
Certificate with the Secretary of State of the State of New York, each holder
of a certificate(s) formerly evidencing Company Shares which have been
converted pursuant to Section 1.5(a), upon surrender of the same to The First
National Bank of Boston or another exchange agent appointed by Sensormatic (the
"Exchange Agent") as provided in Section 1.6(d), shall be entitled to receive
in exchange therefor (i) a certificate(s) representing the number of whole
shares of Sensormatic Common Stock into which such Company Shares shall have
been converted pursuant to Section 1.5(a), (ii) any cash payable with respect
to such Company Shares pursuant to Section 1.5(a), and (iii) cash in lieu of
any fractional share of Sensormatic Common Stock into which such Company Shares
would have otherwise been converted, as provided in Section 1.5(c). In
addition, if applicable, each holder of Company Shares as of the Effective Time
shall be entitled to the Escrow Interest times the number of Company Shares
held by such holder, which interest shall be non-certificated and
non-transferable (with certain limited exceptions to be agreed upon by the
parties), and shall be subject to such further terms and conditions as shall be
determined by the parties hereto.
(b) Until surrendered to the Exchange Agent pursuant to Section
1.6(a), each certificate formerly evidencing Company Shares which have been
converted pursuant to Section 1.5(a) will be deemed for all corporate purposes
of Sensormatic to evidence ownership of the number of whole shares of
Sensormatic Common Stock into which Company Shares formerly evidenced by such
certificate were converted and the right to receive any cash included in the
merger consideration, cash for fractional shares and any applicable Escrow
Interest, as provided in Section 1.5; provided, however, that until such
certificate is so surrendered, no dividend payable to holders of record of
Sensormatic Common Stock as of any date subsequent to the Effective Time shall
be paid to the holder of such certificate in respect of the shares of
Sensormatic Common Stock evidenced thereby and such holder shall not be
entitled to vote such shares of Sensormatic Common Stock. Upon surrender of a
certificate formerly evidencing Company Shares which have been so converted,
there shall be paid to the record holder of any certificates of Sensormatic
Common Stock issued in exchange therefor, without interest thereon, any
dividends and other distributions which
I-4
<PAGE> 128
between the Effective Time and the time of such surrender shall have become
payable with respect to the number of whole shares of Sensormatic Common Stock
represented thereby.
(c) Sensormatic shall deposit with the Exchange Agent, as promptly as
practicable and in no event later than three business days following the
Effective Time, the number of shares of Sensormatic Common Stock, and, as and
when requested by the Exchange Agent, the aggregate amount of cash (in
immediately available funds) to which holders of Company Shares shall be
entitled at the Effective Time pursuant to Section 1.5. Any interest on the
amount so deposited shall be payable to Sensormatic.
(d) Promptly after the Effective Time, the Exchange Agent shall send
a notice and a transmittal form to each holder of certificates formerly
evidencing Company Shares (other than certificates formerly evidencing Company
Shares to be canceled pursuant to Section 1.5(b) or Dissenting Shares excluded
from operation of this Section 1 pursuant to Section 1.7) advising such holder
of the effectiveness of the Merger and the procedure for surrendering to the
Exchange Agent such certificates for exchange into certificates evidencing
Sensormatic Common Stock and/or cash as contemplated by Section 1.5(a). The
notice and transmittal form provided for in this Section 1.6(d) shall be sent
by the Exchange Agent to the address for each holder of Company Shares
contained in the stock record books of the Company immediately prior to the
Effective Time. Each holder of certificates formerly evidencing Company
Shares, upon proper surrender thereof to the Exchange Agent together and in
accordance with such transmittal form, shall be entitled to receive in exchange
therefor, certificates evidencing the number of whole shares of Sensormatic
Common Stock and/or cash as contemplated by Section 1.5(a) to which such holder
is entitled hereunder. Notwithstanding the foregoing, neither the Exchange
Agent nor any party shall be liable to a holder of certificates formerly
evidencing Company Shares for any amount which may be required to be paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(e) If any certificate evidencing shares of Sensormatic Common Stock
or cash is to be delivered to a person or entity other than the person or
entity in whose name the certificates surrendered in exchange therefor are
registered, it shall be a condition to the issuance of such certificate
evidencing shares of Sensormatic Common Stock and the payment of such cash that
the certificates so surrendered shall be properly endorsed or accompanied by
appropriate stock powers and otherwise in proper form for transfer, that such
transfer otherwise be proper and that the person or entity requesting such
transfer pay to the Exchange Agent any transfer or other taxes payable by
reason of the foregoing or establish to the satisfaction of the Exchange Agent
that such taxes have been paid or are not required to be paid.
(f) In the event any certificate theretofore representing Company
Shares shall have been lost, stolen or destroyed, upon the making of an
appropriate affidavit of that fact by the Company stockholder claiming such
certificate to be lost, stolen or destroyed, Sensormatic will issue in exchange
for such lost, stolen or destroyed certificate a certificate evidencing the
number of whole shares of Sensormatic Common Stock and/or deliver cash as
provided in Section 1.5(a) to which such person or entity is entitled
hereunder, provided, that when authorizing such issue of the certificate
representing shares of Sensormatic Common Stock and/or delivery of such cash,
the Board of Directors of Sensormatic may, in its discretion and as a condition
precedent to the issuance thereof, require the claiming person or entity to
give Sensormatic a bond or indemnification in such sum as Sensormatic may
reasonably direct as indemnity against any claim that may be made against
Sensormatic with respect to the certificate alleged to have been lost, stolen
or destroyed.
(g) Any portion of the merger consideration made available to the
Exchange Agent pursuant to Section 1.6(c) that remains unclaimed by the holders
of Company Shares entitled thereto six months after the Effective Time shall be
returned to Sensormatic and any shareholder of
I-5
<PAGE> 129
the Company who has not exchanged his Company Shares in accordance with this
Section 1.6 prior to that time shall thereafter look only to Sensormatic for
payment of the merger consideration in respect of his Company Shares.
Notwithstanding the foregoing, Sensormatic shall not be liable to any
shareholder of the Company for any amount paid to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(h) Any portion of the merger consideration made available to the
Exchange Agent pursuant to this Section 1.6 to pay for Shares for which
appraisal rights shall have been perfected shall be returned to Sensormatic,
upon demand.
1.7 DISSENTING SHARES. Notwithstanding any contrary provision of
this Section 1, Company Shares outstanding immediately prior to the Effective
Time and held by a holder who has not voted in favor of the Merger or consented
thereto in writing and who has demanded appraisal for such Company Shares in
accordance with Sections 623 and 910 of the BCL ("Dissenting Shares") shall not
be converted into a right to receive Sensormatic Common Stock and cash in lieu
of fractional shares as provided in Section 1.5, unless such holder withdraws
or otherwise loses his right to appraisal pursuant to the applicable provisions
of the BCL. If after the Effective Time such holder withdraws or otherwise
loses his right to appraisal, such Company Shares shall be treated as if they
had been converted as of the Effective Time into a right to receive Sensormatic
Common Stock and/or cash and any applicable Escrow Interest, as provided in
Section 1.5. The Company shall give Sensormatic prompt notice of any demands
received by the Company for appraisal of Shares, and Sensormatic shall have the
right to participate in all negotiations and proceedings with respect to such
demands. The Company shall not, except with the prior written consent of
Sensormatic, make any payment with respect to, or settle or offer to settle,
any such demands.
1.8 STOCK TRANSFER BOOKS. There shall be no registration of
transfers of Company Shares on the stock transfer books of the Company after
the close of business on the day prior to the Closing Date.
1.9 TREATMENT OF COMPANY COMMON STOCK OPTIONS. Each stock
option for employees and non-employee directors of the Company (a "Company
Option") outstanding as of the Effective Time shall be treated as provided
below:
(a) Each Company Option shall be cancelled as of the Effective
Time and each holder of such a Company Option (a "Holder") shall (subject to
the terms of Section 1.9(d) and (h) below) become entitled to receive two
substitute options ("Substitute Options"), one of which (the "Substitute
Sensormatic Option") shall be a non-qualified stock option to purchase
Sensormatic Common Stock and the other of which (the "Substitute Knewco
Option") shall be a qualified stock option (or a non- qualified stock option in
the case of a non-employee director) under the stock option plan to be adopted
by Knewco on or before the date on which the Effective Time occurs. A
Substitute Sensormatic Option shall have the terms specified in Section 1.9(b)
and a Substitute Knewco Option shall have the terms specified in Section
1.9(c).
(b) A Substitute Sensormatic Option shall (i) be an option to
acquire the Sensormatic Share Amount (as defined below) with respect to the
relevant Company Option minus any fractional share (which fractional share
shall be settled in cash as provided in Section 1.9(f)), (ii) have an exercise
price per share equal to the Sensormatic Portion (as defined below) divided by
the Sensormatic Share Amount and (iii) as to all other terms (including when
and the extent to which it is exercisable or non- exercisable) be identical to
the relevant Company Option, except (x) if such Substitute Sensormatic Option
shall be granted under a Sensormatic stock option plan, such Substitute
Sensormatic Option shall be subject to such amendments as shall be determined
by Sensormatic in order to conform such option to the terms of such plan, and
(y) as otherwise provided in the last sentence of Section 1.9(g).
I-6
<PAGE> 130
(c) A Substitute Knewco Option shall (i) be an option to acquire
the Knewco Share Amount (as defined below) with respect to the relevant Company
Option minus any fractional share (which fractional share shall be settled in
cash as provided in Section 1.9(f)), (ii) have an exercise price per share
equal to the Knewco Portion (as defined below) divided by the Knewco Share
Amount and (iii) as to all other terms (including when and the extent to which
it is exercisable or non-exercisable) be identical to the relevant Company
Option, except as otherwise provided in the last sentence of Section 1.9(g).
(d) If a Holder becomes an employee or director of Knewco
immediately after the Effective Time then, in lieu of receiving a Substitute
Sensormatic Option, such Holder shall receive the number of shares of
Sensormatic Common Stock (and/or cash, in the same proportion as the cash
included in the Merger Consideration per Share) as shall be equal to the Spread
(as defined below) of the Substitute Sensormatic Option that would have been
issued to such Holder but for this Section 1.9(d) divided by the Sensormatic
Value (as defined below); provided that in lieu of any fraction of a share of
Sensormatic Common Stock such Holder shall receive the corresponding fraction
of the Sensormatic Value in cash. If a Holder becomes an employee of the
Surviving Corporation immediately after the Effective Time then, in lieu of
receiving a Substitute Knewco Option, such Holder shall receive the number of
shares of Knewco common stock as shall be equal to the Spread of the Substitute
Knewco Option that would have been issued to such Holder but for this Section
1.9(d), divided by the Knewco Value (as defined below); provided that in lieu
of any fraction of a share of Knewco common stock such Holder shall receive the
corresponding fraction of the Knewco Value in cash. The "Spread" for a
Substitute Option shall equal (i) the number of Sensormatic or Knewco shares
subject thereto multiplied by (ii) the excess, if any, of the Sensormatic Value
(in the case of a Substitute Sensormatic Option) or the Knewco Value (in the
case of a Substitute Knewco Option) over the exercise price of such Substitute
Option. Notwithstanding the foregoing, if a Holder who becomes an employee of
the Surviving Corporation has his employment with the Surviving Corporation
terminated by the Surviving Corporation on or before the 30th day after the
date on which the Effective Time occurs, then the Substitute Sensormatic Option
to be issued to such Holder shall be automatically cancelled and such Holder
shall receive the number of shares of Sensormatic Common Stock (and cash in
proportion to the cash included in the Merger Consideration per Share) equal to
the Spread of such Substitute Sensormatic Option divided by the Sensormatic
Value; provided that in lieu of any fraction of a share of Sensormatic Common
Stock such Holder shall receive the corresponding fraction of the Sensormatic
Value in cash. Options held by the Estate of Arthur Minasy shall be treated in
accordance with the preceding sentence, subject to Section 1.9(i).
(e) As used herein,
(i) "Company Value" shall mean $10.50;
(ii) "Knewco Percentage" shall mean the percentage
(stated as a decimal) equal to the Knewco Value divided by the Company
Value; and
(iii) "Knewco Portion" shall mean, with respect to
each Company Option, the total exercise price under such Company
Option multiplied by the Knewco Percentage;
(iv) "Knewco Share Amount" shall mean, with
respect to each Company Option, the number of Knewco Shares (including
any fractional shares) that would have been issued in the Knewco Stock
Distribution to a shareholder owning the number of Company Shares
subject to such Company Option.
I-7
<PAGE> 131
(v) "Knewco Value" shall mean the average of the
closing prices, if available, and otherwise the average of the high
and low sale prices, of Knewco Common Stock for the first 10 business
days following the Effective Time;
(vi) "Sensormatic Percentage" shall mean 1.00
minus the Knewco Percentage;
(vii) "Sensormatic Portion" shall mean, with
respect to each Company Option, the total exercise price under such
Company Option multiplied by the Sensormatic Percentage;
(viii) "Sensormatic Share Amount" shall mean, with
respect to each Company Option, the number of shares of Sensormatic
Common Stock (including any fractional shares) that equals the number
of Company Shares subject to such Company Option multiplied by the
Merger Consideration per Share, calculated as if the entire Merger
Consideration per Share were payable in Sensormatic Common Stock;
(ix) "Sensormatic Value" shall mean the Average
Closing Price;
(f) Any fractional share that would be subject to a
Substitute Option shall instead be settled in cash by the payment to the
relevant Holder of the Spread for an option that is identical to such
Substitute Option in all respects except that it relates only to such
fractional share.
(g) Following the 10th business day after the date on which
the Effective Time occurs, Sensormatic and Knewco shall promptly calculate the
terms of all Substitute Options and thereafter shall promptly send to the
respective Holders thereof confirmation of such terms, issue to such Holders
any shares to be issued under Section 1.9(d) and make any cash payments to such
Holders to be made under Section 1.9(d) or (e). If any Company Option would
have expired on or after the date on which the Effective Time occurs and prior
to the 15th business day following such date, then the expiration date of the
Substitute Option for such Company Option shall expire on such 15th business
day.
(h) Notwithstanding anything herein to the contrary, if the
Divestiture is effected by a Knewco Sale on or before the date on which the
Effective Time occurs, then each Holder shall only receive a Substitute
Sensormatic Option, in which case the Sensormatic Portion shall equal the total
exercise price under the relevant Company Option and the Sensormatic Percentage
shall be 1.00.
(i) Notwithstanding anything herein to the contrary, no
transaction shall be effected under this Section 1.9 that would result in a
violation of Section 16(b) of the Securities Exchange Act of 1934, as amended.
The parties shall make such arrangements as may be required to provide the same
economic result to the affected party without occasioning any such violation.
(j) If any Deferred Merger Consideration is placed in escrow
pursuant to Section 10.2, then as of the Effective Time and/or from time to
time thereafter, if and when any such Deferred Merger Consideration is
delivered to the former Company stockholders pursuant to Section 10.2,
appropriate adjustments shall be made to provide equitable treatment of
outstanding Substitute Sensormatic Options and to prior holders of exercised
Substitute Sensormatic Options.
1.10 CLOSING. Subject to Section 8.1, the closing of the
transactions contemplated by this Agreement (other than the Divestiture, which
shall occur prior thereto as contemplated by Section 2) (the "Closing") shall
take place at 8:45 a.m. on a date to be specified by the parties (the "Closing
Date"), which shall be not more than five business days after all of the
conditions
I-8
<PAGE> 132
precedent set forth in Sections 6 and 7 to be satisfied prior to the Closing
have been satisfied or waived, at the offices of Christy & Viener, or such
other date, time and place as is agreed to by the parties (including any
postponement or adjournment of a previously scheduled date). At the Closing,
the Company and Knewco shall execute and deliver the certificates, documents
and instruments contemplated to be delivered by the Company pursuant to Section
6, and Sensormatic shall execute and deliver the certificates, documents and
instruments contemplated to be delivered by it pursuant to Section 7. The
Delaware Certificate of Merger shall be filed with the Secretary of State of
the State of Delaware, and the New York Certificate of Merger shall be filed
with the Secretary of State of the State of New York, immediately following the
Closing on the Closing Date or as soon thereafter as is practicable.
1.11 ALTERNATIVE MERGER. Notwithstanding any contrary provision of
this Section 1, in the event that Sensormatic determines to pay a sufficient
portion of the merger consideration in cash ("substantial cash"), as permitted
under Section 1.5(a), such that Sensormatic reasonably determines, in
consultation with its and the Company's counsel, that consummation of the
Merger in accordance with Sections 1.1 through 1.4 may not qualify as a
tax-free reorganization under the applicable provisions of the Code, at
Sensormatic's request, the Merger shall be effected, in lieu of the
transactions contemplated by Sections 1.1 through 1.4, in accordance with this
Section 1.11 (the "Alternative Merger"), as follows:
(a) A newly-formed New York corporation which is a wholly-owned
subsidiary of Sensormatic (the "Merger Sub") shall be merged with and into the
Company. The Effective Time for the Alternative Merger shall be the time of
the filing with the New York Secretary of State of a Certificate of Merger with
respect to the Alternative Merger. Upon and following the Alternative Merger,
the separate existence of the Merger Sub shall cease and the Company shall
continue as the Surviving Corporation.
(b) All of the provisions of Section 1.5(a) with respect to the
merger consideration shall be applicable, as set forth therein.
(c) From and after the Effective Time of the Alternative Merger
until further amended in accordance with the BCL, the Certificate of
Incorporation of the Company, as in effect at the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation.
(d) The By-laws of the Company, as in effect at the Effective
Time, shall be the By-laws of the Surviving Corporation until altered, amended
or repealed in accordance with law.
(e) The directors and officers of Merger Sub as of the Effective
Time shall be the directors and officers of the Surviving Corporation.
(f) At the Effective Time, each issued and outstanding share of
Common Stock, par value $.01 per share, of Merger Sub shall remain outstanding
as one fully paid and non-assessable share of Common Stock, par value $0.1 per
share, of the Surviving Corporation. Each certificate theretofore representing
shares of Common Stock of Merger Sub shall continue to represent the same
number of issued and outstanding, fully paid and non-assessable shares of the
Surviving Corporation.
(g) If the Alterative Merger is consummated, references elsewhere
in this Agreement to the "Merger" shall be deemed to refer to the Alternative
Merger, adjusted as appropriate to reflect the form of the Alternative Merger
as contemplated hereby.
I-9
<PAGE> 133
2. DIVESTITURE OF KNEWCO.
2.1 TRANSFER OF ASSETS. Prior to the Closing, and in any event
following the satisfaction of all other conditions to the Merger (other than
those contemplated by Sections 6.8 and 7.7), the Company shall contribute,
convey, assign, transfer and deliver (collectively, "contribute") to Knewco all
of the right, title and interest of the Company in and to the business
operations and related goodwill of the Company in the fifty states of the
United States, the District of Columbia, Canada and Puerto Rico (the "Knewco
Territory"), the Company's assets and properties located in the Knewco
Territory related to such business operations and the stock of Knogo Caribe,
Inc. ("Caribe") (exclusive of certain financial assets of Caribe), subject to
and as more particularly described in the Contribution and Divestiture
Agreement (the "Divestiture Agreement") to be entered into between the Company
and Knewco substantially in the form attached hereto as Exhibit C (the
"Divested Assets").
2.2 ASSUMPTION OF LIABILITIES. Simultaneously with the
contribution of the Divested Assets contemplated by Section 2.1, as
contemplated by the Divestiture Agreement, Knewco shall assume and agree to
pay, perform and discharge such obligations and liabilities (including
contingent liabilities) of the Company directly relating to the employees
retained by it, its customers in the Knewco Territory, the Company's products
sold or leased to such customers and the Company's assets and properties
located in the Knewco Territory, subject to and as more particularly described
in the Divestiture Agreement (the "Divested Liabilities").
2.3 OTHER PROVISIONS. The Divestiture Agreement shall contain
further provisions relating to the Divestiture and the dealings between Knewco
and the Company following the Divestiture, including, without limitation,
obligations of Knewco as to non- competition, confidentiality and
indemnification. Following the Effective Time, Sensormatic, as the Surviving
Corporation, shall succeed to and be entitled to all rights, benefits and
remedies of, and shall be subject to all obligations of, the Company under the
Divestiture Agreement.
2.4 SPIN-OFF OR SALE. As contemplated by the Divestiture
Agreement, after the contribution of the Divested Assets to Knewco and
assumption of the Divested Liabilities by Knewco, and prior to the Closing, the
Company shall either (i) distribute to its stockholders, in a spin-off intended
to be tax-free under Section 355 of the Code, the shares of Knewco (the "Knewco
Stock Distribution") or (ii) sell the shares of Knewco (a "Knewco Sale"), in
either case subject to and as contemplated by the terms of the Divestiture
Agreement. The sale of all or substantially all of Knewco's assets or other
alternative forms of the sale of Knewco may be agreed upon by the parties,
subject to Section 11.7. In no event shall the Knewco Sale or any alternative
transaction cause the Company (or Sensormatic) to control another entity, or
impair or delay consummation of the Merger, as contemplated by this Agreement.
The purchaser or other successor of Knewco shall acknowledge and accept the
Divestiture Agreement, License Agreement (referred to in Section 2.5) and
Supply Agreement (referred to in Section 2.5), as contemplated by the
Divestiture Agreement. For all purposes of this Agreement, the term
"Divestiture" shall include either a Knewco Stock Distribution or a Knewco
Sale. In the event of a Knewco Sale, the Merger Consideration per Share shall
be increased to reflect the net after-tax proceeds of such sale, as
contemplated by Section 1.5(a)(2).
2.5 ADDITIONAL AGREEMENTS. In connection with the Divestiture,
Knewco and the Company will also enter into a Supply Agreement relating to the
supply of the Company's products manufactured by Knewco to Sensormatic (the
"Supply Agreement") and a License Agreement providing, among other things, for
the grant to the Company of rights in the Knewco Territory with respect to the
Company's Superstrip technology and additional rights to manufacture the
Company's other products for use and sale outside the Knewco Territory, and the
grant to Knewco of non-exclusive rights in the SuperStrip technology for
manufacture, use and sale in the Knewco Territory
I-10
<PAGE> 134
and additional rights to manufacture outside the Knewco Territory for use and
sale therein (the "License Agreement"), substantially in the forms attached as
exhibits to the Divestiture Agreement. Upon consummation of the Merger,
Sensormatic will succeed to the rights and obligations of the Company under the
foregoing agreements.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company and Knewco, jointly and severally, represent and warrant
to Sensormatic as follows:
3.1 DUE INCORPORATION AND QUALIFICATION OF THE COMPANY.
(a) The Company is, and will be at the Effective Time, a corporation
duly incorporated, validly existing and in good standing under the laws of New
York, and Knewco is, and will be at the Effective Time, a corporation duly
incorporated, validly existing and in good standing under the laws of Delaware,
each with full corporate power and authority to own, lease and operate its
properties and to carry on its business in the places and in the manner as
currently conducted. The Company has all material governmental licenses,
authorizations, consents and approvals (collectively, "Permits") required to
carry on its businesses as now conducted.
(b) Set forth in Item 3.1(b) of the Disclosure Schedule attached
hereto and made a part hereof (the "Disclosure Schedule") is a list of all
jurisdictions in which the Company is qualified to do business and is in good
standing as a foreign corporation, which are the only jurisdictions in which
such qualification is necessary except for jurisdictions where the failure to
so qualify would not have a material adverse effect on the business, condition
(financial or otherwise) or results of operations of the Company and its
consolidated Subsidiaries (as such term is defined in Section 3.3(a)),
considered as a whole, but not including the assets and business to be included
in Knewco pursuant to the Divestiture (such a material adverse effect with
respect to the Company and its Subsidiaries being hereinafter referred to as a
"Material Adverse Effect").
3.2 CAPITALIZATION. The authorized capital stock of the Company
consists of 20,000,000 shares of Common Stock, $.01 par value, 2,800,000 shares
of Preferred Stock, $.01 par value, and 200,000 shares of Participating
Cumulative Preferred Shares Series A, $.01 par value. As July 13, 1994, there
were 5,410,146 Company Shares outstanding, 821,075 Company Shares reserved for
issuance upon exercise of outstanding Company Options, and no Company Shares
were held in the treasury of the Company. No shares of Preferred Stock of the
Company were outstanding as of such date. All outstanding shares of capital
stock of the Company have been duly authorized and validly issued and are fully
paid and nonassessable, and were not issued in violation of any preemptive
rights. Except as set forth in this Section 3.2, except for the Rights issued
pursuant to the Company's Rights Agreement dated as of July 27, 1987, as
amended as of December 1, 1987 (the "Rights"), a copy of which has been
furnished to Sensormatic, and except for changes since June 28, 1994 resulting
from the exercise of Company Options outstanding on such date, there are, and
will be at the Effective Time, outstanding (i) no shares of capital stock or
other voting securities of the Company, (ii) no securities convertible into or
exchangeable for shares of capital stock or voting securities of the Company,
and (iii) no options, warrants or other rights to acquire from the Company or
any Subsidiary, and no obligation of the Company or any Subsidiary to issue,
any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company
(collectively "Company Securities"). There are no outstanding obligations of
the Company or any Subsidiary to repurchase, redeem or otherwise acquire any
Company Securities.
I-11
<PAGE> 135
3.3 SUBSIDIARIES.
(a) Set forth in Item 3.3(a) of the Disclosure Schedule is a list
of all direct and indirect subsidiaries of the Company and any other entities
which the Company otherwise controls or in which it has an investment or
ownership interest (collectively, the "Subsidiaries"), showing the date and
jurisdiction of incorporation of each thereof and the Company's percentage
beneficial interest therein (and, if less than 100%, the holders of the
remaining interests). Each of the Subsidiaries is, and will be at the
Effective Time, a corporation or other entity as reflected in Item 3.3(a) duly
organized, validly existing and in good standing in its jurisdiction of
organization, with full corporate power and authority to own, lease and operate
its properties and to carry on its business in the places and in the manner as
currently conducted. The Company's interests in its respective Subsidiaries
(except for directors' qualifying shares in de minimis amounts) are owned free
and clear of all liens, encumbrances, equities, restrictions, adverse interests
and claims ("Liens"), other than those created under this Agreement or referred
to in Section 3.9(a). Each Subsidiary is duly qualified to do business as a
foreign corporation in each jurisdiction where the character of the property
owned or leased by it or the nature of its activities make such qualification
necessary, except for those jurisdictions where failure to be so qualified
could not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect. References in this Agreement to "the Company" shall
be deemed to refer to the Company and its Subsidiaries collectively, unless
otherwise noted or required by the context. Subsidiaries other than Knewco and
Caribe are sometimes referred to herein as "Acquired Subsidiaries".
(b) There are, and will be at the Effective Time, (i) no
securities of the Company or any Subsidiary convertible into or exchangeable
for capital stock or other ownership interests in any Subsidiary, (ii) no
options, warrants or other rights to acquire from the Company or any
Subsidiary, and no other obligation of the Company or any Subsidiary to issue,
any capital stock of or other ownership interests in, or any securities
convertible into or exchangeable for any capital stock of or ownership
interests in, any Subsidiary; and (iii) no securities of any Subsidiary other
than capital stock of such Subsidiary owned by the Company (collectively
"Subsidiary Securities"). There are, and will be at the Effective Time, no
outstanding obligations of the Company or any Subsidiary to repurchase, redeem
or otherwise acquire any outstanding Subsidiary Securities.
3.4 AUTHORITY; DUE AUTHORIZATION; VALID OBLIGATION; FAIRNESS
OPINION.
(a) The Company and Knewco have, and will have at the Effective
Time, all requisite corporate power and authority to execute and deliver this
Agreement and the further agreements contemplated by this agreement to be
executed and delivered by them (the "Additional Agreements") and to consummate
the transactions contemplated hereby and thereby. The Board of Directors of
the Company has unanimously approved the Merger and this Agreement. Except for
the approval of the Merger by the Company's stockholders as required by the
BCL, the Company and Knewco have taken all corporate action necessary for the
execution and delivery by them of this Agreement and the Additional Agreements
and the consummation of the transactions contemplated hereby and thereby. In
addition, the Board of Directors has taken all requisite action such that (i)
the supermajority provisions of Article NINTH of the Company's Certificate of
Incorporation will not be applicable to the Merger and (ii) the freezeout and
special shareholder voting requirements imposed by Section 912 of the BCL will
not be applicable to the Merger.
(b) This Agreement constitutes, and will constitute at the
Effective Time, the valid and binding obligation of the Company and Knewco,
enforceable against the Company and Knewco in accordance with its terms. When
executed and delivered by the Company and Knewco, the respective Additional
Agreements to which they are parties will constitute the valid and binding
obligations of the Company and Knewco, enforceable against the Company and
Knewco, respectively, in accordance with their respective terms.
I-12
<PAGE> 136
(c) The Board of Directors of the Company has received the opinion
of Smith Barney Inc. to the effect that, as of the date hereof, the
consideration to be received by the holders of Company Shares in the Merger and
shares of Knewco to be received by them pursuant to the Divestiture (if
applicable), taken together, are fair to such holders from a financial point of
view (copies of which have been delivered to Sensormatic), and such opinion has
not been withdrawn, revoked or modified in any material respect.
3.5 NO CONFLICTS OR DEFAULTS. The execution and delivery of this
Agreement and the Additional Agreements and the consummation of the
transactions contemplated hereby do not and shall not (a) contravene the
Certificate of Incorporation or By-laws of the Company or any Subsidiary; or
(b) except as set forth in Item 3.5 of the Disclosure Schedule, with or without
the giving of notice or the passage of time, or both, (i) violate or conflict
with, or result in a breach of, or a default or loss of rights under, any
agreement, mortgage, indenture, lease, instrument, permit or license to which
the Company or any Subsidiary is a party or by which it or any of its assets is
bound, or any judgment, order or decree, to which it or any of its assets is
subject, (ii) result in the creation of, or give any party the right to create,
any Lien upon the Company, any Acquired Subsidiary or any of their respective
assets or (iii) terminate or give any party the right to terminate, abandon or
refuse to perform any agreement, arrangement or commitment to which the Company
or any Acquired Subsidiary is a party or by which any of them or their assets
are bound, except any such violation, conflict, breach, default, loss of
rights, Lien, termination or failure of performance referred to in this clause
(b) as will not, singly or in the aggregate, (x) have a Material Adverse Effect
or (y) materially adversely affect the consummation of the transactions
contemplated by this Agreement.
3.6 COPIES OF CHARTER DOCUMENTS AND STOCK RECORDS.
(a) Correct and complete copies of the Certificate of
Incorporation, By-laws and other organizational or governing instruments of the
Company and each Subsidiary, in each case as amended to the date hereof, have
been furnished to Sensormatic by the Company. Such documents contain full
details of the rights and restrictions attached to the share capital of each
Acquired Subsidiary and have attached to them copies of all resolutions and
agreements as are required by applicable law to be delivered to any Secretary
of State, Registrar of Companies or similar governmental official or office.
(b) The Company has made available to Sensormatic correct and
complete copies of the minute books, stock ledgers or other statutory books of
the Company and each Subsidiary.
3.7 AUTHORIZATIONS. No authorization, approval, order, license,
permit or consent of, or filing or registration with, any federal, state,
foreign, provincial or local court or governmental authority, or consent of any
other party, is required in connection with the execution, delivery and
performance by the Company or Knewco of this Agreement, the Additional
Agreements and/or the Merger, except (a) as set forth in Item 3.7 of the
Disclosure Schedule, (b) the filing of Delaware Certificate of Merger with the
Secretary of State of the State of Delaware and the New York Certificate of
Merger with the Secretary of State of the State of New York (and receipt of
clearance from the New York State Department of Taxation), (c) any filing
required to be made, and the expiration or termination of any applicable
waiting period, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
and the regulations thereunder with respect to the transactions contemplated by
this Agreement (the "HSR Conditions"), (d) any applicable European regulatory
approvals or consents, (e) the filing and distribution to the Company
stockholders of the Proxy Statement (as such term is defined in Section 3.18)
and any applicable registration with respect to the stock of Knewco issued
pursuant to the Knewco Stock Distribution, (f) approval and adoption of this
Agreement and the Merger by the Company's stockholders and (g) such other
authorizations, approvals, li-
I-13
<PAGE> 137
censes, permits, consents, filings or registrations which, if not obtained or
made, the failure to obtain or make would not have a Material Adverse Effect or
materially adversely affect the consummation of the transactions contemplated
by this Agreement.
3.8 PERIODIC FILINGS; FINANCIAL STATEMENTS.
(a) The Company has furnished to Sensormatic true and complete
copies of its (i) Annual Reports on Form 10-K and Annual Reports to
Shareholders for each of the three fiscal years ended February 28, 1994 as
filed with the Securities and Exchange Commission (the "SEC"), (ii) its
Quarterly Reports on Form 10-Q for the quarter ended May 31, 1994, as filed
with the SEC, (iii) the proxy statements relating to the meetings of the
Company's stockholders on August 26th, 1993 and August 15, 1994, and (iv) all
other reports or registration statements filed by the Company with the SEC
since February 29, 1992 (collectively, the "Company SEC Documents"). As of
their respective dates, all of the Company SEC Documents complied in all
material respects with the Securities and Exchange Act of 1934 (the "Exchange
Act") or Securities Act of 1933 (the "Securities Act"), as applicable, and the
applicable rules and regulations of the SEC thereunder, and none of the Company
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. All material agreements, contracts and other documents
required to be filed as exhibits to any of the Company SEC Documents have been
so filed.
(b) The audited consolidated financial statements and unaudited
interim financial statements of the Company included in the Company SEC
Documents (collectively, the "Financial Statements") were prepared in
accordance with U.S. generally accepted accounting principles applied on a
consistent basis, are reconcilable to the books and records of the Company and
present fairly the financial position of the Company as at the dates thereof
and the results of its operations, cash flows and changes in financial position
for the periods then ended, except, in the case of such unaudited financial
statements, for the omission of footnote information and for year end audit
adjustments which are not, singly or in the aggregate, material.
(c) Except as described in Item 3.8(c) of the Disclosure Schedule,
the consolidating financial statements of the Company for the fiscal year ended
February 28, 1994 and the fiscal quarter ended May 31, 1994, and the FAS 13
calculation of total revenues by country for the fiscal year ended February 28,
1994 (the "FAS 13 Schedule") as previously furnished by the Company to
Sensormatic, including the respective balance sheets of the Acquired
Subsidiaries as of May 31, 1994 included therein (the "Acquired Subsidiary
Balance Sheets"), are reconcilable to the Financial Statements and the books
and records of the Company, present fairly the matters referred to therein,
and, except as to the FAS 13 Schedule, were prepared on a basis consistent with
past practice.
(d) As of May 31, 1994, except as set forth in Item 3.8(d) of the
Disclosure Schedule, neither the Company nor any Subsidiary had any material
liabilities of any nature, whether accrued, absolute, contingent or otherwise,
and whether due or to become due ("Liabilities"), material to the Company and
required by GAAP to be so disclosed or provided for, which were not disclosed
or provided for in the unaudited consolidated balance sheet of the Company as
of May 31, 1994, included in the Company's Report on Form 10-Q for the fiscal
quarter then ended or the notes thereto (including the notes to the audited
consolidated financial statements of the Company as of February 28, 1994
included in the Company's Annual Report on Form 10-K for the fiscal year then
ended) (the "May Balance Sheet") and the applicable Acquired Subsidiary Balance
Sheets. From May 31, 1994 through the date of this Agreement, except as set
forth in Item 3.8(d) of the Disclosure Schedule, to the Company's knowledge,
neither the Company nor any Subsidiary has incurred any such liabilities or
contingent liabilities outside of the ordinary course of business, which,
I-14
<PAGE> 138
individually or in the aggregate, are likely to have a Material Adverse Effect,
other than the Merger and the transactions contemplated hereby (and the
Company's investigation of alternative transactions). All such liabilities or
contingent liabilities since May 31, 1994 are fully reflected or reserved on
the books and records of the Company or the applicable Subsidiaries, as the
case may be.
(e) The books and records of each Acquired Subsidiary are
up-to-date and have been maintained in all material respects in accordance with
all applicable local accounting and filing requirements on a proper and
consistent basis and in all material respects contain a complete and accurate
record of all matters required to be dealt with therein.
3.9 ASSETS.
(a) Set forth in Item 3.9(a) of the Disclosure Schedule is a
complete and correct list of all material Liens to which the Company's or any
Subsidiary's assets are subject.
(b) Set forth in Item 3.9(b) of the Disclosure Schedule is a list
of all real property owned or leased by the Company anywhere in the world (the
"Realty"), identifying which of the Realty is to be divested pursuant to the
Divestiture. All material leases pursuant to which the Company or any
Subsidiary leases real or personal property from others are in good standing,
valid and effective in accordance with their respective terms.
3.10 ORDINARY COURSE; NO MATERIAL ADVERSE EFFECT. Except as set
forth in Item 3.10 of the Disclosure Schedule, since May 31, 1994, other than
the Merger and the transactions contemplated hereby (and the Company's
investigation of alternative transactions), the Company has conducted the
Business and maintained its assets substantially in the same manner as
previously conducted or maintained and solely in the ordinary course; has not,
to the Company's knowledge, suffered a Material Adverse Effect through the date
of this Agreement; and has not taken any action which if taken after the date
hereof would constitute a breach of Section 5.1.
3.11 PERMITS; COMPLIANCE WITH LAW.
(a) Except as set forth in Item 3.11(a) of the Disclosure
Schedule, no Permits required for or applicable to the operations of the
Company and the Acquired Subsidiaries outside the Knewco Territory will
terminate as a result of the transactions contemplated by this Agreement,
except any such Permits the termination of which will not, singly or in the
aggregate, have a Material Adverse Effect.
(b) The plants, structures and equipment, whether owned or leased,
which are currently used by the Company conform to all applicable laws, orders,
regulations, ordinances or governmental or contractual requirements relating to
their construction, use and operation, including, without limitation, all laws
concerning the disposal or release of hazardous substances, public health and
safety, or pollution or protection of the environment, except any such
instances of noncompliance as do not, singly or in the aggregate, have a
Material Adverse Effect. Except for violations that, individually or in the
aggregate, do not and are not likely to have a Material Adverse Effect, the
Business has not been, and is not being, conducted in violation of any law,
ordinance, rule or regulation.
3.12 TAXES.
(a) The Company and each Subsidiary has filed all federal, state,
foreign, provincial and local returns, notices, reports and computations
(collectively, "returns") which were required to be filed prior to the date
hereof in respect of all forms of taxation, whether direct or indirect and
whether levied by reference to income, profits, gains (capital or otherwise),
withholding,
I-15
<PAGE> 139
payroll, property, value-added, sales, use, supplies, net wealth, net worth,
asset value, turnover, added value, benefits provided or deemed by applicable
law to be provided to employees or any other matter, and statutory, franchise,
governmental, state, provincial, local governmental or municipal impositions,
duties, contributions and levies (including, without limitation, social
security contributions), customs, import and excise taxes, duties and
assessments in each case, whenever imposed and in respect of any person
(including an obligation to contribute to the payment of Taxes (as hereinafter
defined) on a consolidated, combined or unitary basis) (together, and together
with any related penalties, fines, charges, costs and interest, "Taxes"). Each
such return is complete and accurate in all material respects, and the Company
has paid or made provision in the May Balance Sheet (and the Acquired
Subsidiaries have paid or made provision in their respective Acquired
Subsidiary Balance Sheets) or, since May 31, 1994, in their respective books
and records for (i) payment of all Taxes shown to be due on such returns or
reports, (ii) assessments received with respect thereto, and (iii) any Taxes
which otherwise may be due with respect to periods ending on or prior to the
date hereof, other than such Taxes as are being contested in good faith and for
which adequate reserves have been established and reflected on the May Balance
Sheet or as described in Item 3.12(a) of the Disclosure Schedule.
Notwithstanding the foregoing, in the event the Company failed to file any
non-material foreign, state, local or provincial returns, or failed to pay any
related Taxes (provided the amounts thereof are not, singly or in the
aggregate, material), this representation shall not be deemed to have been
breached. Except as set forth in Item 3.12(a) of the Disclosure Schedule,
neither the Company nor any subsidiary has received notice of any claims
pending or threatened for taxes against the Company or any Subsidiary for
periods ending on or before the date hereof. Except as set forth in Item
3.12(a) of the Disclosure Schedule, no tax return of the Company or any
Subsidiary is currently under audit or examination by any governmental
authority, or, to the Company's knowledge, proposed to be audited or examined,
and the Company does not know of any threatened Tax claims or assessments
against the Company or any of the Subsidiaries. The Company has not received
notice of any proposed deficiency with respect to any of its income tax
returns.
(b) Each Acquired Subsidiary has been resident for taxation
purposes in its country of incorporation (or, as appropriate, the country of
which the State or Province in which it is incorporated forms part) and nowhere
else at all times since its incorporation and will be so resident at the
Effective Time. Each Acquired Subsidiary and any other company which has been
treated as a member of the same group of companies as any Acquired Subsidiary
for the purpose of value added or similar Taxes (including turnover Taxes) has
complied in all material respects with all statutory requirements, orders,
provisions, directions or conditions relating to such value added or turnover
taxes, including the terms of any agreement reached with any appropriate
taxation authority.
(c) Each of the Acquired Subsidiaries (other than Knogo
Equipamentos de Seguranca, Lda.) and Caribe have engaged and will have engaged
in the active conduct of a trade or business within the meaning of Code Section
355(b) throughout the five-year period ending at the Effective Time. The
assets transferred to Knewco (other than the stock of Caribe) as provided in
Section 2 hereof and the Divestiture Agreement shall constitute a trade or
business within the meaning of Code Section 355(b) that was actively conducted
throughout the five-year period ending at the Effective Time. Except as set
forth in Item 3.12(c) of the Disclosure Schedule, neither the Company nor any
Subsidiary acquired an active trade or business that represents more than 50%
of the assets of the Company or such Subsidiary, as applicable, during the
five-year period ending as of the Effective Time. Provided the Knewco Stock
Distribution occurs, each of Knewco and Caribe intends to engage in the active
conduct of a trade or business within the meaning of Code Section 355(b) after
the Effective Time.
(d) So far as the Company is aware, except as set forth on
Schedule 3.12(d) of the Disclosure Schedule, no material deduction or other
taxation benefit in respect of any Taxes
I-16
<PAGE> 140
has been claimed and/or given to the Company or any Acquired Company which
could or might be effectively withdrawn, postponed, restricted or otherwise
lost as a result of any act, omission, event or circumstance arising in the
ordinary course of business, or as a result of the transactions contemplated
hereby. Neither the Company nor any Acquired Subsidiary has made or filed for,
nor is it required by any law or regulation to make or file for, any change of
accounting method that will result in its reporting taxable income for any
period after the Effective Time.
3.13 EMPLOYEE BENEFITS.
(a) The Company's Retirement Savings 401(k) Plan (the "401(k)
Plan") is the only "employee pension benefit plan" (as defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
maintained by the Company or any Subsidiary or to which the Company or any
Subsidiary has any liability or obligation. The 401(k) Plan and each bonus,
pension, retirement, profit sharing, deferred compensation, stock ownership,
stock bonus, stock option, phantom stock, retirement, vacation, disability,
death benefit, unemployment, hospitalization, medical, severance, or other
plan, or agreement providing benefits to any current or former employees,
officers or directors of the Company or any Subsidiary or to which the Company
or any Subsidiary has any liability or obligation (collectively, the "Company
Benefit Plans"), and any related trust, complies currently, and has complied at
all times in the past, both as to form and operation, in all material respects
with the terms of such Company Benefit Plan and with the applicable provisions
of ERISA, the Code and other applicable United States or foreign laws. All
necessary government approvals for each Company Benefit Plan have been or will
be obtained on a timely basis. The Company has no liability (contingent or
otherwise) with respect to any terminated Company Benefit Plan. Except as set
forth in Item 3.13(a) of the Disclosure Schedule, since March 1, 1992, neither
the Company nor any Subsidiary has amended any Company Benefit Plan to include
any provision that would apply in the event of a change of control of the
Company or a Subsidiary or which would materially increase the cost of such
Company Benefit Plan.
(b) Set forth in Item 3.13(b) of the Disclosure Schedule is a list
of all union retirement, pension, or welfare plans to which the Company or any
Subsidiary is obligated to contribute. The Company does not maintain, and is
not obligated to maintain, any "multi employer plan" (as such term is defined
in Section 4001(a)(3) of ERISA).
(c) The Company and each Acquired Subsidiary has, in relation to
each of its employees (and to the extent relevant, to each of its former
employees), complied in all material respects with all obligations imposed on
it by Article 119 of the Treaty of Rome and all statutes, regulations and codes
of conduct and practice relevant to the relations between it and its employees
or any trade union and has maintained current, adequate and suitable records
regarding the service of each of its employees, and all collective agreements
and current customs and practices dealing with such relations or the conditions
of service of its employees.
3.14 LITIGATION. Except as described in Item 3.14 of the
Disclosure Schedule, there is no claim, action, suit, proceeding, investigation
or criminal proceeding, at law or in equity, before any national, state or
provincial, local or other governmental authority, court, arbitration tribunal
or other forum (collectively, "Proceedings") pending against the Company, and
the Company has not received notice of any threatened Proceedings, which, if
adversely determined, would, singly or in the aggregate, have a Material
Adverse Effect or would materially adversely affect consummation of the
transactions contemplated by this Agreement, or which challenges the validity
or propriety of the transactions contemplated by this Agreement. There is no
material outstanding and unsatisfied judgment, order, writ, ruling, injunction,
stipulation or decree of any court, arbitrator or governmental authority
against or relating to the Company or its assets.
I-17
<PAGE> 141
3.15 AGREEMENTS AND COMMITMENTS.
(a) Set forth in Item 3.15(a) of the Disclosure Schedule is a
complete list of all of the following instruments to which the Company or any
Subsidiary is a party ("Listed Instruments"): (i) each employment, consulting,
severance or other similar agreement (including any "golden parachute" or
similar arrangement) with any employee, consultant, sales or manufacturers
representative, officer, director or stockholder of the Company (or any company
which is controlled by any such individual) whose total rate of annual
remuneration, including the fair market value of all non-cash "personal
benefits" received by any such individual or company, exceeds $100,000; (ii)
each lease requiring the payment of rentals aggregating at least $100,000 per
annum, pursuant to which real or personal property is leased to the Company;
(iii) each loan, guaranty or other agreement or instrument evidencing
indebtedness for monies borrowed by or credit available to the Company,
including any "off balance sheet" financings (such as factoring, sale of
accounts receivable, leases or other accounts (with or without recourse),
"swaps", etc.), or any guaranty of an obligation by the Company, in excess of
$100,000; (iv) each distribution, dealership, franchise or similar agreement;
(v) each partnership, joint venture, shareholders or similar agreement; (vi)
any licenses to or by the Company of Intellectual Property (as such term is
defined in Section 3.16) which are material to the Business; (vii) any
covenants not to compete or similar restrictions on the conduct of the
Business; and (viii) each other contract, commitment or understanding (not
disclosed in any other Item of the Disclosure Schedule or in the notes to the
Financial Statements), and which (i) involves in excess of $100,000, and (ii)
was entered into other than in the ordinary course of business.
Except as set forth in the applicable Item of the Disclosure Schedule,
(x) a true and complete copy of each written Listed Instrument has been
furnished to Sensormatic, (y) none of the Listed Instruments (other than any
thereof to be assigned to and assumed by Knewco) will be subject to termination
or renegotiation as a result of the consummation of the transactions
contemplated by this Agreement and (z) the Company is not in breach or default
in any material respect under any of the Listed Instruments, except any such
termination, renegotiation, breach or default as will not, singly or in the
aggregate, have a Material Adverse Effect. The Company has no knowledge of any
other material breach or default under any Listed Instrument by any other party
thereto or by any other person, firm or corporation bound thereby.
(b) Set forth in Item 3.15(b) of the Disclosure Schedule is a
correct and complete list of any union or collective bargaining contracts with
respect to any employees of the Company or any Subsidiary, and except as set
forth in Item 3.15(b) of the Disclosure Schedule, there has not been, nor has
the Company received written notice threatening, any representational or
organizational activity, strike, slowdown, picketing or work stoppage by any
union or other group of employees against the Company or any Subsidiary.
3.16 INTELLECTUAL PROPERTY. The Company owns or has valid and
enforceable rights with respect to all inventions, improvements, discoveries,
processes, formulae, know-how, information, tooling and other designs,
specifications, computer software programs, processes, algorithms, related
documentation, patents, patent applications, and trademarks, trade names,
service marks and copyrights (whether or not registered) and any registrations
or applications for the registration of any thereof and all rights of similar
or equivalent effect however or wherever arising (together, the "Intellectual
Property") which are necessary and sufficient in all material respects to
conduct the Business as currently conducted or proposed to be conducted
throughout the world. The Company holds the Intellectual Property owned by it
free of any Liens or contractual or other restrictions other than the rights of
licensors. All written or oral agreements or other instruments to which the
Company is a party which relate in whole or in part to any Intellectual
Property are listed under Section 3.15(a). Any authors or other co-holders of
any such Intellectual Property have assigned all of their rights therein to the
Company. The Company is the exclusive owner of the
I-18
<PAGE> 142
Knewco Patent Rights and Product Technology (as such terms are defined in the
License Agreement) and has the unrestricted right to license the same to
Sensormatic. The Knewco Patent Rights are the only United States and Canadian
patent rights with respect to the Products (as such term is defined in the
License Agreement) and the Product Technology and the Trademarks (as such term
is defined in the License Agreement) are the only trademarks used by the
Company in the United States and Canada with respect to the Products. Except
as set forth in Item 3.16 of the Disclosure Schedule, the Company has not
received any claims that it or its Intellectual Property has infringed the
rights of any third party.
3.17 BROKERS. Except as set forth in Item 3.17 of the Disclosure
Schedule, no broker, investment banker, financial advisor or other person is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions described in this Agreement
based upon arrangements made by or on behalf of the Company or any stockholder
thereof.
3.18 INFORMATION SUPPLIED. None of the information to be supplied
by or on behalf of the Company for inclusion or incorporation by reference in
the Registration Statement on Form S-4 (the "Registration Statement") to be
filed with the SEC by Sensormatic in connection with the issuance of shares of
Sensormatic Common Stock in the Merger, including the Proxy Statement of the
Company with respect to the Merger to be included therein (the "Proxy
Statement"), and including any amendments or supplements thereto, shall, at the
time the Registration Statement becomes effective under the Securities Act, the
time of mailing of such Proxy Statement to the stockholders of the Company or,
in the case of any subsequent amendment or supplement thereto, the date
thereof, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
3.19 DISPOSITION BY STOCKHOLDERS. There is no plan or intention on
the part of the Company stockholders who own five percent or more of the
Company Shares (as of the date of this Agreement and as of the Closing Date),
and to the best of the knowledge of management of the Company, on the part of
the remaining Company stockholders (as of the date of this Agreement and as of
the Closing Date), to sell, exchange or otherwise dispose of (a) stock of the
Company (prior to the Effective Time, by exercise of dissenters' rights, or
otherwise), (b) shares of Knewco received by them pursuant to the Divestiture,
or (c) shares of Sensormatic received by them pursuant to the Merger (including
fractional shares), so that those Company stockholders shall retain, in the
aggregate, less than (i) 50% of the stock of Knewco, or (ii) a number of shares
of Sensormatic having a value that is equal to 50% of the value of the Company
immediately after the Divestiture.
3.20 MISCELLANEOUS. To the Company's knowledge, all
representations and warranties of the Company set forth in this Agreement, all
information set forth by the Company in the Disclosure Schedule or any
schedules or exhibits hereto or thereto, and all written responses of the
Company to Sensormatic pursuant to Sensormatic's written requests for other
information, were, as of the date of which they were made or given, true,
accurate and complete in all material respects and not misleading in any
material respect. For purposes of this Section 3.20, materiality shall be
determined in relation to the Company and its consolidated subsidiaries,
considered as a whole, but not including the assets and business to be included
in Knewco pursuant to the Divestiture.
4. REPRESENTATIONS AND WARRANTIES OF SENSORMATIC. Sensormatic
represents and warrants to the Company as follows:
4.1 DUE INCORPORATION AND QUALIFICATION. Sensormatic is, and will
be at the Effective Time, a corporation duly incorporated, validly existing and
in good standing under the laws
I-19
<PAGE> 143
of the State of Delaware, with full corporate power and authority to own, lease
and operate its properties and to carry on its businesses in the places and in
the manner currently conducted and all material Permits required to conduct its
business as now conducted. Sensormatic is qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in which the nature
of the activities conducted by it or the character of the properties owned or
leased by it makes such qualification necessary and the failure to so qualify
would have a material adverse effect on the business, condition (financial or
otherwise) or results of operations of Sensormatic and its subsidiaries,
considered as a whole.
4.2 AUTHORITY; DUE AUTHORIZATION; VALID OBLIGATION. Sensormatic
has, and will have at the Effective Time, all requisite corporate power and
authority to execute and deliver this Agreement and the Additional Agreements
to which it is a party and to consummate the transactions contemplated hereby
and thereby. Sensormatic has taken all corporate action necessary for the
execution and delivery by it of this Agreement and such Additional Agreements
and for the consummation of the transactions contemplated hereby and thereby,
and this Agreement constitutes and will constitute at the Effective Time, and
such Additional Agreements, when executed and delivered, will constitute, the
valid and binding obligations of Sensormatic, enforceable against Sensormatic
in accordance with their respective terms.
4.3 NO CONFLICTS OR DEFAULTS. The execution and delivery by
Sensormatic of this Agreement and the Additional Agreements to which it is a
party and the consummation of the transactions contemplated hereby and thereby
do not and shall not (a) contravene the Certificate of Incorporation or By-Laws
of Sensormatic or (b) with or without the giving of notice or the passage of
time, or both, (i) violate or conflict with, or result in a breach of, or a
default or loss of rights under, any material agreement, mortgage, indenture,
lease, instrument, permit or license to which Sensormatic is a party or by
which it or any material portion of its assets are bound, or any judgment,
order or decree to which it or any material portion of its assets are subject,
(ii) result in the creation of, or give any party the right to create, any Lien
upon any material portion of its assets, or (iii) terminate or give any party
the right to terminate, abandon or refuse to perform any agreement, arrangement
or commitment to which Sensormatic is a party or by which it or any of its
assets is bound, except any such violation conflict, breach, default, loss of
rights, Lien, termination or failure of performance referred to in this clause
(b) as will not, singly or in the aggregate, (x) have a material adverse effect
on the business, condition (financial or otherwise) or results of operations of
Sensormatic and its consolidated subsidiaries, considered as a whole, or (y)
materially adversely affect the consummation of the transactions contemplated
by this Agreement.
4.4 AUTHORIZATIONS. Except as set forth in Schedule 4.4, no
authorization, approval, order, license, permit or consent of, or filing or
registration with, any federal, state, foreign, provincial or local court or
governmental authority, or consent of any other party, is required in
connection with the execution, delivery and performance by Sensormatic of this
Agreement and the Additional Agreements to which it is a party, except for (a)
the filing of the Delaware Certificate of Merger with the Secretary of State of
the State of Delaware and the New York Certificate of Merger with the Secretary
of State of the State of New York (and receipt of clearance from the New York
State Department of Taxation), (b) the HSR Conditions, (c) any applicable
European regulatory approvals or consents, (d) the filing and effectiveness of
the Registration Statement under the Securities Act, (e) such filings or
registrations as may be required by applicable state securities or "blue sky"
laws, (f) approval and adoption of this Agreement and the Merger by the
Company's stockholders, or (f) such other authorizations, approvals, licenses,
permits, consents, filings or registrations which, if not obtained or made, the
failure to obtain or make would not have a material adverse effect on the
business, financial condition or results of operations of Sensormatic and its
subsidiaries, considered as a whole, or materially adversely affect the
consummation of the transactions contemplated by this Agreement.
I-20
<PAGE> 144
4.5 LITIGATION. There are no Proceedings pending against
Sensormatic, and Sensormatic has not received notice of any threatened
Proceedings against it which, if adversely determined, would, singly or in the
aggregate, have a material adverse effect on the business, condition (financial
or otherwise) or results of operations of Sensormatic and its subsidiaries,
considered as a whole, or would materially adversely affect consummation of the
transactions contemplated by this Agreement, or which challenges the validity
or propriety of the transactions contemplated by this Agreement.
4.6 SEC DOCUMENTS. Sensormatic has furnished to the Company true
and complete copies of each report, registration statement and definitive proxy
statement filed by Sensormatic with the SEC since June 30, 1993 (the
"Sensormatic SEC Documents"), which are all of the documents that Sensormatic
was required to file with the SEC since such date. As of their respective
dates, the Sensormatic SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as applicable, and the
applicable rules and regulations of the SEC thereunder, and none of the
Sensormatic SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. All material agreements, contracts and other
documents required to be filed as exhibits to any of the Sensormatic SEC
Documents have been so filed. The consolidated financial statements of
Sensormatic contained in the Sensormatic SEC Documents were prepared in
accordance with U.S. generally accepted accounting principles applied on a
consistent basis during the periods involved and fairly present the
consolidated financial position of Sensormatic and its consolidated
subsidiaries as at the dates indicated and the consolidated results of
operations and consolidated cash flows of Sensormatic and its consolidated
subsidiaries for the periods then ended, except as indicated in the notes
thereto, and except, in the case of unaudited interim financial statements, for
the omission of footnote information and year-end audit adjustments which are
not, singly or in the aggregate, material.
4.7 ORDINARY COURSE; NO MATERIAL ADVERSE CHANGE. Since March 31,
1994, except as reflected in the Sensormatic SEC Documents, Sensormatic has
conducted its business and maintained its assets substantially in the same
manner as previously conducted or maintained and solely in the ordinary course,
and, to Sensormatic's knowledge, from March 31, 1994 through the date of this
Agreement, there has not been any material adverse change in the business,
condition (financial or otherwise) or results of operations of Sensormatic and
its consolidated subsidiaries, considered as a whole.
4.8 REGISTRATION STATEMENT. None of the information included or
incorporated by reference in the Registration Statement shall, at the time the
Registration Statement becomes effective under the Securities Act or the date
of such information incorporated by reference, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation or warranty is made by Sensormatic with respect to statements
made or incorporated by reference in the Registration Statement based upon
information supplied by the Company for inclusion therein.
4.9 SENSORMATIC COMMON STOCK. At the Effective Time, the
Sensormatic Common Stock to be issued pursuant to the Merger (i) will have been
duly authorized and validly issued, will be fully paid and non-assessable and
will not be issued in violation of any preemptive rights, (ii) will be
registered under the Securities Act pursuant to the Registration Statement, and
(iii) will have been approved for listing on the NYSE, subject to notice of
issuance.
4.10 MISCELLANEOUS. To Sensormatic's knowledge, all
representations and warranties of Sensormatic set forth in this Agreement and
all information set forth by Sensormatic in
I-21
<PAGE> 145
any schedules or exhibits hereto or thereto were, as of the date on which they
were made or given, true and complete in all material respects and no such
representation, warranty or information contains or contained any untrue
statement of a material fact or omits or omitted any material fact necessary in
order to make such representation or warranty, in light of the circumstances
under which it is made, not false or misleading. For purposes of this Section
4.10, materiality shall be determined in relation to Sensormatic and its
consolidated subsidiaries, considered as a whole.
5. PRE-CLOSING AGREEMENTS.
5.1 PRESERVE THE COMPANY'S BUSINESS. Between the date of this
Agreement and the Effective Time, the Company shall, in all material respects,
except in connection with the Divestiture and/or its exploration of the sale of
Knewco in accordance with this Agreement and the Divestiture Agreement, or
actions to be taken pursuant to the express provisions of this Agreement, (a)
preserve substantially intact the business organization of the Company and use
its reasonable best efforts to keep available the services of the Company's
present officers and key employees and preserve the Company's present
relationships with persons having significant business relations therewith and
(b) conduct the Company's Business only in the ordinary course. Without
limiting the generality of the foregoing, except in connection with the
Divestiture and/or its exploration of the sale of Knewco in accordance with
this Agreement and the Divestiture Agreement, or actions to be taken pursuant
to the express provisions of this Agreement, the Company shall not, and shall
not permit any Subsidiary to, without the prior written consent of Sensormatic
in each instance, (i) except pursuant to Company Options in effect on the date
hereof, issue any shares of its capital stock, any security convertible into or
exchangeable for its capital stock or any option, warrant or other right to
acquire its capital stock, (ii) declare, set aside, or pay any dividend or make
any distribution with respect to any Company Shares or other capital stock of
the Company or any Subsidiaries, except from any Subsidiary to the Company or
any Acquired Subsidiary, (iii) directly or indirectly redeem, purchase or
otherwise acquire or commit to acquire any Company Shares or other capital
stock or other ownership interest of any party (except transfers among
the Subsidiaries and the Company, other than to Knewco or Caribe), (iv) effect
a split or reclassification of its capital stock, or a recapitalization, (v)
amend its Certificate of Incorporation or By-laws, (vi) except as required by
law, (A) grant or make any change in control, severance or termination payments
to any officer or employee except pursuant to plans or agreements in existence
on the date hereof, (B) enter into any option, employment, deferred
compensation or other similar agreement (or enter into any amendment to any
such existing agreement) with any officer, director, employee or consultant,
(C) increase benefits payable under any existing severance or termination pay
policies or agreements, or (D) pay, provide for, or grant any increase in (or
commit, orally or in writing, to increase) the rate or terms (including,
without limitation, any acceleration of the right to receive payment) of
compensation payable to or to become payable to, or of any bonus, insurance,
pension or other employee benefit plan benefitting any director, officer,
employee or consultant, except for normal merit and cost of living increases,
and except as required by the terms of contracts or agreements in effect on the
date hereof, (vii) merge or consolidate with any other corporation or acquire a
material amount of assets constituting all or substantially all of the assets
of any person, or otherwise enter into any material transaction, contract or
commitment other than in the ordinary course of business, (viii) assume or
guarantee any debt for borrowed money other than in the ordinary course of
business, on terms consistent with past practice, (ix) sell, lease, license,
encumber or otherwise dispose of any material properties or assets other than
the sale or lease of inventory in the ordinary course and consistent with past
practice, (x) make any revaluation of the assets of the Company or any of its
Subsidiaries, including, without limitation, write-downs of inventory or
write-offs of accounts receivable, other than in the ordinary course of
business and consistent with past practice, or (xi) except as required by GAAP,
change any of its accounting methods, principles or practices. The Company
shall use its best efforts to maintain in full force and effect insurance
policies providing coverage and amounts of coverage comparable to the coverage
and amounts of coverage provided under the policies of insurance now in effect
for the Company.
I-22
<PAGE> 146
In addition, during such period, Sensormatic shall be consulted as to all
substantive operational decisions of the Company (excepting matters relating to
its operations in the Knewco Territory), and the Company shall keep Sensormatic
fully informed, and provide to Sensormatic such access to its premises,
employees and information as it requests, with respect to the Company's
business outside the Knewco Territory.
5.2 PRESERVE ACCURACY OF REPRESENTATIONS AND WARRANTIES; UPDATES.
Between the date of this Agreement and the Effective Time, each of the Company,
Sensormatic and Knewco shall refrain from taking, without the prior written
consent in each instance of Sensormatic or the Company, as applicable, any
action which would render any of the representations or warranties set forth in
Sections 3 or 4 inaccurate in any material respect as of the Effective Time,
and shall notify the other promptly of the occurrence of any matter, event or
change in circumstances known to it after the date hereof that would have been
required to be disclosed by it hereunder if it had occurred on or prior to the
date hereof. Between the date of this Agreement and the Effective Time, the
Company shall supply to Sensormatic or its representatives, on a monthly basis,
copies of all internally generated financial statements, and such additional
sales reports and financial and business information (other than detailed
information relating to the operations of the Business in the Knewco Territory)
as Sensormatic may reasonably request, which shall be prepared in a manner
consistent with the manner in which they are now prepared.
5.3 FURTHER INVESTIGATION AND INFORMATION. Between the date of
this Agreement and the Effective Time, each of the Company and Sensormatic
shall give to the other and its respective representatives full access during
normal business hours, on reasonable prior notice, to such of their premises,
files, books, records and employees as are reasonably required for due
diligence purposes in connection with the transactions contemplated hereby, and
shall cause their officers, employees and representatives to furnish such
financial, operating and other data and information relevant to such purposes
as the other shall from time to time reasonably request; provided, however,
that any such investigation shall be conducted in such manner as not to
interfere unreasonably with the operation of the other party's business. Any
information obtained in the course of such investigation shall be subject to
the confidentiality agreements entered into or to be entered into between the
Company and Sensormatic.
5.4 CONSENTS, WAIVERS AND FILINGS. Upon the terms and subject to
the conditions set forth in this Agreement, the Company, Sensormatic and Knewco
shall use their respective best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things, reasonably necessary or desirable to
consummate in an expeditious manner the Merger, the Divestiture and the other
transactions contemplated by this Agreement. Without limiting the foregoing,
the parties shall cooperate to obtain from all relevant third parties and
governmental authorities, including any trade unions or work councils, all
consents and waivers to, and permits, authorizations and licenses for, the
transactions contemplated by this Agreement that may be required under any
agreement, lease, financing arrangement, license, Permit or other instrument or
under any applicable law, rule or regulation, and to attempt to remove or
vacate any legal prohibition or impediment to the consummation of the
transactions contemplated hereby, including any of the matters referred to in
Sections 6.7, 7.6 and 10.
5.5 SUBSEQUENT FILINGS. Prior to the Effective Time, the Company
shall timely and properly file with the SEC all Company SEC Documents required
to be filed by the Company under the Exchange Act and the rules and regulations
promulgated thereunder and will promptly deliver to Sensormatic copies of each
such report filed with the SEC.
5.6 PREPARATION OF REGISTRATION STATEMENT. Sensormatic shall
promptly prepare and file with the SEC the Registration Statement with respect
to the Merger and shall use all reason-
I-23
<PAGE> 147
able efforts to have the Registration Statement declared effective under the
Securities Act promptly after it is filed. Sensormatic shall also take any
action (other than qualifying to do business in any jurisdiction in which it is
not now so qualified) required to be taken under any applicable state
securities laws in connection with the issuance of Sensormatic Common Stock in
the Merger. The Company shall cooperate with Sensormatic in the preparation
of, and furnish such information concerning the Company as may be required to
be included in, the Registration Statement (including the Proxy Statement
included therein) or otherwise reasonably requested by Sensormatic, and take
such actions as may reasonably be requested by Sensormatic in connection with
the filing of the Registration Statement and any related "blue sky" filings and
in causing the same to become effective. In the event that more than 90 days
will have elapsed between the date of this Agreement and the mailing of the
Proxy Statement, or if otherwise required to effect the Registration of the
Sensormatic Common Stock pursuant to the Registration Statement, and if
requested by Sensormatic, the Company will request its financial advisor to
confirm in writing, for inclusion in the Proxy Statement, that nothing has come
to its attention that would cause it to withdraw or modify its financial
opinion in any material respect.
5.7 ACCOUNTANTS' LETTERS. Sensormatic and the Company shall each
use reasonable efforts to have their respective independent auditors deliver to
the other a letter, addressed to the other and dated a date within two business
days prior to the date that the Registration Statement becomes effective, in
form and substance reasonably acceptable to the other and customary in scope
and substance for letters delivered by independent public accountants in
connection with registration statements such as the Registration Statement.
5.8 STOCKHOLDERS' MEETING. The Company shall call a meeting of
the stockholders of the Company to be held within thirty days after the
effectiveness of the Registration Statement or such earlier or later date as
may be agreed upon by the Company and Sensormatic, for the purpose of voting
upon the adoption of this Agreement and in connection therewith shall furnish
the Proxy Statement to such stockholders in accordance with the proxy rules
under the Exchange Act and use its reasonable best efforts to cause them to
approve and adopt the Merger and this Agreement as required under Section 903
of the BCL; and the Board of Directors of the Company shall recommend to the
Company stockholders that they approve and adopt this Agreement.
5.9 NO SOLICITATION. The Company shall not, directly or
indirectly, through any officer, director, employee, agent or otherwise,
solicit or initiate the submission of proposals or offers from any person
relating to any acquisition, purchase or sale of all or a material amount of
the assets of, or any securities of, or any merger, consolidation or business
combination, liquidation, reorganization or similar transaction with, the
Company or any material Acquired Subsidiaries (an "Acquisition Transaction"),
or otherwise participate in such a proposal or offer. Notwithstanding the
foregoing, (i) the Company may furnish information concerning its business,
properties or assets which prior thereto had been furnished to Sensormatic to a
person or group that makes a bona fide inquiry or proposal concerning any
Acquisition Transaction, subject to a confidentiality agreement on terms
substantially the same as that entered into between Sensormatic and the
Company, and (ii) the Company may enter into discussions or negotiations with
any such person or group concerning any proposed Acquisition Transaction, if
the Board of Directors of the Company determines in good faith that (A) such
person or group has the ability to consummate an Acquisition Transaction that
is more favorable to the Company stockholders than the transactions
contemplated by this Agreement and (B) that providing such information or
entering into such discussions or negotiations will be in the best interests of
the Company and its stockholders. In addition, the Company shall be authorized
to explore potential transactions for the sale of the Knewco stock, provided
that such transactions and the negotiations of the Company with respect thereto
cannot reasonably be expected to impair or interfere with, or delay the
consummation of, the transactions contemplated by this Agreement. The Company
shall immediately advise Sensormatic of any inquiries or proposals relating to
an Acquisition Transaction, including without limitation any offer contemplated
by the
I-24
<PAGE> 148
following sentence, and of the commencement of any discussions or negotiations
concerning any proposed Acquisition Transaction. Subject to Section 11.6, the
Company may terminate this Agreement prior to the stockholder meeting
contemplated by Section 5.8 upon receipt of a firm written offer to consummate
such an Acquisition Transaction, if the Board of Directors of the Company has
determined in good faith that such termination is in the best interests of the
Company and its stockholders and, after receipt of the written opinion of
counsel to such effect, that their fiduciary duties require that this Agreement
be terminated. Nothing contained herein shall be construed to prohibit the
Company from taking and disclosing to its stockholders a position as
contemplated by Rule 14e-2 promulgated under the Exchange Act, or from making
such other disclosure to stockholders which, in the judgment of the Company, on
advice of counsel, may be required by law.
5.10 BOARD ACTIONS. The Board of Directors of the Company shall
take all possible action on its part (i) such that the Merger will not be
deemed a "Change in Control" for purposes of the Company's Plan for Severance
Compensation or any similar plan or agreement (other than the employment
agreements of Messrs. Nicolette and Abbott), and will not give rise to rights
to severance payments in the event of the termination of any employees of the
Company following the Merger pursuant to any such plans or agreements or
otherwise and (ii) to confirm that the Rights will not be triggered prior to
consummation of the Merger.
5.11 CERTAIN TAX MATTERS. In the event either the Company or
Sensormatic, in consultation with its tax counsel and the other party,
reasonably determines that the Company is not directly engaged in the active
conduct of a trade or business for purposes of Section 355(b) of the Code, the
Company will use its best efforts, in consultation with Sensormatic, to ensure
that, in the event the Divestiture is effected through the Knewco Stock
Distribution, the fair market value of the assets of the Company other than the
capital stock and securities of Acquired Subsidiaries that have actively
engaged during the five-year period ending on the Effective Time in a trade or
business within the meaning of Section 355(b) of the Code (as interpreted by
the Internal Revenue Service in its rulings guidelines, where applicable) shall
not exceed 10% of the gross fair market value of the Company's total assets
immediately following the effectiveness of the Divestiture.
6. CONDITIONS TO THE OBLIGATIONS OF SENSORMATIC. The obligations
of Sensormatic under Section 1 of this Agreement are subject to the
satisfaction, at or prior to the Effective Time, of the following conditions:
6.1 DUE PERFORMANCE; ACCURACY OF REPRESENTATIONS AND WARRANTIES.
The Company and Knewco shall have performed in all material respects all
obligations required by this Agreement to be performed by it at or prior to the
Effective Time. All representations and warranties of the Company set forth in
this Agreement shall be true and correct in all material respects. Sensormatic
shall have received a certificate executed by the chief executive officer and
the chief financial officer of each of the Company and Knewco, to the effect
set forth in this Section 6.1, with respect to the Company's and Knewco's
representations and warranties and due performance of and compliance with its
obligations and conditions.
6.2 CORPORATE ACTION. The Merger and this Agreement shall have
been approved and adopted by the vote required by Section 903 of the BCL.
Sensormatic shall have received copies, certified by the Secretary of the
Company, of the resolutions of (i) the Board of Directors of the Company
authorizing and approving the Merger and the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and (ii)
the requisite majority under applicable law of the stockholders of the Company
approving and adopting the this Agreement.
I-25
<PAGE> 149
6.3 AGREEMENTS.
(a) The Divestiture Agreement shall have been executed and
delivered by the Company and Knewco and the Divestiture shall have occurred in
all respects in accordance therewith.
(b) The Company and Knewco shall have executed and delivered the
Supply Agreement and the License Agreement.
6.4 RIGHTS. The Rights shall be extinguished in the Merger.
6.5 LEGAL OPINIONS.
(a) Sensormatic shall have received an opinion of Stroock &
Stroock & Lavan, counsel for the Company, dated the Effective Time, reasonably
satisfactory in form and substance to counsel for Sensormatic and covering the
matters set forth on Schedule 6.5.
(b) Sensormatic shall have received an opinion of Christy &
Viener, dated the Effective Time, to the effect that (i) the contribution of
assets (including the stock of Caribe) to Knewco (the "Contribution") and the
Divestiture will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a)(1)(D) of the Code; (ii) the Company will
recognize no gain or loss as a result of the Contribution; (iii) the Company
will recognize no gain or loss on the distribution of the Knewco stock to its
shareholders, as provided in Section 355(c) of the Code; (iv) the Merger will
be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a)(1)(A) of the Code; and (v) no gain or loss will be
recognized by Sensormatic or the Company as a result of the Merger (provided,
that clauses (i) through (iii) shall be applicable only in the event of a
Knewco Stock Distribution); provided, that delivery of the opinion contemplated
by this Section 6.5(b) shall not be a condition if substantial cash merger
consideration is payable by Sensormatic as contemplated by Section 1.11. In
rendering such opinion, Christy & Viener may receive and rely upon
representations contained in this Agreement and on letters or certificates of
Sensormatic, the Company, certain stockholders of the Company or others.
6.6 REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of any
stop order or proceedings seeking a stop order.
6.7 GOVERNMENTAL ACTION; NO PROHIBITION. The HSR Conditions shall
have been satisfied. No law, regulation, order, decree or injunction binding
on either of the parties shall then be in effect which would prevent
consummation of the Merger or make it illegal, which (i) could not be avoided
pursuant to Section 1.5(a), Section 8.3(b) and/or Section 10 and (ii) the
violation of which would have material adverse consequences to either party.
6.8 RESIGNATIONS. Sensormatic shall have received resignations of
such officers and directors of the Company and the Acquired Subsidiaries as
shall have been requested by Sensormatic.
7. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations
of the Company under Section 1 of this Agreement are subject to the
satisfaction, at or prior to the Effective Time, of the following conditions:
7.1 DUE PERFORMANCE; ACCURACY OF REPRESENTATIONS AND WARRANTIES.
Sensormatic shall have performed in all material respects all obligations
required by this Agreement to be performed by it at or prior to the Effective
Time. All representations and warranties of
I-26
<PAGE> 150
Sensormatic set forth in this Agreement shall be true and correct in all
material respects. The Company shall have received a certificate executed by
the chief executive officer and chief operating officer of Sensormatic to the
effect set forth in this Section 7.1 with respect to Sensormatic's
representations and warranties and due performance of and compliance with its
obligations and conditions.
7.2 CORPORATE ACTION. The Merger and this Agreement shall have
been approved and adopted by the vote required by Section 903 of the BCL. The
Company shall have received copies of the resolutions of the Boards of
Directors or Executive Committee of Sensormatic, certified by the Secretary of
Sensormatic, authorizing and approving the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
7.3 AGREEMENTS. Sensormatic shall have executed and delivered its
acknowledgement and acceptance, as of the Effective Time, of the Supply
Agreement and the License Agreement.
7.4 LEGAL OPINIONS.
(a) The Company shall have received an opinion of Christy &
Viener, counsel for Sensormatic, dated the Effective Time, reasonably
satisfactory in form and substance to counsel for the Company and covering the
matters set forth in Schedule 7.4.
(b) The Company shall have received an opinion of Stroock &
Stroock & Lavan, dated the Closing Date, to the effect that (i) the
Contribution and the Divestiture will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a)(1)(D) of the
Code; (ii) the Company will recognize no gain or loss as a result of the
Contribution; (iii) the Company will recognize no gain or loss on the
distribution of the Knewco stock to its shareholders, as provided in Section
355(c) of the Code; (iv) the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a)(1)(A) of the
Code; and (v) no gain or loss will be recognized by Sensormatic or the Company
as a result of the Merger (provided, that clauses (i) through (iii) shall be
applicable only in the event of a Knewco Stock Distribution); provided, that
delivery of the opinion contemplated by this Section 7.4(b) shall not be a
condition if substantial cash merger consideration is payable by Sensormatic as
contemplated by Section 1.11. In rendering such opinion, Stroock & Stroock &
Lavan may receive and rely upon representations contained in this Agreement and
on letters or certificates of Sensormatic, the Company, certain stockholders of
the Company or others.
7.5 REGISTRATION STATEMENT; NYSE LISTING.
(a) The Registration Statement shall have become effective under
the Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
(b) The Shares of Sensormatic Common Stock issuable to the Company
stockholders pursuant to the Merger shall have been approved for listing on the
New York Stock Exchange, subject to official notice of issuance.
7.6 GOVERNMENTAL ACTION; NO PROHIBITION. The HSR Conditions shall
have been satisfied. No law, regulation, order, decree or injunction binding
on either of the parties shall then be in effect which would prevent
consummation of the Merger or make it illegal, which (i) could not be avoided
pursuant to Section 1.5(a), Section 8.3(b) and/or Section 10 and (ii) the
violation of which would have material adverse consequences to either party.
I-27
<PAGE> 151
7.7 RELEASE OF LIEN. Arrangements satisfactory to the Company
shall have been made for the release of any bank Liens on the Divested Assets.
8. TERMINATION; AMENDMENT; WAIVER.
8.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time (a) by mutual written consent of the Company and
Sensormatic; (b) by either the Company or Sensormatic by written notice to the
other, if the transactions contemplated by this Agreement shall not have been
consummated on or before the 270th day after the date hereof, (c) by the
Company at any time after the 120th day following the date hereof, if the
Company determines in good faith, concurred in by its counsel and after
consultation with Sensormatic and Sensormatic's counsel, that the HSR
Conditions are unlikely to be satisfied, (d) by either the Company or
Sensormatic, by written notice to the other, if the Merger shall have been
voted upon by the stockholders of the Company at a meeting duly convened
therefor or any adjournment thereof and the vote shall not have been sufficient
to satisfy the applicable requirements of Section 903 of the BCL; (e) by the
Company, in accordance with Section 5.9; or (f) by Sensormatic, by two business
days' advance written notice to the Company, at any time after the 15th
business day following commencement by the Company or its representatives of
any discussions or negotiations, or receipt by the Company of any offer, with
respect to a potential Acquisition Transaction, if following commencement of
such discussions or negotiations, or receipt of such offer, the Company fails
or delays to timely and diligently carry out any of its obligations under
Section 5 (such as cooperating in preparing and making necessary filings,
supplying information requested by regulatory authorities, soliciting its
stockholders, holding its stockholders meeting or otherwise taking necessary
and appropriate steps to consummate the transactions contemplated hereby),
which failure or delay is attributable, in whole or in part, to the Company's
participation in such discussions or negotiations or consideration of such
offer, unless prior to the end of the two-business day notice period following
Sensormatic's giving of a notice of termination hereunder, the Company notifies
Sensormatic that such discussions or negotiations have been terminated and any
such offer has been withdrawn or rejected.
8.2 EFFECT OF TERMINATION; REPRESENTATIONS AND WARRANTIES. In the
event of termination of this Agreement in accordance with Section 8.1, no party
or parties hereto shall have any liability or further obligation to the other
party or parties to this Agreement and Plan of Merger, except as provided in
Section 11.6 and except that the foregoing shall not relieve any party of
liability for damages in the event of the breach by such party of its
obligations under this Agreement. No claim may be made by any party hereto
against any other party hereto or the affiliates, stockholders, directors,
officers, employees, counsel or agents of any of them for any damages arising
out of the breach or alleged breach of any representations and warranties
contained in this Agreement or in any certificate or other document delivered
pursuant to or in connection with this Agreement, and each party hereby waives,
releases and agrees not to sue upon any such claim for any such damages,
whether or not accrued and whether or not known or suspected to exist in its
favor.
8.3 AMENDMENT; EXTENSION; WAIVER.
(a) This Agreement (including the Exhibits hereto) may be amended by
the parties at any time before or after any required approval of matters
presented in connection with the Merger by the Company's stockholders, except
as precluded by the GCL or the BCL. Any such amendment shall be in writing
signed on behalf of each of the parties. At any time prior to the Effective
Time, either the Company or Sensormatic may (i) extend the time for the
performance of any of the obligations or other acts of the other party, (ii)
waive any inaccuracies in the representations and warranties of the other party
contained in this Agreement or in any document delivered pursuant to this
Agreement or (iii) waive compliance by the other party with any of the
agreements or conditions
I-28
<PAGE> 152
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in any instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
(b) Without limiting the provisions of Section 8.3(a), the form of
Divestiture Agreement attached hereto as Exhibit C, including the various
Exhibits, Annexes and Schedules thereto as of the date hereof (as initialed or
otherwise identified by the parties), reflects the various assets and
liabilities to be included in the Divestiture or retained by the Company as of
the date hereof. The parties acknowledge that, prior to the consummation of
the Merger, the facts and circumstances reflected in such form of Divestiture
Agreement, and/or such Exhibits, Annexes and Schedules, may change, possibly
necessitating changes on some or all of such items. The parties agree that any
revision of or amendment to the form of Divestiture Agreement (or the License
Agreement or Supply Agreement), or any Attachment, Schedule or other attachment
thereto, or the waiver of any provision thereof, shall require the consent of
Sensormatic and the Company in each instance, provided, that the parties agree
that if required to facilitate the consummation of the transactions
contemplated hereby, they will, subject to the following sentence, make
appropriate amendments to such agreements and, if applicable, a corresponding
adjustment in the Merger Consideration per Share as contemplated by Section
1.5(a). Notwithstanding the foregoing or Section 1.5(a), neither party shall
be required to make any such amendment which materially diminishes the benefit
of the transactions contemplated by this Agreement and the Additional
Agreements and which is not readily quantifiable for purposes of the adjustment
contemplated by Section 1.5(a).
9. FURTHER ASSURANCES. Whenever reasonably requested to do so by
Sensormatic at or after the Effective Time, the Company and the officers and
directors of the Company last in office at or prior to the Effective Time shall
do, execute, acknowledge and deliver all such acts, bills of sale, assignments,
confirmations, consents, other instruments of assignment, transfer and
conveyance, and any and all such further instruments and documents, in form
reasonably satisfactory to Sensormatic as shall be reasonably necessary or
advisable to carry out the intent of this Agreement and to vest in the
Surviving Corporation all the right, title and interest of the Company in and
to the Company's business and assets (subject to the Divestiture).
10. DELAYED TRANSFERS.
10.1 PENDING TRANSFERS.
(a) In the event that, prior to the Closing Date, any regulatory
authority in any jurisdiction outside the United States has commenced any
proceeding or investigation or issued an objection, or any other party has
commenced an action in any such jurisdiction, in respect of the transfer to
Sensormatic of the ownership (directly or through any Acquired Subsidiary) of
the capital stock of any Acquired Subsidiary ("Acquired Subsidiary Stock") or
any marketing rights and any other assets held by the Company or any such
Acquired Subsidiary in such jurisdiction ("Other Assets"), or other similar
circumstances exist which lead Sensormatic to determine, in its sole judgement,
that it is not advisable to proceed with the transfer of such ownership on the
Closing Date (any such proceeding, investigation, objection, action or
circumstances hereinafter referred to as a "Proceeding"; and any acquisition of
such Acquired Subsidiary Stock or Other Assets hereinafter referred to as a
"Pending Transfer"), then, upon the request of Sensormatic, the Company shall
transfer such Acquired Subsidiary Stock or Other Assets to Knewco in trust for
the Company (and for Sensormatic as successor to the Company in the Merger) in
connection with the Divestiture or otherwise or to an escrow agent or such
other party as shall be designated by Sensormatic to hold such Acquired
Subsidiary Stock and Other Assets in trust for the Company (and Sensormatic)
pending either their transfer to Sensormatic or their other disposition, as
hereafter
I-29
<PAGE> 153
provided in this Section 10.1 (Knewco or such escrow agent or other party, for
the purpose of this Section 10.1, being sometimes referred to as the "Agent"),
subject to the following provisions of this Section 10.1.
(b) Until a final disposition of such Acquired Subsidiary Stock or
Other Assets is effected pursuant to the provisions of this Section 10.1,
Knewco and the Agent, if any, shall cooperate with Sensormatic in establishing
any reasonable interim arrangements in compliance with applicable law in each
such jurisdiction (such as contracting, licensing or leasing) so as to provide
to Sensormatic, to the extent requested by Sensormatic, the economic benefits
that are to be derived from (i) the business of each Acquired Subsidiary that
is the subject of a Pending Transfer, and (ii) the Other Assets, and during
such period the Agent shall hold each such business, and all such Other Assets,
in trust, and such business shall be conducted, and such Other Assets shall be
utilized, to the greatest extent possible, for the account of Sensormatic, or
if Sensormatic is ultimately unable to successfully consummate such Pending
Transfer, for such party as Sensormatic shall designate.
(c) At such time as Sensormatic requests with respect to any such
Pending Transfer, the Agent shall transfer to Sensormatic either such Acquired
Subsidiary Stock or all of the Other Assets, to the greatest extent possible,
in any case without payment of additional consideration to Knewco.
(d) Upon the request of Sensormatic at any time and from time to
time, but in no event later than the first anniversary of the Effective Time,
the Agent shall promptly after any such request or such anniversary date sell
or otherwise dispose of (at Sensormatic's expense, and in the manner, on the
terms and to such party or parties, as shall be directed by Sensormatic) the
capital stock or the assets of any such Acquired Subsidiary and any Other
Assets as have not been transferred to Sensormatic pursuant to clause (iii) of
Section 10.1(a), and the Agent shall hold in trust, pending prompt transfer to
Sensormatic, any proceeds received from any such sale or disposition, net of
any tax liability that the Agent may have to bear in connection therewith. (Any
such proceeds retained for any tax liability of Knewco shall be transferred to
Knewco if held by an Agent other than Knewco.)
(e) Any expenses reasonably incurred by Knewco in connection with
the transactions contemplated by this Section 10.1 shall be borne by
Sensormatic.
(f) No reduction of the merger consideration shall be made as a
result of any matter referred to in this Section 10.1 or in Section 10.2, other
than as expressly set forth in Section 1.5(a)(3) and 10.2 with respect to
Escrowed Businesses having aggregate annual revenues exceeding $15,000,000.
10.2 PROHIBITED TRANSFERS.
(a) If on the Closing Date there shall be in effect a law,
regulation, order, decree or injunction binding on either of the parties (a
"Prohibition") which would prevent or make illegal the transfer of ownership
(directly or through any Acquired Subsidiary) of the stock or assets of any
Acquired Subsidiary ("Acquired Subsidiary Stock") to Sensormatic as
contemplated in this Agreement, then the Company shall transfer such Acquired
Subsidiary Stock (the "Escrowed Business") to an escrow agent designated by
Sensormatic and the Company (the "Escrow Agent") to hold such Escrowed Business
in trust for the Company or Sensormatic, or, if Sensormatic makes an election
under Section 10.2(d)(ii), for the Holders of Escrow Interests (as hereinafter
defined), as may be applicable, as hereinafter provided in this Section 10.2.
Until released, the Escrowed Businesses shall be managed by such qualified
management firm or person as Sensormatic shall
I-30
<PAGE> 154
designate, with the approval of Knewco (which approval shall not be
unreasonably withheld) or, if the parties agree, by Knewco.
(b) In the event that the Escrowed Businesses referred to above
are organized in countries for which there are Annual Revenues, in the
aggregate, exceeding $15,000,000, and in recognition of the effect thereof on
the value of the Company as a whole, the Exchange Value at the Effective Time
shall be adjusted as set forth in Section 1.5(a)(3) and such adjustment shall
be applicable to each Escrowed Business (and the respective country of its
organization) pro rata based on the respective Annual Revenues for such
country. In the event that the aggregate of such Annual Revenues is less than
$15,000,000, there will be no such adjustment of the Exchange Value or the
Merger Consideration per Share, all of which shall be distributed to the
Company shareholders at the Effective Time (and in such case the disposition of
the Escrowed Businesses shall be dealt with in the manner set forth in Section
10.1).
In the event that there has been an adjustment in the Exchange Value
as contemplated in this Section 10.2(b) and Section 1.5(a)(3), Sensormatic
shall deposit with the Escrow Agent, at the Effective Time, the number of
shares of Sensormatic Common Stock (registered in the name of the Escrow Agent)
and/or the amount of cash that would have been included in the Merger
Consideration per Share at the Effective Time with respect to all of the
Outstanding Shares, but was not so included by virtue of any adjustment made
pursuant to Section 1.5(a)(3) (in the aggregate, the "Deferred Merger
Consideration"). (Any dividends or share distributions payable on such
Sensormatic Common Stock during the escrow period shall be retained by the
Escrow Agent and dealt with in the same manner as the Sensormatic Common Stock
pursuant to paragraphs (c), (d) and (e) below and any cash held by the Escrow
Agent shall bear interest to be dealt with in the same manner as the cash on
which it accrued.)
(c) At such time as any Escrowed Business is able to be
transferred to Sensormatic, written notice of which shall be given to the
Escrow Agent, the Acquired Subsidiary Stock comprising such Escrowed Business
shall be delivered promptly to Sensormatic and the Deferred Merger
Consideration (including any dividends or other distributions and interest
relating thereto) applicable to such Escrowed Business shall be delivered as
soon as practicable to the holders of the Company Shares as of the time of the
Merger (or their permitted successors or assigns). (Such holders and their
permitted successors and assigns are referred to in this Section 10.2 as the
"Holders of Escrow Interests.")
(d) In the event that it is finally determined that any Escrowed
Business will not be transferred to Sensormatic, written notice of which shall
be given to the Escrow Agent, but in no event later than the first anniversary
of the Effective Time (unless such period is extended by agreement between
Knewco and Sensormatic, which agreement will not be unreasonably withheld), the
Escrow Agent shall act with respect to the Escrowed Business or Businesses and
the Deferred Merger Consideration as provided below, at the option of
Sensormatic:
(i) If so directed by Sensormatic, the Escrow Agent shall
(x) deliver the Deferred Merger Consideration (including dividends or
other distributions and interest relating thereto) relating to such
Escrowed Business or Businesses as soon as practicable to the Holders of
Escrow Interests, (y) sell or otherwise dispose of (at Sensormatic's
expense, and in the manner, on the terms and to such party or parties,
as shall be directed by Sensormatic) such Escrowed Business or
Businesses, and (z) deliver to Sensormatic the proceeds received from the
sale or other dispositions referred to in clause (x) above (and any tax
resulting from such sale or other disposition shall be borne by
Sensormatic); or
(ii) If not otherwise directed by Sensormatic pursuant to
clause (i) above, the Escrow Agent shall (x) deliver the Escrowed
Business or Businesses to Knewco on behalf
I-31
<PAGE> 155
of the Holders of Escrow Interests and (y) return to Sensormatic any
Sensormatic Common Stock (including any dividends or other distributions
relating thereto) and any cash (including any interest relating thereto)
which had been held by the Escrow Agent as Deferred Merger Consideration
relating to such Escrowed Business or Businesses.
(e) Notwithstanding anything to the contrary in this
Section 10.2, in the event that, at any time, there remain unreleased Escrowed
Businesses and Escrowed Businesses that have been disposed of under Section
10.2(d) which are organized in countries with Annual Revenues, in the
aggregate, of less than $15,000,000, written notice of which shall be given to
the Escrow Agent, then all Deferred Merger Consideration remaining (including
any dividends or other distributions or interest relating thereto) shall be
delivered as soon as practicable to the Holders of Escrow Interests.
Thereafter, the disposition of such remaining Escrowed Businesses shall be
dealt with in the manner set forth in Section 10.1.
10.3 COOPERATION. Knewco and Sensormatic shall use their
best efforts to have any Proceeding or Prohibition referred to in Sections 10.1
or 10.2 terminated, withdrawn or settled, and/or obtain a favorable approval,
consent, final judgment, order or decree in connection with such proceeding in
respect of and such Pending Transfer or Escrowed Business.
11. MISCELLANEOUS.
11.1 ENTIRE AGREEMENT. This Agreement, together with the
schedules hereto, the Disclosure Schedule and the exhibits thereto, and
together with the Divestiture Agreement, the Supply Agreement and the License
Agreement, sets forth the entire understanding of the parties with respect to
its subject matter, merges and supersedes all prior and contemporaneous
understandings of the parties hereto with respect to its subject matter, except
any confidentiality agreements executed by the Company and Sensormatic.
Failure of any party to enforce any provision of this Agreement shall not be
construed as a waiver of its rights under such or any other provision.
11.2 COMMUNICATIONS. All notices, consents and other
communications given under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when delivered by hand or by Federal Express
or a similar overnight courier to, (b) five days after being deposited in any
United States post office enclosed in a postage prepaid registered or certified
envelope addressed to, or (c) when successfully transmitted by telecopier (with
a confirming copy of such communication to be sent as provided in (a) or (b)
above) to, the party for whom intended, at the address or telecopier number for
such party set forth below, or to such other address or telecopier number as
may be furnished by such party by notice in the manner provided herein;
provided, however, that any notice of change of address or telecopier number
shall be effective only upon receipt.
If to Sensormatic:
Sensormatic Electronics Corporation
500 N.W. 12th Avenue
Deerfield Beach, Florida 33442
Attention: Corporate Counsel and Secretary
Facsimile No.: (305) 420-2561
and
Vice President of Corporate Development
Facsimile No.: (305) 420-2964
I-32
<PAGE> 156
With a copy to:
Christy & Viener
620 Fifth Avenue
New York, New York 10020
Attention: Jerome M. LeWine, Esq.
Facsimile No.: (212) 632-5555
If to the Company (prior to the Effective Time) or Knewco:
Knogo Corporation
350 Wireless Boulevard
Hauppauge, New York 11788
Attention: Thomas A. Nicolette
Facsimile No.: (516) 232-2812
With a copy to:
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004
Attention: David H. Kaufman
Facsimile No.: (212) 806-6006
11.3 NO ASSIGNMENT; SUCCESSORS AND ASSIGNS. This
Agreement shall be binding on, enforceable against and inure to the benefit of
the parties hereto and their respective successors and assigns, and nothing
herein is intended to confer any right, remedy or benefit upon any other
person. Neither the Company nor Knewco, on the one hand, nor Sensormatic, on
the other, may assign its rights or delegate its obligations under this
Agreement without the express written consent of Sensormatic or the Company, as
applicable.
11.4 PUBLIC ANNOUNCEMENTS. No public announcement or
disclosure with respect to this Agreement and the transactions contemplated
hereby shall be made for or on behalf of any party without prior consultation
with the other party.
11.5 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. None of the representations and warranties made by the Company,
Sensormatic or Knewco in this Agreement, the Disclosure Schedule or any
document or certificate delivered pursuant hereto shall survive the Effective
Time. This Section 11.5 shall not limit any covenant or agreement which by its
terms contemplates performance after the Effective Time.
11.6 EXPENSES.
(a) In the event the Merger occurs, Sensormatic shall bear
and pay all costs, expenses and fees incurred by the Company related to the
transactions contemplated herein (including a Knewco Stock Distribution but not
including a Knewco Sale), provided that such costs shall be reasonable for
transactions of this nature and Sensormatic shall be kept fully informed of
such costs periodically as incurred. Except as otherwise provided in this
Section 11.6, each party hereto shall bear its own costs and expenses in
connection with this Agreement and the transactions contemplated hereby.
(b) If this Agreement is terminated for any reason other than
any of the following: (i) a termination pursuant to clause (a), (d), (e) or (f)
of Section 8.1, (ii) a termination by Sensormatic,
I-33
<PAGE> 157
based on the Company's failure to satisfy Section 6.1 and as permitted under
Section 8.1(b), or (iii) as a result of the occurrence of a Designated Event
(as defined below); then Sensormatic shall pay to the Company within 30 days
after such termination an amount equal to $10,000,000.
(c) If this Agreement is terminated as a result of the
occurrence of a Designated Event, then Sensormatic shall pay to the Company
within 30 days after such termination an amount equal to $4,000,000. A
"Designated Event" shall mean any of the following: (i) the Company exercising
its right to terminate this Agreement pursuant to clause (c) of Section 8.1;
(ii) the U.S. Federal Trade Commission ("FTC") initiates any action or
proceeding to enjoin the consummation of the Merger and/or the Divestiture and,
notwithstanding the parties cooperating to the fullest extent and taking all
other actions to facilitate the merger transaction, the FTC will not terminate
such action or proceeding or allow the HSR Condition to be satisfied, and this
Agreement is terminated by either party pursuant to clause (b) of Section 8.1
while the foregoing continues to be the case; or (iii) the condition in the
second sentence of Section 6.7 or 7.6 is not satisfied and this Agreement is
terminated by either party pursuant to clause (b) of Section 8.1 while such
condition remains unsatisfied.
(d) If (i) this Agreement is terminated by the Company
pursuant to clause (e) of Section 8.1 or (ii) this Agreement is terminated by
Sensormatic, based on the Company's failure to satisfy Section 6.1 and as
permitted under clause (b) of Section 8.1, and an Acquisition Transaction is
consummated with a third party within 9 months of such termination, then the
Company shall pay to Sensormatic within 30 days after such termination (in the
case of clause (i)) or 30 days after such consummation (in the case of clause
(ii)) an amount equal to $4,000,000.
(e) In addition, if an Acquisition Transaction referred
to in Section 11.6(d) is consummated within 9 months after any termination
referred to in such Section, then the Company shall pay to Sensormatic within
30 days after such consummation the Excess Amount (as defined below). The
"Excess Amount" equals (i) 50% of the Excess Consideration (as defined below)
minus (ii) $4,000,000. The "Excess Consideration" shall equal (x) the
aggregate fair market value of the consideration received by the Company and/or
its shareholders as a result of an Acquisition Transaction consummated with a
third party minus (y) a sum equal to (A) the product of (I) $18.00 plus the
fair market value of a Knewco Share as of the date hereof determined based on
the assumption that the Knewco Share Distribution had been effected as of the
date hereof substantially in accordance with the terms of the Contribution and
Divestiture Agreement multiplied by (II) the sum of the number of Company
Shares outstanding on the date hereof and the number of Company Shares subject
to Company Options outstanding on the date hereof, minus (B) the aggregate
exercise price under the Company Options outstanding on the date hereof.
Unless otherwise agreed by the parties, the fair market value for purposes of
this Section 11.6(e) shall be determined as provided in Section 11.12. If such
Acquisition Transaction involves less than all or substantially all of the
outstanding capital stock or assets of the Company, the "aggregate fair market
value" of the consideration received by the Company and/or its shareholders in
such transaction (as referred to above in this Section 11.6(e)) shall be
increased to an amount equal to such consideration divided by the percentage of
such stock or assets of the Company acquired in such Acquisition Transaction
and multiplied by 100%.
11.7 ALTERNATE STRUCTURES. The parties may, by
mutual agreement prior to the vote of the Company's Stockholders referred to in
Section 5.8, revise the form of the transactions contemplated hereby. Without
limiting the foregoing, if the Company reasonably requests to effect the Knewco
Sale in the form of a sale of all or substantially all of the assets or other
form other than the sale of Knewco stock, the parties will cooperate to effect
such alternative form of transaction (and amend this Agreement and the
Additional Agreements accordingly), provided that the respective rights and
obligations of the Company, Sensormatic and Knewco (or a successor) under this
Agreement, the Additional Agreements and the transactions contemplated hereby
and thereby,
I-34
<PAGE> 158
as modified in order to accommodate such alternative transaction, shall be the
same in all substantive respects as those contemplated by this Agreement and
the Additional Agreements in the case of a Knewco Sale.
11.8 GOVERNING LAW; CONSENT TO JURISDICTION. This
Agreement shall in all respects be governed by and construed in accordance with
the laws of the State of New York. Each of the parties hereto expressly and
irrevocable submits to the non-exclusive personal jurisdiction of the United
States District Court, Southern District of New York and to the jurisdiction of
any other competent court of the State of New York in connection with all
disputes arising out of or in connection with this Agreement or the
transactions contemplated herein. Each party hereby waives the right to any
other jurisdiction or venue to which any of them may be entitled by reason of
its present or future domicile. The parties agree that service of process may
be made by U.S. registered mail, return receipt requested, to a party at its
address set forth in Section 11.2.
11.9 SAVINGS CLAUSE. If any provision of this
Agreement is held to be invalid or unenforceable by any court or tribunal of
competent jurisdiction, the remainder of this Agreement shall not be affected
thereby, and such provision shall be carried out as nearly as possible
according to its original terms and intent to eliminate such invalidity or
unenforceability.
11.10 COUNTERPARTS. This Agreement may be executed
in multiple counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
11.11 CONSTRUCTION. Headings contained in this
Agreement are for convenience only and shall not be used in the interpretation
of this Agreement. References herein to the Agreement shall be deemed to
include all Schedules (including the Disclosure Schedule) and Exhibits hereto,
and references herein to Sections, Schedules and Exhibits are to the sections,
schedules and exhibits of this Agreement. As used herein, the singular
includes the plural, and the masculine, feminine and neuter gender each
includes the others where the context so indicates.
11.12 VALUATION DISPUTES. Any dispute as to the
appropriate amount of any adjustment to the Merger Consideration per Share
and/or other adjustment or calculation contemplated by Section 1.5(a) shall be
resolved by the parties in consultation with their respective financial
advisors. If agreement cannot be reached on that basis, the respective
financial advisers of the parties shall appoint a mutually acceptable
investment banking firm to resolve such dispute as promptly as is practicable,
whose determination shall be binding.
I-35
<PAGE> 159
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first set forth above.
SENSORMATIC ELECTRONICS CORPORATION
By: /s/ RONALD G. ASSAF
---------------------------------
Ronald G. Assaf
Chairman of the Board and
President
KNOGO CORPORATION
By: /s/ THOMAS A. NICOLETTE
----------------------------------
Thomas A. Nicolette
President
KNOGO NORTH AMERICA INC.
By: /s/ THOMAS A. NICOLETTE
---------------------------------
Thomas A. Nicolette
President
I-36
<PAGE> 160
EXHIBIT A TO
MERGER AGREEMENT
[Form of Delaware Certificate of Merger]
CERTIFICATE OF MERGER
OF
SENSORMATIC ELECTRONICS CORPORATION
AND
KNOGO CORPORATION
The undersigned corporation, organized and existing under and
by virtue of the General Corporate Law of the State of Delaware,
DOES HEREBY CERTIFY THAT:
(1) The name and state of incorporation of each of
the constituent corporations (the "Constituent Corporations") are as follows:
(a) Sensormatic Electronics Corporation,
incorporated under the laws of the State of Delaware; and
(b) Knogo Corporation, incorporated under the
laws of the State of New York ("Knogo Corporation").
(2) An Agreement and Plan of Merger (the "Agreement
and Plan of Merger") has been approved, adopted, certified, executed and
acknowledged by each of the Constituent Corporations in accordance with the
provisions of Section 252 of the General Corporation Law of the State of
Delaware (and by Knogo Corporation in accordance with the laws of the State of
New York, its State of Incorporation).
(3) The surviving corporation is Sensormatic
Electronics Corporation (the "Surviving Corporation").
(4) The Certificate of Incorporation of Sensormatic
Electronics Corporation shall be the Certificate of Incorporation of the
Surviving Corporation.
(5) The executed Agreement and Plan of Merger is on
file at the principal place of business of the Surviving Corporation, the
address of which is as follows:
Sensormatic Electronics Corporation
500 N.W. 12th Avenue
Deerfield Beach, Florida 33442
(6) A copy of the Agreement and Plan of Merger will
be furnished by the Surviving Corporation, on request and without cost, to any
stockholder of the Constituent Corporations.
<PAGE> 161
(7) The authorized capital stock of Knogo Corporation
consists of: 20,000,000 shares of Common Stock, $.01 par value; 2,800,000
shares of Preferred Stock, $.01 par value; and 200,000 shares of Participating
Cumulative Preferred Shares Series A, $.01 par value.
Dated: , 1994
SENSORMATIC ELECTRONICS
CORPORATION
By:__________________________
Name:
Title:
Attest:
____________________________
Name:
Title:
-2-
<PAGE> 162
EXHIBIT B TO
MERGER AGREEMENT
[Form of New York Certificate of Merger]
CERTIFICATE OF MERGER
OF
KNOGO CORPORATION
AND
SENSORMATIC ELECTRONICS CORPORATION
INTO
SENSORMATIC ELECTRONICS CORPORATION
(Under Section 907 of the Business Corporation Law)
It is hereby certified, upon behalf of each of the constituent
corporations herein named, as follows:
FIRST: (a) The name of the domestic constituent
corporation is "Knogo Corporation" ("Knogo"). The date upon which
Knogo's certificate of incorporation was filed by the Department of
State of the State of New York is March 31, 1966.
(b) The name of the foreign constituent
corporation is "Sensormatic Electronics Corporation" ("Sensormatic",
and together with Knogo, the "Constituent Corporations"), which was
incorporated in the State of Delaware on May 27, 1968. An Application
for Authority in the State of New York of Sensormatic to transact
business as a foreign corporation therein was filed by the Department
of State of the State of New York on September 26, 1973.
SECOND: The Board of Directors of each of the Constituent
Corporations has adopted an Agreement and Plan of Merger (the "Agreement and
Plan of Merger") setting forth the terms and conditions of the merger of said
corporations (the "Merger"). Pursuant to the Merger, Knogo is being merged
into Sensormatic, and the surviving corporation shall be Sensormatic (the
"Surviving Corporation").
THIRD: As to each Constituent Corporation, the Agreement and
Plan of Merger sets forth the designation and number of outstanding shares of
each class and series, the specification of the classes and series entitled to
vote on the Agreement and Plan of Merger, and the specification of each class
and series entitled to vote as a class on the Agreement and Plan of Merger, as
follows:
Knogo Corporation
<TABLE>
<CAPTION>
Designation of each Number of outstanding Designation of class Classes and series entitled
outstanding class and shares of each class and series entitled to to vote as a class
series of shares vote
<S> <C> <C> <C>
Common Stock __________ N/A All shares vote
</TABLE>
<PAGE> 163
Sensormatic Electronics Corporation
<TABLE>
<CAPTION>
Designation of each Number of outstanding Designation of class Classes and series entitled
outstanding class and shares of each class and series entitled to to vote as a class
series of shares vote
<S> <C> <C> <C>
Common Stock __________ N/A All shares vote
</TABLE>
FOURTH: The Merger was authorized in respect of Knogo by the
vote of the holders of at least two-thirds of all outstanding shares of Knogo
entitled to vote on the Agreement and Plan of Merger under Knogo's certificate
of incorporation and by the class vote of the holders of at least a majority of
all outstanding shares of each class which are denied voting power under such
certificate of incorporation, but which are entitled to vote by class under
paragraph (a)(2) of Section 903 of the Business Corporation Law.
FIFTH: The Merger is permitted by the laws of the State of
Delaware, the jurisdiction of incorporation of Sensormatic, and Sensormatic is
in compliance with said laws.
SIXTH: The Surviving Corporation agrees that it may be served
with process in the State of New York in any action or special proceeding for
the enforcement of any liability or obligation of Knogo, for the enforcement of
any liability or obligation of Sensormatic for which Sensormatic is previously
amenable to suit in the State of New York, and for the enforcement, as provided
in the Business Corporation Law of the State of New York, of the right of
shareholders of Knogo to receive payment for their shares against Sensormatic.
SEVENTH: Sensormatic agrees that, subject to the provisions
of Section 623 of the Business Corporation Law of the State of New York, it
will promptly pay to the shareholders of Knogo the amount, if any, to which
they shall be entitled under the provisions of the Business Corporation Law of
the State of New York relating to the rights of shareholders to receive payment
for their shares.
EIGHTH: Sensormatic hereby designates the Secretary of State
of the State of New York as its agent upon whom process against it may be
served in the manner set forth in paragraph (b) of Section 306 of the Business
Corporation Law of the State of New York in any action or special proceeding.
The post office address without the State of New York to which the said
Secretary of State shall mail a copy of any process against Sensormatic served
upon him is:
Sensormatic Electronics Corporation
500 N.W. 12th Avenue
Deerfield Beach, Florida 33442
-2-
<PAGE> 164
IN WITNESS WHEREOF, we have subscribed this document [on the
date set forth below][on the date set forth opposite each of our names below]
and do hereby affirm, under the penalties of perjury, that the statements
contained therein have been examined by us and are true and correct.
Date: _______________, 19__.
<TABLE>
<S> <C>
_________________________________
Thomas A. Nicolette
[Chairman of the Board of Directors,]
President and Chief Executive Officer
Knogo Corporation
and
_________________________________
[Name]
[Secretary/Assistant Secretary]
Knogo Corporation
_________________________________
Ronald G. Assaf
Chairman of the Board of Directors,
President and Chief Executive Officer
Sensormatic Electronics Corporation
and
_________________________________
[Name]
[Secretary/Assistant Secretary]
Sensormatic Electronics Corporation
</TABLE>
-3-
<PAGE> 165
INDIVIDUAL
STATE OF )
) SS.:
COUNTY OF )
, being duly sworn, deposes and says that he
is one of the persons who signed the foregoing certificate of merger on behalf
of Sensormatic Electronics Corporation; that he signed said certificate in the
capacity set beneath his signature thereon; that he has read the foregoing
certificate and knows the contents thereof; and that the statements contained
therein are true to his own knowledge.
________________________________
[Name], [Capacity]
Subscribed and sworn to before
me on ________________, 1994.
______________________________
and
INDIVIDUAL
STATE OF )
) SS.:
COUNTY OF )
, being duly sworn, deposes and says that he
is one of the persons who signed the foregoing certificate of merger on behalf
of Knogo Corporation; that he signed said certificate in the capacity set
beneath his signature thereon; that he has read the foregoing certificate and
knows the contents thereof; and that the statements contained therein are true
to his own knowledge.
________________________________
[Name], [Capacity]
Subscribed and sworn to before
me on ________________, 1994.
______________________________
-4-
<PAGE> 166
EXHIBIT C TO
MERGER AGREEMENT
[Form of Contribution and Divestiture Agreement (See Annex II-A)]
<PAGE> 167
ANNEX II-A
(EXHIBIT C TO
MERGER AGREEMENT)
CONTRIBUTION AND DIVESTITURE AGREEMENT
CONTRIBUTION AND DIVESTITURE AGREEMENT dated as of _______
___, 1994, among KNOGO CORPORATION, a New York corporation (the "Company"), and
KNOGO NORTH AMERICA INC., a Delaware corporation and a wholly-owned subsidiary
of the Company ("Knewco").
W I T N E S S E T H:
WHEREAS, the Company is engaged principally in the business of
developing, manufacturing and marketing electronic article surveillance, closed
circuit television and other products to deter and detect shoplifting and
employee theft (the "Business"); and
WHEREAS, the parties hereto are parties to the Merger
Agreement, dated as of August 14, 1994 (the "Merger Agreement"), providing for
the merger (the "Merger") of the Company with and into Sensormatic Electronics
Corporation, a Delaware corporation ("Sensormatic"); and
WHEREAS, it is contemplated that prior to the Merger, the
Company shall contribute to Knewco certain of its assets used in the Business
in the fifty states of the United States, the District of Columbia, Canada and
Puerto Rico (the "Knewco Territory") and the goodwill and operations of the
Business in the Knewco Territory, and that Knewco shall assume certain of the
liabilities relating to such assets and operations, as more particularly set
forth below; and
WHEREAS, it is further contemplated that following such
contribution and prior to the Effective Time (as such term is defined in the
Merger Agreement), the Company will divest itself of the business of Knewco
either by distributing all of the shares of Common Stock, par value $.01 per
share, of Knewco (the "Knewco Common Stock") to its stockholders (the "Knewco
Stock Distribution") or selling all of the shares of Knewco Common Stock to a
third party (the "Knewco Sale"), or an alternative transaction as contemplated
in Section 11.7 of the Merger Agreement, in either case as contemplated in
Section 3 (the "Divestiture"), so that after the Divestiture, the Company will
own no shares of capital stock of Knewco;
WHEREAS, it is the intention of the parties that following the
Divestiture, the Company will retain its assets used in, and the goodwill and
operations of, the Business outside the Knewco Territory (the "Retained
Operations"), retain the rights and liabilities relating thereto and certain
other liabilities, and retain the worldwide rights to certain technology; and
WHEREAS, the parties intend that in the event of a Knewco
Stock Distribution, the transactions contemplated hereby qualify as a tax-free
reorganization and spin-off under Sections 368(a)(1)(D) and 355 of the Internal
Revenue Code of 1986, as amended;
NOW, THEREFORE, in consideration of the mutual agreements
contained herein and in the other agreements and instruments executed in
connection with this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
<PAGE> 168
1. CONTRIBUTION OF ASSETS.
1.1 CONTRIBUTION OF ASSETS. On the Divestiture Date (as
such term is defined in Section 2.1), subject to the terms and conditions of
this Agreement, the Company shall contribute, convey, assign, transfer and
deliver (collectively, "contribute") to Knewco all of the right, title and
interest of the Company in and to the business operations and related goodwill
of the Company in the Knewco Territory, and the Company's assets and properties
located in the Knewco Territory related to such Business operations, as more
particularly set forth below, subject to the exclusions set forth in Section
1.2 (the "Contributed Assets"). The Contributed Assets include the assets
reflected on the pro forma balance sheet of Knewco as of May 31, 1994 and the
schedules thereto, set forth as Annex A (the "May Pro Forma Balance Sheet"),
and include also assets acquired thereafter in the ordinary course of the
Business in the Knewco Territory and consistent with past practice, and in
accordance with the principles used to allocate assets for the purposes of the
Pro Forma Balance Sheet (the "Allocation Principles"), (as such assets shall be
reflected, as of the Divestiture Date, on the Divestiture Date Balance Sheet
(as defined in Section 7.6)), and are comprised of:
(a) real property owned in fee and leases, easements and
other rights and interests in real property owned by others, to the
extent located in the Knewco Territory, including without limitation
the facilities located in Hauppauge, New York, as set forth in
Schedule I (the "Contributed Realty");
(b) shares of all of the capital stock of Knogo Caribe
Inc. ("Caribe") (whose assets include the Cidra, Puerto Rico
manufacturing facility but will not include certain financial assets
to be transferred to the Company and/or its subsidiaries as described
in Section 1.6 (the "Caribe Financial Assets");
(c) machinery, equipment, plant, vehicles, office
furniture and equipment, computer hardware, tools, spare parts, other
chattels, fixtures and leasehold improvements located in the Knewco
Territory;
(d) inventories of raw materials, supplies,
work-in-process and finished goods located in the Knewco Territory, in
amounts appropriate to the operations of Knewco in the Knewco
Territory;
(e) accounts receivable arising from the operations of
the Business in the Knewco Territory, as listed or described on
Schedule II, which shall not include any accounts receivable due from
any subsidiaries of the Company (other than Caribe) (collectively, the
"Acquired Subsidiaries") or any accounts receivable from customers
outside the Knewco Territory or for products intended for use outside
the Knewco Territory;
(f) all purchase and other orders from, and agreements
with, customers relating to the sale, lease or maintenance of products
for use in the Knewco Territory;
(g) all other contracts, agreements, equipment leases,
licenses and other instruments relating to the operation of the
Business in the Knewco Territory, all material items of which are
listed or described on Schedule III (together with the orders and
agreements referred to in Section 1.1(f), the "Assigned Instruments);
(h) United States and Canadian patents, trademark and
trade name registrations, all applications therefor on the date
hereof, and other intellectual property of the Company,
II-A-2
<PAGE> 169
used or useful in the Business in the Knewco Territory, as
listed or described in Schedule IV, including without limitation the
right to file patents and patent applications in the Knewco Territory
corresponding to any of the patents and patent applications of the
Company outside the Knewco Territory, or with respect to any
intellectual property retained by the Company, and all of the
Company's right to use the "Knogo" name and the Company's other
trademarks and trade names in the Knewco Territory, and any rights or
licenses held by the Company with respect to the use in the Knewco
Territory of such intellectual property owned by others (pursuant to
which Knewco shall have the exclusive right in the Knewco Territory)
(including exclusivity as to the Company and Sensormatic or any person
claiming through either of them) to make or have made, use, market,
distribute, sell, lease, install, service and maintain the Company's
products and use the "Knogo" name and the Company's other trademarks
and trade names in the Knewco Territory (collectively, the
"Contributed Intellectual Property"), subject to certain rights
relating thereto as set forth in the License Agreement referred to in
Section 2.2(j);
(i) originals or true and complete copies of books and
records, including customer and supplier lists, employee records, tax
records, credit files, quotations and bids, and all sales literature
and specifications relevant to the operation of the Business in the
Knewco Territory;
(j) all material governmental licenses, authorizations,
consents and approvals required to carry on the Business in the Knewco
Territory as now conducted, to the extent transferable;
(k) cash and cash equivalents in an amount determined
pursuant to Section 1.5;
(l) prepaid expenses and deferred charges, as such
prepaid expenses are described on Schedule V; and
(m) the goodwill of the Business in the Knewco Territory,
all as the same exist on the date of this Agreement and shall exist on the
Divestiture Date, subject only to the disposition of any assets in the ordinary
course of business. No contract or agreement which is by law not assignable
without the consent of any party thereto shall be deemed assigned pursuant to
this Agreement unless and until such consent (or a waiver therefrom) is given.
The Company agrees to use its best efforts to obtain prior to the Divestiture
Date all such consents and waivers. If any such consent or waiver is not
obtained before the Divestiture Date and the Divestiture is nevertheless
consummated, the Company agrees to continue to use its best efforts to obtain
all such consents or waivers as have not been obtained prior to such date and
further agrees to cooperate with Knewco after such date in any reasonable
arrangement (such as subcontracting, sublicensing or subleasing) designed to
provide for Knewco, on terms no less favorable than the Company is entitled to,
the benefits under the applicable contract or agreement, including, without
limitation, enforcement, at the cost and for the benefit of Knewco, of any and
all rights of the Company against any other party thereto arising out of the
breach or cancellation thereof by such party otherwise.
Failure to specifically identify on applicable Schedules
hereto any assets, property or rights of the Company that are expressly
intended to be contributed to Knewco pursuant to this Agreement shall not
exclude such assets, property or rights from the Contributed Assets.
II-A-3
<PAGE> 170
1.2 EXCLUDED ASSETS. The Contributed Assets shall not
include, in addition to the Acquired Subsidiaries, any of the assets of the
Company used in or relating to the Business outside of the Knewco Territory,
including, without limitation, the goodwill of the Business outside of the
Knewco Territory (collectively, the "Retained Assets"). Without limiting the
foregoing, the Company shall in all events retain, and the Retained Assets
shall include, all patents, trademark and trade name registrations, all
applications therefor pending on the date hereof, and all other intellectual
property used or useful in the Business outside the Knewco Territory (pursuant
to which the Company shall have the exclusive right outside the Knewco
Territory (including exclusivity as to the Company and persons claiming through
the Company) to make or have made, use, market, distribute, sell, lease,
install, service or maintain the Company's products outside the Knewco
Territory), including without limitation (i) the right to apply for, receive
and own patents in any jurisdiction outside the Knewco Territory corresponding
to any of the patents and patent applications included in the patent rights in
the Knewco Territory or other intellectual property included in the Contributed
Assets, (ii) all know-how required for the manufacture or supply of the
products used in the operation of the Business outside of the Knewco Territory,
and (iii) the exclusive right to use the "Knogo" name and the Company's
trademarks and trade names outside of the Knewco Territory (collectively, the
"Retained Intellectual Property"), certain rights relating to which shall be
the subject of the License Agreement. The parties hereto acknowledge that they
will own in common certain know-how and technical information, which shall be
included in both the Contributed Intellectual Property and the Retained
Intellectual Property (the "Common Intellectual Property"). The Common
Intellectual Property shall be subject to the exclusive rights of Knewco inside
the Knewco Territory contemplated by Section 1.1(h) and the exclusive rights of
the Company outside the Knewco Territory contemplated by this Section 1.2, and
shall be further subject to the License Agreement.
1.3 ASSUMPTION OF LIABILITIES. In connection with the
contribution of the Contributed Assets, Knewco shall assume and agree to pay,
perform and discharge, as and when due, and shall hold the Company harmless
from, all of the liabilities (including contingent liabilities) and obligations
of the Company directly relating to (i) the employees who become employees of
Knewco in connection with the Divestiture, (ii) Knewco's customers (including
customers of the Company prior to the Divestiture Date) in the Knewco
Territory, (iii) the Company's products sold or leased to such customers or
(iv) the assets and properties of the Company located in the Knewco Territory
(the items referred to in clauses (i) through (iv) being sometimes referred to
herein as the "Knewco Related Items") arising prior to and following the
Divestiture Date, except as expressly excluded below (the "Assumed
Liabilities"), including:
(a) current liabilities reflected on the May Pro Forma
Balance Sheet or accrued following the date thereof by the Company in
connection with the Business in the Knewco Territory and in accordance
with the Allocation Principles;
(b) payroll liabilities to employees of the Company
located in the Knewco Territory who become employees of Knewco for
services rendered prior to the Divestiture Date, and benefit plan
obligations, liabilities for accrued vacation, sick and holiday time,
all other compensation due to such employees, and employment-related
claims or liability to such employees (Knewco shall not assume such
employment-related liabilities of employees of the Company who do not
become employed by Knewco);
(c) the Company's obligations under the Assigned
Instruments;
(d) any liability (including contingent liabilities) of
the Company with respect to any tort, product liability, general
liability or other claim directly relating to the Knewco Related
Items;
II-A-4
<PAGE> 171
(e) any liability under any laws concerning the disposal
or release of hazardous substances, public health and safety, or
pollution or protection of the environment arising out of or relating
to any of the Contributed Realty;
(f) all warranty obligations for products of the Company
sold or delivered in the Knewco Territory or for use in the Knewco
Territory;
(g) any liability of the Company for fines, penalties,
damages or other like amounts payable by the Company to any government
or governmental agency or instrumentality directly relating to the
Knewco Related Items;
(h) real property, personal property, sales and payroll
taxes of the Company directly relating to the Knewco Related Items;
and
(i) all other liabilities and obligations arising out of
the operation of the business of Knewco following the Divestiture
Date.
Such liabilities, subject to the exclusions set forth below, are referred to
collectively as the "Assumed Liabilities". In no event shall Knewco assume or
be deemed to have assumed any of the following debts, obligations, liabilities
or commitments of the Company:
(i) except as set forth in Section 1.3(h), any
liability for Taxes (as such term is defined in the Merger Agreement)
of the Company or any Acquired Subsidiary, and any Taxes imposed on
the Company or Caribe arising as a result of the transfer of the
Caribe Financial Assets as referred to in Section 1.6 or the
transactions contemplated by this Agreement (other than pursuant to a
Knewco Sale) or by the Merger Agreement;
(ii) any obligations of the Company to the banks
listed on Schedule VI (the "Banks") arising under their respective
loans to the Company listed on Schedule VI (the "Bank Loans");
(iii) except as provided in Section 1.3(b) and
Section 1.4, any liability to employees of the Company or to any of
the Company's employee benefit plans;
(iv) any liability of the Company or Knewco for
expenses reasonably incurred in negotiating, preparing or consummating
the Merger or the transactions contemplated in this Agreement
(including the Knewco Stock Distribution but not including the Knewco
Sale); or
(v) all other liabilities of the Company not
expressly assumed by Knewco as Assumed Liabilities.
Failure to specifically identify on applicable
Schedules hereto any liabilities or obligations of the Company that are
expressly intended to be assumed by Knewco pursuant to this Agreement shall not
exclude such liabilities or obligations from the Assumed Liabilities.
1.4 EMPLOYEE BENEFIT PLANS.
(a) On or before the Divestiture Date, Knewco
shall adopt the Company Retirement Savings 401K Plan, subject to such amendment
as Knewco deems appropriate.
(b) Knewco will assume the currently existing
severance and vacation benefit arrangements covering the Company employees who
became Knewco employees immediately after
II-A-5
<PAGE> 172
the Divestiture Date (each, a "Transferred Employee") and, for that purpose,
shall recognize service with the Company; provided, however, that in the event
any severance payments are made by the Company in accordance with Section
1.4(c), service with the Company shall not be recognized by Knewco for purposes
of the severance arrangements covering the recipients of such payments.
(c) The parties intend that, except as provided
below, no severance pay shall become payable as a result of the transfer of the
Transferred Employees to Knewco in connection with the consummation of the
transactions contemplated by this Agreement; however, in the event that any
severance pay shall become so payable, such severance pay shall be paid by the
Company. The Company shall remain liable for the termination payments under
the employment contracts of Robert Abbott, Arthur J. Minasy, and Thomas A.
Nicolette, provided in the case of Mr. Nicolette that he enters into an
agreement with the Company to the effect that for a two-year period (subject to
such payments being made to him) he will not compete with the Company other
than on behalf of Knewco in the Knewco Territory and to the extent Knewco is
permitted to hereunder.
(d) Knewco shall endeavor to establish as of or
promptly after the Divestiture Date medical, disability and life insurance
plans and other welfare benefits substantially comparable in the aggregate to
the corresponding insurance plans and welfare benefits maintained and/or
provided by the Company in favor of the Transferred Employees.
1.5 TARGET BOOK VALUE; ADJUSTMENTS. The net
worth of Knewco on the Divestiture Date shall equal $24,011,000.00, reduced by
the amount of any losses resulting from the Company's not conducting its
business in the Knewco Territory following the date hereof in the ordinary
course of business and consistent with past practices and policies, other than
the transactions contemplated by this Agreement and the Merger Agreement, or as
expressly consented to by Sensormatic (the "Target Book Value"). For purposes
of this Section 1.5 and Section 7.6, neither the Target Book Value nor the net
worth of the Company at the Divestiture Date shall reflect write-downs of the
Company's assets which write-downs are not reflected on the Pro Forma Balance
Sheet. For purposes of estimating the amount of cash and cash equivalents to
be contributed to Knewco for purposes of Section 1.1(k), the Company and Knewco
shall prepare an estimated balance sheet as of the Divestiture Date, reasonably
acceptable to Sensormatic, giving effect to the contribution by the Company to
Knewco of the Contributed Assets (the "Contribution") (the "Estimated Balance
Sheet"). The Estimated Balance Sheet shall be prepared in accordance with
generally accepted United States accounting principles consistently applied
("GAAP"), and the Allocation Principles, and shall be consistent with the May
Pro Forma Balance Sheet. Based on the Estimated Balance Sheet, the cash and
cash equivalents to be contributed to Knewco shall be increased or reduced in
order that the net worth of Knewco as reflected on the Estimated Balance Sheet
shall equal the Target Book Value. In addition to cash and cash equivalents,
other current assets may be reduced if required so that the net worth of Knewco
as reflected on the Estimated Balance Sheet will not exceed the Target Book
Value. Following the Divestiture Date, there shall be a final cash adjustment
as hereinafter set forth in Section 7.6.
1.6 TRANSFER OF CARIBE FINANCIAL ASSETS.
Immediately prior to the Contribution, Caribe shall transfer to the Company or
another subsidiary or subsidiaries certain cash, cash equivalents and any other
financial assets listed on Schedule VII.
1.7 ISSUANCE OF KNEWCO STOCK TO THE COMPANY. If
the Divestiture shall be effected by the Knewco Stock Distribution, Knewco
shall issue to the Company, contemporaneously with the contribution by the
Company to Knewco of the Contributed Assets and the assumption by Knewco of the
Assumed Liabilities, as contemplated in Sections 1.1 and 1.3, respectively,
such additional number of shares of Knewco Common Stock as may be required in
order for the Company to fulfill its obligations pursuant to Section 3.2 and
any additional shares required in connection with outstanding stock options of
the Company.
II-A-6
<PAGE> 173
1.8 PROCEEDS OF KNEWCO SALE. If the Divestiture shall be
effected by the Knewco Sale, the proceeds shall be retained by the Company
(except as contemplated in the Merger Agreement) and the Merger Consideration
per Share (as defined in the Merger Agreement) shall be increased in accordance
with the applicable provisions of the Merger Agreement.
2. CLOSING.
2.1 CLOSING; DIVESTITURE DATE. Subject to Section 11.1,
the closing of the transactions contemplated in this Agreement (the "Closing")
shall take place at such place and on such date (within three business days
after all of the conditions precedent set forth in Section 4 to be satisfied
prior to the Closing have been satisfied or waived) as shall be agreed upon by
the parties (the "Divestiture Date").
2.2 COMPANY DELIVERIES. At the Closing, the Company shall
execute and deliver to Knewco:
(a) an Instrument of Assignment substantially in the form
of Exhibit A hereto (the "Instrument of Assignment");
(b) bargain and sale deeds with respect to such of the
Contributed Realty as is owned in fee by the Company;
(c) assignments of the leases included in the Contributed
Realty;
(d) duly executed assignments of the United States and
Canadian patents and patent applications and trademarks listed on
Schedule IV;
(e) duly executed assignments of the Assigned Instruments;
(f) a written acknowledgement by Banks that hold any liens
(the "Bank Liens") on the Contributed Assets arising out of the Bank
Loans that such Bank Liens will be released upon consummation of the
Merger;
(g) if the Divestiture shall be effected by the Knewco
Stock Distribution, a duly executed Distribution Agency Agreement (the
"Distribution Agency Agreement") between the Company and transfer agent
(the "Distribution Agent") relating to the Knewco Stock Distribution;
(h) THE ESTIMATED BALANCE SHEET;
(i) cash and cash equivalents in an amount determined
pursuant to Section 1.5;
(j) a License Agreement substantially in the form of
Exhibit B hereto (the "License Agreement"); and
(k) a Supply Agreement substantially in the form of Exhibit
C hereto.
2.3 KNEWCO DELIVERIES. At the Closing, Knewco shall
execute and deliver to the Company:
(a) an Instrument of Assumption substantially in the form
of Exhibit D hereto (the "Instrument of Assumption");
II-A-7
<PAGE> 174
(b) in each case where Knewco is a party to any agreement
or instrument referred to in Section 2.2, a duly executed counterpart of
such agreement or instrument;
(c) if the Divestiture shall be effected by the Knewco
Stock Distribution, a certificate or certificates representing all of the
outstanding shares of common stock of Knewco, in the number determined in
accordance with Section 3.2(f), for delivery to the Distribution Agent for
distribution pursuant to the Distribution Agency Agreement; and
(d) if the Divestiture shall be effected by the Knewco
Sale, a copy of all of the closing documents to such transaction.
3. THE DIVESTITURE.
3.1 COOPERATION PRIOR TO THE DIVESTITURE. The Company
shall effect the Divestiture either through the Knewco Stock Distribution, as
contemplated in Section 3.2, or through the Knewco Sale, as contemplated in
Section 3.3. In either case, as promptly as practicable after the date hereof
and prior to the commencement of business on the Divestiture Date, the Company
and Knewco shall take all such action as may be necessary or appropriate to
effect the Divestiture through either of such transactions as determined by the
Company, including without limitation the specific actions set forth in Section
3.2 or Section 3.3, as applicable.
3.2 THE KNEWCO STOCK DISTRIBUTION.
(a) The Company and Knewco shall prepare, and Knewco shall
file with the Securities and Exchange Commission (the "SEC"), a
registration statement on Form 10 (the "Form 10") to effect the
registration of the Knewco Common Stock pursuant to the Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "Exchange Act"). The Company and Knewco shall
use reasonable efforts to cause the Form 10 to be declared effective under
the Exchange Act or, if the Company reasonably determines that the Knewco
Stock Distribution may not be effected without registering the Knewco
Common Stock pursuant to the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder (the "Securities Act"), the
Company shall use its best efforts to cause the Knewco Common Stock to be
registered pursuant to the Securities Act, and thereafter effect the
Knewco Stock Distribution in accordance with the terms of this Agreement,
including, without limitation, by preparing and filing on an appropriate
form a registration statement under the Securities Act covering the
Knewco Common Stock and using its best efforts to cause such registration
statement to be declared effective.
(b) The Company and Knewco shall cooperate in preparing,
filing with the SEC and causing to become effective any registration
statements or amendments thereto which are appropriate to reflect the
establishment of, or amendments to, any employee benefit and other plans
contemplated in this Agreement to be in effect for Knewco.
(c) The Company and Knewco shall take all such action as
may be necessary or appropriate under any applicable state securities or
"Blue Sky" laws or other applicable laws in connection with the
transactions contemplated in this Section 3.2.
(d) The Company and Knewco shall prepare, and Knewco shall
file and seek to make effective, an application to permit listing or
quotation of the Knewco Common Stock on ______________.
II-A-8
<PAGE> 175
(e) The Company's Board of Directors (or any duly appointed
committee thereof) shall in its sole discretion establish the record date
for the Knewco Stock Distribution (the "Distribution Record Date"), and the
Divestiture Date and any appropriate procedures in connection with the
Knewco Stock Distribution (subject in each case to the provisions of
applicable law); provided that in no event shall the Knewco Stock
Distribution occur prior to such time as (i) the Form 10 (or other
registration statement referred to in Section 3.2(a)) shall have been
declared effective by the SEC, (ii) the Knewco Common Stock shall have
been approved for listing or quotation in accordance with Section 3.2(d)
and (iii) the conditions set forth in Section 4 have been satisfied or
waived.
(f) Subject to Section 4, following the Distribution Record
Date, but prior to the Divestiture Date, the Company shall deliver to the
Distribution Agent one or more share certificates representing all of the
outstanding shares of Knewco Common Stock to be distributed in the Knewco
Stock Distribution and shall instruct the Distribution Agent to
distribute on the Divestiture Date one share of Knewco Common Stock for
each share of Common Stock, par value $.01 per share, of the Company, held
by holders of record of such stock on the Distribution Record Date.
Knewco agrees to provide all share certificates that the Distribution
Agent shall require in order to effect the Knewco Stock Distribution. All
shares of Knewco Common Stock issued in the Knewco Stock Distribution
shall be duly authorized, validly issued, fully paid, non-assessable and
free of preemptive rights.
(g) Immediately upon consummation of the Knewco Stock
Distribution, the Company shall not hold or beneficially own directly or
indirectly any shares of Knewco Common Stock.
3.3 KNEWCO SALE.
(a) Subject to the provisions of Section 5.9 of the Merger
Agreement, the Company's Board of Directors (or any duly appointed
committee thereof) shall in its sole discretion establish any appropriate
procedures in connection with the consideration and approval of proposals
to purchase Knewco pursuant to the Knewco Sale (subject in each case to
the provisions of applicable law) and shall approve a suitable agreement
of purchase and sale to effect such transaction with a third party
purchaser; however, any such agreement shall not commit the Company to any
liability for representations or warranties, or any indemnity or any other
obligations, to the purchaser of Knewco that survive the closing of such
transaction, other than Sensormatic's obligations under this Agreement,
in accordance with the terms hereof, and under the License Agreement and
the Supply Agreement, in accordance with their respective terms.
(b) The Company shall cause the purchaser under the Knewco
Sale to acknowledge and accept this Agreement as contemplated on the
signature page hereof.
(c) The Company and Knewco shall take all such action as
may be necessary or appropriate under any applicable federal securities
laws, state securities or "Blue Sky" laws, or other applicable laws in
connection with the transactions contemplated in this Section 3.3.
(d) Immediately upon the effectiveness of the Knewco Sale,
the Company shall not hold or beneficially own directly or indirectly any
equity interest in the Contributed Assets.
3.4 COMPANY APPROVAL OF CERTAIN KNEWCO ACTIONS. Unless
otherwise provided in this Agreement, the Company shall cooperate with Knewco
in effecting, and if so requested by
II-A-9
<PAGE> 176
Knewco the Company shall, as the sole stockholder of Knewco, ratify any actions
that are reasonably necessary or desirable to be taken by Knewco to effectuate,
prior to the Divestiture Date, the transactions contemplated in this Agreement
in a manner consistent with the terms of this Agreement, including, without
limitation, the following: (a) the preparation and approval of the Certificate
of Incorporation and By-laws of Knewco to be in effect at the Divestiture
Date; (b) the election or appointment of directors and officers of Knewco to
serve in such capacities commencing on the Divestiture Date; (c) the adoption,
preparation and implementation of appropriate plans, agreements and
arrangements for Knewco employees and Knewco non-employee directors (including,
without limitation, plans, agreements or arrangements pursuant to which
securities of Knewco would be acquired by employees); (d) the registration
under applicable securities laws of any securities of Knewco issued or
distributed pursuant to Section 3.2 and any securities issuable pursuant to
employee benefit plans as contemplated in clause (c) above; and (e) the
adoption of an appropriate purchase and sale agreement with a third party in
connection with a Knewco Sale.
3.5 TERMINATION OF CERTAIN CLAIMS.
(a) As of the effectiveness of the Divestiture, Knewco
shall have no claims against the Company based on any breach by the Company or
its affiliates of any obligations under this Agreement that occurred prior to
the effectiveness of the Divestiture, all of such claims being hereby
irrevocably waived and terminated as of such time of effectiveness; provided
that the foregoing shall not limit the Company's liability for any breach by
the Company or its affiliates of any obligation under this Agreement that
occurs following the effectiveness of the Divestiture, including, without
limitation, the Company's obligation to indemnify Knewco as set forth herein,
or under the License Agreement and the Supply Agreement.
(b) As of the effectiveness of the Divestiture, the Company
shall have no claims against Knewco based on any breach by Knewco or its
affiliates of any obligations under this Agreement that occurred prior to the
effectiveness of the Divestiture, all of such claims being hereby irrevocably
waived and terminated as of such time of effectiveness; provided that the
foregoing shall not limit Knewco's liability for any breach by Knewco or its
affiliates of any obligation under this Agreement that occurs following the
effectiveness of the Divestiture, including, without limitation, Knewco's
obligation to indemnify the Company as set forth herein, or under the License
Agreement and the Supply Agreement.
4. CONDITIONS.
4.1 GENERAL CONDITION. The respective obligations of each
party hereto to consummate the Divestiture and to perform all other obligations
set forth herein is subject to the satisfaction or waiver (as provided for
therein) of all of the conditions set forth in Section 6 and Section 7 of the
Merger Agreement (other than the Divestiture and the conditions set forth in
Sections 6.8 and 7.7 of the Merger Agreement).
4.2 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to consummate the Divestiture and to perform all
other obligations set forth herein is subject to the satisfaction of the
condition that Knewco shall have effected its assumption of the Assumed
Liabilities, as contemplated in Section 1.3.
4.3 CONDITIONS TO THE OBLIGATIONS OF KNEWCO. The
obligations of Knewco to consummate the transactions contemplated herein and to
perform all other obligations set forth herein is subject to the satisfaction
or waiver of the conditions that (a) the Company shall have contributed to
Knewco the Contributed Assets, as contemplated in Section 1.1, and (b) the
Company shall have obtained an acknowledgement from the Banks with respect to
the release of the Bank Liens, as contemplated in Section 2.2(f).
II-A-10
<PAGE> 177
5. ACTS AND INSTRUMENTS OF TRANSFER.
5.1 ACTS AND INSTRUMENTS. Whenever reasonably requested to
do so by Knewco, on or after the Divestiture Date, the Company shall do,
execute, acknowledge and deliver all such acts, bills of sale, assignments,
confirmations, consents, other instruments of assignment, transfer and
conveyance, and any and all such further instruments and documents, in form
reasonably satisfactory to Knewco and its counsel, as shall be reasonably
necessary or advisable to carry out the intent of this Agreement and to vest in
Knewco all the right, title and interest of the Company in and to the
Contributed Assets. The Company shall take such steps as may be required to
put Knewco in actual possession and control of the Contributed Assets as of the
time of Closing.
5.2 AUTHORIZATION TO KNEWCO. Without limiting in any
respect the right, title and interest in and to the Contributed Assets to be
acquired by Knewco hereunder, effective upon the Closing, the Company hereby
irrevocably authorizes Knewco, and its successors and assigns: to demand and
receive, from time to time, any and all of the Contributed Assets, to give
receipts and releases for or in respect of the same, to collect, assert or
enforce any claim, right or title of any kind therein or thereto and, for such
purpose, from time to time, to institute and prosecute in the name of the
Company, or otherwise, any and all proceedings at law, in equity or otherwise,
which Knewco shall deem expedient or desirable. The Company further agrees
that Knewco shall retain for its own account any amounts collected pursuant to
the foregoing authorization, and the Company agrees to pay to Knewco, if and
when received, any amounts which shall be received by the Company after the
Divestiture Date in respect of any acquired Contributed Assets.
6. CORRESPONDENCE AND RECORDS.
6.1 CORRESPONDENCE. The Company hereby authorizes Knewco,
on and after the Divestiture Date, to receive and open mail addressed to the
Company and to deal with the contents thereof in a responsible manner, provided
that such mail relates (or reasonably appears to relate) to the Business in the
Knewco Territory, the Contributed Assets or the Assumed Liabilities, but Knewco
shall deliver to the Company all other mail addressed to the Company which is
delivered to and received by it.
6.2 REFERRAL OF ORDERS. For a period of five years
beginning on the Divestiture Date, (i) Knewco agrees to use reasonable efforts
to refer to Sensormatic all orders and inquiries with respect to any products
related to the Business for use outside of the Knewco Territory, and (ii)
Sensormatic agrees to use reasonable efforts to refer to Knewco all orders and
inquiries specifically referring to any products acquired with the Business and
marketed or manufactured by Knewco following the Divestiture Date for delivery,
or expressly intended for use, in the Knewco Territory ("Knewco Products"),
with the exception of SuperStrip products; provided, however, that nothing in
this Agreement shall prohibit or in any way limit Sensormatic from marketing,
selling, leasing or in any other way dealing in any products competitive with
any of the Knewco Products anywhere in the world, including the Knewco
Territory.
6.3 RECORDS. Knewco shall have the right to examine, use
and make excerpts from any corporate minute books, books of account and other
records and documents which are not included in the Contributed Assets, or
connected with or relating to any of the Assumed Liabilities pursuant to this
Agreement, and the Company shall not destroy any such books or records without
Knewco's consent for seven years following the date of this Agreement. The
Company shall have the right to examine, use and make excerpts from any books
of account and other records and documents which are transferred to Knewco
pursuant to this Agreement for any purpose connected with or relating to any
event occurring prior to the Divestiture Date, and Knewco shall not destroy any
such books or records without the Company's consent for seven years following
the date of this Agreement.
II-A-11
<PAGE> 178
7. OTHER AGREEMENTS.
7.1 RELEASE OF BANK LIENS. The Company will obtain the
release of Contributed Assets from the Bank Liens, following consummation of
the Merger.
7.2 FURTHER ASSURANCES. In addition to the actions
specifically provided for elsewhere in this Agreement, each of the parties
hereto shall use its best efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, all things, reasonably necessary, proper or
advisable under applicable laws, regulations and agreements to consummate and
make effective the transactions contemplated in this Agreement, including,
without limitation, using its best efforts to obtain the consents and approvals
to enter into any amendatory agreements and to make the filings and
applications necessary or desirable to have been obtained, entered into or made
in order to consummate the transactions contemplated in this Agreement.
Without limiting the foregoing, Knewco shall provide such cooperation and
assistance (and that of its appropriate employees, if needed) as is reasonably
requested by Sensormatic, and at Sensormatic's expense, to file and prosecute
patent applications corresponding to any of the Retained Intellectual Property
in any jurisdiction outside of the Knewco Territory, and to maintain any
resulting patents in effect, including, without limitation, execution of any
such patent applications and related documents and pleadings, and the giving of
testimony.
7.3 TRANSITION SERVICES. Following the Divestiture Date
for a period of up to six months, Knewco will continue to provide to the
Company and its subsidiaries, and their respective successors and assigns (each
a "Knogo Entity"), as any such Knogo Entity shall request, any or all
administrative services or functions, such as data processing, tax, accounting,
insurance, personnel, employee benefits and communications (collectively,
"Services") currently being provided by the Company and its subsidiaries (other
than Knewco and its subsidiaries), in connection with the Business outside of
the Knewco Territory, except that each Knogo Entity shall have the right to not
accept any Services. During such period and thereafter as reasonably requested
by Sensormatic, Knewco will provide the services of its appropriate personnel
in connection with the preparation of any tax filings of the Company or
Sensormatic and Sensormatic's year-end audit. Any of such Services shall be
provided on a reasonable cost basis and such cost basis shall be documented by
Knewco at the request of Sensormatic. Any Knogo Entity may terminate any
Services at any time upon 10 days prior written notice to Knewco. At the
request of Knewco, any Knogo Entity will enter into an agreement satisfactory
to Knewco, Sensormatic and such Knogo Entity with respect to the provision of
any Services that such Knogo Entity may request.
without repeating each and every allegation contained in the complaint.
7.4 PERSONS TO BE EMPLOYED BY KNEWCO. Knewco shall extend
an offer of employment to each of the persons listed in Schedule VIII, each
currently an employee of the Company, consisting of approximately 200 people,
commencing on the Divestiture Date and in the capacity set forth on such
Schedule opposite such person's name or a comparable capacity.
7.5 INSURANCE.
(a) Knewco will endeavor to procure insurance having terms,
conditions, exclusions and limitations substantially equivalent to the
insurance coverages currently maintained by the Company with respect to the
property and Business in the Knewco Territory and providing coverage with
respect to the property, business and operations of Knewco on and after the
Divestiture Date and with respect to any liabilities of Knewco caused by or
arising out of occurrences or events taking place on or after the Divestiture
Date.
II-A-12
<PAGE> 179
(b) On or before the Divestiture Date the parties shall
arrange for Knewco to be protected, whether by means of liability insurance
coverage having terms, conditions, exclusions and limitations substantially
equivalent to the liability insurance coverage currently maintained by the
Company with respect to the property and Business in the Knewco Territory or
by other means, with respect to any liabilities of Knewco caused by or arising
out of occurrences or events taking place prior to the Divestiture Date;
provided that (i) the cost of such protection shall be reasonable and shall be
for the Company's account and (ii) the Company and Knewco shall consult with
each other and their respective insurance brokers in order to identify the
most cost-effective means of maintaining the level of insurance previously
maintained by the Company in the most cost-effective manner (possibly including
each other as named insureds under their respective policies).
7.6 POST-CLOSING ADJUSTMENT.
(a) As promptly as practicable after the Divestiture Date
and in any event within 45 days thereafter, Knewco shall prepare (with
Sensormatic's cooperation, as appropriate) its final balance sheet at the
Divestiture Date (the "Divestiture Date Balance Sheet"). The Divestiture
Date Balance Sheet, which shall be prepared in accordance with GAAP and the
Allocation Principles, and consistent with the Estimated Balance Sheet,
shall reflect, among other things, the net worth of Knewco at the
Divestiture Date after giving effect to the Contribution (but without
giving effect to any write-downs described in Section 1.5). If
Sensormatic and Knewco are in agreement as to the net worth of Knewco, as
reflected on the Divestiture Date Balance Sheet, such net worth shall have
been finally determined in accordance with this Section 7.6 and,
accordingly, either Sensormatic or Knewco shall promptly pay to the other
the cash payment, if any, required pursuant to Section 7.6(e). If
Sensormatic and Knewco are not in agreement on such net worth, they shall
promptly thereafter jointly instruct Deloitte & Touche ("Deloitte") to
conduct an audit or, if agreed to by the parties, a review of the
Divestiture Date Balance Sheet (the "Examination"). The purpose of the
Examination shall be to determine the net worth of Knewco at the
Divestiture Date after giving effect to the Contribution and the amount of
any adjustment in the amount of cash or cash equivalents contributed to
Knewco pursuant to this Section 7.6.
(b) Sensormatic and Knewco shall jointly instruct Deloitte
to complete the Examination within 30 days after the receipt of the
Divestiture Date Balance Sheet as prepared by Knewco and to render its
report thereon (the "Report") to Knewco and Sensormatic within such
period. The Report shall include, among other things, Deloitte's
calculation of the net worth of Knewco as reflected on the Divestiture
Date Balance Sheet. Sensormatic and Knewco shall jointly instruct
Deloitte to make its work papers with respect to the Examination and the
Report available to Knewco and its advisers and to Sensormatic, Ernst &
Young and Sensormatic's other advisers.
(c) The content and conclusions of the Report shall be
conclusive and binding on Sensormatic and Knewco unless either one notifies
the other and Deloitte that it disputes the Report within 30 days after
Deloitte's delivery of the Report to it. If either Sensormatic or Knewco
timely disputes the Report, they shall promptly attempt to resolve any
differences between them with respect to the Report. If they are unable
to do so within 30 days after the date of the notice of dispute, either
Sensormatic or Knewco or both of them jointly may submit the dispute to
Price Waterhouse or, if they are unable or unwilling to act, such other
"Big Six" public accounting firm as may be selected by the American
Arbitration Association (the "Second Auditor") for resolution. The Second
Auditor shall provide Sensormatic and Knewco with the opportunity to
present their respective positions with respect to the dispute. The
determination of the Second Auditor shall be conclusion and binding on
Sensormatic and Knewco, except in the event of manifest error. In making
such determination, the Second Auditor shall be deemed to act as an
expert and not as an arbitrator.
II-A-13
<PAGE> 180
(d) The charges of Deloitte in the conduct of the
Examination and the preparation of the Report shall be borne by
Sensormatic. The charges of the Second Auditor shall be borne by
Sensormatic and Knewco in the proportions determined by the Second
Auditor on the basis that each party shall bear the cost of the Second
Auditor's services which relate to the amount of the disputed items that
are resolved against it. Such determination by the Second Auditor shall
be binding on Sensormatic and Knewco. Sensormatic and Knewco shall
cooperate with Deloitte and the Second Auditor in the conduct of the
Examination, the preparation of the Report and any resolution of any
dispute with respect thereto by the Second Auditor.
(e) After the net worth of Knewco as reflected on the
Divestiture Date Balance Sheet has been finally determined in accordance
with this Section 7.6, (i) if such net worth exceeds the Target Book
Value, Knewco shall promptly make a cash payment to Sensormatic in the
amount of such excess, or (ii) if the Target Book Value exceeds such net
worth, Sensormatic shall promptly make a cash payment to Knewco in the
amount of such excess.
7.7 DELAYED TRANSFERS UNDER MERGER AGREEMENT. In the event
that any Acquired Subsidiary (as defined in the Merger Agreement) is managed by
Knewco on an interim basis, or is ultimately transferred to Knewco by the
Escrow Agent pursuant to Section 10.2 of the Merger Agreement, the parties
agree that any such Acquired Subsidiary shall be deemed to be covered by this
Agreement as if it were a subsidiary of Knewco, and that the Knewco Territory,
non-competition and other provisions of this Agreement shall be modified by the
parties as may be necessary to equitably adjust their respective rights and
obligations hereunder in order to enable Knewco to operate the business of any
such Acquired Subsidiary. Knewco shall abide by Section 5.1 of the Merger
Agreement with respect to any such Acquired Subsidiary, unless and until
transferred to Knewco thereunder.
8. NO WARRANTY. Except as set forth in Section 1.5 and
Section 7.1, the Company does not, in this Agreement or any other agreement,
instrument or document contemplated in this Agreement or the Merger Agreement,
make any representation or warranty, or (except as expressly set forth herein)
any covenant or agreement, with respect to:
(a) the value of any asset or thing of value to be
transferred to Knewco;
(b) the freedom from encumbrance of any asset or thing of
value to be transferred to Knewco;
(c) the absence of defenses or freedom from counterclaims
with respect to any claim, including accounts receivable, to be
transferred to Knewco; or
(d) the legal sufficiency of any assignment, document or
instrument delivered hereunder to convey title to any asset or thing of
value upon its execution, delivery and filing.
All assets to be transferred to Knewco shall be transferred "AS IS, WHERE IS"
and Knewco shall bear the economic and legal risk that any conveyance shall
prove to be insufficient to vest in Knewco good and marketable title, free and
clear of any lien, claim, equity or other encumbrance, provided that Knewco
shall in any event receive all of the Company's right, title and interest
therein.
II-A-14
<PAGE> 181
9. INDEMNIFICATION.
9.1 INDEMNIFICATION OF KNEWCO. The Company and Sensormatic
(as successor to the Company following the Merger) jointly and severally shall
indemnify, defend and hold harmless Knewco from and against any loss, damage,
liability or expense (including any related costs and expenses referred to in
Section 9.3) (collectively "Damages") (i) arising out or connected with any
breach of any covenant of the Company contained in this Agreement, (ii) arising
out of or in connection with any matter relating to the Business (other than
related to the Assumed Liabilities), or (iii) arising out of or in connection
with any matter which is specifically set forth in Schedule IX.
Without limiting the generality of the foregoing, the Company
and Sensormatic shall indemnify, defend and hold harmless Knewco, each
director, officer, employee, and agent of Knewco, and each person, if any, who
controls Knewco, within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, and each of the heirs, executors, successors
and assigns of any of the foregoing, from and against any and all Damages
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact contained anywhere in the proxy statement (the "Proxy
Statement") pursuant to which the Board of Directors of the Company shall
solicit proxies to be voted for the approval of the Merger and which shall also
set forth appropriate financial and other disclosure concerning the
Divestiture, Knewco, the Business, and certain other matters, and the
Registration Statement of which it forms a part (the "Registration Statement"),
but not as to any Knogo Information (as hereinafter defined) included in the
Proxy Statement or Registration Statement), or the omission or alleged omission
to state anywhere in the Proxy Statement or the Registration Statement (other
than in the Knogo Information) a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
Knewco shall give the Company and Sensormatic prompt notice of
any claim, action, suit or proceeding which Knewco believes might give rise to
indemnification under this Section 9.1.
9.2 INDEMNIFICATION OF THE COMPANY AND SENSORMATIC. Knewco
shall indemnify, defend and hold harmless the Company and Sensormatic from and
against any Damages (i) arising out or connected with any breach of any
covenant of Knewco contained in this Agreement, (ii) arising out of or in
connection with any Assumed Liabilities, (iii) arising out of or in connection
with the Divestiture (except with respect to liabilities or obligations of the
Company or Sensormatic hereunder), or (iv) arising out of or in connection with
any matter which is specifically set forth in Schedule X.
Knewco shall indemnify, defend and hold harmless the Company
and Sensormatic, each of their respective subsidiaries, each director, officer,
employee and agent of each of the Company and Sensormatic or any of their
respective subsidiaries, and each person, if any, who controls the Company and
Sensormatic or any of their respective subsidiaries within the meaning of
Section 15 of the Securities Act or Section 20(a) of the Exchange Act, and each
of the heirs, executors, successors and assigns of any of the foregoing, from
and against any and all Damages arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
portion of the Proxy Statement or the Registration Statement supplied by, or
based on information supplied by, the Company or Knewco, or any Form 10 (or
other registration statement referred to in Section 3.2(a)) of Knewco (the
"Knogo Information"), or the omission or alleged omission to state in the Knogo
Information a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they
were made, not misleading.
9.3 RELATED COSTS AND EXPENSES. Each indemnifying party
hereto (the "Indemnitor") shall, in addition to such Indemnitor's obligations
under Section 9.1 or 9.2, as
II-A-15
<PAGE> 182
applicable, indemnify and hold harmless the indemnified party hereto (the
"Indemnitee") from, against and in respect of any and all actions, suits,
proceedings, demands, assessments, judgments, settlements, costs (including
reasonable attorneys' fees and disbursements) and legal and other expenses
incurred by the Indemnitee as a result of any matter as to which the
Indemnitee is entitled to indemnification under such Sections, or in defending
any allegations or claims which, if true, would give rise to Damages subject to
indemnification thereunder, or incident to the enforcement by the Indemnitee
of this Section 9 (provided the Indemnitee prevails in such action for
enforcement).
9.4 PROCEDURES FOR ASSERTING CLAIMS, ETC. All claims for
indemnification under this Section 9 shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which an
Indemnitee would be entitled to indemnification pursuant to this Section 9 is
asserted against an Indemnitee or sought to be collected from an Indemnitee by
a third party, the Indemnitee shall give the Indemnitor timely notice (to the
extent practicable), specifying the nature of such claims or demand and the
amount or the estimated amount thereof to the extent then feasible (which
estimate shall not be conclusive of the final amount of such claim or demand)
(the "Claim Notice"). For purposes of this Section 9.4(a), in the event that
any such claim is asserted directly against any Indemnitor, a Claim Notice
shall be deemed to have been given with respect to such claim by the
Indemnitee, and the Indemnitor shall promptly notify the Indemnitee of such
claim and of the Indemnitor's response under this Section 9.4(a). The
Indemnitor shall have 10 business days from receipt of the Claim Notice (the
"Notice Period") to notify the Indemnitee (i) whether or not it acknowledges in
full its liability to the Indemnitee hereunder with respect to such claim or
demand, and (ii) if the Indemnitor acknowledges such liability, whether or not
it desires, at its sole cost and expense, to defend the Indemnitee against such
claim or demand. In the event that the Indemnitor notifies the Indemnitee
within the Notice Period (and not thereafter) that it acknowledges in full such
liability and desires to defend against such claim or demand, then except as
hereinafter provided, the Indemnitor shall have the right to defend the claim
using counsel reasonably satisfactory to the Indemnitee; provided, however,
that such Indemnitee shall in any event have the right to defend any claim with
respect to which an adverse outcome could have a material adverse effect on its
business, condition (financial or otherwise) or results of operations. The
Indemnitee shall also have the right to control the defense of any claim as to
which the Indemnitor does not timely acknowledge liability in full, or as to
which it does not timely notify the Indemnitee of its desire to defend. The
party not entitled to defend may participate in, but not control, any such
defense at its sole cost and expense.
(b) No settlement or compromise of any such claim or
demand, or any related action, suit or proceeding, shall be made without the
prior consent of the Indemnitor and the Indemnitee, which consent shall not be
unreasonably withheld by either of them.
(c) In the event that an Indemnitee should have a claim
against an Indemnitor hereunder which does not involve a claim or demand being
asserted against or sought to be collected from it by a third party, such
Indemnitee shall promptly send a Claim Notice with respect to such claim to the
Indemnitor.
10. NON-COMPETITION AND CONFIDENTIALITY.
(a) Knewco agrees that, for a period of five years after
the Divestiture Date, it shall not, anywhere in France, Germany, Spain, the
United Kingdom, Belgium, The Netherlands or Italy, elsewhere in Europe or
elsewhere in the world outside the Knewco Territory (or for such lesser area or
such lesser period as may be determined by a court of competent jurisdiction to
be a reasonable limitation on the competitive activity of Knewco), directly or
indirectly:
II-A-16
<PAGE> 183
(i) market, distribute, sell, lease, install,
service or maintain any electronic article surveillance systems, including
re-usable tags, disposable labels and accessory products used in such
systems, closed circuit television systems and products, and other
products to deter and detect shoplifting and employee theft (collectively,
"Loss Prevention Products") manufactured, marketed, sold or leased by the
Company prior to the Divestiture Date, or any improvements or successors
thereto (or license any Contributed Intellectual Property);
(ii) otherwise engage in the business of or
activities relating to manufacturing, marketing, distributing, selling,
leasing, servicing or maintaining, or licensing, any Loss Prevention
Products whatsoever;
(iii) solicit or attempt to solicit business of any
customers of the Company or any Acquired Subsidiary (including prospective
customers solicited by the Company or any Acquired Subsidiary) for Loss
Prevention Products or related services the same or similar to those
offered, sold, produced or under development by the Company or any
Acquired Subsidiary as of the date hereof;
(iv) otherwise divert or attempt to divert from any
Acquired Subsidiary any business whatsoever;
(v) solicit or attempt to solicit for any business
endeavor any employee of the Company or any Acquired Subsidiary or any
former employee of the Company or any Acquired Subsidiary who becomes an
employee of Sensormatic by virtue of the Merger;
(vi) interfere with any business relationship
between the Company or any Acquired Subsidiary or Sensormatic, on the one
hand, and any other person, on the other hand; or
(vii) have any interest as a stockholder, partner,
lender or otherwise in, any person which is engaged in activities which, if
performed by Knewco, would violate this Section 10, or permit or
encourage any of its employees or employees to engage in any such
activity; provided, however, that the foregoing shall not prevent Knewco
from purchasing or owing up to 2% of the voting securities of any
corporation, the securities of which are publicly traded, that may be
deemed to be in competition with Sensormatic outside of the Knewco
Territory.
In addition, at no time (either before or after the term hereinabove set forth)
shall Knewco, or any successor thereto, do business under the "Knogo" name or a
name similar thereto outside the Knewco Territory, or utilize the Company's
other trademarks or trade names outside the Knewco Territory.
In the event of a "Change of Control" of Knewco, either
pursuant to a Knewco Sale or following the date of this Agreement, the
obligations of Knewco under this Section 10(a) shall continue with respect to
Knewco's then existing trademarks, trade names and products, and products
subsequently developed which utilize any of the Contributed Intellectual
Property, but shall not be construed to limit the activities of the acquiring
person with respect to its names and products, or new products developed by the
combined entity which do not utilize any of the Contributed Intellectual
Property.
As used in this Section 10(a), "Change of Control" means any
transaction or series of transactions pursuant to which (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the
"beneficial owner" (as such term is defined in Rule 13(d) under
II-A-17
<PAGE> 184
the Exchange Act) of more than 50% of the combined voting power of Knewco or
(ii) the business, and substantially all of the assets, of Knewco relating to
the products used in the Business that are included in the Contributed Assets
are sold or transferred to an unaffiliated third party.
(b) Knewco acknowledges that it and its employees have
become informed of, and had access to, in addition to the Contributed
Intellectual Property, other confidential information of the Company including,
without limitation, technical know-how and other intellectual property,
marketing plans and information, pricing information, identity of customers and
prospective custom ers with respect to the Business outside of the Knewco
Territory, and identity of suppliers, and that such information, even though it
may have been or may be developed or otherwise acquired by one or more of such
employees, was and is the property of the Company except to the extent relating
solely to the Business in the Knewco Territory, and, to the extent not
proprietary to Knewco by virtue of this Agreement, Knewco shall, and shall use
its reasonable best efforts to cause any such employee to, hold the same in
trust and solely for the benefit of the Company or any successor or assign
thereof, including without limitation Sensormatic, except as hereinafter set
forth. Except in connection with the conduct of Knewco's business in the
Knewco Territory, Knewco shall not, and it shall use its reasonable best
efforts to cause its employees, affiliates or agents not to, at any time
reveal, report, publish, transfer or otherwise disclose to any person,
corporation or other entity, or use any of the Company's confidential
information, except for such information which legally and legitimately is or
becomes of general public knowledge from authorized sources other than Knewco
or its employees, affiliates or assets or legitimately acquired from third
parties not under an obligation of confidentiality to Sensormatic or the
Company or can be demonstrated to have been independently developed by Knewco
after the date hereof without reference to such confidential information.
(c) Because neither the Company (and Sensormatic, as
successor to the Company) nor Knewco have an adequate remedy at law to protect
their respective businesses from the other's competition or to protect their
respective interests in their respective trade secrets, privileged, proprietary
or confidential information (including technical know-how) and similar
commercial assets, each of the Company (and, following the Effective Time,
Sensormatic) and Knewco shall be entitled to injunctive relief, in addition to
such other remedies and relief that would, in the event of a breach of the
provisions of this Section 10, be available to them. The provisions of this
Section 10 shall survive the Divestiture Date.
For purposes of this Section 10, the term "Sensormatic"
includes Sensormatic's subsidiaries, joint ventures and other affiliates
(including those acquired pursuant to the Merger).
11. MISCELLANEOUS.
11.1 TERMINATION. This Agreement (a) may be terminated at
any time prior to the Divestiture Date by mutual written consent of the Company
and Sensormatic, or (b) shall terminate upon termination of the Merger
Agreement prior to the Merger.
11.2 ENTIRE AGREEMENT. This Agreement, together with the
schedules and exhibits hereto, and together with the Merger Agreement, the
License Agreement and the Supply Agreement, to the extent applicable, sets
forth the entire understanding of the parties with respect to its subject
matter, merges and supersedes all prior and contemporaneous understandings of
the parties hereto with respect to its subject matter, except any
confidentiality agreements executed by the Company and Sensormatic. Failure of
any party to enforce any provision of this Agreement shall not be construed as
a waiver of its rights under such or any other provision.
11.3 AMENDMENTS; WAIVERS. This Agreement (including the
Annex, Schedules and Exhibits hereto) may be amended by the parties at any time
prior to the Divestiture Date. Any
II-A-18
<PAGE> 185
such amendment shall be in writing signed on behalf of the party or parties to
be charged. At any time prior to the Divestiture Date, either the Company or
Knewco may waive compliance by the other party with any of the agreements or
conditions contained in this Agreement. Any agreement on the part of a party
to any such waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of such rights.
11.4 COMMUNICATIONS. All notices, consents and other
communications given under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when delivered by hand or by Federal Express
or a similar overnight courier to, (b) five days after being deposited in any
United States post office enclosed in a postage prepaid registered or certified
envelope addressed to, or (c) when successfully transmitted by telecopier (with
a confirming copy of such communication to be sent as provided in (a) or (b)
above) to, the party for whom intended, at the address or telecopier number for
such party set forth below, or to such other address or telecopier number as
may be furnished by such party by notice in the manner provided herein;
provided, however, that any notice of change of address or telecopier number
shall be effective only upon receipt.
If to the Company:
Knogo Corporation
350 Wireless Boulevard
Hauppauge, New York 11788
Attention: Thomas A. Nicolette
Facsimile No.: (516) 232-2812
With a copy to:
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004
Attention: David H. Kaufman
Facsimile No.: (212) 806-6006
If to Knewco:
Knogo North America Inc.
350 Wireless Boulevard
Hauppauge, New York 11788
Attention: Thomas A. Nicolette
Facsimile No.: (516) 232-2812
With a copy to:
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004
Attention: David H. Kaufman
Facsimile No.: (212) 806-6006
II-A-19
<PAGE> 186
If to Sensormatic:
Sensormatic Electronics Corporation
500 N.W. 12th Avenue
Deerfield Beach, Florida 33442
Attention: Corporate Counsel
Facsimile No.: (305) 420-2561
and
Vice President of Corporate Development
Facsimile No.: (305) 420-2964
With a copy to:
Christy & Viener
620 Fifth Avenue
New York, New York 10020
Attention: Anthony J. Carroll
Facsimile No.: (212) 632-5555
11.5 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding on, enforceable against and inure to the benefit of the parties hereto
and their respective successors and permitted assigns (including, without
limitation, Sensormatic as the successor to the Company pursuant to the Merger,
and a purchaser of Knewco pursuant to a Knewco Sale or subsequent successor to
Knewco's Business), and nothing herein is intended to confer any right, remedy
or benefit upon any other person. Except as contemplated in the preceding
sentence, Knewco may not assign its rights or delegate its obligations under
this Agreement without the express written consent of Sensormatic or the
Company, as applicable.
11.6 GOVERNING LAW; JURISDICTION. This Agreement shall in
all respects be governed by and construed in accordance with the laws of the
State of New York. Each of the parties hereto expressly and irrevocably
submits to the non-exclusive personal jurisdiction of the United States
District Court, Southern District of New York and to the jurisdiction of any
other competent court of the State of New York located in New York City in
connection with all disputes arising out of or in connection with this
Agreement or the transactions contemplated herein. Each party hereby waives
the right to any other jurisdiction or venue to which any of them may be
entitled by reason of its present or future domicile. The parties agree that
service of process may be made by U.S. registered mail, return receipt
requested, to a party at its address set forth in Section 11.4.
11.7 SAVINGS CLAUSE. If any provision of this Agreement is
held to be invalid or unenforceable by any court or tribunal of competent
jurisdiction, the remainder of this Agreement shall not be affected thereby,
and such provision shall be carried out as nearly as possible according to its
original terms and intent to eliminate such invalidity or unenforceability.
11.8 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
11.9 CONSTRUCTION. Headings contained in this Agreement are
for convenience only and shall not be used in the interpretation of this
Agreement. References herein to the Agreement shall be deemed to include all
Schedules and Exhibits hereto, and references herein to Annexes, Sections,
Schedules and Exhibits are to the sections, schedules and exhibits of this
II-A-20
<PAGE> 187
Agreement. As used herein, the singular includes the plural, and the
masculine, feminine and neuter gender each includes the others where the
context so indicates.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first set forth above.
KNOGO CORPORATION
By:
--------------------------------
Thomas A. Nicolette
President
KNOGO NORTH AMERICA INC.
By:
--------------------------------
Thomas A. Nicolette
President
Effective as of the Effective Time of the Merger, Sensormatic
Electronics Corporation, as successor to Knogo Corporation, shall become a
party to the foregoing Contribution and Divestiture Agreement and hereby
acknowledges and accepts such Agreement.
SENSORMATIC ELECTRONICS CORPORATION
By:
--------------------------------
Name:
Title:
At the effective time of a Knewco Sale, the undersigned, as the
purchaser and successor to Knogo North America Inc., hereby acknowledges and
accepts the foregoing Contribution and Divestiture Agreement and agrees to be
bound by the terms thereof and of the License Agreement, the Supply Agreement
and the other documents and instruments referred to therein.
[PURCHASER IN A KNEWCO SALE]
By:
--------------------------------
Name:
Title:
II-A-21
<PAGE> 188
ANNEX II-B
(EXHIBIT B TO
DIVESTITURE AGREEMENT)
LICENSE AGREEMENT
AGREEMENT, dated as of , 1994, between KNOGO NORTH
AMERICA INC., a Delaware corporation ("Knewco"), and KNOGO CORPORATION, a New
York corporation ("Knogo").
W I T N E S S E T H :
WHEREAS, Knogo and Knewco are parties to the Contribution and
Divestiture Agreement, dated as of , 1994 (the "Divestiture
Agreement"), pursuant to which Knewco was formed to continue Knogo's business
operations in the Knewco Territory (as defined below);
WHEREAS, Knogo and Knewco, together with Sensormatic
Electronics Corporation, a Delaware corporation ("Sensormatic"), are parties to
the Agreement and Plan of Merger dated as of August 14, 1994 between
Sensormatic, Knogo and Knewco (the "Merger Agreement"), pursuant to which Knogo
is to be merged with and into Sensormatic;
WHEREAS, pursuant to the Divestiture Agreement, certain patent
rights, technology and other assets of Knogo were transferred to Knewco,
including the Knewco SuperStrip Patent Rights and rights in the Knewco
Territory with respect to the SuperStrip Technology (as such terms are defined
below), which may be utilized in the manufacture, sale and promotion of
material with particular application to source labelling and source embedding;
WHEREAS, Knogo wishes to obtain from Knewco certain licenses
under such patent rights and technology, including a non-exclusive license from
Knewco under the Knewco SuperStrip Patent Rights and the SuperStrip Technology
in the Knewco Territory, subject to the terms and conditions of this Agreement,
and Knewco is willing to grant such licenses;
WHEREAS, it is contemplated that Sensormatic will succeed to
the rights of Knogo pursuant to the Merger Agreement; and
WHEREAS, the execution and delivery of this Agreement is a
condition to the respective obligations of the parties under the Merger
Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein, the parties agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the
following terms have the following meanings:
(a) "Affiliate" means an entity controlled by,
controlling or under common control with a specified entity. As used herein,
the term "control" includes, but is not limited to, the right to vote directly
or indirectly 50% or more of the voting stock of an entity or the right to
direct or influence significantly such entity's management or policies.
(b) "Change of Control" means any transaction or series
of transactions pursuant to which (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange
Act")) becomes the "beneficial owner" (as such term is defined in Rule 13(d)
under the Exchange Act) of more than 50% of the combined voting power of Knewco
or (ii) the business, and substantially all of the assets, of Knewco relating
to the Products are sold or transferred to an unaffiliated third party.
<PAGE> 189
(c) "Knewco Product Patent Rights" means (i) all the
United States and Canadian patents and patent applications with respect to the
Products and the Product Technology, as listed on Schedule I (but exclusive of
the Knewco SuperStrip Patent Rights), (ii) any continuation,
continuation-in-part or division of any such patent application and any patents
issuing on any thereof, (iii) any reissues, extensions or renewals of any
patents referred to in clauses (i) or (ii) of this Section 1(c) and (iv) any
patent application filed at any time hereafter by or on behalf of Knewco in the
United States or Canada, and any patent issued thereon, with respect to any
Product Technology.
(d) "Knewco Territory" means the fifty states of the
United States of America, the District of Columbia, Puerto Rico and Canada.
(e) "Pinned Wall Patent Rights" means (i) the United
States and Canadian patents and patent applications listed on Schedule II, (ii)
any continuation, continuation-in-part or division of any such patent
application and any patents issuing on any thereof, and (iii) any reissues,
extensions or renewals of any patents referred to in clauses (i) or (ii) of
this Section 1(e).
(f) "Products" means the Products currently marketed by
Knewco or Knogo, other than SuperStrip, including those listed on Schedule III,
and including all parts and components thereof. If applicable, Products shall
include any Product embodying a Product Improvement as contemplated by this
Agreement.
(g) "Product Improvements" means all improvements,
modifications, developments, revisions or enhancements of any Product or of the
means of manufacturing such Product, whether or not covered by a patent,
including without limitation improvements to Products which enhance
performance, durability or quality, expand applications for use or reduce cost
of manufacture, which are developed or acquired by any party (by purchase,
license or otherwise), alone or together with others, and embodied in such
party's Products or used in the manufacture thereof.
(h) "Product Technology" means concepts, ideas,
inventions, designs, devices, processes, technical information and know-how,
whether or not described in the Knewco Product Patent Rights or constituting
trade secrets, existing on the date hereof, and which relate to the design,
manufacture, use, installation, service or maintenance of Products, and all
written or electronic expressions or embodiments thereof, including, without
limitation, prototypes, schematics, plans, designs, blue-prints, drawings,
specifications, software, algorithms, manuals, notebooks and records.
(i) "SuperStrip" means the SuperStrip material described
in Schedule IV. If applicable, SuperStrip shall include any SuperStrip
material embodying a SuperStrip Improvement as contemplated by this Agreement.
(j) "SuperStrip Improvements" means all improvements,
modifications, developments, revisions or enhancements of SuperStrip material
or of the means of manufacturing such material, whether or not covered by a
patent, including without limitation improvements to such material which
enhance performance, durability or quality, expand applications for use or
reduce cost of manufacture, which are developed or acquired by any party (by
purchase, license or otherwise), alone or together with others, and embodied in
the SuperStrip material sold by such party or used in the manufacture thereof.
(k) "Knewco SuperStrip Patent Rights" means (i) the
United States and Canadian patents and patent applications with respect to
SuperStrip and the SuperStrip Technology, as listed on Schedule IV-1, (ii) any
continuation, continuation-in-part or division of any such patent applications
and any patents issuing on any thereof, (iii) any reissues, extensions or
renewals of any patents referred to in clauses (i) or (ii) of this Section
1(k), and (iv) any patent application filed at any time hereafter by or
II-B-2
<PAGE> 190
on behalf of Knewco in the United States or Canada, and any patent issued
thereon, with respect to any SuperStrip Technology.
(l) "Knogo SuperStrip Patent Rights" means (i) patents
and patent applications in any jurisdiction other than the United States and
Canada with respect to SuperStrip and the SuperStrip Technology, as listed on
Schedule IV-2, and any additional corresponding patent applications filed in
any such jurisdiction after the date hereof, (ii) any continuation,
continuation-in-part or division of any such patent applications and any
patents issuing on any thereof and (iii) any reissues, extensions or renewals
of any patents referred to in clauses (i) or (ii) of this Section 1(l).
(m) "SuperStrip Technology" means concepts, ideas,
inventions, designs, devices, processes, technical information and know-how,
whether or not described in the Knewco SuperStrip Patent Rights or Knogo
SuperStrip Patent Rights or constituting trade secrets, existing on the date
hereof, and which relate to the design, manufacture or use of SuperStrip
material or any SuperStrip label product, and all written or electronic
expressions or embodiments thereof, including, without limitation, prototypes,
schematics, plans, designs, blue-prints, drawings, specifications, software,
algorithms, manuals, notebooks and records.
(n) "Knogo Product Patent Rights" means (i) patents and
patent applications in any jurisdiction other than the United States and Canada
with respect to Products and the Product Technology (but exclusive of the Knogo
SuperStrip Patent Rights) and any additional corresponding patent applications
filed in any such jurisdiction after the date hereof, (ii) any continuation,
continuation-in-part or division of any such patent applications and any
patents issuing on any thereof and (iii) any reissues, extensions or renewals
of any patents referred to in clauses (i) or (ii) of this Section 1(n).
(o) "Trademarks" means such trademarks, trade names,
service marks, slogans, labels, logos and other trade identifying symbols,
whether or not registered with any governmental authority, which at any time
have been used, or developed for use, in connection with the Products or
SuperStrip by Knogo or Knewco. A list of the Trademarks is set forth in
Schedule V.
Unless otherwise required by the context, references to
"Knogo" in this Agreement shall be deemed to refer also to Sensormatic as the
successor to Knogo pursuant to the Merger Agreement.
2. LICENSES AND TECHNOLOGY TRANSFERS BY KNEWCO.
(a) GRANT OF LICENSES. Pursuant to the Divestiture
Agreement, Knewco obtained the Knewco Product Patent Rights and the Knewco
SuperStrip Patent Rights and all rights to the Product Technology and
SuperStrip Technology in the Knewco Territory, and Knogo retained all
corresponding patent rights and all rights to the Product Technology and
SuperStrip Technology outside the Knewco Territory.
(i) In order to permit Knogo to produce products in
the Knewco Territory, Knewco, subject to the terms and conditions of
this Agreement, grants to Knogo a fully-paid, perpetual, non-exclusive
right and license, with the right to sublicense others, to practice
and use the Knewco Product Patent Rights and the Product Technology in
the Knewco Territory to use, make and have made products, provided
that such products are marketed, distributed, sold or leased outside
of the Knewco Territory for use outside of the Knewco Territory.
(ii) Subject to the terms and conditions of this
Agreement, Knewco grants to Knogo a fully-paid, perpetual,
non-exclusive right and license, including the right to sublicense to
others, to practice and use the Knewco SuperStrip Patent Rights and
the SuperStrip Technology in the Knewco Territory to use, make, have
made, market, distribute, sell or lease
II-B-3
<PAGE> 191
SuperStrip material and products used in conjunction therewith or
otherwise utilizing the Knewco SuperStrip Patent Rights and/or
SuperStrip Technology.
(b) FURTHER ASSISTANCE. In order to assist Sensormatic,
as successor to Knogo, in establishing its own capacity to manufacture Products
and SuperStrip, Knewco shall:
(i) transfer to Sensormatic, not later than 10 days
after the date hereof, the Product Technology and SuperStrip
Technology by delivering copies of all existing written or electronic
expressions or embodiments thereof, including, without limitation,
prototypes, schematics, plans, designs, blue-prints, drawings,
specifications, software, algorithms, manuals, notebooks and records,
and including bills of materials and components for each Product and
each version of SuperStrip, specifying the sources of supply of each
thereof. Knewco agrees that (A) prior to the date of delivery it
shall reduce to writing all Product Technology and SuperStrip
Technology which has not heretofore been expressed in written or
electronic form, (B) all such writings shall be in English and (C) all
expressions and embodiments delivered to Sensormatic shall together
constitute a clear and complete description of all of the Product
Technology and SuperStrip Technology sufficient to provide Sensormatic
with all information reasonably required by it for the manufacture
(including the design, manufacture and operation of related tooling,
equipment and processes), testing, installation, service and
maintenance of the Products and SuperStrip by Sensormatic;
(ii) conduct, without charge and at times reasonably
requested by Sensormatic, six to ten training sessions with respect to
the Products, Product Technology, SuperStrip and SuperStrip Technology
for Sensormatic personnel at Knewco's facilities in Cidra, Puerto
Rico; and
(iii) during the 18 months following the date of this
Agreement, make available, as requested by Sensormatic and without
charge, at Sensormatic's manufacturing facilities or other locations,
the services of its engineering, manufacturing and service personnel,
up to a maximum of 500 man-hours over such 18 months, with respect to
all aspects of the manufacture (including the design, manufacture and
operation of related tooling, equipment and processes), testing,
installation, service and maintenance of the Products and SuperStrip.
If requested by Sensormatic, such services may include plant tours and
inspection of manufacturing equipment and processes at Knewco's
facilities. If Sensormatic requests such services in excess of such
500 man-hours, Knewco shall provide them to Sensormatic at a daily
rate of approximately $500 calculated on the basis of the annual
salary and other direct employment costs of the individuals involved,
plus reasonable out-of-pocket expenses.
3. TRADEMARK LICENSE. Knewco grants to Knogo a
fully-paid, perpetual, non-exclusive right and license within the Knewco
Territory, with the right to sublicense others, to apply the Trademarks to
Products and any other products, provided that such Products and other products
are marketed, distributed, sold or leased outside of the Knewco Territory for
use outside of the Knewco Territory. Knewco further grants to Knogo a
fully-paid, perpetual, non-exclusive, world-wide right and license, with the
right to sublicense to others, to apply any SuperStrip trademarks and trade
names to SuperStrip or products used in conjunction with SuperStrip. The
foregoing licenses shall be subject to an obligation by Knogo to maintain the
quality of the products marketed, distributed, sold or leased under this
trademark license at reasonable standards established by Knewco. Knewco
reserves the right to inspect the quality of such products during the term of
this license.
4. ADDITIONAL LICENSES; SUPPLY ARRANGEMENTS.
(a) Subject to the terms and conditions of this
Agreement, Knogo grants to Knewco fully-paid, perpetual, non-exclusive
licenses (i) to practice and use the Knogo SuperStrip Patent Rights
II-B-4
<PAGE> 192
and SuperStrip Technology to use, make or have made SuperStrip outside the
Knewco Territory; and (ii) to practice and use the Knogo Product Patent Rights
and Product Technology to use, make or have made products outside the Knewco
Territory; but provided in each case that such SuperStrip or other products are
marketed, distributed, leased or sold inside the Knewco Territory for use
inside the Knewco Territory, and provided in each case that Knewco notifies
Sensormatic of the location of such manufacture and the identity of the
manufacturer. Knewco shall have no right to grant sublicenses to others under
the foregoing licenses, except for the purpose of having SuperStrip or such
other products made for Knewco in accordance with this Section 4(a).
(b) If a Change of Control of Knewco occurs, Knewco or
its successor shall have the following additional rights with respect to the
Knogo SuperStrip Patent Rights and SuperStrip Technology. If Sensormatic or
any of its Affiliates, before or after such Change of Control, assigns rights
in or licenses the Knogo SuperStrip Patent Rights or SuperStrip Technology to a
party which is not its Affiliate (other than a distributor or dealer of
Sensormatic or a party which manufactures, installs or services SuperStrip for
Sensormatic, any of its Affiliates or any customers of Sensormatic or of its
Affiliates for affixing on or incorporating into such customers' own products),
Knewco or such successor shall have the further right to obtain a non-exclusive
license outside of the Knewco Territory under the Knogo SuperStrip Patent
Rights and SuperStrip Technology on the most favorable terms granted to any
such non-affiliated licensee, provided that Knewco or its successor meets and
accepts all essential economic and other terms and conditions of such
third-party license.
(c) If Sensormatic chooses to manufacture the SuperStrip
material or to have such material manufactured by others under contract to
Sensormatic, Sensormatic shall, as requested by Knewco, either: (i) supply to
Knewco its requirements for such material at the following prices: (A) during
the period commencing on the date hereof and ending on the fifth anniversary of
the date hereof, a price equal to Sensormatic's Cost (as defined below), and
(B) during the five-year period thereafter, a price equal to the lesser of (1)
Sensormatic's Cost plus 10% and (2) the most favorable prices granted by
Sensormatic to any of its customers, dealers and distributors (excluding any
trial prices or isolated transactions); or (ii) permit Knewco to purchase its
requirements for such material directly from Sensormatic's supplier, subject in
either case to reasonable arrangements governing orders, payment, forecasts,
availability, term and the like. For purposes of this Section 4(c),
"Sensormatic's Cost" shall mean the total material, components, labor and
direct, manufacturing-related overhead costs (exclusive of research and
development expenses) incurred by Sensormatic in producing the SuperStrip
material sold to Knewco, determined on a basis consistent with Sensormatic's
determination of such cost used in its financial statements and in accordance
with generally accepted accounting principles consistently applied over all
periods. Notwithstanding the foregoing, if a Change of Control of Knewco
occurs, Sensormatic shall, as requested by Knewco or its successor, either: (i)
supply to Knewco, or its successor, its requirements for such material at a
price equal to Sensormatic's Cost plus 10% for the period commencing on the
date of effectiveness of such Change of Control and ending on the second
anniversary thereof; or (ii) supply to Knewco, or its successor, its
requirements for such material for the period commencing on the date of
effectiveness of such Change of Control and ending on the fifth anniversary
thereof, at the most favorable prices granted by Sensormatic to any of its
customers, dealers and distributors (excluding any trial prices or isolated
transactions), provided that in no event shall the term of the foregoing
agreement exceed ten years from the date of this Agreement, and subject in any
case to reasonable arrangements governing orders, payment, forecasts,
availability, term and the like.
(d) If Knewco chooses to manufacture the SuperStrip
material or to have such material manufactured by others under contract to
Knewco, Knewco shall, as requested by Sensormatic, either: (i) supply to
Sensormatic its requirements for such material at a price equal to Knewco's
Cost (as defined below); or (ii) permit Sensormatic to purchase its
requirements for such material directly from Knewco's supplier, subject in
either case to reasonable arrangements governing orders, payment, forecasts,
availability, term and the like. For purposes of this Section 4(d), "Knewco's
Cost" shall mean
II-B-5
<PAGE> 193
the total material, components, labor and direct, manufacturing-related
overhead costs (exclusive of research and development expenses) incurred by
Knewco in producing the SuperStrip material sold to Sensormatic, determined on
a basis consistent with Knewco's determination of such cost used in its
financial statements and in accordance with generally accepted accounting
principles consistently applied over all periods. The term of the foregoing
agreement shall be five years from the date hereof.
5. IMPROVEMENTS; OTHER MATTERS.
(a) Knewco grants to Knogo a fully paid, non-exclusive,
perpetual right and license, including the right to sublicense others, under
any and all applicable existing or future patents and patent applications or
otherwise, (i) to practice and use in the Knewco Territory any Product
Improvements developed or acquired by Knewco or any of its Affiliates on or
before the fifth anniversary of the date hereof, in order to use, make or have
made Products embodying such Product Improvements, provided that such Products
embodying such Product Improvements are marketed, distributed, sold or leased
outside of the Knewco Territory for use outside of the Knewco Territory, and
(ii) to practice and use any such Product Improvements to make or have made,
use, market, distribute, sell, lease, install, service and maintain Products
embodying such Product Improvements outside of the Knewco Territory for use
outside of the Knewco Territory. Notwithstanding the foregoing, in the case of
any Product Improvements obtained by Knewco from third parties, this license
shall be subject to the payment by Knogo of any royalty payable by Knewco with
respect to a like use by Knewco.
(b) Knewco grants to Knogo a fully paid, non-exclusive,
perpetual right and license, including the right to sublicense others, under
any and all applicable existing or future patents and patent applications or
otherwise, (i) to practice and use in the Knewco Territory any SuperStrip
Improvements developed or acquired by Knewco or any of its Affiliates on or
before the fifth anniversary of the date hereof, in order to make or have made
products embodying such SuperStrip Improvements, provided that such products
embodying such SuperStrip Improvements are marketed, distributed, sold or
leased outside of the Knewco Territory for use outside of the Knewco Territory,
and (ii) to practice and use any such SuperStrip Improvements to make or have
made, use, market, distribute, sell, install, service and maintain products
embodying such SuperStrip Improvements outside of the Knewco Territory for use
outside of the Knewco Territory. Notwithstanding the foregoing, in the case of
any SuperStrip Improvements obtained by Knewco from third parties, this license
shall be subject to the payment by Knogo of any royalty payable by Knewco with
respect to a like use by Knewco.
(c) Knogo grants to Knewco a fully-paid, non-exclusive,
perpetual right and license, including the right to sublicense others, under
any and all applicable existing or future patents and patent applications or
otherwise, (i) to practice and use outside the Knewco Territory any Product
Improvements developed or acquired by Knogo or any of its Affiliates on or
before the fifth anniversary of the date hereof, in order to use, make or have
made Products embodying such Product Improvements, provided that such Products
embodying such Product Improvements are marketed, distributed, sold or leased
within the Knewco Territory for use within the Knewco Territory, and (ii) to
practice and use any such Product Improvements to make or have made, use,
market, distribute, sell, lease, install, service and maintain Products
embodying such Product Improvements within the Knewco Territory for use within
the Knewco Territory. Notwithstanding the foregoing, in the case of any
Product Improvements obtained by Knogo from third parties, this license shall
be subject to the payment by Knewco of any royalty payable by Knogo with
respect to a like use by Knogo.
(d) Neither Knogo nor Knewco shall have any liability to
the other or any party claiming through the other for any infringement or
misappropriation claims made by any third parties regarding Product
Improvements or SuperStrip Improvements licensed by it pursuant to this Section
5 or any other rights licensed by a party hereto to the other under this
Agreement, including the licenses pursuant to Sections 2(a) and 4. The initial
express confirmation of a grant of a license to Product
II-B-6
<PAGE> 194
Improvements or SuperStrip Improvements pursuant to this Section 5 may,
however, be relied on by the licensee and any sublicensee as evidencing an
absence of any knowledge or belief on the part of the licensor at the time of
such confirmation that the subject matter of the licensor's Product
Improvements or SuperStrip Improvements violates any third party's patent or
other intellectual property rights.
(e) The Divestiture Agreement provides that Knewco shall
have all rights in the Product Technology and SuperStrip Technology required
for its business in the Knewco Territory and that Knogo shall have all rights
in the Product Technology and SuperStrip Technology required for its business
outside the Knewco Territory. For avoidance of doubt, each party hereto also
grants to the other fully-paid, non-exclusive, perpetual license in the
granting party's Product Technology and SuperStrip Technology, which license
shall be subject to the same provisions and limitations as to practice and use
as are set forth in Section 5(a) (in the case of such license granted to Knogo)
and Section 5(c) (in the case of such license to Knewco), subject to any
applicable provisions of this Agreement; provided, however, that such
limitations under Section 5(a) shall not apply in the case of Knogo's rights
under the Knewco SuperStrip Patent Rights and Knewco SuperStrip Technology,
which are governed by Section 2(a)(ii). Further, to the extent that the Knewco
Product Patent Rights or Knewco SuperStrip Patent Rights are applicable in
territories not included in the Knewco Territory (e.g., the U.S. Virgin
Islands), the foregoing license from Knewco to Knogo shall also include an
exclusive license to practice and use such patent rights in such territories.
6. SALES TO MANUFACTURERS FOR SOURCE LABELLING.
Notwithstanding any territorial restriction in any license granted under
Section 2(a), 4(a) or 5 of this Agreement, (i) Knewco shall have the further
right and license to sell SuperStrip or, if applicable, other label material
included in Products, to manufacturers or distributors of merchandise located
outside the Knewco Territory, but only to be embedded in or affixed to such
merchandise for source labelling purposes, and only if such merchandise is to
be sold by such manufacturers or distributors for sale and use in the Knewco
Territory, and (ii) Sensormatic shall have the further right and license to
sell any such label material included in Products to manufacturers or
distributors of merchandise located inside the Knewco Territory, but only to be
embedded in or affixed to such merchandise for source labelling purposes, and
only if such merchandise is to be sold by such manufacturers or distributors
for sale and use outside the Knewco Territory. (Sensormatic has such rights in
the Knewco Territory with respect to SuperStrip, as provided in Section
2(a)(ii).) It shall be a condition to the respective foregoing rights that
each such manufacturer or distributor agrees in writing to be bound by the
foregoing restriction applicable to the party from which such manufacturer or
distributor purchases such material.
7. CERTAIN PATENT MATTERS. Sensormatic shall not assert
the Pinned Wall Patent Rights against Knewco or any of its Affiliates of which
it owns a majority of the voting power, or customers, with respect to the
manufacture, sale or use of SuperStrip material in the Knewco Territory for use
in the Knewco Territory. The foregoing agreement shall not apply to any
successor or assign of Knewco, or any licensee or sublicensee of Knewco (other
than for the purpose of having SuperStrip made for Knewco or an Affiliate
referred to in the preceding sentence for sale and use in accordance with the
limitations applicable to Knewco under this Agreement and the Divestiture
Agreement), and shall terminate and become void in the event of a Change of
Control of Knewco.
8. CONFIDENTIALITY.
(a) CONFIDENTIALITY. Each of the parties understands and
acknowledges (i) that as a result of the transactions contemplated by this
Agreement, each of them may become informed of, and have access to,
confidential information regarding inventions, trade secrets, technical
information, know-how, plans, specifications and other information respecting
Products, Product Technology, Product Improvements, SuperStrip and SuperStrip
Technology, and (ii) that such information is held by it in trust and solely
for the benefit of the parties in accordance with their respective interests
pursuant
II-B-7
<PAGE> 195
to this Agreement and any other written agreement between them. The parties
shall not, at any time, reveal, report, publish, transfer or otherwise disclose
to any person or entity, or use, any of the other's confidential information,
except for use as contemplated by this Agreement or such other agreements.
This Section 8 shall not be construed to restrict Knogo's or Sensormatic's
disclosure or use of any information acquired or obtained by it other than
pursuant to this Agreement, including without limitation any information
acquired by Knogo pursuant to the Divestiture Agreement or any information
acquired or obtained by Sensormatic in the course of its business.
The foregoing obligations of confidentiality shall not apply
to information of a party which lawfully comes into the possession of the
receiving party and which (i) is received from a third party without violation
of any confidentiality obligations in favor of the other party with respect to
such information, (ii) can be demonstrated to have been previously known to the
receiving party, (iii) is or becomes part of public or industry knowledge
through no conduct of the receiving party or (iv) can be demonstrated to have
been independently developed by the receiving party.
(b) PERMITTED DISCLOSURE. The foregoing shall not
prohibit the disclosure by either party of confidential information to
its employees who have a need to know such information for the purposes of this
Agreement or to its counsel, so long as such persons shall be obligated to hold
such information in confidence to the same extent as provided herein.
(c) SPECIAL PRECAUTIONS. On the written request of
either party, the other shall forthwith adopt any special precautions
as may be reasonably necessary to prevent any unauthorized disclosure of any of
the requesting party's confidential information and shall cause its employees,
agents and associates to forthwith adopt such special precautions. If the
adoption of such precautions would involve unusual expense, the requesting
party shall bear the cost incurred by the other in adopting such precautions.
(d) INJUNCTIVE RELIEF. Because neither party would have
an adequate remedy at law to protect its business from the unfair
competition of the other or to protect its interests in its confidential
information and similar commercial assets, each of them shall be entitled to
injunctive relief, in addition to such remedies and relief that would, in the
event of a breach of the provisions of this Section 8 by the other, be
available to it. In the event of such a breach, in addition to any other
remedies, either party, as the case may be, shall be entitled to receive from
the breaching party payment of, or reimbursement for, its reasonable attorneys'
fees and disbursements incurred in enforcing any such provision.
(e) SURVIVAL. The provisions of this Section 8 shall
survive any termination of this Agreement.
9. ARBITRATION.
(a) GENERAL. Any controversy or claim arising out of or
relating to this Agreement shall be settled by arbitration before a
single arbitrator in New York, New York, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Any decision or
award of the arbitrator shall be binding on the parties. Judgment on any award
rendered by the arbitrator may be entered in any court of competent
jurisdiction.
(b) PROCEDURE. Each party consents to the jurisdiction
of such arbitration and to such venue. The arbitrator shall apply the
law of the State of New York, exclusive of conflict of laws principles, to any
dispute. Nothing in this Agreement shall require the arbitration of disputes
between the parties that arise from actions, suits or proceedings instituted by
third parties. Knogo appoints Messrs. Christy & Viener, 620 Fifth Avenue, New
York, New York 10020, Attention: Kenneth W. Taber, Esq., and Knewco appoints
Messrs. Stroock & Stroock & Lavan, Seven Hanover Square, New York,
II-B-8
<PAGE> 196
New York 10004, Attention: David H. Kaufman, Esq., as their respective
attorneys-in-fact and authorized agents solely to receive on their behalf,
service of any demands for, or any notice with respect to, arbitration
hereunder or any service of process. Service on either of such
attorneys-in-fact may be made by registered or certified mail or by personal
delivery, in any case return receipt requested, and shall be effective as
service on either party, as the case may be. Nothing herein shall be deemed to
affect any right to serve any such demand, notice or process in any other
manner permitted under applicable law.
10. DELAYED TRANSFERS UNDER MERGER AGREEMENT. In the
event that ownership of any Acquired Subsidiary (as defined in the
Merger Agreement) is managed by Knewco on an interim basis, or is ultimately
transferred to Knewco by the Escrow Agent pursuant to Section 10.2 of the
Merger Agreement, the parties agree that any such Acquired Subsidiary shall be
deemed to be covered by this Agreement as if it were a subsidiary of Knewco,
and that the Knewco Territory, non-competition and other provisions of this
Agreement shall be modified by the parties as may be necessary to equitably
adjust their respective rights and obligations in order to enable Knewco to
operate with respect to the business of any such Acquired Subsidiary. Knewco
shall abide by Section 5.1 of the Merger Agreement with respect to any such
Acquired Subsidiary, unless and until transferred to Knewco thereunder.
11. NON-AGENCY. For all purposes of this Agreement,
each party shall be an independent contractor, and not an agent, partner or
joint venturer, of the other.
12. NO ASSIGNMENT. Neither party shall assign,
subcontract or otherwise transfer this Agreement or any right or
interest in or to this Agreement without the prior consent of the other, except
that either party may assign this Agreement to any parent corporation or
wholly-owned subsidiary or to any successor to all or a substantial portion of
its business.
13. COMMUNICATIONS. All notices, consents and other
communications given under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when delivered by hand or by Federal Express
or a similar overnight courier to, (b) five days after being deposited in any
United States post office enclosed in an airmail postage prepaid registered or
certified envelope addressed to, or (c) when successfully transmitted by
facsimile (with a confirming copy of such communication to be sent as provided
in (a) or (b) above) to, the party for whom intended, at the address or
facsimile number for such party set forth below, or to such other address or
facsimile number as may be furnished by such party by notice in the manner
provided herein; provided, however, that any notice of change of address or
facsimile number shall be effective only upon receipt.
If to Knogo or Sensormatic:
Sensormatic Electronics Corporation
500 N.W. 12th Avenue
Deerfield Beach, Florida 33442
Attention: Corporate Counsel
Facsimile No.: (305) 420-2561
and
Vice President of Corporate Development
Facsimile No.: (305) 420-2964
II-B-9
<PAGE> 197
With a copy to:
Christy & Viener
620 Fifth Avenue
New York, New York 10020
Attention: Anthony J. Carroll, Esq.
Facsimile No.: (212) 632-5555
If to Knewco:
Knogo North America Inc.
350 Wireless Boulevard
Hauppauge, New York 11788
Attention: Thomas A. Nicolette
Facsimile No.: (516) 232-2812
With a copy to:
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004
Attention: David H. Kaufman, Esq.
Facsimile No.: (212) 806-6006
14. ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding of the parties with respect to its subject matter, merges and
supersedes all prior and contemporaneous understandings with respect to its
subject matter and may not be waived or modified, in whole or in part, except
by a writing signed by each of the parties. No waiver of any provision of this
Agreement in any instance shall be deemed to be a waiver of the same or any
other provision in any other instance. Failure of any party to enforce any
provision of this Agreement shall not be construed as a waiver of its rights
under such or any other provision.
15. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding on, enforceable against and inure to the benefit of, the parties and
their respective successors and assigns, and nothing herein is intended to
confer any right, remedy or benefit upon any other person.
16. GOVERNING LAW. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of New York
applicable to agreements made and fully to be performed in such state, without
giving effect to conflicts of law principles.
17. CONSTRUCTION. Headings used in this Agreement are for
convenience only and shall not be used in the interpretation of this Agreement.
References herein to Sections and Schedules are to the sections and exhibits of
this Agreement. As used herein, the singular includes the plural.
II-B-10
<PAGE> 198
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first set forth above.
KNOGO CORPORATION
By
---------------------------------
Thomas A. Nicolette
President
KNOGO NORTH AMERICA INC.
By
---------------------------------
Thomas A. Nicolette
President
Effective as of the Effective Time under the Merger Agreement,
Sensormatic Electronics Corporation, as successor to Knogo Corporation, shall
become a party to the foregoing License Agreement and acknowledges and accepts
such Agreement.
SENSORMATIC ELECTRONICS CORPORATION
By
---------------------------------
Name:
Title:
II-B-11
<PAGE> 199
ANNEX II-C
(EXHIBIT C TO
DIVESTITURE AGREEMENT)
SUPPLY AGREEMENT
AGREEMENT, dated as of , 1994, between KNOGO
CORPORATION, a New York corporation ("Knogo"), and KNOGO NORTH AMERICA INC., a
Delaware corporation ("Knewco").
W I T N E S S E T H :
WHEREAS, Knogo and Knewco are parties to the Contribution and
Divestiture Agreement dated as of ___________, 1994 (the "Divestiture
Agreement"), pursuant to which Knewco was formed to continue Knogo's business
operations in the United States, Canada and Puerto Rico (the "Knewco
Territory");
WHEREAS, Knewco and Knogo, together with Sensormatic
Electronics Corporation ("Sensormatic"), are parties to the Agreement and Plan
of Merger, dated as of August 14, 1994 ("Merger Agreement"), pursuant to which
Knogo is to be merged with and into Sensormatic;
WHEREAS, Sensormatic, as the successor to Knogo pursuant to
the Merger, will retain Knogo's business outside the Knewco Territory and will
be selling, leasing and servicing the Products (as defined below) of Knogo in
Europe and other locations;
WHEREAS, Sensormatic ultimately intends to manufacture the
Knogo Products in its own facilities, but requires time to make that
transition;
WHEREAS, Knewco will own and operate a manufacturing facility
in Puerto Rico that manufactures the Products previously manufactured and
distributed by Knogo, both for the Knewco Territory and other locations, and
desires a transition period to replace the volume of Products sold outside the
Knewco Territory with increased sales in the Knewco Territory to avoid loss of
revenue and increased costs; and
WHEREAS, the execution and delivery of this Supply Agreement
is in the mutual interest of the parties in effecting an orderly transition of
the Products to Sensormatic outside the Knewco Territory, and therefore is a
condition to the respective obligations of the parties under the Merger
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements set
forth herein, the parties agree as follows:
1. DEFINITIONS.
(a) "AFFILIATE" means an entity controlled by,
controlling or under common control with a specified entity. As used herein,
the term "control" includes, but is not limited to, the right to vote directly
or indirectly 50% or more of the voting stock of an entity or the right to
direct or influence significantly such entity's management or policies.
(b) "CHANGE OF CONTROL" means any transaction or series
of transactions pursuant to which (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange
Act")) becomes the "beneficial owner" (as
<PAGE> 200
such term is defined in Rule 13(d) under the Exchange Act) of more than 50% of
the combined voting power of Knewco or (ii) the business, and substantially all
of the assets, of Knewco relating to the Products are sold or transferred to
unaffiliated third party.
(c) "GROSS PROFIT MARGIN" means the Net Revenue received
by Knewco from the sale of Products to Knogo, less the Costs of such Products.
For this purpose:
(i) "Net Revenue" means all revenue actually
received by Knewco on its sales of Products to Knogo, exclusive of any
amounts received for (A) sales, use or other taxes (but not income
taxes) paid or payable in respect of such sales or (B) separately
stated charges for freight, shipping and insurance, and net of any
credits for returns and allowances; and
(ii) "Costs" means the total material, components,
labor and direct, manufacturing-related overhead costs (exclusive of
research and development expenses) incurred by Knewco in producing the
Products sold to Knogo, determined on a basis consistent with Knewco's
(and Knogo's, as Knewco's predecessor company's) determination of
product cost used in its financial statements and in accordance with
generally accepted accounting principles consistently applied over all
periods.
(d) "KNEWCO TERRITORY" means the fifty states of the United States
of America, the District of Columbia, Puerto Rico, and Canada.
(e) "LICENSE AGREEMENT" means the License Agreement of even date
herewith between Knogo and Knewco.
(f) "PRODUCTS" means (i) all of the systems, tags, detachers,
accessories, other devices and spare parts manufactured and marketed by Knewco
as of the date hereof, as listed in Exhibit A, and (ii) any modified, improved
or successor models or versions thereof, or other additions to such product
lines, manufactured or marketed by Knewco during the term of this Agreement.
(g) "PRICE LIST" means Knewco's list of the Products and their
prices to Knogo and/or Sensormatic hereunder, as in effect from time to time.
The Price List in effect as of the date of this Agreement is set forth in
Exhibit A.
(h) "QUARTER" means each calendar quarter during the Term (as
defined below), except that, if the date of this Agreement is other than the
first day of a calendar quarter, the first Quarter of the Term shall commence
on the date hereof and shall terminate on the last day of the calendar quarter
in which such commencement date occurs and the last Quarter shall terminate on
the date set forth in Section 2.
(i) "TERM" means the term of this Agreement, as provided in
Section 2.
Unless otherwise required by the context, references in this Agreement
to "Knogo" shall be deemed to refer also to Sensormatic as the successor to
Knogo pursuant to the Merger Agreement.
2. TERM. The term of this Agreement shall commence on the date
hereof and shall continue for a period of 30 months through ___________, 1997,
unless earlier terminated pursuant to the provisions of Section 4(d)(ii),
Section 8 or Section 9.
II-C-2
<PAGE> 201
3. SUPPLY AND DISPOSITION OF THE PRODUCTS.
(a) SUPPLY. During the Term and subject to the terms and conditions
of this Agreement, Knewco shall sell to Knogo Products ordered by Knogo. Such
Products shall be generally of the same quality and type as are marketed and
sold by Knewco in the Knewco Territory, subject to regional variation and/or
modifications requested by customers. Knogo shall have the right to market,
sell, lease, use, install, service and otherwise deal with the Products
throughout the world, except for the Knewco Territory.
(b) NO PROHIBITION. Nothing in this Agreement shall prohibit or in
any way limit Knogo, or Sensormatic as successor to Knogo, from selling,
leasing or in any other way dealing in any products (other than the Products)
which are competitive with any of the Products anywhere in the world, including
the Knewco Territory.
4. MINIMUM PURCHASES.
(a) QUARTERLY MINIMUMS. During the following periods within the
Term, Knogo shall purchase from Knewco Products in the following monthly and
quarterly aggregate dollar amounts:
<TABLE>
<CAPTION>
Monthly Orders Minimum Dollar
Period (Plus or Minus 25%) Amount Per Quarter
------ ------------------- ------------------
<S> <C> <C>
First 12 Months $1,000,000 $3,000,000
Next 18 Months 667,000 2,000,000
</TABLE>
A Product shall be considered to have been purchased for purposes of satisfying
the minimum dollar amount for any Quarter (or month referred to in Section
4(c)) (a "Minimum") if it is ordered in such Quarter (or month) for shipment
within not more than 90 days after the date of the order (or such longer period
as Knewco may accept) and is paid for in full within 30 days after Knogo's
receipt of Knewco's invoice therefor rendered pursuant to Section 5(c). If the
Term commences on a date other than the first day of a calendar quarter, the
Minimums for the first and last Quarters shall be appropriately prorated and
the Minimum for the fifth Quarter shall equal (i) the sum of (A) $3,000,000
times the number of days in the fifth Quarter prior to the first anniversary
date of this Agreement plus (B) $2,000,000 times the number of days in the
balance of the fifth Quarter, with such sum (ii) divided by the total number of
days in the fifth Quarter.
(b) CUMULATIVE CREDITS. In determining whether Knogo has
satisfied the Minimum for any Quarter (a "Subject Quarter") or month referred
to in Section 4(c), all or any portion of any purchases of Products by Knogo in
any prior Quarters in excess of the Minimums applicable to such prior Quarters
may be credited, at Knogo's option, against the Minimum for the Subject Quarter
or any month thereof.
(c) MONTHLY ORDERS. For each full calendar month during the first
twelve months following the date of this Agreement, Knogo shall purchase not
less than an aggregate of $750,000 of Products in such month (subject to any
credits permitted under Section 4(b)) and may not purchase in excess of
$1,250,000 in the aggregate of Products in such month unless Knewco accepts
orders for such excess (as governed by Section 5(e)). For each full calendar
month during the next eighteen months following the date of this Agreement,
Knogo shall purchase not less than an aggregate of $500,000 of Products in such
month (subject to any credits permitted under Section 4(b)) and may not
purchase in excess of $833,000 in the
II-C-3
<PAGE> 202
aggregate of Products in such month unless Knewco accepts orders for such
excess (as governed by Section 5(e)). For any partial month included in any
quarter, the foregoing upper and lower limits shall be adjusted pro rata based
on the number of days in such month divided by 30.
(d) FAILURE TO SATISFY MINIMUMS.
(i) If Knogo fails to satisfy the Minimums for any
Quarter (after giving effect to the provisions of Section 4(b)), and
such failure is not attributable to any of the force majeure
circumstances set forth in Section 7 or to any failure by Knewco to
fulfill Knogo's orders for Products on a timely basis (in which case
the provisions of Section 4(d)(iv) shall apply), Knewco shall notify
Knogo of such failure and the amount of the aggregate deficiency.
Within 30 days of the date of such notice, Knogo shall cure such
failure by, at its option, (A) purchasing Products in the full dollar
amount of the deficiency (subject, in the case of this clause (A), to
any applicable monthly limit unless waived by Knewco), or (B) paying
to Knewco liquidated damages in an amount equal to 35% of such
deficiency (provided, that this clause (B) shall apply to the extent
that the cure under clause (A) cannot be effected by reason of the
applicable monthly limits). Notwithstanding the preceding sentence,
it is the intention of the parties that, while Sensormatic, as the
successor in interest to Knogo, shall have its own manufacturing
capacity for Products, it shall, to the extent of the quarterly
Minimums provided for in this Agreement, fulfill such requirements by
purchasing Products from Knewco in such minimum amounts, rather than
from its own production. Accordingly, to the extent that Sensormatic
fails to meet its Minimum for any Quarter because it contemporaneously
produces Products for itself rather than purchasing them from Knewco
pursuant to this Agreement, the amount payable under clause (B) of
this Section 4(d)(i) in order to cure any such default shall be equal
to 50% of the deficiency attributable to such production by
Sensormatic.
(ii) If Knogo fails to cure pursuant to Section 4(d)(i),
such failure shall constitute a default under this Agreement and
Knewco shall have the right to (A) terminate this Agreement on not
less than 15 days' notice to Knogo and (B) receive from Knogo payment
within 15 days of Knewco's demand therefor of an amount of liquidated
damages equal to (x) the amount referred to in clause (B) of Section
4(d)(i), plus (y) 35% of the Minimums for the remainder of the Term
(after giving credit for any purchases of Products by Knogo following
the end of the Quarter in which the deficiency occurred), with the
amounts described in clause (y) to be discounted to net present value
using the then current prime rate as announced by Citibank, N.A. from
time to time at its New York headquarters as its base rate for
corporate loans. For this purpose, each Minimum shall be discounted
from the last day of the Quarter to which it relates.
(iii) If Knogo pays liquidated damages to Knewco with
respect to a Quarter pursuant to clause (B) of Section 4(d)(i), and
with respect to any subsequent Quarter makes purchases in excess of
the Minimums for that Quarter, Knogo shall have the right, at its
option, to require Knewco to reimburse Knogo for such liquidated
damages payment to the extent of $0.35 for each $1.00 of such excess
purchases.
(iv) If Knewco fails to ship all or any part of any order
by Knogo for Products within 15 days after the shipment date specified
therefor in such order, Knogo may (A) re-submit the order for the
unshipped portion thereof, at the prices applicable to the order when
originally submitted and for delIVery at any time specified in the
re-submitted order, or (B) cancel the unshipped portion of the order.
In either case, the Products subject to the re-ordered or cancelled
portion of the order shall be treated as having been
II-C-4
<PAGE> 203
purchased within the Quarter in which the order was originally
submitted and shall be credited against the Minimum for such Quarter,
as if shipped and paid for by Knogo, for all purposes of this Section
4.
(e) EXCLUSIVE REMEDIES. If Knogo pays in full the liquidated
damages calculated pursuant to Section 4(d), such liquidated damages and
termination of this Agreement shall be Knewco's sole remedies, at law and at
equity, for Knogo's failure to satisfy any Minimum. The parties agree that any
such failure by Knogo could cause losses to Knewco that would be difficult or
impossible to calculate accurately. Accordingly, with the intention of
providing a fair and reasonable method of calculating the amount of such
losses, and to impose damages which would not be disproportionate to such
losses, the parties agree that Knogo shall pay the amount calculated pursuant
to Section 4(d) in the event of such a failure to satisfy Minimums, as
liquidated damages, and not as a penalty.
5. PURCHASE AND SALE OF PRODUCTS.
(a) GENERAL. All purchases of Products by Knogo from Knewco
shall be governed by the terms and conditions set forth in this Agreement.
(b) PRICES. Prices for the Products shall be as set forth in
the Price List, the initial form of which is set forth in Exhibit A. All
prices set forth in the Price List shall be F.O.B. Knewco's Puerto Rico plant.
Following the first 12 months of the Term, Knewco may increase the prices on
the Price List at any time, but not more than twice in any 12-month period.
Any such price increases shall be effective 30 days after the date of the
notice thereof given by Knewco to Knogo (provided, that in the case of written
proposals issued by Knogo to customers or potential customers as of the date of
such notice, Knogo shall have the right to place orders arising out of such
proposals at the pre-increase prices for up to 90 days after the date of such
notice). Any orders placed by Knogo with Knewco prior to the expiration of
such 30-day period (or 90-day period, if applicable pursuant to the preceding
sentence) shall be fulfilled by Knewco at the pre-increase prices.
It is the intention of the parties that the prices for the
Products shall provide Knewco with an average 35% Gross Profit Margin on sales
of Products to Knogo. Accordingly, Knewco may raise prices only if increases
in Costs decrease Knewco's Gross Profit Margin on sales to Knogo below the 35%
level and only to the extent necessary to restore the Gross Profit Margin to
such level. Further, Knewco shall decrease its prices whenever decreases in
Costs increase Knewco's Gross Profit Margin on sales to Knogo above the 35%
level and only to the extent necessary to restore the Gross Profit Margin to
such level. At Knogo's request, Knewco will permit Knogo's independent
certified public accountants to examine Knewco's pertinent books and records
(including, without limitation, the work papers of Knewco and its auditors used
in the determination and audit review of Knewco's Costs) solely to verify
Knewco's Costs and Knewco's right to increase prices or obligation to decrease
prices pursuant to this Section 5(b) and whether or not the amount of any such
increase or decrease is correct under the foregoing criteria. Such accountants
shall maintain the confidentiality of such information and shall not disclose
the same to Knogo (except as to their conclusions).
(c) INVOICES AND PAYMENT. Knewco shall issue invoices to
Knogo on shipment of Products ordered by Knogo. Each invoice shall state the
purchase price for each Product shipped, and shall separately state all charges
for freight, shipping and insurance if paid in the first instance by Knewco any
applicable charges for taxes. Knogo shall pay the full amount of each invoice
within 30 days after the date of the invoice, at such place as Knewco
designates, except to the extent relating to non-conforming Products which
Knogo rejects
II-C-5
<PAGE> 204
pursuant to Section 5(i) or to the extent that Knogo in good faith disputes
amounts shown in the invoice. All invoices shall be expressed and shall be
paid in U.S. dollars.
(d) FORECASTS. Not later than 30 days prior to the beginning
of each Quarter during the Term (other than the first Quarter), Knogo shall
furnish to Knewco a written, non-binding forecast, by Product number, of
Knogo's anticipated purchases during such Quarter, with projected shipment
dates.
(e) ORDERS. All orders for Products submitted by Knogo shall
be in writing and may be submitted by facsimile transmission. All orders shall
in all respects be consistent with the terms and conditions of this Agreement,
and no inconsistent term contained in any order shall be effective to modify or
supplement the provisions of this Agreement unless agreed to by Knewco. To
facilitate Knewco's production scheduling, Knogo shall submit each order at
least 90 days prior to the requested shipment date. No order shall be binding
on Knewco until received and accepted by it at its principal office, but Knewco
shall have the right to reject an order or a divisible portion thereof only if
inconsistent with the provisions of this Agreement (including without
limitation Section 4(c)) or if Knogo is then in material default of its
obligations under this Agreement. Knewco shall reply to orders in writing
(which may be by facsimile transmission) within five days after its receipt of
orders. Any order not rejected by Knewco within such period shall be deemed
accepted. If any provision of Knewco's reply is inconsistent with any
provision of this Agreement, the latter shall govern.
(f) CHANGE ORDERS. Without affecting the minimum purchase
requirements under Section 4, Knogo shall have the right to submit change
orders to Knewco at any time prior to the 15th day before the requested date of
Product shipment stated in the original order. Such changes may postpone
delivery, provided that the rescheduled delivery date is within the Term, or to
reduce the quantity of Products originally ordered by up to 25%.
(g) DELIVERIES. Knewco shall use its best efforts to deliver
all Products ordered by Knogo on the shipment dates specified in Knogo's orders
and shall deliver all Products not later than 10 days after such dates. Knewco
shall deliver all Products ordered by Knogo, F.O.B. Knewco's Puerto Rico plant,
to such carriers as are specified by Knogo, suitably packed for shipment in
Knewco's standard containers marked for shipment to such destinations as shall
be specified by Knogo in its orders. Unless otherwise instructed by Knogo,
Knogo shall select the carrier in each instance. All freight, insurance and
other shipping expenses, including the cost of any special packaging requested
by Knogo, shall be borne by Knogo.
(h) RISK OF LOSS. Title and risk of loss for all Products
shall pass to Knogo on Knewco's delivery of the Products to the carrier
designated by Knogo.
(i) REJECTION OF PRODUCTS. Knogo shall inspect all Products
promptly on receipt thereof and may reject any Products that are not in
conformity with the applicable order, are damaged or which do not meet the
applicable manufacturer's specifications therefor. Any Product not rejected in
writing within 45 days after receipt shall be deemed to have been accepted by
Knogo. Knogo shall have the right to return any properly rejected Product, for
full credit against the invoiced amount therefor, and in accordance with any
reasonable return procedure on which the parties shall agree. Any such return
shall be at the expense of Knewco and Knewco shall promptly repair or replace
and reship to Knogo all rejected Products at Knewco's sole expense.
(j) TAXES AND DUTIES; PERMITS. Knogo shall be responsible for
all sales, use, value-added and other similar taxes, other than income taxes,
payable by Knewco, in respect of the sale of the Products by Knewco to Knogo,
and shall also be responsible for all tariffs, duties
II-C-6
<PAGE> 205
and like charges assessed with respect to the shipment, export, import, sale,
lease and other disposition of the Products by Knogo. Knogo shall be
responsible for and shall obtain all governmental permits, authorizations,
approvals and licenses, if any, required in order to sell or lease the Products
anywhere outside the Knewco Territory.
(k) TRADEMARKS. Knewco shall manufacture the Products bearing
such trademarks, service marks, tradenames, logos and other symbols (together,
"Marks") of Knogo or Knewco, or without any such Marks, as specified by Knogo
from time to time, on reasonable notice to Knewco.
(l) MANUALS. Knewco shall include with each Product
delivered to Knogo such end user installation, operation and other instructions
and manuals as it normally includes with Products delivered to others.
Further, Knewco shall at all times provide Knogo with a reasonable number of
copies of all installation, operation and other instructions and manuals as
Knogo shall reasonably require in order to properly market, install, service,
maintain and repair the Products.
6. WARRANTY AND LIMITATION OF LIABILITY. Knewco warrants
that each Product shall be free of defects in material and workmanship and
shall meet all applicable specifications therefor. This warranty shall
commence on receipt by Knogo of the Product and shall remain in effect until
the completion of the installation of the Product at the customer's location
and the acceptance thereof by the customer or one year from such receipt,
whichever is earlier, which effectiveness shall survive any termination of this
Agreement. Knewco shall promptly repair, or at its option, replace, any
defective Product free of charge and shall ship all repaired or replacement
Products to Knogo at Knewco's sole expense for freight, insurance and any
applicable duties or tariffs. Alternatively, Knewco may direct Knogo to effect
any required repairs itself. In such event, Knewco shall reimburse Knogo's
reasonable costs in effecting such repairs by credit against invoices for
Products shipped to Knogo or by payment to Knogo within 30 days of Knogo's
invoices to Knewco therefor. This warranty shall not apply to any Products
that are subjected to improper, installation, unauthorized alteration, misuse
or abuse.
To obtain warranty service, Knogo must notify Knewco of any
claimed defect within 45 days after Knogo's discovery of the defect and, in any
event, within the warranty period referred to above. Knogo shall hold the
defective Product unless and until instructed by Knewco to return it to Knewco,
which return shall be at Knewco's expense.
EXCEPT FOR THE EXPRESS WARRANTY MADE ABOVE, KNEWCO MAKES NO
WARRANTY AS TO ANY PRODUCT (OTHER THAN THE WARRANTY OF TITLE), EXPRESS OR
IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY
OR OF FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall Knewco be
liable for any incidental, consequential, special or indirect damages suffered
by Knogo or any of its employees or agents in connection with the sale, lease
or other disposition or use of the Products.
7. FORCE MAJEURE; ALLOCATIONS. Neither party shall be liable
to the other by reason of any failure to perform, or any delay or nonconformity
in the performance of, its obligations hereunder (other than monetary amounts
due and payable), and neither party shall attempt to hold the other liable in
any respect for any such failure, delay or nonconformity, caused by any event
of force majeure or other contingency beyond its control, including, without
limitation, fire, explosion, labor dispute, casualty or accident, restraints
affecting, or failure of, shipping or transportation facilities, earthquake or
other natural calamity, lack or failure of sources of supply of labor, raw
materials, components or power, war, civil commotion or acts of any
governmental or supranational legal authority (including the failure of
governments to certify
II-C-7
<PAGE> 206
the Products or to approve their sale in jurisdictions in which such
certifications or approvals are required, if such failure has a material effect
on the ability of Knogo to satisfy any Minimums). Such force majeure
contingencies shall excuse performance only so long as they exist, and the
party whose performance had been excused by virtue thereof shall as promptly as
is practicable resume performance of its obligations hereunder. In the event
that, due to force majeure contingencies or lack of production capacity caused
by other reasons, Knewco is unable to completely fulfill all orders placed with
it by Knewco and others, Knewco shall make a reasonable allocation between its
own needs and Knogo's orders.
8. CHANGE OF CONTROL OF KNEWCO. In the event of any Change
of Control of Knewco during the term of this Agreement, the term of this
Agreement shall end on the first anniversary of the date hereof, or at the end
of six months after such Change of Control, whichever is later, provided,
however, that this Agreement shall terminate in any event no later than
________, 1997.
9. TERMINATION.
(a) GROUNDS FOR TERMINATION. In addition to the termination
provisions of Section 4(d) and Section 8, each party shall have the right to
terminate this Agreement, at any time, on notice to the other, if:
(i) the other party breaches its obligations under
this Agreement in any material respect and such breach is not cured
within 30 days after the non-breaching party gives the breaching party
notice thereof or, if the breach is of a nature such that it cannot be
cured within 30 days, the other party diligently institutes steps to
cure such breach within such 30-day period and thereafter diligently
prosecutes such cure to completion; or
(ii) (A) a court of competent jurisdiction enters a
decree or order of relief (I) in respect of the other party in any
voluntary or involuntary case or proceeding under any bankruptcy,
insolvency or similar law, as now or hereafter in effect, or (II)
appointing a receiver, liquidator, assignee, trustee or similar
official of the other party or any substantial part of its assets, and
such decree or order is consented to by the other party or continues
unstayed and in effect for a period of 60 consecutive days, or (B) the
other party makes a general assignment for the benefit of creditors.
(b) NO ELECTION OF REMEDIES. Any termination of this
Agreement pursuant to this Section 9 shall be in addition to and shall not be
exclusive of any other rights or remedies either party may have on account of
any breach or default of the other.
(c) EFFECT OF TERMINATION. The termination of this Agreement
pursuant to Section 4(d), Section 8 or this Section 9 shall not terminate
Knogo's obligation to make any payments for Products shipped prior to the date
of the termination or to pay liquidated damages, if any, which are payable
pursuant to Section 4(d), nor shall it terminate Knewco's obligation to fulfill
orders placed prior to the date of termination if Knogo is not then in default
hereunder or Knogo's obligation to make any payments for Products shipped to
fulfill such orders.
10. ARBITRATION.
(a) GENERAL. Any controversy or claim arising out of or
relating to this Agreement shall be settled by arbitration before a single
arbitrator in New York, New York, in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. Any
II-C-8
<PAGE> 207
decision or award of the arbitrator shall be binding on the parties. Judgment
on any award rendered by the arbitrator may be entered in any court of
competent jurisdiction.
(b) PROCEDURE. Each party consents to the jurisdiction of
such arbitration and to such venue. The arbitrator shall apply the law of the
State of New York, exclusive of conflict of laws principles, to any dispute.
Nothing in this Agreement shall require the arbitration of disputes between the
parties that arise from actions, suits or proceedings instituted by third
parties. Knogo appoints Messrs. Christy & Viener, 620 Fifth Avenue, New York,
New York 10020, Attention: Kenneth W. Taber, Esq., and Knewco appoints Messrs.
Stroock & Stroock & Lavan, Seven Hanover Square, New York, New York 10004,
Attention: David H. Kaufman, Esq., as their respective attorneys-in-fact and
authorized agents solely to receive on their behalf, service of any demands
for, or any notice with respect to, arbitration hereunder or any service of
process. Service on either of such attorneys-in-fact may be made by registered
or certified mail or by personal delivery, in any case return receipt
requested, and shall be effective as service on either party, as the case may
be. Nothing herein shall be deemed to affect any right to serve any such
demand, notice or process in any other manner permitted under applicable law.
11. NON-AGENCY. For all purposes of this Agreement, each
party shall be an independent contractor, and not an agent, partner or joint
venturer, of the other.
12. NO ASSIGNMENT. Neither party shall assign, subcontract or
otherwise transfer this Agreement or any right or interest in or to this
Agreement without the prior consent of the other, except that either party may
assign this Agreement to any parent corporation or wholly-owned subsidiary or
to any successor to all or a substantial portion of its business.
13. COMMUNICATIONS. All notices, consents and other
communications given under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when delivered by hand or by Federal Express
or a similar overnight courier to, (b) seven days after being deposited in any
United States post office enclosed in an airmail postage prepaid registered or
certified envelope addressed to, or (c) when successfully transmitted by
facsimile (with a confirming copy of such communication to be sent as provided
in (a) or (b) above) to, the party for whom intended, at the address or
facsimile number for such party set forth below, or to such other address or
facsimile number as may be furnished by such party by notice in the manner
provided herein; provided, however, that any notice of change of address or
facsimile number shall be effective only upon receipt.
If to Knogo or Sensormatic:
Sensormatic Electronics Corporation
500 N.W. 12th Avenue
Deerfield Beach, Florida 33442
Attention: Corporate Counsel
Facsimile No.: (305) 420-2561
and
Vice President of Corporate Development
Facsimile No.: (305) 420-2964
II-C-9
<PAGE> 208
With a copy to:
Christy & Viener
620 Fifth Avenue
New York, New York 10020
Attention: Anthony J. Carroll, Esq.
Facsimile No.: (212) 632-5555
If to Knewco:
Knogo North America Inc.
350 Wireless Boulevard
Hauppauge, New York 11788
Attention: Thomas A. Nicolette
Facsimile No.: (516) 232-2812
With a copy to:
Stroock & Stroock & Lavan
Steven Hanover Square
New York, New York 10004
Attention: David H. Kaufman
Facsimile No.: (212) 806-6006
14. ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding of the parties with respect to its subject matter, merges and
supersedes all prior and contemporaneous understandings with respect to its
subject matter and may not be waived or modified, in whole or in part, except
by a writing signed by each of the parties. No waiver of any provision of this
Agreement in any instance shall be deemed to be a waiver of the same or any
other provision in any other instance. Failure of any party to enforce any
provision of this Agreement shall not be construed as a waiver of its rights
under such or any other provision.
15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
on, enforceable against and inure to the benefit of, the parties and their
respective permitted successors and assigns, and nothing herein is intended to
confer any right, remedy or benefit upon any other person.
16. GOVERNING LAW. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of New York
applicable to agreements made and fully to be performed in such state, without
giving effect to conflicts of law principles.
17. CONSTRUCTION. Headings used in this Agreement are for
convenience only and shall not be used in the interpretation of this Agreement.
References herein to Sections and Exhibits are to the sections and exhibits of
this Agreement. As used herein, the singular includes the plural.
II-C-10
<PAGE> 209
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first set forth above.
KNOGO CORPORATION
By______________________________________
Thomas A. Nicolette
President
KNOGO NORTH AMERICA INC.
By______________________________________
Thomas A. Nicolette
President
Effective as of the Effective Time under the Merger Agreement,
Sensormatic Electronics Corporation, as successor to Knogo Corporation, shall
become a party to the foregoing Supply Agreement and hereby acknowledges and
accepts such Agreement.
SENSORMATIC ELECTRONICS CORPORATION
By______________________________________
Name:
Title:
II-C-11
<PAGE> 210
ANNEX III
[Smith Barney Inc. Letterhead]
August 14, 1994
The Board of Directors
KNOGO Corporation
350 Wireless Boulevard
Hauppauge, New York 11788
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of KNOGO Corporation ("KNOGO") of the
consideration to be received by such holders pursuant to the terms and subject
to the conditions set forth in the Agreement and Plan of Merger, dated as of
August 14, 1994 (the "Merger Agreement"), among Sensormatic Electronics
Corporation ("Sensormatic"), KNOGO and KNOGO North America Inc. ("KNOGO N.A.")
and the Contribution and Divestiture Agreement, dated as of August 14, 1994,
between KNOGO and KNOGO N.A. (the "Divestiture Agreement" and, together with
the Merger Agreement, the "Agreements"). As more fully described in the Merger
Agreement, (i) KNOGO will be merged with and into Sensormatic (the "Merger")
and (ii) each outstanding share of the common stock, par value $0.01 per share,
of KNOGO (the "KNOGO Common Stock") will be converted into the right to receive
that fraction of a share of the common stock, par value $0.01 per share, of
Sensormatic (the "Sensormatic Common Stock") equal to the quotient obtained by
dividing (x) $18.00 (the "Exchange Value") by (y) the average closing price of
the Sensormatic Common Stock on the New York Stock Exchange during the 20
trading days immediately prior to the effective date of the Merger (the
"Average Closing Price"); provided that, if the Average Closing Price as of the
effective date exceeds $33.00, the Exchange Value will be increased by the
product of 0.273 and such excess, subject to certain further adjustments; and
provided, further that, if the Average Closing Price is less than $28.00,
Sensormatic will have the right to pay all or a portion of the consideration
payable in the Merger in cash. In addition, it is our understanding, as more
fully described in the Divestiture Agreement, that immediately prior to the
Merger, (i) KNOGO will contribute to KNOGO N.A. certain assets and liabilities
of KNOGO relating to its operations in the United States, Canada and Puerto
Rico, and (ii) the common stock of KNOGO N.A. (the "KNOGO N.A. Common Stock")
will be distributed to the stockholders of the Company (the "Divestiture" and,
together with the Merger, the "Transaction").
In arriving at our opinion, we reviewed the Agreements and certain related
agreements, and held discussions with certain senior officers, directors and
other representatives and advisors of KNOGO and certain senior officers and
other representatives and advisors of Sensormatic concerning the businesses,
operations and prospects of KNOGO, KNOGO N.A. and Sensormatic. We examined
certain publicly available business and financial information relating to KNOGO
and Sensormatic and certain business and pro forma financial information
relating to KNOGO N.A. as well as certain financial forecasts and other data
for KNOGO, KNOGO N.A. and Sensormatic which were provided to us by the
respective managements of KNOGO and Sensormatic. We reviewed the financial
terms of the Transaction as set forth in the Agreements
<PAGE> 211
The Board of Directors
KNOGO Corporation
350 Wireless Boulevard
Hauppauge, New York 11788
Page 2
in relation to, among other things: current and historical market prices and
trading volumes of the KNOGO Common Stock and Sensormatic Common Stock; the
historical and projected earnings of KNOGO and Sensormatic and the pro forma
historical and projected earnings of KNOGO N.A.; and the respective companies'
capitalization and financial condition. We also considered, to the extent
publicly available, the financial terms of certain other similar transactions
recently effected, and analyzed certain financial and other publicly available
information relating to the businesses of other companies, in KNOGO's industry.
In connection with our engagement, we also approached, and held preliminary
discussions with, certain third parties to solicit indications of interest in a
possible acquisition of KNOGO. In addition to the foregoing, we conducted such
other analyses and examinations and considered such other financial, economic
and market criteria as we deemed necessary to arrive at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or furnished to or otherwise discussed with us.
With respect to financial forecasts and other information provided to or
otherwise discussed with us, we assumed that such forecasts and other
information were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective managements of KNOGO and
Sensormatic as to the expected future financial performance of KNOGO, KNOGO
N.A. and Sensormatic. We also have relied upon your counsel's analysis of the
potential tax consequences of the Transaction. We are not expressing any
opinion as to what the value of the Sensormatic Common Stock actually will be
when issued to KNOGO stockholders pursuant to the Merger, what the value of the
KNOGO N.A. Common Stock actually will be when issued to KNOGO stockholders
pursuant to the Divestiture, or the prices at which the Sensormatic Common
Stock or KNOGO N.A. Common Stock will trade subsequent to the Transaction. We
have not made or been provided with an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of KNOGO, KNOGO N.A. or
Sensormatic nor have we made any physical inspection of the properties or
assets of KNOGO, KNOGO N.A. or Sensormatic. Our opinion is necessarily based
upon financial, stock market and other conditions and circumstances existing
and disclosed to us as of the date hereof.
Smith Barney has been engaged to render financial advisory services to KNOGO in
connection with the Transaction and will receive a fee for our services, a
significant portion of which is contingent upon consummation of the
Transaction. We also will receive a fee upon the delivery of this opinion. In
the ordinary course of our business, we may actively trade the securities of
KNOGO and Sensormatic for our own account or for the account of our customers
and, accordingly, may at any time hold a long or short position in such
securities.
Our advisory services and the opinion expressed herein are provided solely for
the use of the Board of Directors of KNOGO in its evaluation of the proposed
Transaction and are not on behalf of, and are not intended to confer rights or
remedies upon, Sensormatic or its affiliates, any stockholder of KNOGO or
Sensormatic, or any person other than the Board of Directors. Our opinion may
not be published or otherwise used or referred to, nor shall any public
reference to Smith Barney be made, without our prior written consent.
<PAGE> 212
The Board of Directors
KNOGO Corporation
350 Wireless Boulevard
Hauppauge, New York 11788
Page 3
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the consideration to be received by the
holders of KNOGO Common Stock in the Merger and the Divestiture, taken
together, is fair, from a financial point of view, to such holders.
Very truly yours,
/s/ Smith Barney
- ----------------
SMITH BARNEY INC.
<PAGE> 213
ANNEX IV
NEW YORK BUSINESS CORPORATION LAW PROVISIONS
Section 623. PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE
PAYMENT FOR SHARES
(a) A shareholder intending to enforce his right under a
section of this chapter to receive payment for his shares if the proposed
corporate action referred to therein is taken shall file with the corporation,
before the meeting of shareholders at which the action is submitted to a vote,
or at such meeting but before the vote, written objection to the action. The
objection shall include a notice of his election to dissent, his name and
residence address, the number and classes of shares as to which he dissents and
a demand for payment of the fair value of his shares if the action is taken.
Such objection is not required from any shareholder to whom the corporation did
not give notice of such meeting in accordance with this chapter or where the
proposed action is authorized by written consent of shareholders without a
meeting.
(b) Within ten days after the shareholders'
authorization date, which term as used in this section means the date on which
the shareholders' vote authorizing such action was taken, or the date on which
such consent without a meeting was obtained from the requisite shareholders,
the corporation shall give written notice of such authorization or consent by
registered mail to each shareholder who filed written objection or from whom
written objection was not required, excepting any shareholder who voted for or
consented in writing to the proposed action and who thereby is deemed to have
elected not to enforce his right to receive payment for his shares.
(c) Within twenty days after the giving of notice to
him, any shareholder from whom written objection was not required and who
elects to dissent shall file with the corporation a written notice of such
election, stating his name and residence address, the number and classes of
shares as to which he dissents and a demand for payment of the fair value of
his shares. Any shareholder who elects to dissent from a merger under section
905 (Merger of subsidiary corporation) or paragraph (c) of section 907 (Merger
or consolidation of domestic and foreign corporations) or from a share exchange
under paragraph (g) of Section 913 (Share exchanges) shall file a written
notice of such election to dissent within twenty days after the giving to him
of a copy of the plan of merger or exchange or an outline of the material
features thereof under section 905 or 913.
(d) A shareholder may not dissent as to less than all of
the shares, as to which he has a right to dissent, held by him of record, that
he owns beneficially. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the shares of such owner, as to which
such nominee or fiduciary has a right to dissent, held of record by such
nominee or fiduciary.
(e) Upon consummation of the corporate action, the
shareholder shall cease to have any of the rights of a shareholder except the
right to be paid the fair value of his shares and any other rights under this
section. A notice of election may be withdrawn by the shareholder at any time
prior to his acceptance in writing of an offer made by the corporation, as
provided in paragraph (g), but in no case later than sixty days from the date
of consummation of the corporate action except that if the corporation fails to
make a timely offer, as provided in paragraph (g), the time for withdrawing a
notice of election shall be extended until sixty days from the date an offer is
made. Upon expiration of such time, withdrawal of a notice of election shall
require the written consent of the corporation. In order to be effective,
withdrawal of a notice of election must be accompanied by the return to the
corporation of any advance payment made to the shareholder as provided in
paragraph (g). If a notice of election is withdrawn, or the corporate action is
rescinded, or a court shall determine that the shareholder is not entitled to
receive payment for his shares, or the shareholder shall otherwise lose his
dissenter's rights, he shall not have the right to receive payment for his
shares and he shall be reinstated to all his rights as a shareholder as of the
consummation of the corporate action, including any intervening preemptive
<PAGE> 214
rights and the right to payment of any intervening dividend or other
distribution or, if any such rights have expired or any such dividend or
distribution other than in cash has been completed, in lieu thereof, at the
election of the corporation, the fair value thereof in cash as determined by
the board as of the time of such expiration or completion, but without
prejudice otherwise to any corporate proceedings that may have been taken in
the interim.
(f) At the time of filing the notice of election to
dissent or within one month thereafter the shareholder of shares represented by
certificates shall submit the certificates representing his shares to the
corporation, or to its transfer agent, which shall forthwith note conspicuously
thereon that a notice of election has been filed and shall return the
certificates to the shareholder or other person who submitted them on his
behalf. Any shareholder of shares represented by certificates who fails to
submit his certificates for such notation as herein specified shall, at the
option of the corporation exercised by written notice to him within forty-five
days from the date of filing of such notice of election to dissent, lose his
dissenter's rights unless a court, for good cause shown, shall otherwise
direct. Upon transfer of a certificate bearing such notation, each new
certificate issued therefor shall bear a similar notation together with the
name of the original dissenting holder of the shares and a transferee shall
acquire no rights in the corporation except those which the original dissenting
shareholder had at the time of transfer.
(g) Within fifteen days after the expiration of the
period within which shareholders may file their notices of election to dissent,
or within fifteen days after the proposed corporate action is consummated,
whichever is later (but in no case later than ninety days from the
shareholders' authorization date), the corporation or, in the case of a merger
or consolidation, the surviving or new corporation, shall make a written offer
by registered mail to each shareholder who has filed such notice of election to
pay for his shares at a specified price which the corporation considers to be
their fair value. Such offer shall be accompanied by a statement setting forth
the aggregate number of shares with respect to which notices of election to
dissent have been received and the aggregate number of holders of such shares.
If the corporate action has been consummated, such offer shall also be
accompanied by (1) advance payment to each such shareholder who has submitted
the certificates representing his shares to the corporation, as provided in
paragraph (f), of an amount equal to eighty percent of the amount of such
offer, or (2) as to each shareholder who has not yet submitted his certificates
a statement that advance payment to him of an amount equal to eighty percent of
the amount of such offer will be made by the corporation promptly upon
submission of his certificates. If the corporate action has not been
consummated at the time of the making of the offer, such advance payment or
statement as to advance payment shall be sent to each shareholder entitled
thereto forthwith upon consummation of the corporate action. Every advance
payment or statement as to advance payment shall include advice to the
shareholder to the effect that acceptance of such payment does not constitute a
waiver of any dissenters' rights. If the corporate action has not been
consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than
a twelve-month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the
foregoing, the corporation shall not be required to furnish a balance sheet or
profit and loss statement or statements to any shareholder to whom such balance
sheet or profit and loss statement or statements were previously furnished, nor
if in connection with obtaining the shareholders' authorization for or consent
to the proposed corporate action the shareholders were furnished with a proxy
or information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be
paid for
IV-2
<PAGE> 215
his shares, payment therefor shall be made within sixty days after the making
of such offer or the consummation of the proposed corporate action, whichever
is later, upon the surrender of the certificates for any such shares
represented by certificates.
(h) The following procedure shall apply if the
corporation fails to make such offer within such period of fifteen days, or if
it makes the offer and any dissenting shareholder or shareholders fail to agree
with it within the period of thirty days thereafter upon the price to be paid
for their shares:
(1) The corporation shall, within twenty days after the
expiration of whichever is applicable of the two periods last
mentioned, institute a special proceeding in the supreme court in the
judicial district in which the office of the corporation is located to
determine the rights of dissenting shareholders and to fix the fair
value of their shares. If, in the case of merger or consolidation,
the surviving or new corporation is a foreign corporation without an
office in this state, such proceeding shall be brought in the county
where the office of the domestic corporation, whose shares are to be
valued, was located.
(2) If the corporation fails to institute such proceeding
within such period of twenty days, any dissenting shareholder may
institute such proceeding for the same purpose not later than thirty
days after the expiration of such twenty day period. If such
proceeding is not instituted within such thirty day period, all
dissenter's rights shall be lost unless the supreme court, for good
cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as
provided in paragraph (g), have agreed with the corporation upon the
price to be paid for their shares, shall be made parties to such
proceeding, which shall have the effect of an action quasi in rem
against their shares. The corporation shall serve a copy of the
petition in such proceeding upon each dissenting shareholder who is a
resident of this state in the manner provided by law for the service
of a summons, and upon each nonresident dissenting shareholder either
by registered mail and publication, or in such other manner as is
permitted by law. The jurisdiction of the court shall be plenary and
exclusive.
(4) The court shall determine whether each dissenting
shareholder, as to whom the corporation requests the court to make
such determination, is entitled to receive payment for his shares. If
the corporation does not request any such determination or if the
court finds that any dissenting shareholder is so entitled, it shall
proceed to fix the value of the shares, which, for the purposes of
this section, shall be the fair value as of the close of business on
the day prior to the shareholders' authorization date. In fixing the
fair value of the shares, the court shall consider the nature of the
transaction giving rise to the shareholder's right to receive payment
for shares and its effects on the corporation and its shareholders,
the concepts and methods then customary in the relevant securities and
financial markets for determining fair value of shares of a
corporation engaging in a similar transaction under comparable
circumstances and all other relevant factors. The court shall
determine the fair value of the shares without a jury and without
referral to an appraiser or referee. Upon application by the
corporation or by any shareholder who is a party to the proceeding,
the court may, in its discretion, permit pretrial disclosure,
including, but not limited to, disclosure of any expert's reports
relating to the fair value of the shares whether or not intended for
use at the trial in the proceeding and notwithstanding subdivision (d)
of section 3101 of the civil practice law and rules.
(5) The final order in the proceeding shall be entered
against the corporation in favor of each dissenting shareholder who is
a party to the proceeding and is entitled thereto for the value of his
shares so determined.
IV-3
<PAGE> 216
(6) The final order shall include an allowance for
interest at such rate as the court finds to be equitable, from the
date the corporate action was consummated to the date of payment. In
determining the rate of interest, the court shall consider all
relevant factors, including the rate of interest which the corporation
would have had to pay to borrow money during the pendency of the
proceeding. If the court finds that the refusal of any shareholder to
accept the corporate offer of payment for his shares was arbitrary,
vexatious or otherwise not in good faith, no interest shall be allowed
to him.
(7) Each party to such proceeding shall bear its own
costs and expenses, including the fees and expenses of its counsel and
of any experts employed by it. Notwithstanding the foregoing, the
court may, in its discretion, apportion and assess all or any part of
the costs, expenses and fees incurred by the corporation against any
or all of the dissenting shareholders who are parties to the
proceeding, including any who have withdrawn their notices of election
as provided in paragraph (e), if the court finds that their refusal to
accept the corporate offer was arbitrary, vexatious or otherwise not
in good faith. The court may, in its discretion, apportion and assess
all or any part of the costs, expenses and fees incurred by any or all
of the dissenting shareholders who are parties to the proceeding
against the corporation if the court finds any of the following: (A)
that the fair value of the shares as determined materially exceeds the
amount which the corporation offered to pay; (B) that no offer or
required advance payment was made by the corporation; (C) that the
corporation failed to institute the special proceeding within the
period specified therefor; or (D) that the action of the corporation
in complying with its obligations as provided in this section was
arbitrary, vexatious or otherwise not in good faith. In making any
determination as provided in clause (A), the court may consider the
dollar amount or the percentage, or both, by which the fair value of
the shares as determined exceeds the corporate offer.
(8) Within sixty days after final determination of the
proceeding, the corporation shall pay to each dissenting shareholder
the amount found to be due him, upon surrender of the certificates for
any such shares represented by certificates.
(i) Shares acquired by the corporation upon the payment
of the agreed value therefor or of the amount due under the final order, as
provided in this section, shall become treasury shares or be cancelled as
provided in section 515 (Reacquired shares), except that, in the case of a
merger or consolidation, they may be held and disposed of as the plan of merger
or consolidation may otherwise provide.
(j) No payment shall be made to a dissenting shareholder
under this section at a time when the corporation is insolvent or when such
payment would make it insolvent. In such event, the dissenting shareholder
shall, at his option:
(1) Withdraw his notice of election, which shall in such
event be deemed withdrawn with the written consent of the corporation;
or
(2) Retain his status as a claimant against the
corporation and, if it is liquidated, be subordinated to the rights of
creditors of the corporation, but have rights superior to the
non-dissenting shareholders, and if it is not liquidated, retain his
right to be paid for his shares, which right the corporation shall be
obliged to satisfy when the restrictions of this paragraph do not
apply.
(3) The dissenting shareholder shall exercise such option
under subparagraph (1) or (2) by written notice filed with the
corporation within thirty days after the corporation has given him
written notice that payment for his shares cannot be made because of
the restrictions of this paragraph. If the dissenting shareholder
fails to exercise such option as provided, the
IV-4
<PAGE> 217
corporation shall exercise the option by written notice given to him
within twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to
receive payment for his shares in the manner provided herein shall exclude the
enforcement by such shareholder of any other right to which he might otherwise
be entitled by virtue of share ownership, except as provided in paragraph (e),
and except that this section shall not exclude the right of such shareholder to
bring or maintain an appropriate action to obtain relief on the ground that
such corporate action will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this
section, any notice to be given by a corporation to a shareholder under this
section shall be given in the manner provided in section 605 (Notice of
meetings of shareholders).
(m) This section shall not apply to foreign corporations
except as provided in subparagraph (e)(2) of section 907 (Merger or
consolidation of domestic and foreign corporations).
Section 910. RIGHT OF SHAREHOLDER TO RECEIVE PAYMENT FOR SHARES UPON
MERGER OR CONSOLIDATION, OR SALE, LEASE, EXCHANGE OR OTHER DISPOSITION OF
ASSETS, OR SHARE EXCHANGE
(a) A shareholder of a domestic corporation shall,
subject to and by complying with section 623 (Procedure to enforce
shareholder's right to receive payment for shares), have the right to receive
payment of the fair value of his shares and the other rights and benefits
provided by such section, in the following cases:
(1) Any shareholder entitled to vote who does not assent
to the taking of an action specified in subparagraphs (A), (B) and
(C).
(A) Any plan of merger or consolidation to which
the corporation is a party; except that the right to receive
payment of the fair value of his shares shall not be
available:
(i) To a shareholder of the parent
corporation in a merger authorized by section 905
(Merger of parent and subsidiary corporations), or
paragraph (c) of section 907 (Merger or consolidation
of domestic and foreign corporations); and
(ii) To a shareholder of the surviving
corporation in a merger authorized by this article,
other than a merger specified in subparagraph (i),
unless such merger effects one or more of the changes
specified in subparagraph (b)(6) of section 806
(Provisions as to certain proceedings) in the rights
of the shares held by such shareholder.
(B) Any sale, lease, exchange or other
disposition of all or substantially all of the assets of a
corporation which requires shareholder approval under section
909 (Sale, lease, exchange or other disposition of assets)
other than a transaction wholly for cash where the
shareholders' approval thereof is conditioned upon the
dissolution of the corporation and the distribution of
substantially all of its net assets to the shareholders in
accordance with their respective interests within one year
after the date of such transaction.
IV-5
<PAGE> 218
(C) Any share exchange authorized by section 913
in which the corporation is participating as a subject
corporation; except that the right to receive payment of the
fair value of his shares shall not be available to a
shareholder whose shares have not been acquired in the
exchange.
(2) Any shareholder of the subsidiary corporation in a
merger authorized by section 905 or paragraph (c) of section 907, or
in a share exchange authorized by paragraph (g) of section 913, who
files with the corporation a written notice of election to dissent as
provided in paragraph (c) of section 623.
IV-6
<PAGE> 219
ANNEX V
PROSPECTUS KNOGO NORTH AMERICA INC. (LOGO)
COMMON STOCK ($.01 PAR VALUE)
This Prospectus covers up to 6,100,000 shares of common stock, par
value $0.01 per share (the "Knogo N.A. Common Stock"), of Knogo North America
Inc., a Delaware corporation ("Knogo N.A."), to be delivered to holders of the
common stock (the "Knogo Common Stock") of Knogo Corporation, a New York
corporation ("Knogo"), in connection with the proposed distribution by Knogo
(the "Knogo N.A. Stock Distribution") of one share of Knogo N.A. Common Stock
for each share of Knogo Common Stock held of record immediately prior to the
effectiveness of the merger (the "Merger") of Knogo with Sensormatic
Electronics Corporation, a Delaware corporation ("Sensormatic"), or a
subsidiary of Sensormatic pursuant to the Agreement and Plan of Merger dated as
of August 14, 1994 (as it may be amended, supplemented or otherwise modified
from time to time, the "Amended and Restated Merger Agreement"), among Knogo,
Knogo N.A. and Sensormatic as described herein. The approval of the Amended
and Restated Merger Agreement and the transactions contemplated thereby,
including the Merger and the Knogo N.A. Stock Distribution, by the holders of
Knogo Common Stock is being solicited by Knogo pursuant to the Proxy Statement
referred to herein. All of the outstanding Knogo N.A. Common Stock as of the
date of the Knogo N.A. Stock Distribution, estimated as of November 21, 1994,
to be 5,633,073 shares, will be distributed in the Knogo N.A. Stock
Distribution. Following the Effective Time of the Merger, additional shares of
Knogo N.A. Common Stock being registered hereunder will be issued in settlement
of certain Knogo employee stock options. The exact number of shares of Knogo
N.A. Common Stock to be issued will depend upon the number of outstanding
shares of Knogo Common Stock at the time of the Knogo N.A. Stock Distribution
and certain other factors. Knogo shareholders are not required to pay any
consideration to receive the Knogo N.A. Common Stock distributed in the Knogo
N.A. Stock Distribution.
-------------------------------------
There are no current public trading markets for the Knogo N.A. Common
Stock, although a "when-issued" trading market may develop prior to the
consummation of the Knogo N.A. Stock Distribution. Application has been made
to have the Knogo N.A. Common Stock listed on the American Stock Exchange, Inc.
SEE "SPECIAL FACTORS" FOR CERTAIN MATTERS RELEVANT TO AN INVESTMENT IN
KNOGO N.A. SECURITIES.
-------------------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROSPECTUS HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------------------
The date of this Prospectus is November 28, 1994
<PAGE> 220
The Knogo N.A. Stock Distribution has been approved, subject to certain
conditions, by the Knogo Board of Directors (the "Knogo Board"). The record
date for the Knogo N.A. Stock Distribution (the "Record Date") will be the same
day on which the Knogo N.A. Stock Distribution and Merger are to occur, which
is expected to be December 29, 1994. The Knogo N.A. Stock Distribution is
conditioned on, among other things, the satisfaction of all conditions (other
than consummation of the Knogo N.A. Stock Distribution) to the parties'
obligations to consummate the Merger provided for in the Amended and Restated
Merger Agreement, which is attached as Annex I to the Proxy
Statement--Prospectus to which this Prospectus is Annex V. See "The Knogo N.A.
Stock Distribution--Terms of the Divestiture Agreement--Conditions to the Knogo
N.A. Stock Distribution." Also see "The Merger--Conditions" in the Proxy
Statement-Prospectus to which this Prospectus is Annex V.
<PAGE> 221
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO PURCHASE, THE SECURITIES OFFERED BY THIS PROSPECTUS BY ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICIT SUCH AN
OFFER.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . viii
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Special Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Knogo N.A. Stock Distribution . . . . . . . . . . . . . . . . . . . 3
Summary Consolidated Historical and Pro Forma
Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SPECIAL FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Operation as a Stand-Alone Company . . . . . . . . . . . . . . . . . . . 8
Reliance Upon Growth . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Lost Manufacturing and Sales Volume . . . . . . . . . . . . . . . . . . 8
Results of Operations and Cash Flow; Liquidity . . . . . . . . . . . . . 8
Reliance on Key Personnel . . . . . . . . . . . . . . . . . . . . . . . 9
Scope and Enforcement of Intellectual Property
Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Absence of Public Trading Market . . . . . . . . . . . . . . . . . . . . 9
Relationship with Sensormatic After the
Knogo N.A. Stock Distribution . . . . . . . . . . . . . . . . . . . . 10
Substantial Stockholders; Certain Charter
Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Principal Products . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
-iii-
<PAGE> 222
<TABLE>
<S> <C>
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Patents and Other Intellectual Property . . . . . . . . . . . . . . . 15
Research and Development . . . . . . . . . . . . . . . . . . . . . . . 15
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
THE KNOGO N.A. STOCK DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . 17
Reasons for the Knogo N.A. Stock
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Recapitalization of Knogo N.A. . . . . . . . . . . . . . . . . . . . . 17
Manner of Effecting the Knogo N.A.
Stock Distribution . . . . . . . . . . . . . . . . . . . . . . . . . 17
Certain Federal Income Tax
Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Certain Transactions with Knogo
Prior to the Knogo N.A. Stock Distribution . . . . . . . . . . . . . 19
Conditions to the Knogo N.A. Stock
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Relationship Between Knogo N.A. and
Sensormatic After the Knogo N.A. Stock
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Supply and License Agreements . . . . . . . . . . . . . . . . . . . . 21
LISTING AND TRADING OF KNOGO N.A. COMMON STOCK . . . . . . . . . . . . . . . . 22
DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
CAPITALIZATION OF KNOGO N.A. . . . . . . . . . . . . . . . . . . . . . . . . . 23
KNOGO N.A. UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
KNOGO N.A. NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . 28
KNOGO N.A. SELECTED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . 31
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Directors' Compensation . . . . . . . . . . . . . . . . . . . . . . . 35
Directors' Resignations . . . . . . . . . . . . . . . . . . . . . . . 35
Directors' Options . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Committees of the Board of Directors . . . . . . . . . . . . . . . . . 35
Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
-iv-
<PAGE> 223
<TABLE>
<S> <C>
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . 36
Executive Compensation Plans in Effect
After Knogo N.A. Stock Distribution . . . . . . . . . . . . . . . . 37
401(k) Savings Plan . . . . . . . . . . . . . . . . . . . . . . . . . 38
1994 Stock Incentive Plan . . . . . . . . . . . . . . . . . . . . . . 41
Grants to Certain Persons under
1994 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Executive Employment Agreements . . . . . . . . . . . . . . . . . . . 49
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . 50
DESCRIPTION OF CAPITAL STOCK OF KNOGO N.A. . . . . . . . . . . . . . . . . . . 52
Authorized Capital Stock . . . . . . . . . . . . . . . . . . . . . . . 52
Knogo N.A. Common Stock . . . . . . . . . . . . . . . . . . . . . . . 52
No Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . 53
Certain Charter and By-Law Provisions . . . . . . . . . . . . . . . . 53
VALIDITY OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
KNOGO NORTH AMERICA INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . F-1
ANNEX I - 1994 Stock Incentive Plan of Knogo North
America Inc.
ANNEX II - Amended and Restated Certificate of Incorporation
of Knogo North America Inc.
ANNEX III - Knogo North America Inc. By-Laws
</TABLE>
-v-
<PAGE> 224
INDEX OF DEFINITIONS
<TABLE>
<S> <C>
1994 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
After-Tax Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Amended and Restated Merger Agreement . . . . . . . . . . . . . . . . . . . i
Base Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
CCVS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii
Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Deferral Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Dimensional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Discretionary Matching Contribution . . . . . . . . . . . . . . . . . . . . 38
Discretionary Non-Matching Contribution . . . . . . . . . . . . . . . . . . 38
Divestiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Divestiture Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Dual RF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
EAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Eligible Rollover Distribution . . . . . . . . . . . . . . . . . . . . . . 40
Excess Parachute Payment . . . . . . . . . . . . . . . . . . . . . . . . . 47
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Incentive Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
IRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
KnoGlo(TM) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Knogo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Knogo Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
Knogo N.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Knogo N.A. Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . i
Knogo N.A. Savings Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Knogo N.A. Stock Distribution . . . . . . . . . . . . . . . . . . . . . . . 1
Knogo N.A. Stock Distribution Agent . . . . . . . . . . . . . . . . . . . . 4
Knogo N.A. Territory . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Knogo Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
License Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Matching Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
MM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
New Grant Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Non-Employee Directors . . . . . . . . . . . . . . . . . . . . . . . . . . 41
POS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Proxy Statement-Prospectus . . . . . . . . . . . . . . . . . . . . . . . . 1
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
</TABLE>
-vi-
<PAGE> 225
<TABLE>
<S> <C>
Restated Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Restricted Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Sensormatic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Sensormatic Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Source Tagging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Source Imbedding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Spread . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Supply Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Swept RF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Target Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
USP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
-vii-
<PAGE> 226
ADDITIONAL INFORMATION
Knogo N.A. has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part and
which term shall encompass any amendments thereto) on Form S-1 pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Knogo N.A. Common Stock. This Prospectus does not contain all the information
set forth in the Registration Statement and the exhibits and schedules thereto,
certain portions of which are omitted as permitted by the rules and regulations
of the Commission. Statements made in this Prospectus as to the contents of
any contract, agreement or other document referred to are not necessarily
complete; with respect to any such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to such exhibits
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. For further
information about Knogo N.A. or the Knogo N.A. Common Stock, reference is made
to the Registration Statement and to the financial statements, financial
statement schedules and exhibits filed as a part thereof or incorporated by
reference therein.
Upon completion of the Knogo N.A. Stock Distribution, Knogo N.A. will
be subject to the information requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, in accordance therewith, will file
reports and other information with the Commission. The Registration Statement,
the exhibits and schedules forming a part thereof or incorporated by reference
therein and the reports and other information to be filed by Knogo N.A. with
the Commission in accordance with the Exchange Act may be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the following regional
offices of the Commission: Northeast Regional Office, Suite 1300, 7 World
Trade Center, New York, New York 10048 and Midwest Regional Office, Suite 1400,
500 West Madison Street, Chicago, Illinois 60661-2511. Copies of such material
or any part thereof may also be obtained by mail from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates.
-viii-
<PAGE> 227
SUMMARY
The following summarizes certain information contained elsewhere in
this Prospectus. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information and financial statements, including
the notes thereto, set forth in this Prospectus, which should be read in its
entirety. This Prospectus is Annex V to the Proxy Statement-Prospectus (the
"Proxy Statement-Prospectus") of Knogo Corporation ("Knogo") and Sensormatic
Electronics Corporation ("Sensormatic") relating to the merger of Knogo into
Sensormatic (the "Merger") pursuant to the Agreement and Plan of Merger, dated
as of August 14, 1994 (as it may be amended, supplemented or modified from time
to time, the "Amended and Restated Merger Agreement"), by and among
Sensormatic, Knogo and Knogo N.A. See "Summary--The Transactions" below.
The Proxy Statement-Prospectus relates to a special meeting of Knogo
shareholders (including any adjournments or postponements thereof, the "Special
Meeting") scheduled for December 29, 1994, at which time Knogo shareholders
will be asked to adopt and approve the Amended and Restated Merger Agreement
and the transactions contemplated thereby. If this approval is obtained, then
immediately prior to the Merger, and as a condition to its consummation, Knogo
will contribute to Knogo N.A. all of Knogo's existing business interests
(subject to certain exclusions) (the "Contribution") in the United States,
Canada and Puerto Rico (the "Knogo N.A. Territory"), and distribute the stock
of Knogo N.A. to Knogo shareholders (the "Knogo N.A. Stock Distribution") or
otherwise dispose of the stock or assets of Knogo N.A. (collectively, the
"Divestiture"), so that upon the effectiveness of the Merger, Knogo's business
interests outside the United States, Canada and Puerto Rico will be combined
with those of Sensormatic. It is currently contemplated that the Divestiture
will be effected through the Knogo N.A. Stock Distribution. Accordingly, this
Prospectus is being delivered in conjunction with and as an Annex to the Proxy
Statement-Prospectus.
The consolidated financial statements and other financial information
and data herein of Knogo N.A. include certain assets and liabilities of Knogo,
on an historical basis, relating to Knogo's operations in the Knogo N.A.
Territory. The pro forma consolidated financial information and data give
effect to the transactions contemplated as part of the Merger and the Knogo
N.A. Stock Distribution.
THE COMPANY
Following the Divestiture, Knogo N.A. will succeed to the present
operations of Knogo in the Knogo N.A. Territory and will continue to design,
manufacture, sell, install and service a complete line of electronic article
surveillance ("EAS") equipment in the Knogo N.A. Territory. Such products will
be manufactured by Knogo N.A. or purchased from existing third party suppliers.
In addition, pursuant to a supply agreement to be entered into by Knogo and
Knogo N.A. (the "Supply Agreement"), for a period of 30 months following the
effective time of the Merger (the "Effective Time"), Knogo N.A. will supply
Sensormatic (as successor to Knogo) products valued at $24 million in the
aggregate for sale outside the Knogo N.A. Territory. Knogo N.A. and
Sensormatic will also grant each other licenses to certain patent rights and
technology. See "The Divestiture--Supply and License Agreements."
Knogo N.A. will have approximately 250 employees, a 68,000 square foot
office, research, engineering and distribution facility in Hauppauge, New York,
a 55,000 square foot manufacturing facility in Cidra, Puerto Rico, and a 6,000
square foot office in suburban Chicago, Illinois. At the time of the
Contribution, Knogo
- 1 -
<PAGE> 228
N.A. will not have any bank debt and will have net worth of approximately $24
million, based on the historical carrying values of Knogo's assets. It is
anticipated that the adjusted opening net worth of Knogo N.A. following the
write-down of certain assets will be approximately $21 million.
Knogo N.A. was incorporated in Delaware on August 12, 1994. Knogo
N.A.'s principal executive offices are located at 350 Wireless Boulevard,
Hauppauge, New York 11788 and its telephone number is (516) 232-2100.
SPECIAL FACTORS
Knogo N.A.'s business is subject to certain risks, including the risk
that growth in its supermarket and library businesses will not occur, that
Knogo N.A. will be unable to replace lost volume once the Supply Agreement with
Sensormatic terminates and will therefore be unable to maintain profitable
margins in its manufacturing operations, the risk that the decline in North
American revenues as shown in the financial information included in this
Prospectus will not be reversed and the risk that bank financing will be
unavailable to Knogo N.A. or available only on unfavorable terms. See "Special
Factors."
THE TRANSACTIONS
Knogo N.A. is a wholly owned subsidiary of Knogo. Knogo has agreed,
subject to various conditions, to merge with and into Sensormatic. In
connection with the Merger, Knogo has agreed to effect the Divestiture
immediately prior to the Merger. If, as is currently contemplated, the
Divestiture is effected through the Knogo N.A. Stock Distribution, all of the
outstanding shares of Knogo N.A. Common Stock outstanding as of the date of the
Distribution will be distributed pro rata to Knogo shareholders immediately
prior to the Effective Time of the Merger. Provided the merger consideration
(as defined in the Proxy Statement- Prospectus, the "Merger Consideration"),
does not include a substantial amount of cash, the Knogo N.A. Stock
Distribution is intended to be tax free to Knogo Shareholders for federal
income tax purposes. See "The Knogo N.A. Stock Distribution--Certain Federal
Income Tax Consequences." Following the Effective Time of the Merger,
additional shares of Knogo N.A. Common Stock will be issued in settlement of
certain Knogo employee stock options.
In addition, pursuant to the Amended and Restated Merger Agreement and
the transactions contemplated thereby, at the Effective Time, each issued and
outstanding share of Knogo Common Stock (other than shares of Knogo Common
Stock that are owned by Sensormatic) will be converted into the right to
receive common stock of Sensormatic (the "Sensormatic Common Stock") as
described under "The Merger--Terms of the Merger" in the Proxy
Statement-Prospectus.
Immediately prior to the Knogo N.A. Stock Distribution, Knogo will
transfer to Knogo N.A. certain businesses, assets, properties and liabilities
with a net book value of approximately $24 million, based on the historic
carrying values of Knogo's assets and liabilities. It is anticipated that the
adjusted opening net worth of Knogo N.A. following the Contribution and certain
write downs will be approximately $21 million. As consideration for the net
assets contributed to Knogo N.A., Knogo N.A. will issue to Knogo the number of
shares of Knogo N.A. Common Stock required so that Knogo will be able to effect
the Knogo N.A. Stock Distribution. If, as is currently contemplated, the
Divestiture is effected through the Knogo N.A. Stock Distribution, then
immediately prior to the Merger, Knogo will distribute these shares of Knogo
N.A. Common Stock to holders of Knogo Common Stock so that each holder receives
one share of Knogo N.A. Common Stock for each outstanding share of Knogo Common
Stock. At November 21, 1994, there were 5,633,073 shares of Knogo Common Stock
outstanding. See "The Knogo N.A. Stock Distribution--Certain Transactions
- 2 -
<PAGE> 229
with Knogo Prior to the Knogo N.A. Stock Distribution." Immediately following
the Knogo N.A. Stock Distribution there will be no receivables or payables
between Knogo or Sensormatic, as successor to Knogo, and Knogo N.A. Each of
Knogo and Knogo N.A. will indemnify the other against certain losses, damages,
liabilities or expenses arising out of their respective businesses. See "The
Knogo N.A. Stock Distribution--Relationship Between Knogo N.A. and Sensormatic
After the Knogo N.A. Stock Distribution." The Amended and Restated Merger
Agreement provides that, with limited exceptions, transfers of assets or
liabilities and other transactions between Knogo and Knogo N.A. are not
permitted prior to the date of the Divestiture (the "Divestiture Date") other
than as contemplated by the Divestiture Agreement. The Amended and Restated
Merger Agreement also provides that each Knogo stock option held by employees
or non-employee Directors of Knogo outstanding and unexercised at the Effective
Time of the Merger will be canceled and the holder thereof will be entitled to
receive an option to purchase Sensormatic Common Stock and an option to
purchase Knogo N.A. Common Stock (and, in certain instances, in lieu of such
stock options, shares of Sensormatic Common Stock or Knogo N.A. Common Stock
and/or cash if cash is included in the Merger Consideration), as more fully
described in the Proxy Statement-Prospectus.
The foregoing is a brief summary of certain terms of the Merger
affecting Knogo N.A. A complete description of the Merger and of the Amended
and Restated Merger Agreement may be found in the Proxy Statement-Prospectus,
which is being furnished to all holders of Knogo Common Stock and to which this
Prospectus is attached as Annex V. The Divestiture Agreement is more fully
described herein under "The Divestiture" and "The Knogo N.A. Stock
Distribution."
THE KNOGO N.A. STOCK DISTRIBUTION
Distributing Company . . . . Knogo Corporation
Securities to Be
Distributed . . . . . . . . All the outstanding shares of Knogo N.A.
Common Stock as of the time of the Knogo N.A.
Stock Distribution will be distributed
immediately prior to the Merger through the
Knogo N.A. Stock Distribution. Following the
Effective Time of the Merger and as a
consequence thereof, additional shares of
Knogo N.A. Common Stock will be issued in
settlement of certain Knogo employee stock
options.
Knogo N.A. Stock
Distribution . . . . . . . The Knogo N.A. Stock Distribution is expected
to be made immediately prior to the Effective
Time. Stock certificates will be mailed as
soon as practicable after the Knogo N.A.
Stock Distribution. See "The Knogo N.A.
Stock Distribution--Manner of Effecting the
Knogo N.A. Stock Distribution."
Knogo N.A. Stock Distribution
Ratio . . . . . . . . . . . One share of Knogo N.A. Common Stock for each
share of Knogo Common Stock outstanding on
the Record Date (as defined herein). Based
on the shares of Knogo Common Stock
outstanding as of November 21, 1994, it is
estimated that 5,633,073 shares of Knogo N.A.
Common Stock will be distributed.
Record Date . . . . . . . . . It is expected that the Record Date will be
established as the same day on which the
Knogo N.A. Stock Distribution occurs.
- 3 -
<PAGE> 230
Knogo N.A. Stock Options . . Options to purchase Knogo N.A. Common Stock
will be granted to former holders of Knogo
options and to certain executive officers
pursuant to the Amended and Restated Merger
Agreement and in connection with the
Divestiture and under the 1994 Stock Incentive
Plan of Knogo North America Inc. See
"Executive Compensation Plans in Effect after
the Knogo N.A. Stock Distribution -- 1994 Stock
Incentive Plan" below, and "The Merger -- Knogo
Stock Options" in the Proxy Statement-
Prospectus.
Trading Market . . . . . . . Application has been made to have the Knogo
N.A. Common Stock listed on the American Stock
Exchange, Inc. under the trading symbol "KNA."
See "Listing and Trading of Knogo N.A. Common
Stock."
Conditions to Knogo N.A.
Stock Distribution . . . . . The consummation of the Knogo N.A. Stock
Distribution is subject to the conditions set
forth in the Divestiture Agreement. See "The
Knogo N.A. Stock Distribution--Conditions to
the Knogo N.A. Stock Distribution."
Knogo N.A. Stock
Distribution Agent . . . . . American Stock Transfer & Trust Company, 40
Wall Street, New York, NY 10005, the transfer
agent for the Knogo Common Stock and the Knogo
N.A. Common Stock (the "Knogo N.A. Stock
Distribution Agent").
Tax Consequences . . . . . . Assuming the Merger qualifies as a tax-free
reorganization, receipt of Knogo N.A. Common
Stock by Stockholders will be tax free for
federal income tax purposes. If the Merger
Consideration includes a substantial amount of
cash and the Merger is consummated in the form
of the Alternative Merger, as described under
"The Merger-Alternative Merger; Other
Alternative Structures" in the Proxy Statement-
Prospectus, the Knogo N.A. Stock Distribution
will be treated as a dividend of Knogo N.A.
Common Stock by Knogo. See "The Knogo N.A.
Stock Distribution--Certain Federal Income Tax
Consequences".
Dividends After the Knogo
N.A. Stock Distribution . . Knogo N.A. does not presently intend to pay or
consider the payment of any cash dividends on
the Knogo N.A. Common Stock.
- 4 -
<PAGE> 231
Certain Provisions of Knogo
N.A.'s Charter and By-Laws . . Certain provisions of Knogo N.A.'s Certificate
of Incorporation and Knogo N.A.'s By-Laws (the
"By-Laws"), may have the effect of making more
difficult an acquisition of control of Knogo
N.A. in a transaction not approved by the Knogo
N.A. Board. See "Special Factors--Certain
Charter Provisions," and "Description of
Capital Stock of Knogo N.A.--Description of
Certain Statutory, Charter and Bylaw
Provisions." The form of the Amended and
Restated Certificate of Incorporation and the
By-Laws are attached as Appendices I and II of
this Prospectus.
Relationship with Sensormatic
After the Knogo N.A. Stock
Distribution . . . . . . . . . Knogo and Knogo N.A. have agreed to indemnify
each other after the Knogo N.A. Stock
Distribution with respect to certain losses,
damages, liabilities and expenses arising
primarily from their respective businesses,
including certain tax liabilities. In
addition, upon the consummation of the
transactions contemplated by the Amended and
Restated Merger Agreement, Knogo and Knogo
N.A. will enter into a License Agreement,
pursuant to which Knogo (and Sensormatic, as
its successor) and Knogo N.A. will grant to
each other certain perpetual fully-paid
licenses to use certain patents and technology
and a Supply Agreement, pursuant to which, for
a term of 30 months, Knogo N.A. will supply
certain products to Sensormatic. See "Special
Factors--Relationship with Sensormatic;
Reorganization to Effect Knogo N.A. Stock
Distribution," and "The Knogo N.A. Stock
Distribution--Terms of the Divestiture
Agreement--The License and Supply
Agreements--Mutual Indemnities."
Special Factors . . . . . . . Stockholders should carefully consider the
matters discussed under the section titled
"Special Factors" in this Prospectus.
- 5 -
<PAGE> 232
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The table below sets forth summary consolidated historical financial
data of Knogo N.A. for each of the three years in the period ended February 28,
1994. These consolidated financial data include certain assets and liabilities
of Knogo, on a historical basis, relating to Knogo's operations in the Knogo
N.A. Territory. The summary consolidated historical financial data set forth
below should be read in conjunction with the audited Consolidated Financial
Statements of Knogo N.A. and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
Historical financial information may not be indicative of Knogo N.A.'s future
performance as an independent company. The table also sets forth summary
consolidated historical financial data of Knogo N.A. for the six-month period
ended August 31, 1993 and 1994, which have been derived from the unaudited
Consolidated Financial Statements of Knogo N.A. included elsewhere in this
Prospectus. The results for the six-month period ended August 31, 1994 are
not necessarily indicative of the results to be expected for the full year.
Historical per share data for earnings and dividends have not been presented as
Knogo N.A. was not a publicly-held company during the periods presented below.
The summary unaudited pro forma consolidated financial data are
derived from the unaudited pro forma consolidated financial information
included elsewhere in this Prospectus and present the financial position of
Knogo N.A. as of August 31, 1994 and the results of operations for the six
months ended August 31, 1994 and the year ended February 28, 1994. The
presentation sets forth the financial position of Knogo N.A. as if the Merger
and Divestiture were consummated on August 31, 1994 and the results of
operations of Knogo N.A. as if the Merger and Divestiture were consummated at
March 1, 1993. See "Unaudited Pro Forma Consolidated Financial
Information--Unaudited Pro Forma Consolidated Balance Sheet As of August 31,
1994"--"Unaudited Pro Forma Consolidated Statement of Operations, Six Months
Ended August 31, 1994"--"Unaudited Pro Forma Consolidated Statement of
Operations, Year Ended February 28, 1994"--"Notes to Unaudited Pro Forma
Consolidated Financial Information."
The following unaudited pro forma consolidated financial data are
based on estimates and assumptions that are outlined in the footnotes to the
pro forma consolidated financial information and should be read in conjunction
with such financial information and the consolidated historical financial
statements of Knogo N.A. included elsewhere in this Prospectus. The actual
results reported in the future will vary from such unaudited pro forma
consolidated financial information.
- 6 -
<PAGE> 233
KNOGO NORTH AMERICA INC.
SUMMARY OF CONSOLIDATED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THE LAST DAY OF FEBRUARY SIX MONTHS ENDED AUGUST 31,
------------------------------------------- -----------------------------------
PRO FORMA PRO FORMA
1992 1993 1994 1994 1993 1994 1994
------ ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS DATA:
Sales of security devices
and related interest
income, lease rentals
and other . . . . . . . . $24,242 $22,592 $18,243 $30,243 $ 9,792 $ 7,665 $11,665
Sales to affiliates . . . . 9,734 10,072 11,375 -- 5,325 4,981 --
------- ------- ------- ------- ------- ------- -------
Total Revenues . . . . . . 33,976 32,664 29,618 30,243 15,117 12,646 11,665
Cost of security devices
sold . . . . . . . . . . 17,391 17,293 15,577 16,205 7,868 6,355 5,554
Depreciation and
amortization expense . . 1,949 1,623 1,245 1,151 794 611 562
Selling, general and
administrative expenses . 13,602 11,688 11,118 10,582 5,577 5,759 5,325
Income (loss) before income
taxes . . . . . . . . . (738) 1,148 762 987 368 (379) (448)
Net income (loss) . . . . . $(1,057) $ 624 $ 123 $ 592 $ 215 $ (387) $ (269)
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per share . .10 (.05)
======= =======
</TABLE>
<TABLE>
<CAPTION>
THE LAST DAY IN FEBRUARY
--------------------------
1992 1993 1994
---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET
DATA:
Total assets . . . . . . $36,193 $33,546 $34,583 $30,332 $25,893
Net investment in sales-
type leases . . . . . . . 2,854 3,178 2,018 1,963 1,963
Security devices on
lease, net . . . . . . . 883 547 505 715 715
Obligations under capital
leases . . . . . . . . . -- 797 688 607 607
Total Shareholders'
equity . . . . . . . . . 32,056 28,308 27,055 24,888 20,835
</TABLE>
See the notes to the consolidated financial statements and the unaudited pro
forma consolidated financial information.
- 7 -
<PAGE> 234
SPECIAL FACTORS
PROSPECTIVE HOLDERS OF KNOGO N.A. COMMON STOCK SHOULD CAREFULLY
CONSIDER THE FOLLOWING FACTORS, AS WELL AS THE OTHER INFORMATION SET FORTH IN
THIS PROSPECTUS.
OPERATION AS A STAND-ALONE COMPANY
Prior to the Contribution and the Knogo N.A. Stock Distribution, for
the fiscal year ended February 28, 1994, Knogo had total revenues worldwide of
$89,302,000, of which $70,607,000 were attributable to Knogo's international
operations. Following the Knogo N.A. Stock Distribution, Knogo N.A. will no
longer have the benefit of the financial resources of Knogo's international
operations. On the other hand, Knogo N.A. will be focusing its marketing
efforts in the Knogo N.A. Territory and will begin its operations with no bank
indebtedness. After the Knogo N.A. Stock Distribution, Knogo N.A. will not be
a subsidiary of, or be affiliated with Knogo or Sensormatic, as successor to
Knogo (and will be a competitor of Sensormatic in the Knogo N.A. Territory)
and, after the Supply Agreement is terminated, Knogo N.A. will no longer have
the benefit of any supply or purchase arrangements with Sensormatic. In
addition, after the Knogo N.A. Stock Distribution, Knogo N.A. is subject for a
period of five years to a non- competition clause with respect to engaging in
business activities outside the Knogo N.A. Territory, which may limit Knogo
N.A.'s ability to expand its business outside the Knogo N.A. Territory.
RELIANCE UPON GROWTH
Knogo's N.A.'s business plan assumes the expansion of its existing EAS
business in all product lines from greater emphasis of management on the North
American business. In particular, the plan assumes rapid expansion in the use
of EAS systems in the supermarket sector, a relatively untapped market among
retail users of loss prevention devices, which Knogo N.A. believes offers
considerable potential, and in the library sector where new products and
library expansions and renovations are increasing demand. See "The
Company--Marketing." There can be no assurance, however, that the anticipated
growth will occur.
LOST MANUFACTURING AND SALES VOLUME
During the term of the Supply Agreement, Knogo N.A. will generate
revenues from production of EAS systems and products for sale to Sensormatic as
successor to Knogo. There can be no assurance that Knogo N.A. will succeed in
expanding its sales sufficiently to replace the manufacturing and sales volume
lost as a result of the expiration of the Supply Agreement. In such event,
Knogo N.A. may have difficulty maintaining profitable margins in its
manufacturing operations. See "The Knogo N.A. Stock Distribution--Terms of the
Divestiture Agreement--The License Agreement and Supply Agreement."
RESULTS OF OPERATIONS AND CASH FLOW; LIQUIDITY
The Consolidated Statement of Operations of Knogo N.A. for the year
ended February 28, 1994 and the six months ended August 31, 1994 included
elsewhere in this Prospectus reflect that Knogo N.A. had net income of $123,000
and a net loss of $387,000, respectively, for such periods. Knogo N.A.'s
ability to realize earnings in the future will depend in large part on the
availability of opportunities to expand Knogo N.A.'s customer base, especially
in the supermarket and library sectors, to improve existing products and to
exploit source tagging technology, as to which no assurance can be given.
Following the Contribution, Knogo N.A.'s internal forecasts and
assumptions relating to its future operations, including the Supply Agreement,
anticipate that there will be sufficient cash from operations to meet its cash
flow needs for at least the next twelve months. Knogo N.A. will have
substantial unencumbered assets, including property in Cidra, Puerto Rico,
Hauppauge, New York, and Villa Park, Illinois, upon which
- 8 -
<PAGE> 235
to base financing if required. However, there can be no assurance that
funding, through borrowings, equity issuances or otherwise, if required by
Knogo N.A. will be available or, if available, will be on terms favorable to
Knogo N.A. In addition, if substantial additional indebtedness were incurred,
Knogo N.A.'s ability to respond to changing financial, business and economic
conditions, and accordingly its stockholders' investment in Knogo N.A., could
be adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Knogo N.A."
RELIANCE ON KEY PERSONNEL
Knogo N.A.'s business is managed by key executive officers who have
participated in the management of the North American business of Knogo, the
loss of whom could have a material adverse effect on Knogo N.A. Knogo N.A.
intends to enter into employment contracts with its four most senior executive
officers. See "Executive Compensation Plans in Effect After the Knogo N.A.
Stock Distribution--Executive Employment Agreements" and "Management."
SCOPE AND ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS
Knogo N.A. has certain proprietary technologies for which patents have
been obtained or applied. No assurance can be given that such patent
protection can be obtained for all such technologies or, if obtained, that it
will not be challenged, invalidated or circumvented, that competitors will not
independently develop or patent technologies that are substantially equivalent
to or superior to Knogo N.A.'s technologies or that any of Knogo N.A.'s
developmental technologies can be successfully commercialized. Upon
consummation of the Merger, Knogo and Knogo N.A. will enter into a License
Agreement (the "License Agreement") pursuant to which Knogo (and Sensormatic,
as its successor) and Knogo N.A. will grant to each other certain perpetual
fully-paid licenses to use certain patents and technology. See "Knogo N.A.
Stock Distribution--Supply and License Agreement." Knogo N.A. expects to
continue a research and development department under the senior executive who
headed such department for Knogo.
COMPETITION
Competition in the EAS industry is intense. Potential competitors
include major domestic and international EAS companies, many of which have
substantially greater financial, technical, marketing, sales and other
resources than Knogo N.A.. In addition, Knogo N.A. is subject for a period of
five years to a non-competition clause with respect to engaging in business
activities outside the Knogo N.A. Territory, which may limit Knogo N.A.'s
ability to expand its business.
DIVIDENDS
Knogo N.A. does not intend to consider the payment of any cash
dividends on the Knogo N.A. Common Stock at any time in the foreseeable future.
ABSENCE OF PUBLIC TRADING MARKET
There is not currently a public trading market for the Knogo N.A.
Common Stock and there can be no assurance as to the establishment or
continuity of any such market. Until the Knogo N.A. Common Stock is fully
distributed and an orderly market develops, the prices at which trading in such
stock occurs may fluctuate significantly. Knogo N.A. expects to apply to have
the Knogo N.A. Common Stock listed on the American Stock Exchange, Inc. There
can be no assurance either as to the price at which trading in the Knogo N.A.
Common Stock will occur after the Knogo N.A. Stock Distribution or that such
price will not be significantly below the book value per share of the Knogo
N.A. Common Stock.
- 9 -
<PAGE> 236
RELATIONSHIP WITH SENSORMATIC AFTER THE KNOGO N.A. STOCK DISTRIBUTION
In the Divestiture Agreement, Knogo, Sensormatic, as successor to
Knogo, and Knogo N.A. have agreed to indemnify each other after the Knogo N.A.
Stock Distribution with respect to certain losses, damages, liabilities and
expenses arising primarily from their respective businesses, including certain
tax liabilities. See "The Knogo N.A. Stock Distribution--Terms of the
Divestiture Agreement--Indemnification." In addition, upon the consummation of
the transactions contemplated by the Amended and Restated Merger Agreement,
Knogo and Knogo N.A. will enter into a License Agreement, pursuant to which
Knogo (and Sensormatic, as its successor) and Knogo N.A. will grant to each
other certain perpetual fully-paid licenses to use certain patents and
technology and a Supply Agreement, pursuant to which, for a term of 30 months,
Knogo N.A. will supply certain products to Sensormatic. See "Special
Factors--Relationship with Sensormatic; Reorganization to Effect Knogo N.A.
Stock Distribution," and "The Knogo N.A. Stock Distribution--Terms of the
Divestiture Agreement--The License and Supply Agreements--Mutual Indemnities."
SUBSTANTIAL STOCKHOLDERS; CERTAIN CHARTER PROVISIONS
Immediately following the Knogo N.A. Stock Distribution and Merger,
directors and officers of Knogo N.A. will beneficially own shares of Knogo N.A.
Common Stock, including shares held by William A. Perlmuth, as Executor of the
Estate of Arthur J. Minasy and as Trustee under trusts for the benefit of Mr.
Minasy's adult children, representing approximately 22.5% of the voting power
of all Knogo N.A.'s then outstanding voting securities. See "Beneficial
Ownership."
Certain provisions of Knogo N.A.'s Restated Certificate and the
By-Laws may have the effect of making more difficult an acquisition of control
of Knogo N.A. in a transaction not approved by Knogo N.A.'s Board of Directors.
These provisions will include the ability of Knogo N.A. Board to issue shares
of preferred stock in one or more series and additional shares of authorized
but unissued Knogo N.A. Common Stock without further authorization of Knogo
N.A. stockholders and certain other provisions described under "Description of
Capital Stock of Knogo N.A.." Many of these provisions are also present in
Knogo's Amended and Restated Certificate of Incorporation and By-Laws as
currently in effect, and generally are designed to permit Knogo N.A. to develop
its businesses and foster its long-term growth without the disruption caused by
the threat of a takeover not deemed by Knogo N.A.'s Board of Directors to be in
the best interests of Knogo N.A. and its stockholders. These provisions may
also have the effect of discouraging a third party from making a tender offer
or otherwise attempting to obtain control of Knogo N.A. even though such a
transaction might be economically beneficial to Knogo N.A. and its
stockholders. See "Description of Capital Stock of Knogo N.A.--Certain
Charter and By-law Provisions."
THE COMPANY
Immediately prior to the Knogo N.A. Stock Distribution, Knogo will
contribute to Knogo N.A. all of Knogo's operations in the Knogo N.A. Territory.
Following the Knogo N.A. Stock Distribution, Knogo N.A. will be a publicly
owned company engaged in the design, manufacture, sale, installation and
servicing of a complete line of EAS equipment. Knogo N.A. will have
approximately 250 employees and will operate a 55,000 square foot manufacturing
facility in Cidra, Puerto Rico, a 68,000 square foot office, research,
engineering and distribution facility in Hauppauge, New York, and a 6,000
square foot office in suburban Chicago, Illinois. At the time of the
Contribution, Knogo N.A. will not have any bank debt and will have a net worth
of approximately $24 million, based on the historical carrying values of
Knogo's assets. It is anticipated that the adjusted opening net worth of Knogo
N.A. following the Contribution and certain write-downs will be approximately
$21 million.
The EAS systems that Knogo N.A., as an independent company, will
manufacture are based upon three distinct technologies. One system, the Swept
Radio Frequency ("Swept RF") system, uses medium
- 10 -
<PAGE> 237
frequency transmissions in the two to nine megahertz range. The second system,
the Dual Radio Frequency ("Dual RF") system, uses ultrahigh frequency radio
signals in the 902 megahertz and 928 megahertz bands. The third system,
Magnetics ("MM"), uses very low frequency electromagnetic signals in the range
of 218 hertz to 9 kilohertz. Knogo N.A. will manufacture a non-electronic
dye-stain pin ("KnoGlo(TM)"). In addition, Knogo N.A. will market a closed
circuit video system, or CCVS, known as "The KNOGO Surveillor(TM)," and will
manufacture a hardware/software package allowing merchants simultaneously to
record data from point-of-sale terminals together with a video image of the
employee and customer.
Of Knogo's bookings in the Knogo N.A. Territory for fiscal 1994,
approximately 20% were attributable to the Swept RF System, 23% to the Dual RF
System, 43% to the MM System, 3% to the KnoGlo(TM) System and 11% to the CCVS
System. For fiscal years 1993 and 1992, approximately 40% in 1993 and 27% in
1992 of Knogo's bookings in the Knogo N.A. Territory were attributable to the
Swept RF system, 19% in fiscal 1993 and 23% in fiscal 1992 to the Dual RF
System, 32% in fiscal 1993 and 35% in fiscal 1992 to the MM System, 2% in
fiscal 1993 and 1% in fiscal 1992 to the KnoGlo(TM) System, and 7% in fiscal
1993 and 14% in fiscal 1992 to the CCVS System. Knogo's bookings in the Knogo
N.A. Territory represent the gross value of orders accepted in the Knogo N.A.
Territory.
The principal application of Knogo N.A. products will be to detect and
deter shoplifting and employee theft in supermarket, department, discount,
specialty and various other types of retail stores including bookstores, video,
liquor, drug, shoe, sporting goods and other stores. The use of these products
is intended to reduce inventory shrinkage by deterring shoplifting, increase
sales potential by permitting the more open display of greater quantities of
merchandise, reduce surveillance responsibilities of sales and other store
personnel and, as a result, increase profitability for the retailer.
Following the Knogo N.A. Stock Distribution, Knogo N.A. will carry on
Knogo's existing business in the Knogo N.A. Territory.
PRINCIPAL PRODUCTS
EAS systems consist of detection devices which are triggered when
articles or persons tagged with wafers or tags pass through the detection
device. The principal application of the Swept RF and Dual RF systems is to
detect and deter theft of soft goods such as clothing, while the MM systems are
primarily used to detect and deter theft of hard goods including packaged goods
and books.
At February 28, 1994, the approximate number of Knogo's Swept RF and
Dual RF systems sold or leased in the Knogo N.A. Territory exceeded 11,800.
At that date, the approximate number of Knogo's MM systems sold or leased in
the Knogo N.A. Territory exceeded 7,500.
Swept and Dual Radio Frequency Detection Systems
Since 1966, Knogo was engaged in the manufacture and distribution of
the Swept RF system, the principal application of which is to detect and deter
shoplifting and employee theft of clothing in retail establishments. In 1988,
Knogo began to make available to customers the Dual RF system which uses a
technology wherein two separate radio frequencies are triggered in a wafer or
tag, achieving a singular, recognizable signal. The Dual RF system is
particularly useful and cost efficient for soft-goods retail stores with wide
mall-type exit areas which ordinarily would require multiple Swept RF systems
to adequately protect the retail establishment. The Swept RF and Dual RF
systems consist of radio signal transmission and monitoring equipment activated
by wafers or tags containing precise electronic circuitry. When merchandise
with a wafer or tag attached is transported through the monitored zone, its
circuitry interferes with the radio signals continually transmitted through the
monitoring system, thereby triggering alarms such as flashing lights, buzzers
or indicators at a central control point, or transmitting an alarm directly to
the security authorities.
- 11 -
<PAGE> 238
The systems are monitoring devices installed at exits of protected
areas, such as doorways, elevator entrances and escalator ramps. The devices
are generally located in panels or pedestals anchored to the floor for a
vertical arrangement or mounted in or suspended from the ceiling and mounted in
or on the floor for a horizontal arrangement. The panels or pedestals can be
custom designed to harmonize with the decor of the store. By means of multiple
installations of horizontal Swept RF systems or a single installation of one
Dual RF system, Knogo N.A. will have the ability to protect any size entrance
or exit.
Wafers and tags are manufactured in a variety of sizes and types and
are attached directly to the articles to be protected by means of specially
designed fastener assemblies. A wafer or tag is removed from the protected
article, usually by a clerk at the checkout or wrapping desk, by use of a
decoupling device specially designed to facilitate the removal of the fastener
assemblies with a minimum of effort. Removal of the wafer or tag without a
decoupler is very difficult and unauthorized removal will usually damage the
protected article and thereby reduce its value to a shoplifter. Optional
reminder stations, by means of audiovisual indicators, automatically remind the
store clerk to remove the wafer or tag when the article is placed on the
cashier's desk.
Swept RF and Dual RF systems generally have an economic useful life of
six years (although many of Knogo's systems have been operating for longer
periods), have a negligible false alarm rate and are adaptable to meet the
diversified article surveillance needs of individual retailers.
Magnetic Detection Systems
The primary application of MM systems is to detect and deter theft in
"hard goods" applications such as supermarkets, libraries, bookstores and in
other specialty stores such as video, drug, liquor, shoe, record, sporting
goods and similar stores.
MM systems use detection monitors which are activated by
electromagnetically sensitized strips. The MM targets are attached to the
articles to be protected when price tags are affixed and are easily camouflaged
on a wide array of products. The detection monitors used by the MM systems are
installed at three to five foot intervals at the exits of protected areas. The
magnetic targets, including Knogo's ultra thin thread, trade-named
"Electro-Thread(R)," which Knogo N.A. will distribute in the Knogo N.A.
Territory, can be supplied in many forms and are attractively priced, making
them suitable for a variety of retail applications. In addition, the MM
targets can be manufactured to be activated and deactivated repeatedly while
attached to the articles to be protected, which is a particularly desirable
feature for use with items such as books, records and videotapes, which are
"checked-out" and later returned. Accurate deactivation is also very important
when the item to be protected is a personal accessory that will be carried by
its owner from place to place, such as pocket books, pens, lipstick, shoes and
camera film and cameras.
The MM system offers retailers several features not available in Swept
RF and Dual RF systems. Since the Electro-Thread(R) is very small, hair-thin,
relatively inexpensive and may be inserted at the point of manufacture or
packaging, it provides retailers with a great deal of flexibility and is
practical for permanent attachment to a wide variety of hard goods, especially
low profit-margin products. The Electro-Thread(R) target can be automatically
deactivated at check-out, eliminating the risk of triggering alarms when
merchandise leaves the store and saving sales personnel valuable time. Since
the Electro-Thread(R) targets can be incorporated directly into a price tag,
they are convenient to use.
While targets are typically attached by the retailer at the point of
sale, the practices of applying the target at the distribution point ("Source
Tagging"), or within the protected item ("Source Imbedding"), are increasing.
This program, Universal Source Protection ("USP"), reduces significantly the
retailer's target purchase and application costs, while increasing the anti-
theft effectiveness of the system. Pursuant to a license agreement to be
entered into in connection with the Knogo N.A. Stock Distribution (the "License
Agreement"), Knogo N.A. will have the right under a fully-paid license to
manufacture for sale in the Knogo N.A. Territory
- 12 -
<PAGE> 239
the new MM strip developed by Knogo, trade-named "SuperStrip(TM)," whose small
size, unique physical, mechanical and detection properties, compatibility with
earlier generation MM systems and low cost make it an ideal candidate for
either Source Tagging or Source Imbedding.
KnoGlo(TM)
KnoGlo(TM), a non-electronic, dye-stain pin, releases an indelible
liquid when tampered with. Used with passive locking mechanisms without
electronics, KnoGlo(TM) is often a retailer's first step in loss prevention.
KnoGlo(TM) is also employed in stores with EAS systems as an extra layer of
protection. Such protection is useful in problem areas (near mall
door-openings, for example,) or where users must maximize selling space.
Following the Knogo N.A. Stock Distribution, Knogo N.A. will continue to market
KnoGlo in the Knogo N.A. Territory.
Closed Circuit Video Systems
"The KNOGO Surveillor(TM)", a closed circuit video system ("CCVS"),
enhances the protection of retail stores from shoplifting and employee theft by
providing retailers with optical surveillance of the premises. Knogo N.A.
believes that, while less profitable than traditional EAS products, the CCVS
will complement its other EAS systems and will provide retailers with further
protection against internal employee theft and external shoplifting activities.
The Knogo Data Displayer(TM) allows users of CCVS a method of
detecting employee thefts which occur at retailers' point-of-sale ("POS")
terminals. The Knogo Data Displayer(TM) collects cash register data (from up
to 16 registers simultaneously), converts it from digital to video signals,
combines it with a video input and records the POS data and video image on a
videocassette as a permanent video record of the transaction. Following the
Knogo N.A. Stock Distribution, Knogo N.A. will continue to market the Knogo
Surveillor and the Knogo Data Displayer(TM) in the Knogo N.A. Territory.
PRODUCTION
Knogo N.A. will produce at its facilities in Cidra, Puerto Rico or
continue to purchase through established suppliers the detection monitors,
wafers, tags, detection strips and other targets used in each system.
Production will consist of assembling electronic and mechanical components and
printed circuitry which Knogo N.A. will purchase from various suppliers.
Knogo's specially designed tools, plastic cases for the wafers, and the target
bands used in Knogo's system for patient and personnel control, all of which
Knogo N.A. will continue to use following the Divestiture, will be produced to
Knogo N.A.'s specifications by independent contractors using existing molds and
tooling. Knogo N.A. does not expect to be dependent on any one supplier or
group of suppliers of components for its systems and is not likely to have any
material long-term arrangements with any of its suppliers. Knogo N.A.'s policy
will be to maintain its inventory at a level which is sufficient to meet
projected demand for its products. Such demand in North America prior to the
Divestiture was usually higher in the fall months than at other times. Knogo
N.A. does not anticipate any difficulties in continuing to obtain suitable
components at competitive prices in sufficient quantities as and when needed.
Following the Knogo N.A. Stock Distribution, Knogo N.A. will
manufacture and sell to Sensormatic, as successor to Knogo, certain electronic
article surveillance products pursuant to the Supply Agreement. Under the
Supply Agreement, for a period of 30 months, products valued at $24 million
will be supplied to Sensormatic operations in Europe and Australia. Once the
Supply Agreement terminates, Knogo N.A. is subject to the risk that it will be
unable to replace lost volume and will therefore be unable to maintain
profitable margins in its manufacturing operations. See "The Knogo N.A. Stock
Distribution -- The Supply Agreement" and "The Company--Competition."
- 13 -
<PAGE> 240
MARKETING
Knogo N.A. will market its products through the direct efforts of
approximately 35 salespersons located in selected metropolitan areas across the
United States and Canada. Knogo N.A.'s customers are expected to include some
of the major retail stores and store chains in North America.
Knogo N.A.'s EAS systems will be marketed on both a lease and direct
sales basis. The terms of the standard leases will generally be from one to
five years. The sales prices and lease rates will vary based upon the type of
system purchased or leased, number and types of targets included, the
sophistication of the system employed and, in the case of a lease, its term.
In the case of the MM systems, detection targets which are permanently attached
to the item to be protected will be sold to the customer even when the system
is leased. Therefore, in the case of either a sale or lease of an MM system,
as the customer replenishes its inventory, additional targets will be required
for those items to be protected. Knogo N.A. will also market a more expensive,
removable, reusable detection tag for use with its MM systems on certain
products such as clothing and other soft goods.
In keeping with industry practices, Knogo N.A. may also selectively
offer EAS systems on a deferred billing arrangement and, in some instances, on
a short-term introductory basis. At the end of such period the retailer will
have the option to lease or purchase the equipment.
During the fiscal year ended February 28, 1994, of a total of
approximately 9,321 Swept RF, Dual RF, and MM systems Knogo placed in service
worldwide, approximately 1,478 were placed in service in Knogo N.A. Territory
locations. Knogo N.A. does not believe that the loss of any one customer in
the Knogo N.A. Territory would have a material adverse effect on its business.
Knogo N.A. believes that the supermarket industry is a major potential
market in North America for EAS systems, especially its MM systems, and
believes its magnetic technology and service capabilities give Knogo N.A. an
important advantage in the supermarket sector. Growth in the supermarket
business is a key element of Knogo N.A.'s business plan following the Knogo
N.A. Stock Distribution.
Historically, the supermarket industry in North America has been
reluctant to accept EAS for a number of reasons. Knogo N.A. believes these
include: relatively high product turnover, low average selling prices and low
profit margins that have made the cost of targets and tagging appear
prohibitive; the belief on the part of supermarket management that theft was a
relatively low percent of costs; and the desire to not slow the checkout
process and thus increase labor expense or customer dissatisfaction. As bar
code scanning and other management and accounting systems improved in
supermarkets, however, supermarket managements were able to see that theft of a
relatively narrow range of products, namely health and beauty products, wine
and liquor, cigarettes, film, batteries and meats, were causing most of the
loss of margin from theft, and that protection of these products could in fact
be economic. Sensormatic, Checkpoint and Knogo have devoted considerable
resources to this market area with increasingly positive results, measured in
terms of the supermarket industry trade press, customer interest and actual
test installations, if not yet revenue. As the installed base of EAS systems
in supermarkets grows, theft will shift to unprotected stores. This, and a
proven financial return on investment, may increase demand rapidly.
Knogo N.A.'s management believes that its ability to compete in the
supermarket sector is enhanced by several factors. First, there is no
entrenched EAS industry leader in this sector because it is a new market
segment. Second, magnetic system technology appears to be the preferred choice
for this market segment, and Knogo N.A.'s magnetic technology has
feature/benefit advantages over competitive systems. Third, the supermarket
industry, for the most part, is made up of regional companies which will not
need an EAS supplier that is equally established in all parts of North America.
- 14 -
<PAGE> 241
SERVICE
Following the Knogo N.A. Stock Distribution, it is expected that
installation, repair and maintenance services will be performed primarily by
Knogo N.A.'s personnel. All products sold or leased will be covered either by
a short warranty period or an extended warranty period. After the initial
warranty period, Knogo N.A. will also offer to its customers the option of
entering into a maintenance contract with Knogo N.A. or paying for service on a
per call basis.
COMPETITION
Knogo N.A. will operate in a highly competitive market with many
companies engaged in the business of furnishing security services designed to
protect against shoplifting and theft. In addition to EAS systems using the
concept of tagged merchandise, such services use, among other things, closed
circuit video systems, mirrors, guards, private detectives and combinations of
the foregoing. Knogo N.A. will compete principally on the basis of the nature
and quality of its products and the adaptability of these products to meet
specific customer needs and price requirements.
To Knogo's knowledge, there are several other companies that market,
directly or through distributors, EAS equipment to retail stores in the United
States, of which Sensormatic, Checkpoint Systems, Inc. and Minnesota, Mining
and Manufacturing Company will be Knogo N.A.'s principal competitors. Knogo
N.A.'s competitors have greater financial resources, have more experienced
marketing organizations and have a greater number of employees than Knogo N.A..
PATENTS AND OTHER INTELLECTUAL PROPERTY
Following the Knogo N.A. Stock Distribution, Knogo (and Sensormatic,
as its successor) and Knogo N.A. will license certain patent rights and
technology to each other pursuant to the License Agreement. See "The Knogo
N.A. Stock Distribution -- The License Agreement."
RESEARCH AND DEVELOPMENT
At February 28, 1994, Knogo had 42 employees located in the United
States engaged either full or part-time in research and engineering and product
development. Because of the elimination of the need to support the present
European operation fewer such employees will be required. Because of the
importance to Knogo N.A. of products to better serve the North American market
and the improvement of its existing EAS products, however, Knogo N.A. will
continue to be engaged in company-sponsored research and engineering relating
to the completion of new products and the improvement of its existing EAS
products. It is anticipated that Knogo N.A.'s research personnel will continue
to provide research, engineering and product development at the Hauppauge, Long
Island facility. Knogo N.A. may from time to time retain consultants for
specific project assistance.
Following the Knogo N.A. Stock Distribution, Knogo N.A. expects to
focus its research and development and engineering efforts on those projects
with the most potential for market growth in the Knogo N.A. Territory. One
area of basic research Knogo N.A. expects to stress is magnetic activation and
deactivation, which is necessary for true source tagging implementation. Other
areas of effort will include quality control in materials production,
especially with respect to SuperStrip, and existing product enhancement to
improve performance and to reduce manufacturing, installation and maintenance
expenses. See "The Knogo N.A. Stock Distribution -- The License Agreement."
- 15 -
<PAGE> 242
DIRECTORS
The Board of Directors of Knogo N.A. consists of five Directors, four
of whom are presently Directors of Knogo. Thomas A. Nicolette, President and
Chief Executive Officer of Knogo is President and Chief Executive Officer of
Knogo N.A., and he and Robert T. Abbott, Chief Financial Officer of Knogo and
Chief Administrative Officer and Director of Knogo N.A., are the only Directors
who are also officers of Knogo N.A.
MANAGEMENT
Following the Knogo N.A. Stock Distribution, management of Knogo N.A.
will consist of Mr. Nicolette as President and Chief Executive Officer, Mr.
Abbott as Senior Vice President-Chief Administrative Officer, Treasurer and
Assistant Secretary, Mr. Peter J. Mundy as Vice-President-Finance and Chief
Financial Officer, Secretary and Assistant Treasurer and Dr. Peter Zhou as Vice
President- Technology. It is anticipated that Knogo N.A. will enter into a
three-year employment contract with Mr. Nicolette and one-year employment
contracts with Messrs. Abbott and Mundy and Dr. Zhou. See
"Management--Executive Officers" and "--Executive Employment Agreements."
Knogo N.A.'s executive offices will be located at 350 Wireless
Boulevard, Hauppauge, New York 11788 and its telephone number will be (516)
232-2100.
- 16 -
<PAGE> 243
THE KNOGO N.A. STOCK DISTRIBUTION
This section of the Prospectus describes certain aspects of the
proposed Knogo N.A. Stock Distribution. To the extent that they relate to the
Divestiture Agreement, the License Agreement and the Supply Agreement, the
following descriptions do not purport to be complete and are qualified in their
entirety by reference thereto which are attached as Annex II to the Proxy
Statement-Prospectus and are incorporated herein by reference.
REASONS FOR THE KNOGO N.A. STOCK DISTRIBUTION
The Board of Directors and Management of Knogo have determined that
the Merger would be in the best interests of Knogo's shareholders. The
discussions with Sensormatic concerning a possible merger did not include
Knogo's North American operations, which Sensormatic did not desire to acquire
and which Knogo desired to retain for the benefit of its shareholders.
Accordingly, Knogo determined to effect the Knogo N.A. Stock Distribution in
order to facilitate the Merger. Knogo's Board of Directors believes that Knogo
N.A., as an independent company, will be well situated to take advantage of
favorable opportunities in the EAS industry in the Knogo N.A. Territory and
that the Knogo N.A. Stock Distribution will enable Knogo shareholders to
participate in the values and prospects of the assets and business of Knogo
N.A. The Knogo Board further notes that the Knogo N.A. Stock Distribution
would be generally tax free to Knogo shareholders for federal income tax
purposes unless the consideration in the Merger were to include a substantial
amount of cash. See "Certain Federal Income Tax Consequences".
Although the Knogo N.A. Stock Distribution will not be effected unless
the Merger is approved and about to occur, the Knogo N.A. Stock Distribution is
separate from the Merger and the Knogo N.A. Common Stock to be received by
holders of Knogo Common Stock in the Knogo N.A. Stock Distribution does not
constitute a part of the Merger consideration.
RECAPITALIZATION OF KNOGO N.A.
Prior to the Knogo N.A. Stock Distribution, Knogo N.A. will amend its
Certificate of Incorporation, among other things, to increase the currently
authorized number of shares of common stock of Knogo N.A. to 10,000,000, and to
authorize the issuance of up to 3,000,000 shares of preferred stock upon terms
to be established by the Board of Directors at the time of issuance. There
presently are no plans or arrangements with respect to the issuance of any
class of preferred stock. See "Description of Capital Stock of Knogo N.A.."
MANNER OF EFFECTING THE KNOGO N.A. STOCK DISTRIBUTION
The Knogo N.A. Stock Distribution will be made to shareholders of
record of Knogo prior to the Effective Time. The Knogo N.A. Stock Distribution
is expected to occur on the same date as the Effective Time occurs. The Merger
is expected to take place promptly following the Knogo shareholders' meeting,
scheduled for December 29, 1994, subject to the satisfaction of certain
conditions to closing. These dates are subject to change. The Knogo N.A.
Stock Distribution Agent will deliver certificates for the shares as soon as
practicable to holders of record of Knogo Common Stock as of the close of
business on the Knogo N.A. Stock Distribution Record Date on the basis of one
Share for every share of Knogo Common Stock held on the Knogo N.A. Stock
Distribution Record Date. All Shares will be fully paid and non-assessable.
The holders thereof will not be entitled to preemptive rights. See
"Description of Capital Stock of Knogo N.A.." Following the Knogo N.A. Stock
Distribution, Knogo N.A. will operate as an independent public company.
No holder of Knogo Common Stock will be required to pay any cash or
other consideration for the shares of Knogo N.A. Common Stock received in the
Knogo N.A. Stock Distribution or to surrender or exchange shares of Knogo
Common Stock in order to receive shares of Knogo N.A. Common Stock, except
- 17 -
<PAGE> 244
in certain circumstances described in the Proxy Statement-Prospectus. See "The
Merger--Alternative Merger; Other Alternative Structures."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING SUMMARY OF THE PRINCIPAL FEDERAL INCOME TAX CONSEQUENCES
OF THE KNOGO N.A. STOCK DISTRIBUTION TO THE SHAREHOLDERS OF KNOGO IS BASED ON
THE OPINION OF STROOCK & STROOCK & LAVAN, COUNSEL TO KNOGO N.A. AND KNOGO. THE
SUMMARY IS NOT A COMPLETE DESCRIPTION OF SUCH FEDERAL INCOME TAX CONSEQUENCES
AND, IN PARTICULAR, MAY NOT ADDRESS FEDERAL INCOME TAX CONSIDERATIONS THAT MAY
AFFECT THE TREATMENT OF A SHAREHOLDER WHO ACQUIRED KNOGO COMMON STOCK PURSUANT
TO EMPLOYEE STOCK OPTIONS. EACH SHAREHOLDER'S INDIVIDUAL CIRCUMSTANCES MAY
AFFECT THE TAX CONSEQUENCES OF THE DISTRIBUTION OF THE KNOGO N.A. COMMON STOCK
TO SUCH SHAREHOLDER. IN ADDITION, NO INFORMATION IS PROVIDED HEREIN WITH
RESPECT TO TAX CONSEQUENCES UNDER APPLICABLE FOREIGN, STATE OR LOCAL LAWS.
CONSEQUENTLY, EACH KNOGO SHAREHOLDER IS ADVISED TO CONSULT HIS OR HER OWN TAX
ADVISOR.
Neither Sensormatic nor Knogo has requested an advance ruling from the
Internal Revenue Service as to the tax consequences of the Knogo N.A. Stock
Distribution or the Merger.
If the Merger qualifies as a tax-free reorganization, the federal
income tax consequences of the Knogo N.A. Stock Distribution will be as
follows:
Holders of Knogo Common Stock will not recognize any income,
gain or loss as a result of their receipt of the Knogo N.A. Common
Stock in the Knogo N.A. Stock Distribution;
The tax basis of the shares of Knogo N.A. Common Stock
received by Knogo's shareholders and of the shares of Knogo Common
Stock which they retain immediately after the Knogo N.A. Stock
Distribution will be determined by allocating between them the basis
of each shareholder in his shares of Knogo Common Stock held
immediately before the Knogo N.A. Stock Distribution, in proportion to
the relative fair market values immediately after the Knogo N.A. Stock
Distribution of the Knogo Common Stock and the Knogo N.A. Common
Stock; and such fair market values will, in general, be based on the
Merger Consideration and the trading price of the Knogo N.A. Common
Stock on the date of the Knogo N.A. Stock Distribution, respectively;
The holding period of the shares of Knogo N.A. Common Stock
acquired by each Knogo shareholder will include the period for which
such shareholder held the shares of Knogo Common Stock with respect to
which the shares of Knogo N.A. Common Stock are distributed, provided
that the shares of Knogo Common Stock are held as a capital asset at
the time of the Knogo N.A. Stock Distribution.
In the event that the Average Sensormatic Share Price is less than
$28, and Sensormatic pays a sufficient part of the Merger Consideration in cash
such that (taking into account cash paid to dissenting Shareholders, cash paid
in lieu of fractional share interests, and Shareholders who dispose of either
their shares of Knogo Common Stock prior to, or shares of Sensormatic Common
Stock after, the Merger but in as part of a plan with respect thereto) historic
Knogo Shareholders in the aggregate retain a number of shares of Sensormatic
Common Stock having a value that is less than 50% of the value of Knogo
immediately after the Distribution, then the Merger may not qualify for
tax-free reorganization treatment. In such event, Sensormatic intends to
exercise its right to consummate the Merger by means of the Alternative Merger.
If the Alternative
- 18 -
<PAGE> 245
Merger is consummated, the Alternative Merger will not qualify as a tax-free
reorganization, and the tax consequences of the Distribution will be as
follows:
Knogo's shareholders will recognize dividend income equal to
the fair market value of the Knogo N.A. Common Stock, but not in
excess of Knogo's current and accumulated earnings and profits (which
would include any gain recognized by Knogo as a result of the
Distribution);
The excess, if any, of the fair market value of the Knogo N.A.
Common Stock over Knogo's current and accumulated earnings and profits
will in general be treated as a nontaxable return of capital; however,
to the extent such excess attributable to a share of Knogo Common
Stock is greater than the shareholder's basis in that share, the
shareholder will recognize gain; and that gain will be capital gain or
loss, provided that the share of Knogo Common Stock was held as a
capital asset at the Effective Time, and will be long-term capital
gain or loss if the share of Knogo Common Stock was held for more than
one year;
The tax basis of each share of Knogo N.A. Common Stock
received by Knogo's shareholders will be its fair market value as of
receipt; and
The holding period of the Knogo N.A. Common Stock will begin
as of the Knogo N.A. Stock Distribution.
Knogo has represented that there is no plan or intention on the part
of the shareholders of Knogo who own 5% or more of the outstanding Knogo Common
Stock and, to the knowledge of Knogo's management, on the part of the remaining
holders of Knogo Common Stock, to sell, exchange or otherwise dispose of their
Knogo Common Stock prior to the Effective Time (by exercise of dissenters'
rights, or otherwise), or the Knogo N.A. Common Stock received by them pursuant
to the Knogo N.A. Stock Distribution or the Sensormatic Common Stock to be
received by them pursuant to the Merger such that the remaining historic Knogo
shareholders will retain, in the aggregate, less than 50% of the Knogo N.A.
Common Stock or a number of shares of Sensormatic Common Stock having a value
equal to 50% of the value of Knogo immediately after the Knogo N.A. Stock
Distribution.
CERTAIN TRANSACTIONS WITH KNOGO PRIOR TO THE KNOGO N.A. STOCK DISTRIBUTION
Pursuant to the Divestiture Agreement, immediately prior to the Knogo
N.A. Stock Distribution, Knogo will contribute to Knogo N.A. all of the right,
title and interest of Knogo in and to the business operations and related
goodwill of Knogo in the Knogo N.A. Territory, Knogo's assets and properties
located in the Knogo N.A. Territory related to such business operations
(subject to certain exclusions) and the stock of Knogo Caribe, Inc., Knogo's
subsidiary in Puerto Rico (after certain of its financial assets are
contributed to Knogo or its other subsidiaries), subject to and as more
particularly described in the Divestiture Agreement. Simultaneously with the
Contribution, Knogo N.A. will assume and agree to pay, perform and discharge
obligations and liabilities (including contingent liabilities) of Knogo
directly relating to the employees retained by it, its customers in the Knogo
N.A. Territory, Knogo's products sold or leased to such customers and its
assets and properties located in the Knogo N.A. Territory, subject to and as
more particularly described in the Divestiture Agreement.
CONDITIONS TO THE KNOGO N.A. STOCK DISTRIBUTION
The consummation of the Knogo N.A. Stock Distribution is subject to
the satisfaction (or waiver) of certain conditions specified in the Divestiture
Agreement, including: (i) the respective representations and warranties of
Knogo and Sensormatic contained in the Amended and Restated Merger Agreement
must be true and correct in all material respects; (ii) the respective
obligations of Knogo, Knogo N.A., and Sensormatic
- 19 -
<PAGE> 246
required by the Amended and Restated Merger Agreement to have been performed at
or prior to the Effective Time must have been performed in all material
respects; (iii) the Divestiture Agreement must have been executed and delivered
by Knogo and Knogo N.A.; (iv) each of the License Agreement and the Supply
Agreement must have been executed and delivered by Knogo and Knogo N.A., and
acknowledged and accepted, as of the Effective Time, by Sensormatic; (v) all
Rights of Knogo Shareholders arising under the Rights Agreement must be
extinguished pursuant to the Merger; (vi) each of Sensormatic and Knogo must
have received various legal opinions, certificates, consents, resolutions and
reports from the other and from third parties, as applicable; (vii) the shares
of Sensormatic Common Stock issuable pursuant to the Amended and Restated
Merger Agreement must have been approved for listing on the NYSE, subject to
official notice of issuance; (viii) the Registration Statement must have become
effective under the Securities Act and must not be the subject of any stop
order or of proceedings, either instituted or threatened, seeking a stop order;
(ix) any applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended, shall have expired or been terminated and
no binding law, regulation, order decree or injunction shall be in effect which
would prevent the consummation of the Merger; (x) Knogo N.A. shall have assumed
the liabilities of Knogo, as described above (this condition is not waivable);
(xi) Knogo shall have contributed to Knogo N.A. all of its business operations
in the Knogo N.A. Territory, as described above; and (xii) Knogo shall have
obtained an acknowledgment from certain Banks with respect to the release of
certain Bank Liens.
AMENDMENT
The Divestiture Agreement provides that Knogo and Knogo N.A. may
modify or amend the Divestiture Agreement by written agreement executed and
delivered by authorized officers of the respective parties; provided, however,
that pursuant to the Amended and Restated Merger Agreement the consent of
Sensormatic is required for any such amendment.
RELATIONSHIP BETWEEN KNOGO N.A. AND SENSORMATIC AFTER THE KNOGO N.A. STOCK
DISTRIBUTION
Knogo N.A. will operate as an independent company following the Knogo
N.A. Stock Distribution. Knogo N.A. will, however, have certain relationships
with Sensormatic as the successor to Knogo. Knogo N.A. will also compete with
Sensormatic in the Knogo N.A. Territory.
Pursuant to the Divestiture Agreement, for a period of five years,
Knogo N.A. may not compete with Knogo (or Sensormatic, as its successor)
outside the Knogo N.A. Territory, including in the manufacture (except for sale
in the Knogo N.A. Territory), marketing, sale, or license of EAS, CCTV or other
products to deter and detect shoplifting and employee theft, or license outside
the Knogo N.A. Territory any intellectual property contributed to Knogo N.A.
pursuant to the Divestiture Agreement.
Pursuant to the Divestiture Agreement, Knogo and Sensormatic, as
successor to Knogo, will indemnify Knogo N.A. against certain losses,
liabilities, damages and expenses (including reasonable attorneys' fees and
costs) ("Damages") arising out of the breach of any covenant of Knogo
thereunder, or arising out of or in connection with Knogo's business, other
than those Damages related to the liabilities assumed by Knogo N.A. thereunder,
as well as certain liabilities under the federal securities laws (except to the
extent arising out of or based upon information furnished by Knogo or Knogo
N.A.). Knogo N.A. will indemnify Knogo and Sensormatic against damages arising
out of the breach of any covenant of Knogo N.A. under the Divestiture
Agreement, arising out of or in connection with the Divestiture (except with
respect to liabilities or obligations of Knogo or Sensormatic under the
Divestiture Agreement) or arising out of or in connection with those
liabilities assumed by Knogo N.A. pursuant to the Divestiture Agreement, as
well as certain liabilities under the federal securities laws (to the extent
arising out of or based upon information furnished by Knogo or Knogo N.A.).
The Divestiture Agreement also provides that the parties will make appropriate
arrangements to obtain and maintain insurance for certain of such
possibilities.
- 20 -
<PAGE> 247
The Divestiture Agreement also contains further provisions relating to
the Divestiture and the dealings between Knogo N.A. and Knogo following the
Divestiture, including, without limitation, the provision by Knogo N.A. of
certain interim administrative services following the Divestiture and
obligations of Knogo N.A. as to confidentiality. Following the Effective Time,
Sensormatic, as the Surviving Corporation, will succeed to and be entitled to
all rights, benefits and remedies of, and shall be subject to all obligations
of, Knogo under the Divestiture Agreement, the License Agreement and the Supply
Agreement.
SUPPLY AND LICENSE AGREEMENTS
Supply Agreement
Knogo's factory and production facilities in Cidra, Puerto Rico are
among the assets located in the Knogo N.A. Territory which will be contributed
to Knogo N.A. pursuant to the Divestiture Agreement. The Supply Agreement
provides for Knogo (and Sensormatic, as its successor) to purchase products
currently produced by Knogo ("Knogo Products") from Knogo N.A., for sale
outside the Knogo N.A. Territory, in a minimum aggregate dollar amount of
$12,000,000 during the first 12 months and an additional $12,000,000 during the
ensuing 18 months, subject to certain quarterly and monthly minimums and
maximums. The Supply Agreement provides that such Knogo Products will be priced
such that Knogo N.A.'s gross profit margin on the sale of such Knogo Products
will be 35%. In the event that Sensormatic fails to purchase the required
minimum amount of Knogo Products, Sensormatic would be liable to pay liquidated
damages in the amount of 35% of the shortfall, except that to the extent that
such failure is caused by Sensormatic contemporaneously producing such Knogo
Products for itself, the applicable percentage would be 50%.
License Agreement
The Divestiture Agreement provides that Knogo will contribute to Knogo
N.A. the United States and Canadian patents and trademarks owned by Knogo and
Knogo will retain ownership of its patents and trademarks outside the United
States and Canada. Know-how and other intellectual property will be commonly
owned by Knogo and Knogo N.A., provided that Knogo N.A. will have the exclusive
right to make or have made, use, market, distribute, sell, lease, install,
service and market Knogo Products within the Knogo N.A. Territory and Knogo
will have such exclusive rights outside the Knogo N.A. Territory, all as
subject to the provisions of the License Agreement. The License Agreement
provides that shortly after the Divestiture, Knogo N.A. will deliver to
Sensormatic all know-how in its possession which Knogo is entitled to retain,
and perform certain ongoing training and consulting services in connection
therewith, without additional consideration.
Pursuant to the License Agreement, Knogo (and Sensormatic, as its
successor) and Knogo N.A. will grant to each other certain perpetual,
fully-paid licenses under the patents and other technology to be contributed to
Knogo N.A. or retained by Knogo (as applicable), including (i) a non-exclusive
license from Knogo N.A. to Knogo to manufacture or have manufactured Knogo
Products in the Knogo N.A. Territory (and to apply the Knogo trademarks and
trade names thereto), provided that such products are marketed, distributed,
sold or leased outside of the Knogo N.A. Territory for use outside of the Knogo
N.A. Territory; (ii) a non-exclusive license from Knogo N.A. to Knogo to use,
make, have made, market, distribute, sell or lease SuperStrip in the Knogo N.A.
Territory; (iii) a non-exclusive license from Knogo to Knogo N.A to make or
have made Knogo Products and SuperStrip outside the Knogo N.A. Territory but
only for marketing, distribution, sale or use in the Knogo N.A. Territory; and
(iv) certain cross-licenses of improvements developed by the parties during the
five years following the date of the Divestiture.
Notwithstanding any of the territorial restrictions referred to above,
each of the parties has the further right to sell material used for source
labeling (i.e., embedding or affixing label materials in or to merchandise at
the point of manufacture or distribution) to manufacturers or distributors
located outside their respective territories, but only to be embedded in or
affixed to merchandise for source labeling purposes, and only if such
- 21 -
<PAGE> 248
merchandise is to be sold by such manufacturers or distributors for sale and
use in accordance with the territorial restrictions otherwise applicable to the
party supplying such material.
The License Agreement also provides that following a "Change in
Control" (as defined in the License Agreement) of Knogo N.A., if Sensormatic
has licensed or assigned rights in SuperStrip to a party other than an
affiliate, distributor, dealer or a party manufacturing for Sensormatic or such
persons, Knogo N.A. or its successor will have the right to obtain a similar
non-exclusive license outside the Knogo N.A. Territory on terms no less
favorable than those available to any such licensee. The License Agreement
also contains provisions giving each party the right to purchase SuperStrip
from the other if the selling party is manufacturing SuperStrip or having
SuperStrip manufactured by others under contract to such selling party.
LISTING AND TRADING OF KNOGO N.A. COMMON STOCK
Application has been made for listing of the Knogo N.A. Common Stock
on the American Stock Exchange, Inc.
There is not currently a public market for the Knogo N.A. Common
Stock. Prices at which the Shares may trade prior to the Knogo N.A. Stock
Distribution and the Merger on a "when-issued" basis or after the Knogo N.A.
Stock Distribution and the Merger cannot be predicted. The prices at which the
Knogo N.A. Common Stock trade will be determined by the marketplace and may be
influenced by many factors, including, among others, the future operations and
earnings of Knogo N.A., the depth and liquidity of the market for the Knogo
N.A. Common Stock, investor perception of Knogo N.A. and the industries in
which its businesses participate, Knogo N.A.'s dividend policy, and general
economic and market conditions. See "Dividend Policy."
The Knogo N.A. Common Stock to be distributed to Knogo shareholders
will be freely transferable, except for Knogo N.A. Common Stock received by
persons who may be deemed to be "affiliates" of Knogo N.A. under the Securities
Act of 1933, as amended (the "Securities Act"). Persons who may be deemed to
be affiliates of Knogo N.A. after the Knogo N.A. Stock Distribution generally
include individuals or entities that control, are controlled by, or are under
common control with Knogo N.A. and may include certain officers and directors
of Knogo N.A. Persons who are affiliates of Knogo N.A. may sell their Knogo
N.A. Common Stock only pursuant to an effective registration statement under
the Securities Act or an exemption from the registration requirements of the
Securities Act, such as the exemption afforded by Section 4(1) of the
Securities Act and the brokerage sales provisions of Rule 144 thereunder. It
is believed that persons who may be deemed to be affiliates of Knogo N.A. after
the Knogo N.A. Stock Distribution will own approximately 22.5% of the
outstanding Shares.
Immediately following the Knogo N.A. Stock Distribution and the
Merger, based on the number of record holders of Knogo Common Stock on November
21, 1994, Knogo N.A. would have approximately 600 holders of record.
DIVIDENDS
Knogo N.A. does not presently intend to pay or consider the payment of
any cash dividends on the Knogo N.A. Common Stock. There can be no assurance
that any dividends will be paid in the future on the Knogo N.A. Common Stock.
Any of Knogo N.A.'s future loan agreements may contain, among other
things, provisions relating to tangible net worth, current and leverage ratios
and restrictions on the payment of dividends. In
- 22 -
<PAGE> 249
addition, future loan agreements may contain covenants that could contain
provisions limiting or restricting the payment of dividends.
CAPITALIZATION OF KNOGO N.A.
The following table sets forth, as of August 31, 1994, the
consolidated historical capitalization of Knogo N.A. and its capital, as
adjusted for the Divestiture. The information should be read in conjunction
with the Consolidated Financial Statements and the related notes thereto of
Knogo N.A. included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF AUGUST 31, 1994
------------------------------------
AS ADJUSTED
HISTORICAL FOR THE DIVESTITURE
---------- -------------------
(in thousands)
<S> <C> <C>
Obligations under capital leases $ 607 $ 607
---------- ----------
Shareholders' equity 32,096 20,835 (1)
Less: Due from affiliates (7,208) 0 (2)
---------- ---------
Total shareholders' equity 24,888 20,835
---------- ---------
Total capitalization $ 25,495 $ 21,442
========== =========
</TABLE>
(1) Adjusted to achieve target net worth of approximately $24 million
on a historical basis and to reflect the write down of certain assets.
(See Notes A, D and G of Notes to Unaudited Pro Forma Consolidated
Financial Statements.)
(2) Adjusted to eliminate receivables from affiliates in connection
with the Divestiture.
- 23 -
<PAGE> 250
KNOGO N.A.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
PROPOSED TRANSACTION AND PRO FORMA BASIS OF PRESENTATION
On August 14, 1994, Knogo and Knogo N.A. entered into the Amended and
Restated Merger Agreement. The Amended and Restated Merger Agreement
contemplates that Knogo will be merged into Sensormatic. A condition of the
Merger requires Knogo to contribute to Knogo N.A., immediately prior to the
Merger, certain assets and liabilities of Knogo relating to Knogo's operations
in the United States, Canada and Puerto Rico.
The following unaudited pro forma consolidated financial information
present the financial position of Knogo N.A. as of August 31, 1994 and the
results of operations for the six months ended August 31, 1994 and the year
ended February 28, 1994. The presentation sets forth the financial position of
Knogo N.A. as if the Merger and Divestiture were consummated on August 31, 1994
and the results of operations of Knogo N.A. as if the Merger and Divestiture
were consummated at March 1, 1993.
The following unaudited pro forma consolidated financial information
should be read in conjunction with the accompanying footnotes thereto and the
consolidated historical financial statements of Knogo N.A. presented elsewhere
in this Prospectus.
The following unaudited pro forma consolidated financial information
is based on estimates and assumptions that are outlined in the accompanying
footnotes. The actual results reported in the future will vary from such
unaudited pro forma consolidated financial information.
- 24 -
<PAGE> 251
KNOGO N.A.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF AUGUST 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
ASSETS KNOGO N.A. ADJUSTMENTS KNOGO N.A.
<S> <C> <C> <C>
CASH $ 1,185 $ 315 (A) $ 1,500
ACCOUNTS RECEIVABLE - Net 3,714 -- 3,714
NET INVESTMENT IN SALES-TYPE LEASES 1,963 -- 1,963
INVENTORIES 8,660 (2,235)(A) 6,425
SECURITY DEVICES ON LEASE - Net 715 -- 715
PROPERTY, PLANT AND EQUIPMENT - Net 12,823 (3,176)(D) 9,647
OTHER ASSETS 1,272 657 (A) 1,929
------- -------- --------
$30,332 $ (4,439) $ 25,893
======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
ACCOUNTS PAYABLE $ 1,072 $ -- $ 1,072
ACCRUED LIABILITIES 2,787 -- 2,787
INCOME TAXES PAYABLE 336 (336)(A) --
OBLIGATIONS UNDER CAPITAL LEASES 607 -- 607
DEFERRED INCOME TAXES 362 (50)(A) 312
DEFERRED LEASE RENTALS 280 -- 280
------- -------- --------
5,444 (386) 5,058
======= ======== ========
SHAREHOLDERS' EQUITY 32,096 (11,261) 20,835
LESS: DUE FROM AFFILIATES (7,208) 7,208 (A) --
------- -------- --------
TOTAL SHAREHOLDERS' EQUITY (G) 24,888 (4,053) 20,835
------- -------- --------
$30,332 $ (4,439) $ 25,893
======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
information.
- 25 -
<PAGE> 252
KNOGO N.A.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
REVENUES: KNOGO N.A. ADJUSTMENTS KNOGO N.A.
<S> <C> <C> <C>
Sales of security devices and related
interest income $ 6,302 $ 4,000 (C) $10,302
Sales to affiliates 4,981 (4,981)(C) --
Lease rentals and other 1,363 -- 1,363
------- ------- -------
12,646 (981) 11,665
COSTS AND EXPENSES:
Cost of security devices sold 2,954 2,600 (C) 5,554
Cost of sales to affiliates 3,401 (3,401)(C) --
Depreciation and amortization of security
devices and property, plant and equipment 611 (49)(E) 562
Research and development 253 372 (F) 625
Selling, general and administrative expenses 5,759 (434)(F) 5,325
Interest expense 47 -- 47
------- ------- -------
13,025 (912) 12,113
======= ======= =======
INCOME (LOSS) BEFORE INCOME TAXES (379) (69) (448)
INCOME TAXES (BENEFIT) 8 187 (B) (179)
------- ------- -------
NET INCOME (LOSS) $ (387) $ 118 $ (269)
======= ======= =======
Earnings (Loss) Per Share -- -- $ (.05)
=======
Common shares utilized in
Earnings Per Share calculation 5,677
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
information.
- 26 -
<PAGE> 253
KNOGO N.A.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
REVENUES: KNOGO N.A. ADJUSTMENTS KNOGO N.A.
<S> <C> <C> <C>
Sales of security devices and related
interest income $15,385 $ 12,000 (C) $27,385
Sales to affiliates 11,375 (11,375)(C) --
Lease rentals and other 2,858 -- 2,858
------- -------- -------
29,618 625 30,243
COSTS AND EXPENSES:
Cost of security devices sold 8,405 7,800 (C) 16,205
Cost of sales to affiliates 7,172 (7,172)(C) --
Depreciation and amortization of security
devices and property, plant and equipment 1,245 (94)(E) 1,151
Research and development 557 693 (F) 1,250
Selling, general and administrative expenses 11,118 (536)(F) 10,582
Interest expense 359 (291)(F) 68
------- -------- -------
28,856 400 29,256
------- -------- -------
INCOME BEFORE INCOME TAXES 762 225 987
INCOME TAXES 639 (244)(B) 395
------- -------- -------
NET INCOME $ 123 $ 469 $ 592
======= ======== =======
Earnings Per Share -- -- $ .10
=======
Common shares utilized in
Earnings Per Share calculation 5,677
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
information.
- 27 -
<PAGE> 254
KNOGO N.A.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The accompanying unaudited pro forma consolidated financial statements
give effect to the following pro forma adjustments and assumptions:
(A) Adjustments pursuant to the Amended and Restated Merger Agreement which
provides that, at the time of the Divestiture, Knogo N.A. will have a net worth
of approximately $24 million (the "Target Net Worth"), based on the historical
carrying value of Knogo's assets and liabilities at the Divestiture Date. Such
adjustments amount in the aggregate to a reduction of Knogo's historical net
worth in the amount of $877,000. The Target Net Worth at the Divestiture Date
will be achieved by a combination of Knogo N.A.'s net loss through the
Divestiture Date as well as the transfer of certain assets and the assumption
of certain liabilities. The actual adjustments on the Divestiture Date will be
different due to the current operations of Knogo N.A..
(B) Adjustment to record the income tax effect of the pro forma adjustments as
well as the anticipated tax rate for Knogo N.A. on a stand-alone basis.
(C) Adjustments to reflect the Supply Agreement between Knogo, Sensormatic, as
successor to Knogo, and Knogo N.A. as more fully described elsewhere in this
Prospectus.
(D) Adjustment to record the write-down of the worldwide corporate
headquarters of Knogo from Knogo's historical carrying value due to the manner
in and extent to which it will be utilized on a prospective basis by Knogo N.A.
The write-down of assets is specifically excluded for purposes of determining
Target Net Worth in accordance with the Amended and Restated Merger Agreement.
(E) Adjustments to reduce depreciation expense for the write-down of the
building (see Note D).
(F) Adjustments to reflect the expected costs to be incurred by Knogo N.A. as
if it had operated as a stand alone entity. Management plans to increase its
research and development efforts in the Knogo N.A. Territory and reduce certain
selling, general and administrative expenses from historical operating levels.
(G) The following represents a reconciliation of Historical Total
Shareholders' Equity to Target Net Worth and Pro Forma Total Shareholders'
Equity:
Historical Total Shareholders' Equity $24,888
Adjustments to achieve Target Net Worth pursuant to
the Amended and Restated Merger Agreement (Note A) (877)
-------
Target Net Worth 24,011
Adjustments to record the write-down of the worldwide
corporate headquarters (Note D) (3,176)
-------
Pro Forma Total Shareholders' Equity $20,835
=======
- 28 -
<PAGE> 255
KNOGO N.A.
SELECTED FINANCIAL INFORMATION
(In thousands)
The table below sets forth selected consolidated historical financial
data of Knogo N.A. for each of the five years in the period ended February 28,
1994 and the six month periods ended August 31, 1993 and 1994. These
consolidated financial statements include certain assets and liabilities of
Knogo, on a historical basis, relating to Knogo's operations in the United
States, Canada and Puerto Rico. The selected consolidated historical financial
data as of and for the years ended February 29, 1992 and February 28, 1993 and
1994 should be read in conjunction with the audited Consolidated Financial
Statements of Knogo N.A. and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
The consolidated historical financial data of Knogo N.A. as of and for the
years ended February 28, 1990 and 1991 are derived from unaudited consolidated
financial statements not included in this Prospectus. Historical financial
information may not be indicative of Knogo N.A.'s future performance as an
independent company. The selected consolidated historical financial data of
Knogo N.A. for the six month periods ended August 31, 1993 and 1994, have been
derived from the unaudited Consolidated Financial Statements of Knogo N.A.
included elsewhere in this Prospectus. The results for the six month period
ended August 31, 1994 are not necessarily indicative of the results to be
expected for the full year. Historical per share data for earnings and
dividends have not been presented as Knogo N.A. was not a publicly held company
during the periods presented below.
- 29 -
<PAGE> 256
SELECTED FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED THE LAST DAY OF FEBRUARY AUGUST 31
----------------------------------------------------- -----------------------
1990 1991 1992 1993 1994 1993 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS DATA:
Sales of security devices and
related interest income, lease
rentals and other . . . . . . . $21,881 $23,734 $24,242 $22,592 $18,243 $ 9,792 $ 7,665
Sales to affiliates . . . . . . . 5,847 7,284 9,734 10,072 11,375 5,325 4,981
------- ------- ------- ------- ------- ------- -------
Total Revenues . . . . . . . . . 27,728 31,018 33,976 32,664 29,618 15,117 12,646
Cost of security devices sold . . 12,899 13,376 17,391 17,293 15,577 7,868 6,355
Depreciation and amortization
expenses . . . . . . . . . . . 2,090 2,089 1,949 1,623 1,245 794 611
Selling, general and
administrative expenses . . . . 9,362 12,455 13,602 11,688 11,118 5,577 5,759
Income (loss) before income
taxes . . . . . . . . . . . . 3,123 2,395 (738) 1,148 762 368 (379)
Net income (loss) . . . . . . . . 1,290 2,179 (1,057) 624 123 215 (387)
SELECTED BALANCE SHEET DATA:
(AT END OF PERIOD)
Total assets . . . . . . . . . . $41,777 $44,381 $36,193 $33,546 $34,583 $30,332
Net investment in sales-type
leases . . . . . . . . . . . . 5,116 4,342 2,854 3,178 2,018 1,963
Security devices on lease, net . 1,200 1,073 883 547 505 715
Obligations under
capital leases . . . . . . . . -- -- -- 797 688 607
Total Shareholders' equity . . . 38,136 38,503 32,056 28,308 27,055 24,888
</TABLE>
See the notes to the consolidated financial statements included elsewhere
herein.
- 30 -
<PAGE> 257
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six months ended August 31, 1994 compared with six months ended August 31, 1993
In the first half of fiscal 1995, Knogo N.A.'s revenues decreased 16% over
those reported in the first half of fiscal 1994. During the 1994 fiscal year a
plan was put in place to reduce the number of sales account representatives to
more sharply focus the selling effort on target markets and reduce expense.
The short term effect of this plan was a decline in revenues from traditional
sources, particularly in soft goods, which were not yet replaced by revenues
from the redirected effort. In response to the increased selling effort and
trade advertising, systems were placed in 29 supermarket locations on either a
test or trial order basis during the first half of fiscal 1995. Conversion of
these tests and trials into revenue producing orders if it occurs should begin
in the second half of fiscal 1995. Sales to affiliates were lower due to
technical problems related to the improved magnetic systems for hypermarkets
which resulted in delayed orders.
The cost of security devices sold to third parties was $3.0 million or 47%
of sales of security devices and related interest income in the first half of
fiscal 1995 compared to $4.2 million or 53% in the first half of 1994. The
cost of goods sold percentage was favorably impacted by a higher level of used
equipment sales at better than average margins as well as higher selling prices
on selected products and lower inventory provisions during the current period.
There were also lower CCVS revenues which carry lower margins than Knogo N.A.'s
other product lines.
Selling, general and administrative expenses increased slightly in the
first half of fiscal 1995 over the same period in fiscal 1994. The increase
was primarily a result of increased corporate allocations including higher
sales promotion costs and allocated corporate charges (including a portion of
the death benefit payable to the estate of Arthur J. Minasy, the former
Chairman of the Board and Chief Executive Officer of Knogo who died on May 10,
1994). These increases were offset in part by further reductions in the sales
staff and lower bad debt provisions.
Knogo N.A.'s income tax provision for the first half of fiscal 1995 is the
result of the normal Puerto Rico provision offset by a refund from a previous
tax settlement on Knogo N.A.'s Puerto Rico manufacturing operations.
As a result of the foregoing, Knogo N.A. had a net loss in the first half
of fiscal 1995 of $387,000 compared to net income of $215,000 in the same
period of fiscal 1994.
Fiscal 1994 Compared with Fiscal 1993
Consolidated revenues for fiscal 1994 were $29.6 million as compared to
$32.7 million in fiscal 1993 reflecting a net decrease of $3.1 million or 9%.
Knogo N.A.'s sales of security devices and related interest income to customers
in North America decreased 21% to $15.4 million for fiscal 1994, compared to
$19.5 million in fiscal 1993. Sales to affiliates increased 13% to $11.4
million in fiscal 1994 as compared to $10.1 million in fiscal 1993. Lease
rentals and other revenues decreased 6% to $2.9 million in fiscal 1994 from
$3.1 million in the prior fiscal year.
The decrease in total revenues from third parties was primarily
attributable to a reduction in sales to the retail soft goods market (which has
traditionally been a strong contributor to the revenue base) as well as some
selling price reductions. In addition, during the 1994 fiscal year a plan was
put in place to reduce the number of sales account representatives to more
sharply focus the selling effort on target markets and reduce expense. The
short term effect of this plan was a decline in revenues from traditional
sources, particularly in soft goods, which were not yet replaced by revenues
from the redirected effort.
Revenues by product line to third party customers in fiscal 1994 were 32%
Magnetics, 36% Swept RF, 19% Dual RF, 3% KnoGlo(TM), and 10% CCVS, compared to
31%, 39%, 19%, 3%, and 8%, respectively, in fiscal 1993. Revenues from sales
to affiliates by product line in fiscal 1994 were 64% Magnetics, 31% Swept RF,
1% Dual RF, 3% KnoGlo(TM) and 1% CCVS compared to 49%, 32%, 11%, 7%, and 1%,
respectively, in fiscal 1993.
- 31 -
<PAGE> 258
The cost of security devices sold decreased from $10 million in fiscal
1993 to $8.4 million in fiscal 1994. As a percentage of sales of security
devices and related interest income, the cost of security devices sold
increased to 55% in fiscal 1994 from 51% in fiscal 1993. The increased
percentage was a result of higher installation costs due to the introduction of
new products for the supermarket industry, as well as slightly lower selling
prices.
Cost of sales to affiliates decreased from 73% in fiscal 1993 to 63% in
fiscal 1994 primarily as a result of the change in mix of products sold and
cost reductions in the Magnetic product line.
Depreciation and amortization decreased by $.4 million to $1.2 million in
fiscal 1994 as compared to $1.6 million in fiscal 1993. The decrease is
primarily a result of a lower depreciation on Knogo N.A.'s machinery and
equipment.
Selling, general and administrative expenses decreased from $11.7 million
in fiscal 1993 to $11.1 million in fiscal 1994. This decrease was attributable
principally to a reduction in North American sales and marketing expenses of
$1.3 million, offset partially by an increase in bad debts and warranty costs
of $.4 million and higher allocated corporate charges of $.3 million. However,
as a percentage of revenue, selling, general and administrative expenses
increased to 38% in fiscal 1994 from 36% in the previous year due to the lower
revenue level.
The increase in interest expense in fiscal 1994 over fiscal 1993 of
$313,000 is primarily related to the settlement of various tax audits.
Knogo N.A.'s tax provisions include $271,000 in fiscal 1994 and $286,000
in fiscal 1993 relating to settlements regarding prior years' tax audits.
As a result of the foregoing, Knogo N.A. had a net profit in fiscal 1994
of $123,000 compared to $624,000 in fiscal 1993.
Fiscal 1993 Compared with Fiscal 1992
Consolidated revenues for fiscal 1993 were $32.7 million, down 4% from
$34.0 million in fiscal 1992. Knogo N.A.'s sales of security devices and
related interest income from third party sales decreased 6% to $19.5 million
for fiscal 1993, compared to $20.7 million in fiscal 1992. Sales to affiliates
increased 4% to $10.1 million in fiscal 1993 as compared to $9.7 million in
fiscal 1992. Lease rentals and other revenues decreased 14% to $3.1 million in
fiscal 1993 from $3.6 million in the prior year.
Revenues by product line to third party customers in fiscal 1993 were 31%
Magnetics, 39% Swept RF, 19% Dual RF, 3% KnoGlo(TM), and 8% CCVS, compared to
29%, 40%, 19%, 1%, and 11%, respectively, in fiscal 1992. Revenues from sales
to affiliates by product line in fiscal 1993 were 49% Magnetics, 32% Swept RF,
11% Dual RF, 7% KnoGlo(TM), and 1% CCVS compared to 36%, 44%, 15%, 2%, and 3%,
respectively, in fiscal 1992.
The cost of security devices sold decreased to $10.0 million in fiscal
1993 from $10.2 million in fiscal 1992. As a percentage of sales of security
devices and related interest income, the cost of security devices sold
increased to 51% in fiscal 1993 from 49% in fiscal 1992. The higher cost of
sales percentage was primarily a result of a change in product mix and higher
inventory obsolescence provisions.
Cost of sales to affiliates decreased slightly from 74% in fiscal 1992 to
73% in fiscal 1993 primarily as a result of a change in the mix of products
sold.
Selling, general and administrative expenses decreased to $11.7 million in
fiscal 1993 from $13.6 million in fiscal 1992. The decrease in selling,
general and administrative expense was principally attributable to a decrease
of $.5 million in North American sales and marketing expenses. There was a
reduction in warranty costs of $.2 million and in bad debts expense of $1.2
million in fiscal 1993 from fiscal 1992. In fiscal 1992, Knogo N.A. was
affected by
- 32 -
<PAGE> 259
the downturn in the retail economy and provided substantial bad debt provisions
due to pending and actual bankruptcies.
The reduction in interest expense in fiscal 1993 was due to interest on an
IRS tax settlement included in fiscal 1992.
In fiscal 1992, Knogo N.A. initiated a restructuring program which
resulted in a $1.1 million charge against operations. The majority of this
charge related to the write-down of earlier generation products.
Knogo N.A.'s taxes of $524,000 in fiscal 1993 are primarily a result of an
IRS tax settlement of $286,000 and certain local taxes on the profits of Knogo
N.A.'s Puerto Rico operations. Despite consolidated pretax losses in fiscal
1992, Knogo N.A. provided for income taxes in fiscal 1992 of $319,000 based on
the profits of its Puerto Rican manufacturing operation.
As a result of the foregoing, Knogo N.A. had net income in fiscal 1993 of
$624,000, compared to a net loss of $1,057,000 in fiscal 1992.
Liquidity and Capital Resources
Knogo N.A.'s financial position is strong, with shareholders' equity of
approximately $25 million as of August 31, 1994 with no bank debt. At the time
of the contribution, and after the write-down of certain assets, Knogo N.A.
will have a net worth of approximately $21 million.
Knogo N.A. will own unencumbered real estate including a 68,000 square
foot office, research, engineering and distribution facility in Hauppauge, New
York, a 55,000 square foot manufacturing facility and guest house in Cidra,
Puerto Rico and a 6,000 square foot office in suburban Chicago, Illinois.
Management is currently negotiating with several lending institutions for
a revolving credit facility for Knogo N.A. Following the Contribution, Knogo
N.A.'s internal forecasts and assumptions relating to its future operations,
including the Supply Agreement, anticipate there will be sufficient cash from
operations to meet its cash flow needs for at least the next twelve months.
However, there can be no assurance that funding, through borrowings, equity
issuances or otherwise, if required by Knogo N.A. will be available or, if
available, will be on terms favorable to Knogo N.A. In addition, if
substantial additional indebtedness were incurred, Knogo N.A.'s ability to
respond to changing financial, business and economic conditions, and
accordingly its stockholders' investment in Knogo N.A., could be adversely
affected.
Inflation
Knogo N.A. does not consider inflation to have a material impact on the results
of operations.
- 33 -
<PAGE> 260
MANAGEMENT
DIRECTORS
Set forth below is information concerning the Directors of Knogo N.A.:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Thomas A. Nicolette . . . . . . . . 44 Director, President and
Chief Executive Officer
Robert T. Abbott . . . . . . . . . . 50 Director, Senior Vice President, Chief
Administrative Officer, Treasurer and
Assistant Secretary
Frank M. Corso . . . . . . . . . . . 66 Director
William A. Perlmuth . . . . . . . . 64 Director
Robert E. Vandermark . . . . . . . . 69 Director
</TABLE>
The principal occupations and positions for the past five years of
each such person are as follows:
Thomas A. Nicolette has been President, Chief Executive Officer and a
Director of Knogo N.A. since its inception and has been a Director of Knogo
since 1987. Mr. Nicolette was appointed Chief Executive Officer of Knogo on
May 11, 1994, following the death of Arthur J. Minasy, who was then Chairman
and Chief Executive Officer of Knogo. Mr. Nicolette had served as President
and Chief Operating Officer of Knogo since November 1, 1990. Prior thereto he
served as president of Knogo-North America Division from 1989 to 1990 and as a
Vice President of Knogo from 1986. He is a member of the Board of Trustees of
WLIW, the Long Island-based affiliate of the Public Broadcasting System.
Following the Knogo N.A. Stock Distribution and the Merger, Mr. Nicolette will
remain Chief Executive Officer and President.
Robert T. Abbott has been Senior Vice President, Chief Administrative
Officer, Treasurer and Assistant Secretary of Knogo N.A. since its inception
and became a Director of Knogo N.A. in November 1994. He was appointed Senior
Vice President-Finance Secretary and Treasurer of Knogo on May 20, 1994. Until
then, Mr. Abbott served as Vice President-Finance, Secretary and Treasurer of
Knogo from July 1991. Prior thereto he was Treasurer and Chief Financial
Officer of C.H. Masland & Sons from October 1988 to September 1990.
Frank M. Corso has been a Director of Knogo N.A. since its inception
and has been a Director of Knogo since 1987. Mr. Corso has been a partner in
the law firm Frank Mitchell Corso, P.C. for more than five years. Such firm
and Mr. Corso performed legal services for Knogo in fiscal year 1994 and are
expected to perform legal services for Knogo N.A. following the Knogo N.A.
Stock Distribution. The aggregate amount of fees paid by Knogo to Frank
Mitchell Corso, P.C. was less than 5% of the law firm's gross revenues for the
last fiscal year. Knogo believes that the billing rates for the foregoing
legal services were no less favorable to Knogo than could have been obtained
from unaffiliated parties for comparable services. Mr. Corso is a past
Director of the State of New York Municipal Bond Bank Agency. He is a past
member of the Board of Trustees of WLIW, the Long Island-based affiliate of the
Public Broadcasting System.
William A. Perlmuth has been a Director of Knogo N.A. since its
inception and has been a Director of Knogo since 1979. Mr. Perlmuth has been
a partner in the law firm of Stroock & Stroock & Lavan in New York, New York
for more than five years. Such firm and Mr. Perlmuth performed legal services
for Knogo in fiscal year 1994 and are expected to perform legal services for
Knogo N.A. following the Knogo N.A. Stock Distribution. The aggregate amount
of fees paid by Knogo to Stroock & Stroock & Lavan was less than 5% of the law
firm's gross revenues for the last fiscal year. Knogo believes that the
billing rates for the foregoing legal services were no less favorable to Knogo
than could have been obtained from unaffiliated parties for comparable
services.
- 34 -
<PAGE> 261
Robert E. Vandermark has been a Director of Knogo N.A. since its
inception and has been a Director of Knogo since 1986. He has been retired for
more than five years from his former position as Vice President and Senior
Commercial Lending Officer of Chemical Bank, Melville, New York.
The terms of office of Messrs. Abbott and Corso will expire at Knogo
N.A.'s annual meeting of stockholders to be held in 1995. The terms of office
of Messrs. Nicolette and Vandermark will expire at the annual meeting of
stockholders in 1996 and the term of office of Mr. Perlmuth will expire at
Knogo N.A.'s annual meeting of stockholders to be held in 1997. See
"Description of Capital Stock of Knogo N.A.--Charter and By-law Provisions."
DIRECTORS' COMPENSATION
The 1994 Stock Incentive Plan of Knogo North America Inc. (the "1994
Plan") provides for the granting of a limited number of Incentive Awards to
certain Non-Employee Directors who otherwise are not eligible to participate in
the 1994 Plan, and thereby will assist Knogo N.A. in attracting and retaining
qualified Directors. Pursuant to the 1994 Plan, each Non-Employee Director who
is elected to the Board of Directors will be granted, on the date of his
election and on each anniversary thereof while such person continues to serve
as a member of the Board, a stock option entitling the holder to purchase
shares of Knogo N.A. Common Stock at a purchase price equal to the fair market
value of the Knogo N.A. Common Stock on the date of grant of the option. See
"Executive Compensation Plans in Effect After Knogo N.A. Stock
Distribution--1994 Stock Incentive Plan." Knogo N.A. will also consider
arrangements providing for annual retainers and meeting fees. Directors who
are also employees of Knogo N.A. will receive no additional compensation for
their services as Directors.
DIRECTORS' RESIGNATIONS
As of the Effective Time, Knogo N.A. Directors who are Directors of
Knogo will resign as Directors of Knogo.
DIRECTORS' OPTIONS
Directors who hold outstanding options to purchase Knogo Common Shares
will be granted substitute options under the 1994 Stock Incentive Plan of Knogo
North America Inc. to purchase a number of shares of Knogo N.A. Common Stock at
an exercise price to be determined pursuant to the formula set forth in the
Amended and Restated Merger Agreement, which is described in the Proxy
Statement-Prospectus under the caption "The Merger -- Knogo Stock Options."
Directors of Knogo N.A. who are not also employees of Knogo N.A. will, in
addition, be granted new options prior to the Distribution for 10,000 shares at
an exercise price of $2.00 per share under the terms of the 1994 Stock
Incentive Plan. See "Executive Compensation Plans in Effect After the Knogo
N.A. Stock Distribution--1994 Stock Incentive Plan."
COMMITTEES OF THE BOARD OF DIRECTORS
While no determinations have been made regarding the composition of
committees of the Board, it is expected that there will be a Compensation
Committee to approve the granting of options, 401(k) decisions, and other
compensation matters, and an Audit Committee. Both committees shall consist of
non-employee Directors.
- 35 -
<PAGE> 262
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
persons who will serve as executive officers of Knogo N.A..
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Thomas A. Nicolette 44 President and Chief Executive Officer
Robert T. Abbott 50 Senior Vice President, Chief Administrative Officer,
Treasurer and Assistant Secretary
Peter J. Mundy 38 Vice President-Finance, Chief Financial Officer,
Secretary and Assistant Treasurer
Peter Y. Zhou 54 Vice President-Technology
</TABLE>
There are no family relationships, by blood, marriage or adoption,
between any of the above officers. All officers are elected until the next
annual meeting of the shareholders or until their respective successors are
chosen and qualified. There is no arrangement or understanding between any of
the above officers and any other person pursuant to which he was selected as an
officer.
The principal occupations and positions for the past five years of
each of the Executive Officers of Knogo N.A. are as follows:
Mr. Nicolette has been President and Chief Executive Officer of Knogo
since May 1994. He was President and Chief Operating Officer of Knogo from
November 1990 and served as President of Knogo-North America Division since
1989.
Mr. Abbott has been Senior Vice President-Finance, Secretary and
Treasurer of Knogo since May 1994. Prior thereto, he served as Vice
President-Finance, Secretary and Treasurer of Knogo from July 1991. Prior
thereto he served as Treasurer and Chief Financial Officer of C.H. Masland &
Sons from October 1988 to September 1990.
Mr. Peter J. Mundy has been Vice President-Corporate Controller of
Knogo from May 1994. Prior thereto he was Corporate Controller for more than
five years. Mr. Mundy is a Certified Public Accountant.
Dr. Zhou has been Senior Vice President-Technology of Knogo from
1992. He was also Vice President-Research of Knogo from September 1988.
As of the Effective Time, the employment of each of Messrs.
Nicolette, Abbott, Mundy and Zhou with Knogo will be terminated.
EXECUTIVE COMPENSATION
Each of the executive officers of Knogo N.A. presently is employed as
an executive officer of Knogo. Such employment will be terminated in
connection with the Merger. The following table sets forth certain information
concerning compensation paid by Knogo during its fiscal year ended February 28,
1994 to Knogo N.A.'s Chief Executive
- 36 -
<PAGE> 263
Officer and the three other most highly compensated persons who are or will be
executive officers of Knogo N.A., based on salary and bonus earned during such
period.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
Name and Annual All Other
Principal Position in Knogo Compensation Compensation(2)
--------------------------- ------------ ------------
<S> <C> <C> <C>
Salary($) Bonus($) ($)
Thomas A. Nicolette
President and CEO(3) $227,875 -- $3,028
Robert T. Abbott
Senior Vice President-
Finance(3) $100,000 $19,000 $ 500
Peter J. Mundy
Vice President-Corporate
Controller $ 91,800 $ 9,900 $1,224
Peter Y. Zhou
Senior Vice President
Technology $125,000 $10,600 $1,719
</TABLE>
(1) There was no disclosable "Long Term Compensation" paid, payable or
accrued to any of the persons named above during fiscal 1994.
(2) Amounts shown consist of Knogo's matching contributions under the
401(k) Plan.
(3) Upon consummation of the Merger, Mr. Nicolette and Mr. Abbott will
receive $600,000 and $120,000, respectively, pursuant to their
existing employment agreements with Knogo. Additionally, Mr.
Nicolette's options to purchase 47,000 shares of Knogo stock, which
are 80% vested, will, under the terms of Mr. Nicolette's existing
employment agreement, become fully vested.
EXECUTIVE COMPENSATION PLANS IN EFFECT AFTER KNOGO N.A. STOCK DISTRIBUTION
Knogo N.A., with the approval of Knogo as its sole stockholder,
expects to adopt certain new compensation and employee benefit plans and
officers' employment agreements for Knogo N.A., effective upon the Knogo N.A.
Stock Distribution. The plans proposed to be adopted will replace those of
Knogo currently applicable to employees of Knogo N.A.. Benefit plans of Knogo
N.A. which will be in effect following the Knogo N.A. Stock Distribution are
described below.
- 37 -
<PAGE> 264
401(k) SAVINGS PLAN
Knogo N.A. has adopted and Knogo, the sole stockholder of Knogo N.A.,
has approved the Knogo North America Inc. Retirement Savings 401(k) Plan (the
"Knogo N.A. Savings Plan"), formerly known as the Knogo Corporation Retirement
Savings 401(k) Plan (the "Knogo Savings Plan").
The following summary of the provisions of the Knogo N.A. Savings
Plan is subject to the full text of the Knogo N.A. Savings Plan. A copy of
the Knogo N.A. Savings Plan may be obtained by written request to the Company.
Eligible employees of Knogo N.A. (and those of its subsidiaries which
adopt the Knogo N.A. Savings Plan) may become participants in the Knogo N.A.
Savings Plan. An employee (other than a member of a collective bargaining
unit) is eligible to participate in the Knogo N.A. Savings Plan as of the first
day of January, April, July or October coincident with or next following the
date he or she attains age 21 and completes one year of service. Prior service
with Knogo (and any of its subsidiaries) will be credited for all purposes
under the Knogo N.A. Savings Plan. An employee who is a member of a collective
bargaining unit is eligible to participate if the collective bargaining
agreement provides that he or she may become a participant and he or she
satisfies the age and service requirements specified above. Approximately 155
employees will be eligible to participate in the Knogo N.A. Savings Plan as of
the time of the Divestiture Date.
To participate in the Knogo N.A. Savings Plan, an eligible employee
must elect to defer between 1% and 10% of compensation by authorizing Knogo
N.A. to deduct such amount from his or her paycheck and contribute it to the
Knogo N.A. Savings Plan on his or her behalf (a "Deferral Election"). In
general, any amounts so deferred will not be fully taxable to the participant
until he or she receives a distribution from the Knogo N.A. Savings Plan (see
the federal income tax consequences discussed below). However, to qualify for
this favorable tax treatment, the amount which a participant may elect to defer
is subject to an annual dollar limitation, as well as a non-discrimination
test. For 1994, a participant cannot elect to defer more than $9,240. This
amount will be adjusted annually by the Secretary of the Treasury to reflect
increases in the cost of living.
An eligible employee may also elect to defer from 1% to 10% of his
compensation on an after-tax basis by authorizing Knogo N.A. to deduct such
amounts from his or her paycheck and contribute it to the Knogo N.A. Savings
Plan on his behalf (an "After-Tax Contribution"). An eligible employee may not
elect to defer more than 15% of his or her compensation as to both his Deferral
Election and After-Tax Contributions. In general, any After-Tax Contribution
will be fully taxable to the participant upon contribution to the Knogo N.A.
Savings Plan, but any earnings thereon will not be taxable until he or she
receives a distribution from the Knogo N.A. Savings Plan.
In addition to the contribution made pursuant to each participant's
Deferral Election and any After-Tax Contributions, Knogo N.A. will make a
matching contribution (a "Matching Contribution") in an amount equal to a
percentage of the participant's Deferral Election designated by the
Compensation Committee of the Board of Directors (the "Committee"). Knogo N.A.
may also contribute a discretionary matching contribution (a "Discretionary
Matching Contribution") and discretionary contribution (a "Discretionary
Non-Matching Contribution") for any plan year which will be conditioned upon
the participant being an active employee as of December 31 of the year, except
in cases of an approved leave of absence, death or normal, early or disability
retirement.
All of the contributions made under the Knogo N.A. Savings Plan will
be held in trust (the "Trust") and allocated to one or more accounts maintained
on behalf of each participant (the "Accounts"). The Trust will be divided into
four investment vehicles, including the Knogo N.A. Common Stock Fund. When an
eligible employee becomes a participant, the employee can elect (in multiples
of 5%) to have all or part of his or her Elective Deferrals and After-Tax
Contributions invested in one or more of the funds. The Matching
- 38 -
<PAGE> 265
Contributions, Discretionary Matching Contributions and Discretionary
Non-Matching Contributions will automatically be invested in the Knogo N.A.
Common Stock Fund. Any dividends paid on shares of Knogo N.A. Common Stock in
said Fund will be reinvested in additional shares of Knogo N.A. Common Stock.
Generally, as of any January 1, April 1, July 1 or October 1, a
participant may change the percentage of his or her Accounts (in multiples of
5%) invested in one or more other investment funds, except that a participant
may only elect to transfer or liquidate such amounts as are invested in the
Knogo N.A. Common Stock Fund subject to certain limitations described in the
Plan.
If a participant's Accounts are invested in the Knogo N.A. Common
Stock Fund, the participant may direct the Trustee as to the voting at each
respective annual or special meeting of stockholders of shares of Knogo N.A.
Common Stock allocated to him or her.
Knogo N.A.'s Matching Contributions, Discretionary Matching
Contributions, Discretionary Non-Matching Contributions and earnings thereon
will become nonforfeitable at a 20% rate for each year of service completed by
the participant, so that the participant will be fully vested upon completing
five years of service. However, such contributions will become fully vested
regardless of years of service if the participant's employment terminates by
reason of retirement, disability or death. A participant is always 100% vested
in his other benefits under the Knogo N.A. Savings Plan.
When a participant stops working for Knogo N.A. for any reason, the
participant will be entitled to receive an amount equal to the vested value of
his or her Accounts. A participant's benefit will be paid to him or her, or in
the case of his or her death, to his or her beneficiary, in a lump sum payable
in either cash or Knogo, N.A. Common Stock Fund, to the extent such amounts are
invested in the Knogo N.A. Common Stock Fund. A participant may elect to
receive a lump sum payment at the time his or her employment terminates or to
defer the payment until any time between ages 65 and 70 1/2. If a
participant's employment is terminated after age 65 or if a participant becomes
disabled, the participant also has the option to receive his or her benefit in
installments over a period of time not to exceed 10 years. In addition, if a
participant attains age 59 1/2 while still an employee, the participant can
elect to receive an immediate lump sum payment of the vested value of his
Deferral Election Accounts and payments will be made in cash. If a
participant's Accounts are invested in the Knogo N.A. Common Stock Fund, the
participant can request that the vested value of his or her Accounts, to the
extent so invested, be distributed to him or her in the form of shares of Knogo
N.A. Common Stock. Also, all or part of certain amounts contributed to the
Knogo N.A. Savings Plan may be withdrawn, in the case of financial hardship.
Finally, a participant may borrow the invested amounts allocated to his or her
Accounts, up to certain specified limits. Interest will be payable to the
Knogo N.A. Savings Plan on any amounts borrowed.
The Knogo N.A. Savings Plan will be administered by the Committee.
The expenses of administering the Knogo N.A. Savings Plan will be paid from the
Trust, unless Knogo N.A. elects to pay such expenses directly.
The Board of Directors of Knogo N.A. will have the right to amend,
terminate or suspend the Knogo N.A. Savings Plan at any time. However, no
amendment may provide for the use of assets of the Knogo N.A. Savings Plan
other than for the exclusive benefit of participants and their beneficiaries
and no amendment may deprive any participant or beneficiary of any of his or
her vested benefits.
The Knogo N.A. Savings Plan will become effective as of the
Divestiture Date. Knogo N.A. will submit the Knogo N.A. Savings Plan and
Trust to the Internal Revenue Service for a determination that the Knogo N.A.
Saving Plan qualifies under Section 401 of the Code and that the Trust is
exempt from federal income taxation under Section 501 of the Code. The
adoption of the Knogo N.A. Savings Plan and Trust is contingent on obtaining
such a determination, and Knogo N.A. will amend the Knogo N.A. Savings Plan and
Trust, if necessary, to obtain a favorable determination from the Internal
Revenue Service.
- 39 -
<PAGE> 266
Knogo N.A. intends that the Knogo N.A. Savings Plan and Trust shall
qualify under Sections 401(a) and 401(k) of the Code and the Trust shall be
exempt from federal income tax under Section 501(a) of the Code. If the
Internal Revenue Service determines that the Knogo N.A. Savings Plan and Trust
are qualified and exempt, the federal income tax treatment will be as follows:
A participant will not be taxed at the time of the deferral on the
amount of compensation the participant has elected to defer pursuant to a
Deferral Election, but such amount will be subject to Social Security (FICA)
and unemployment taxes. To qualify for this favorable tax treatment, the
amount, as well as the percentage, of compensation which a participant elects
to defer cannot exceed certain limits imposed by Sections 402(g) and 401(k) of
the Code. Also, a participant generally will not be taxed on any Matching
Contributions, Discretionary Matching Contributions and Discretionary
Non-Matching Contributions that Knogo N.A. makes to the Knogo Savings Plan on
his or her behalf until distributed; provided, however, that certain
limitations imposed by Section 401(m) of the Code are satisfied. Any
contributions made to the Knogo N.A. Savings Plan pursuant to a participant's
Deferral Election and any Matching Contributions, Discretionary Matching
Contributions and Discretionary Non-Matching Contributions will be deductible
immediately by Knogo N.A..
Income realized by the Trust will not be taxable to the participants
when such income is earned or allocated to the participants' Accounts, but only
when distributed to the participants, nor will the Trust be subject to tax on
such income.
If a participant's interest in the Trust is distributed in either a
single sum or installments over a period of less than 10 years, the
distribution will qualify as an eligible rollover distribution (an "Eligible
Rollover Distribution"). If the distribution is not rolled over (as described
below) it will be taxable as ordinary income, except that if the participant
was in the Knogo N.A. Savings Plan for the five years preceding the year of
distribution, and the distribution is made in one taxable year upon termination
of employment, death, or at or after the participant's attainment of age 59
1/2, it will qualify as a "lump sum distribution," and the participant may
elect to compute his or her tax in accordance with the special five-year
forward averaging provisions of the Code if he or she attained age 59 1/2 prior
to the distribution (or ten-year forward averaging provisions of the Code, with
respect to participant who attained age 50 prior to 1986, regardless of the
participant's age at distribution). However, a participant can make only one
averaging election after December 31, 1986. In addition, if the distribution
qualified as a "lump sum distribution", the participant, or his or her
beneficiary, will be taxed only on that portion of the distribution which
exceeds any net unrealized appreciation in the value of any shares of Knogo
N.A. Common Stock included in the distribution. The net unrealized
appreciation is equal to the difference between the price of the Knogo N.A.
Common Stock when the employee invests in the Knogo N.A. Common Stock Fund, and
the fair market value of the respective Knogo N.A. Common Stock Fund when
distributed to the participant. Taxation of such amount is generally deferred
until the participant sells the shares of such Common Stock, at which time the
untaxed appreciation will be taxed as long-term capital gain.
The participant can defer taxation on an Eligible Rollover
Distribution, if he or she directly rolls over the benefit to another qualified
Plan or an individual retirement account or annuity ("IRA") within 60 days of
distribution. However, the participant's surviving spouse may only have such
amounts directly transferred to an IRA. If the participant does not elect a
direct rollover, his or her benefits will be subject to mandatory withholding
at a 20% rate. The 20% withholding will not apply to the extent that the
Eligible Rollover Distribution is paid in Knogo N.A. Common Stock.
If a participant receives a distribution which does not qualify as an
Eligible Rollover Distribution or a "lump sum distribution", the participant
will be taxed on the full value of the shares of such Common Stock, cash or
other property distributed to the participant, including any net unrealized
appreciation. The taxable amount will be treated as ordinary income, will not
be eligible for the special five-year (or ten-year) averaging provisions and
may not be transferred to an IRA.
- 40 -
<PAGE> 267
If a participant sells shares of Knogo N.A. Common Stock which are
received from the Knogo N.A. Savings Plan, the participant will realize
long-term capital gain on the net unrealized appreciation not previously
subject to tax. Any appreciation in the value of such Common Stock occurring
subsequent to the distribution will be taxed as long-term or short-term capital
gain, depending upon whether the participant has held the shares which were
sold for more than one year after the date such shares were distributed.
Subject to certain exceptions (including death or disability), an
additional 10% income tax will be imposed on taxable distributions received
before a participant attains age 59 1/2, unless directly rolled over to a
qualified plan or IRA within 60 days of distribution.
The foregoing summary with respect to federal income taxation does
not purport to be complete, and reference is made to the applicable provisions
of the Code.
1994 STOCK INCENTIVE PLAN
Knogo N.A. has adopted and Knogo, the sole stockholder of Knogo N.A.,
has approved the 1994 Plan. The purpose of the 1994 Plan is to encourage Knogo
N.A.'s key employees and Directors to acquire a larger proprietary interest in
Knogo N.A., and to provide incentives to put forth maximum efforts for the
success of Knogo N.A.'s business, and thereby stimulate the efforts of such key
employees and Directors on Knogo N.A.'s behalf.
A copy of the 1994 Plan is annexed hereto as Annex I. The following
summary of its principal provisions is subject to the full text of the 1994
Plan.
The 1994 Plan will be administered by the Compensation Committee of
the Board of Directors (the "Committee"), comprised of three or more Directors
of Knogo N.A., each of whom is disinterested within the meaning of Rule
16b-3(c)(2) under the Exchange Act. All key employees as may be determined by
the Committee from time to time, are eligible to participate in the 1994 Plan.
In addition, under the 1994 Plan, certain Directors of Knogo N.A. who are not
also employees of Knogo N.A. ("Non-Employee Directors") are eligible to receive
limited stock options, as described below.
Awards may be granted by the Committee to eligible employees in the
form of stock options, restricted stock awards, phantom stock awards or stock
appreciation rights ("Incentive Awards"). Stock options may be granted as
"incentive stock options" (as defined under Section 422 of the Code) or as
non-qualified stock options. Incentive stock options and non-qualified stock
options are hereinafter referred to as "New Grant Options". In addition,
employees and directors who hold outstanding options to purchase Knogo Common
Stock will, pursuant to the Amended and Restated Merger Agreement, be granted
substitute options under the 1994 Plan to purchase a number of shares of Knogo
N.A. Common Stock at an exercise price to be determined pursuant to the formula
set forth in the Amended and Restated Merger Agreement as described in the
Proxy Statement-Prospectus under the caption "The Merger- Knogo Stock Options."
Other terms of the substitute options, including when and the extent to which
such options are exercisable or non exercisable, will be identical to the
corresponding Knogo options.
The aggregate number of shares of Knogo N.A. Common Stock that may be
the subject of Incentive Awards under the 1994 Plan may not exceed 725,000;
provided, that rights that are exercisable as an alternative to an option (as
described below) will not be subject to the foregoing limitation.
The exercise price under an incentive stock option or a non-qualified
stock option is fixed by the Committee on the date of grant; however, the
exercise price under an incentive stock option must be at least equal to the
fair market value of the Knogo N.A. Common Stock on the date of grant of the
option.
- 41 -
<PAGE> 268
Stock options and stock appreciation rights are exercisable for a
duration determined by the Committee, but in no event after ten years from the
date of grant. Options and stock appreciation rights shall be exercisable at
such rate and times as may be fixed by the Committee on the date of grant. The
holder of a stock option granted in connection with an alternative stock
appreciation right (which is described below) is entitled to exercise such
option only by surrendering the alternative stock appreciation right with
respect to the same number of shares as to which such option is exercised, and
to receive payment thereof. The aggregate fair market value (determined at the
time the option is granted) of the Knogo N.A. Common Stock with respect to
which incentive stock options are exercisable for the first time by a
participant during any calendar year (under all stock option plans of Knogo
N.A. and its Subsidiaries) shall not exceed $100,000; to the extent that this
limitation is exceeded, such excess options shall be treated as non-qualified
stock options for purposes of the 1994 Plan and the Code. Non-qualified
options are not subject to the $100,000 limitation and are not included in
determining whether the $100,000 limitation has been exceeded.
At the time a stock option is granted, the Committee may, in its sole
discretion, designate whether the stock option is to be considered an incentive
stock option or a non-qualified stock option. Stock options with no such
designation shall be deemed incentive stock options to the extent that the
$100,000 limit described above is met and such options satisfy the relevant
conditions under the Code.
Payment of the purchase price for shares acquired upon the exercise
of options may be made by any one or more of the following methods: in cash,
by check, by delivery to Knogo N.A. of shares of Knogo N.A. Common Stock
already owned by the option holder, by a "cashless" exercise method with a
designated broker, or by such other method as the Committee may permit from
time to time.
A stock appreciation right may be granted either independently, or in
connection with a stock option at the time of grant. A stock appreciation
right granted in connection with a stock option shall be exercisable (a) only
to the extent that the related stock option is exercisable and (b) either in
conjunction with, or as an alternative to, the exercise of the related option.
A stock appreciation right is the right to receive an amount equal to the
excess (or a portion of the excess, as determined by the Committee at the time
of grant), of the fair market value of a share of Knogo N.A. Common Stock on
the date of exercise over (i) the fair market value of a share of Knogo N.A.
Common Stock on the date of grant, in the case of a stock appreciation right
granted independently of any stock option, or (ii) the exercise price of the
related stock option, in the case of a stock appreciation right granted in
connection with a stock option (which excess is referred to as the "Spread").
However, with respect to stock appreciation rights exercised by officers and
Directors who are subject to Section 16(b) of the Exchange Act during quarterly
ten-day periods beginning on the third day after the release of Knogo N.A.'s
quarterly statements of sales and earnings, the amount payable to all such
holders who exercise their stock appreciation rights during any such period may
be uniformly determined by reference to a single fair market value of a share
of Knogo N.A. Common Stock on any day during such relevant quarterly period, as
may be designated by the Committee, rather than the fair market value of such
Knogo N.A. Common Stock on the actual date of exercise by each respective
holder. The holder of a conjunctive stock appreciation right granted in
connection with a stock option is deemed to have exercised the right at the
same time, and to the same extent that, the related stock option is exercised.
The holder of an alternative stock appreciation right granted in connection
with a stock option is entitled to exercise such right only by surrendering the
related stock option with respect to the same number of shares as to which such
stock appreciation right is exercised, and to receive payment therefor. The
number of shares with respect to which an alternative stock option is
surrendered shall not be available for future grants of Incentive Awards. The
Committee may limit the amount payable upon the exercise of any stock
appreciation right.
At the election of the holder, but subject to disapproval of such
election by the Committee, distribution of the amount payable upon the exercise
of a stock appreciation right may be made in shares of Knogo N.A. Common Stock,
valued at their fair market value on the date of exercise of the stock
appreciation right, or in cash, or in a combination of cash and shares.
- 42 -
<PAGE> 269
Stock options and stock appreciation rights become immediately
exercisable in full upon the retirement of the holder after reaching the age of
65, upon the disability or death of the holder while in the employ of Knogo
N.A. or a Subsidiary, upon a Change of Control, as defined in the 1994 Plan,
while the holder is employed by Knogo N.A. or a Subsidiary or upon the
occurrence of such special circumstances as in the opinion of the Committee
merit special consideration. However, no options or rights may be exercised
earlier than six months following the date of grant.
Stock options and stock appreciation rights terminate at the end of
the third business day following the holder's termination of employment. This
period is extended to three months in the case of the holder's retirement or
disability, and six months in the case of the holder's death, in which case the
stock option and/or stock appreciation right is exercisable by the holder's
estate.
The Committee may grant restricted stock awards to eligible
individuals. A restricted stock award is the issuance of shares of Knogo N.A.
Common Stock or the grant of the right to purchase Knogo N.A. Common Stock at a
price determined by the Committee. Such shares of Knogo N.A. Common Stock,
when and if issued, shall be subject to transfer restrictions determined by the
Committee in its sole discretion, and subject to substantial risk of forfeiture
unless and until specific conditions established by the Committee at the time
of grant are met. Such conditions may be based on continuing employment or
achievement of pre-established performance objectives, or both, as determined
by the Committee. Unless the holder of a restricted stock award ceases to be
an employee of Knogo N.A. or a Subsidiary (for reasons other than those
described below), the transfer restrictions imposed upon restricted stock
awards will lapse in accordance with a schedule or other conditions as are
determined by the Committee. All restrictions immediately cease upon the death
or disability of the holder, upon a Change of Control, as defined in the 1994
Plan, while the holder is employed by Knogo N.A. or a Subsidiary or upon the
occurrence of such special circumstances as in the opinion of the Committee
merit special consideration.
Payment of the purchase price for restricted shares shall be made in
cash, by check, or by such other methods as the Committee may permit.
Certificates for the shares of Common Stock granted or purchased
pursuant to a restricted stock award shall be issued in the name of the holder
thereof, but the certificates shall be retained by Knogo N.A. for the holder's
account and shall not be delivered to the holder until such time as the
restrictions imposed on the transfer of such shares shall have lapsed. The
holder of a restricted stock award has the right to vote the shares of Knogo
N.A. Common Stock registered in his or her name. Dividends and distributions
(including stock dividends and distributions in the event of a split-up,
conversion, exchange, reclassification or substitution) with respect to such
shares may be retained by Knogo N.A. for the holder's account, to be
distributed to the holder at the time, and to the extent that, the restrictions
imposed on the transfer of such shares shall have lapsed.
The Committee may grant phantom stock awards to eligible individuals.
A phantom stock award entitles the holder to receive payment from Knogo N.A.,
upon the expiration of a vesting period, in an amount equal to (i) the fair
market value of one share of Knogo N.A. Common Stock on the date of such
expiration, multiplied by (ii) the number of units of phantom stock credited to
the holder pursuant to such award and as to which the vesting period has
expired. Payment of such amount may be made in the form of cash, or shares of
Knogo N.A. Common Stock, or a combination of cash or shares, pursuant to such
terms and conditions as are determined by the Committee. The vesting period
generally expires in accordance with a schedule or other conditions as are
determined by the Committee; however, the vesting period completely expires,
and all amounts become payable immediately upon the death or disability of the
holder, upon a Change of Control, as defined in the 1994 Plan, while the holder
is employed by Knogo N.A. or a Subsidiary or upon the occurrence of such
special circumstances as in the opinion of the Committee merit special
consideration.
- 43 -
<PAGE> 270
The holder of a phantom stock award is credited with amounts equal to
the dividends payable with respect to the same number of shares of Knogo N.A.
Common Stock as the number of phantom stock units credited under the award;
however, such dividend-equivalent amounts may be retained by Knogo N.A. for
the holder's account, to be distributed to the holder at the time, and to the
extent that, the vesting period with respect to such number of units shall have
expired.
The 1994 Plan also provides for the granting of a limited number of
Incentive Awards to certain Non-Employee Directors who otherwise are not
eligible to participate in the 1994 Plan, and thereby will assist Knogo N.A. in
attracting and retaining qualified Directors. Pursuant to the 1994 Plan, each
Non-Employee Director as of the Effective Time of the Merger will be granted a
stock option to purchase 10,000 shares of Knogo N.A. Common Stock at a purchase
price equal to $2.00 per share. Each such Non-Employee Director also will be
granted a stock option on each anniversary of the date of his election to the
Board while such person continues to serve as a member of the Board, and each
Non-Employee Director who is elected to the Board of Directors after the
Effective Time shall be granted a stock option on the date of his election and
on each anniversary thereof while such person continues to serve as a member of
the Board, entitling the holder to purchase 2,000 shares of Knogo N.A. Common
Stock at a purchase price equal to the fair market value of the Knogo N.A.
Common Stock on the date of grant of the option. Each of the foregoing options
shall have a duration of ten years from the date of grant and shall become
exercisable cumulatively as to 20% of the Shares on each of the first five
anniversaries of the date of grant. Notwithstanding the preceding, all or any
part of any remaining unexercised options granted may be exercised (but in no
event during the six-month period commencing on the date of grant) in the event
of the holder's cessation of service as a member of Board on or after his 65th
birthday, the holder's permanent disability (within the meaning of Section
22(e)(3) of the Code), or the holder's death, during the period beginning on
the date of such event and ending three months after the holder's cessation at
or after age 65 or disability, or six months after the holder's death, as the
case may be, but in no event after the expiration of the term of the option.
All remaining unexercised options granted may be exercised (but in no event
during the six-month period commencing on the date of grant) upon the
occurrence of a Change of Control, as defined in the 1994 Plan, while the
holder is serving as a member of the Board. Any option, to the extent
unexercised, shall terminate immediately upon the holder's ceasing to serve as
a Director of Knogo N.A. (for reasons other than deciding to no longer serve as
a Director at or after age 65, permanent disability (within the meaning of
Section 22(e)(3) of the Code) or death), except that the holder shall have
until the end of the third business day following the cessation of such service
to exercise any unexercised option that he or she could have exercised on the
day on which such service terminated; provided that such exercise must be
accomplished prior to the expiration of the term of such option.
Notwithstanding the preceding, if the service of a non-employee Director is
terminated because of fraud or intentional misrepresentation, or embezzlement,
misappropriation or conversion of assets or opportunities of Knogo N.A. or any
Subsidiary, then all such unexercised options of the Director shall terminate
immediately upon such termination of the Director's service. Payment of the
exercise price under options granted to Non-Employee Directors shall be made in
cash or by check payable to the order of Knogo N.A.
Each Incentive Award (other than grants of restricted stock) contains
anti-dilution provisions which will automatically adjust the number of shares
subject to Incentive Awards in the event of a stock dividend, split-up,
conversion, exchange, reclassification or substitution. In the event of any
other change in the corporate structure or outstanding shares of Knogo N.A.
Common Stock, the Committee may make such equitable adjustments to the number
of shares and the class of shares available under the 1994 Plan or to any
outstanding Incentive Awards as it shall deem appropriate to prevent dilution
or enlargement of rights. Notwithstanding the preceding, in the event of a
termination of employment of a stock option holder other than a non-employee
director in connection with a Change of Control (as defined in the 1994 Plan),
if such Change of Control is not approved by a majority of the Continuing
Directors (as defined in Knogo N.A.'s Amended and Restated Certificate of
Incorporation), such holder shall be entitled to receive an amount of cash in
lieu of shares of Knogo N.A. Common Stock upon the exercise of such options.
- 44 -
<PAGE> 271
Knogo N.A. shall obtain such consideration for granting Incentive
Awards under the 1994 Plan as the Committee in its discretion may request.
Each Incentive Award may be subject to provisions to assure that any
exercise or disposition of Knogo N.A. Common Stock will not violate the
securities laws.
No Incentive Award may be granted under the 1994 Plan after November
1, 2004.
The Board of Directors or the Committee may at any time withdraw or
amend the 1994 Plan and may, with the consent of the affected holder of an
outstanding Incentive Award, at any time withdraw or amend the terms and
conditions of outstanding Incentive Awards. Any amendment which would increase
the number of shares issuable pursuant to Incentive Awards or change the class
of employees to whom Incentive Awards may be granted shall be subject to the
approval of the stockholders of Knogo N.A. within one year of such amendment.
The federal income tax consequences to an individual who receives
incentive stock options generally will, under current law, be as follows:
An individual will not realize any income upon the grant or exercise
of an incentive stock option. If the individual disposes of the shares of
Knogo N.A. Common Stock acquired upon the exercise of an incentive stock option
at least two years after the date the option is granted and at least one year
after the Knogo N.A. Common Stock is transferred to him or her, the individual
will realize long-term capital gain in an amount equal to the excess, if any,
of his or her selling price for the shares over the option exercise price. In
such case, Knogo N.A. will not be entitled to any tax deduction resulting from
the issuance or sale of the shares. If the individual disposes of the shares
of Knogo N.A. Common Stock acquired upon the exercise of an incentive stock
option prior to the expiration of two years from the date the option is
granted, or one year from the date the Knogo N.A. Common Stock is transferred
to him or her, any gain realized will be taxable at such time as follows: (a)
as ordinary income to the extent of the difference between the option exercise
price and the lesser of the fair market value of the shares on the date the
option was exercised or the amount realized from such disposition, and (b) as
capital gain to the extent of any excess over the amount described in clause
(a), which excess shall be treated as short-term or long-term capital gain
depending upon the holding period of the Knogo N.A. Common Stock. In such
case, Knogo N.A. may claim an income tax deduction (as compensation) for the
amount taxable to the individual as ordinary income.
In general, the difference between the fair market value of the Knogo
N.A. Common Stock at the time the incentive stock option is exercised and the
option exercise price will constitute an item of adjustment, for purposes of
determining alternative minimum taxable income, and under certain circumstances
may be subject, in the year in which the option is exercised, to the
alternative minimum tax.
If an individual uses shares of Knogo N.A. Common Stock which he or
she owns to pay, in whole or in part, the exercise price for shares acquired
pursuant to an incentive stock option, (a) the holding period for the newly
issued shares of Knogo N.A. Common Stock equal in value to the old shares
which were surrendered upon the exercise shall include the period during which
the old shares were held, (b) the individual's basis in such newly issued
shares will be the same as his or her basis in the old shares surrendered and
(c) no gain or loss will be recognized by the individual on the old shares
surrendered. However, if any individual uses shares previously acquired
pursuant to the exercise of an incentive stock option to pay all or part of the
exercise price under an incentive stock option, such tender will constitute a
disposition of such previously acquired shares for purposes of the one-year (or
two-year) holding period requirement applicable to such incentive stock option
and such tender may be treated as a taxable exchange.
The federal income tax consequences to an individual who receives
non-qualified stock options generally will, under current law, be as follows:
- 45 -
<PAGE> 272
An individual will not realize any income at the time the option is
granted. Generally, an individual will realize ordinary income, at the time
the option is exercised in a total amount equal to the excess of the then fair
market value of the Knogo N.A. Common Stock acquired over the exercise price.
However, Section 83 of the Code provides that, if a Director, officer or
principal stockholder (i.e., an owner of more than 10 percent of the
outstanding shares of Knogo N.A. Common Stock) receives shares pursuant to the
exercise of a non-qualified stock option, he or she is not required to
recognize any income until the date on which such shares can be sold at a
profit without liability under Section 16(b) of the Exchange Act. At such
time, the Director, officer or principal stockholder will realize income equal
to the amount by which the then fair market value of the shares acquired
pursuant to the exercise of such option exceeds the price paid for such shares.
Alternatively, a Director, officer or principal stockholder who would not
otherwise be taxed at the time the shares are transferred may file a written
election within 30 days with the Internal Revenue Service, to be taxed as of
the date of transfer, on the difference between the then fair market value of
the shares and the price paid for such shares.
All income realized upon the exercise of a non-qualified stock option
will be taxed as ordinary income. Knogo N.A. will be entitled to a tax
deduction (as compensation) for the amount taxable to an individual (including
a Director, officer and principal stockholder) upon the exercise of a
non-qualified stock option, as described above, in the same year as those
amounts are taxable to the individual.
Shares of Knogo N.A. Common Stock issued pursuant to the exercise of
a non-qualified stock option generally will constitute a capital asset in the
hands of an individual and will be eligible for capital gain or loss treatment
upon any subsequent disposition. The holding period of an individual will
commence upon the date he or she recognizes income with respect to the issuance
of such shares, as described above. The individual's basis in the shares will
be equal to the greater of their fair market value as of that date or the
amount paid for such shares. If, however, he or she uses shares of Knogo N.A.
Common Stock which he or she owns to pay, in whole or in part, the exercise
price for shares acquired pursuant to the exercise of a non-qualified stock
option, (a) the holding period for the newly issued shares of Knogo N.A. Common
Stock equal in value to the old shares which were surrendered upon the exercise
shall include the period during which the old shares were held, (b) the basis
in such newly issued shares will be the same as his or her basis in the
surrendered shares, (c) no gain or loss will be realized by the individual on
the old shares surrendered, and (d) the individual will realize ordinary income
in an amount equal to the fair market value of the additional number of shares
received over and above the number of old shares surrendered.
The federal income tax consequences to an individual who receives
restricted stock awards generally will, under current law, be as follows:
An individual will not realize any income when the right to acquire
shares subject to restricted stock awards ("Restricted Shares") is granted, or
when the certificates for the Restricted Shares themselves are registered in
his or her name. The individual will realize ordinary income as and when the
Restricted Shares are no longer subject to a substantial risk of forfeiture
(which risk of forfeiture includes the restrictions imposed by Section 16(b) of
the Exchange Act), in an amount equal to the difference between the fair market
value of the Restricted Shares as of such date and the price he or she paid for
such shares. Alternatively, the individual can file a written election with
the Internal Revenue Service, no more than 30 days after the certificates for
the Restricted Shares are issued, to be taxed as of the date of issuance on the
difference between the then fair market value of the Restricted Shares and the
price he or she paid for such shares. Once the individual has realized
ordinary income with respect to the Restricted Shares, any subsequent increase
in the value of the Restricted Shares generally will be taxed when the shares
are sold as long-term or short-term capital gain, depending on how long the
Restricted Shares are held. The individual's holding period with respect to
the Restricted Shares will begin on the date he or she realizes ordinary income
with respect to the Restricted Shares and the basis in the shares will be equal
to their then fair market value. Knogo N.A. will be entitled to a tax
deduction when, and to the extent, ordinary income is realized by the
- 46 -
<PAGE> 273
individual with respect to such shares. Any dividends or other distributions
paid on the Restricted Shares generally will be taxable when distributed to the
individual.
An individual will be subject to tax, at ordinary income rates, on
the amount of cash and the fair market value of any property received upon the
exercise of any stock appreciation rights or upon the expiration of the vesting
period under a phantom stock award. Knogo N.A. will be entitled to a tax
deduction equal to the amount includible in the individual's income.
In addition to the federal income tax consequences discussed above,
Section 280G of the Code provides that if an officer, stockholder or highly
compensated individual receives a payment which is in the nature of
compensation and which is contingent upon a change of control of the employer,
and such payment equals or exceeds three times his or her "base salary" (as
hereinafter defined), then any amount received in excess of base salary shall
be considered an "excess parachute payment." An individual's "base salary" is
equal to his or her average annual compensation over the five-year period (or
period of employment, if shorter) ending with the close of the individual's
taxable year immediately preceding the taxable year in which the change of
control occurs. If the taxpayer establishes, by clear and convincing evidence,
that an amount received is reasonable compensation for past or future services,
all or a portion of such amount may be deemed not to be an excess parachute
payment. If any payments made under the 1994 Plan in connection with a change
of control of Knogo N.A. constitute excess parachute payments with respect to
any individual, then in addition to any income tax which would otherwise be
owed on such payment, the individual will be subject to an excise tax equal to
20% of such excess parachute payment and Knogo N.A. will not be entitled to any
tax deduction to which it otherwise would have been entitled with respect to
such excess parachute payment.
Section 280G provides that payments made pursuant to a contract
entered into within one year of the change of control are presumed to be
parachute payments unless the individual establishes, by clear and convincing
evidence, that such contract was not entered into in contemplation of a change
of control. In addition, the General Explanation of the Tax Reform Act of 1984
prepared by the Staff of the Joint Committee on Taxation indicates that the
grant of an Incentive Award within one year of the change of control or the
acceleration of an Incentive Award because of a change of control may be
considered a parachute payment, in an amount equal to the value of the
Incentive Award or the value of the accelerated portion of the Incentive Award,
as the case may be. Pursuant to proposed regulations issued by the Treasury
Department under Section 280G, the acceleration of a non-qualified stock
option, stock appreciation rights, a restricted stock award or a phantom stock
award because of a change of control is considered a parachute payment in an
amount equal to the value of the accelerated portion of the option, rights or
award. Even if the grant of an Incentive Award within one year of the change
of control or the acceleration of an Incentive Award is not a parachute payment
for purposes of Section 280G, the exercise of a stock option or stock
appreciation right granted within one year of the change of control or the
exercise of the accelerated portion of a stock option or stock appreciation
right may result in a parachute payment, in an amount equal to the excess of
the fair market value of the shares received upon exercise of the option over
the exercise price (or the cash or fair market value of shares received upon
the exercise of stock appreciation rights). Payments received for the
cancellation of an Incentive Award because of a change of control may also
result in parachute payments.
Under Section 162(m) of the Code, publicly held companies may not
deduct compensation for certain individuals to the extent that such
compensation exceeds $1 million for an individual for the taxable year. The $1
million limitation applies to Knogo N.A.'s Chief Executive Officer and the four
most highly compensated officers other than the Chief Executive Officer.
Compensation which is performance based (as defined in the Code and rules and
regulations thereunder) however, is not counted as subject to the deductibility
limitation of Section 162(m) of the Code. Income pursuant to stock options,
rights, restricted stock awards and phantom stock awards under the 1994 Plan
would be subject to the deductibility limitations of Section 162(m) of the
Code.
- 47 -
<PAGE> 274
The foregoing summary with respect to federal income taxation does
not purport to be complete and reference is made to the applicable provisions
of the Code.
GRANTS TO CERTAIN PERSONS UNDER 1994 PLAN
The following table shows the number of shares of Knogo Common Stock
for which options will be granted under the 1994 Plan to each of the following
persons or groups:
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
Number of Shares Subject Number of Shares Subject
Name and Position to Substitute Options(1) to New Grant Options(2)
----------------- --------------------- --------------------
<S> <C> <C>
Executive Officers:
Thomas A. Nicolette 47,000 100,000
President and CEO
Robert T. Abbott 10,000 40,000
Senior Vice President-Finance
Peter J. Mundy 13,500 40,000
Vice President-Corporate
Controller
Peter Y. Zhou 6,000 40,000
Senior Vice President
Technology
Executive Officer Group 76,500 220,000
(4 persons)
Non-Employee Directors(3):
Frank M. Corso 10,000 10,000
William A. Perlmuth 10,000 10,000
Robert E. Vandermark 10,000 10,000
Non-Employee Director 30,000 30,000
Group (3 persons)
Non-Executive Employees:
Non-Executive Employee
Group (10 persons) 32,200
</TABLE>
(1) Employees and Directors who hold outstanding options to purchase
Knogo Common Stock will become entitled, as of the Effective Time, to
receive substitute options to purchase a number of shares of Knogo
N.A. Common Stock at an exercise price to be determined pursuant to
the formula set forth in the Amended and Restated Merger Agreement.
Such options held by employees were granted pursuant to the 1986
Stock Option Plan of Knogo Corporation, as amended. Such options to
purchase Knogo
- 48 -
<PAGE> 275
Common Stock held by the three non-employee directors were granted
pursuant to stock option agreements authorized in December 1988, as
amended in August 1994 to extend the term of such options.
(2) The exercise price under such options, which will be granted prior to
the Distribution, will be $2.00 per share, which is the price per
share that the Board has determined to be the fair market value
based, in part, on Smith Barney's minimum assumed valuation of Knogo
N.A. Common Stock of $2.00 per share. Such options will be for a
duration of ten years and will become exercisable cumulatively at the
rate of 20% per year on each of the first, second, third, fourth and
fifth anniversaries of the effective date of the grant, which will be
the Effective Time of the Merger.
(3) Each Non-Employee Director also shall be granted an Option on each
anniversary of the date of his election to the Board while such
person continues to serve as a member of the Board and each
Non-Employee Director who is elected to the Board after the Effective
Time shall be granted an Option on the date of his election and on
each anniversary thereof while such person continues to serve as a
member of the Board. Each Option granted pursuant to the preceding
sentence shall entitle the Non-Employee Director to purchase 2,000
Shares at a purchase price per share equal to the fair market value
of a share on the date of grant. Such options shall have a duration
of ten years from the date of grant and shall become exercisable
cumulatively at the rate of 20% per year on each of the first,
second, third, fourth and fifth anniversaries of the date of the
grant.
EXECUTIVE EMPLOYMENT AGREEMENTS
As of the Knogo N.A. Stock Distribution, Mr. Nicolette's employment
with Knogo will terminate and a new employment agreement with Knogo N.A. will
become effective. The employment agreement between Knogo N.A. and Mr.
Nicolette is expected to be for a term of three years, subject to automatic
extensions for successive twenty-four month periods until terminated by either
party. In addition to establishing Mr. Nicolette's annual compensation of
$150,000 per year, the use of an automobile and the receipt of life insurance
in the amount of $1,000,000, the agreement will provide that Knogo N.A. will
grant to Mr. Nicolette options to acquire approximately 100,000 shares of Knogo
N.A. Common Stock on terms set forth in Mr. Nicolette's employment agreement.
Knogo N.A. and Messrs. Abbott and Mundy and Dr. Zhou have agreed in principle
to enter into employment agreements for a term of one year, subject to
automatic extension for successive one-year periods until terminated by either
party. The employment agreements of Messrs. Abbott and Mundy and Dr. Zhou will
provide for annual salaries of $120,000, $103,800, and $120,000, respectively.
Additionally, Messrs. Abbott and Mundy and Dr. Zhou will receive options to
acquire 40,000 shares each of Knogo N.A. Common Stock on terms similar to
those set forth in Mr. Nicolette's employment agreement. The employment
agreements of Mr. Nicolette, Mr. Abbott, Mr. Mundy and Dr. Zhou each provide
for a cost of living adjustment to the base annual salary of each executive
calculated based on the percentage increase of the Consumer Price Index.
The employment agreements of Mr. Nicolette, Mr. Abbott, Mr. Mundy and
Dr. Zhou will provide that in the event of a change in control (as defined) of
Knogo N.A., the term of their employment will be automatically extended for the
period ending two years (in the case of Mr. Nicolette's agreement) and one year
(in the case of the other agreements), following the date of such change in
control. Following such change in control, each of such persons will have the
right to terminate his employment for Good Reason (as defined) while continuing
to receive the salary and bonus otherwise payable thereunder for the remainder
of the employment term. Additionally, the employment agreements will provide
that in the event of a change in control all options held by each of such
persons, whether or not then vested, would fully vest. If the change in
control was not approved by a majority of the Continuing Directors (as defined
in Knogo N.A.'s Amended and Restated Certificate of Incorporation), each such
officer would be entitled to receive cash in cancellation of such options in an
amount equal to the difference between the exercise price of such options and
the market price of the Knogo N.A. Common Stock at the time of cancellation.
- 49 -
<PAGE> 276
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
At the close of business on November 21, 1994, the Knogo had
outstanding 5,633,073 Common Shares, par value $.01 per share, each of which
entitles the holder to one vote. Voting is not cumulative.
The following table provides information at November 21, 1994, with
respect to (i) any person known to Knogo to be the beneficial owner of five
percent or more of the Common Shares of Knogo, (ii) all Directors of Knogo,
(iii) each of the four most highly compensated executive officers and (iv) all
Directors and executive officers as a group. For the purpose of computing the
percentage of the Common Shares owned by each person or group listed in this
table, any shares not outstanding which are subject to options exercisable
within 60 days have been deemed to be outstanding and owned by such person or
group, but have not been deemed to be outstanding for the purpose of computing
the percentage of the Common Shares owned by any other person unless otherwise
indicated, beneficial ownership disclosed consists of sole voting and sole
investment power.
<TABLE>
<CAPTION>
NUMBER OF KNOGO NUMBER OF SHARES
SHARES OF KNOGO N.A. KNOGO N.A.
BENEFICIALLY KNOGO OPTION COMMON STOCK TO OPTION
OWNED, EXCLUDING SHARES WHICH BE OWNED AFTER SHARES
OPTION SHARES, AS MAY BE THE KNOGO N.A. WHICH MAY
OF ACQUIRED DISTRIBUTION BE ACQUIRED PERCENT
NAME AND ADDRESS OF NOVEMBER 21, WITHIN 60 PERCENT OF AND THE WITHIN 60 OF
BENEFICIAL OWNER 1994 DAYS CLASS MERGER DAYS(1) CLASS
---------------------- ----------------- ------------- --------- --------------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Walter & Edwin Schloss 758,500(2) -- 14.0% 758,500 -- 13.4%
Associates L.P.
52 Vanderbilt Avenue
New York, New York 10017
Dimensional Fund Advisors 336,200(3) -- 6.2% 336,200 -- 5.9%
1299 Ocean Avenue
Suite 650
Santa Monica, California 90401
Directors and Executive Officers
William A. Perlmuth 1,177,455(4) 10,000 20.7% 1,177,455 10,000 20.6%
c/o Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004
Thomas A. Nicolette 109,579(5) 47,000 2.7% 109,579 47,000 2.7%
Frank M. Corso 1,500 10,000 * 1,500 10,000 *
Robert F. Vandermark 1,120 10,000 * 1,120 10,000 *
Robert T. Abbott 2,343 6,000 * 2,343 6,000 *
Peter J. Mundy 4,595 9,000 * 4,595 9,000 *
Peter Y. Zhou 2,779 4,000 * 2,779 4,000 *
All Directors and executive
officers as a group (7 persons) 1,299,371 96,000 24.4% 1,299,371 96,000 24.2%
</TABLE>
- 50 -
<PAGE> 277
(1) Includes options issued in cancellation of Knogo options currently
exercisable pursuant to the Amended and Restated Merger Agreement.
Excludes shares subject to New Grant Options not presently exercisable.
(2) Includes 8,500 shares beneficially owned solely by Mr. Walter J. Schloss
and 7,000 shares beneficially owned solely by Mr. Edwin W. Schloss.
(3) According to information provided by Dimensional Fund Advisors Inc.
("Dimensional"), Dimensional is a registered investment advisor and is
deemed to have beneficial ownership of shares of Knogo, all of which
shares are held in portfolios of DFA Investment Dimensions Group Inc., a
registered open-end investment company, the DFA Investment Trust Company,
a registered open-end investment company, or the DFA Group Trust and the
DFA Participating Group Trust, investment vehicles for qualified employee
benefit plans, all of which Dimensional Fund Advisors Inc. serves as
investment manager. Dimensional disclaims beneficial ownership of such
shares.
(4) Consists of (a) 906,655 shares held by Mr. William A. Perlmuth as
Executor of the Estate of Mr. Arthur J. Minasy, the former Chairman and
Chief Executive Officer of Knogo, (b) 266,800 shares held by Mr. Perlmuth
as trustee under trusts for the benefit of Mr. Minasy's adult children,
and (c) 4,000 shares beneficially owned by Mr. Perlmuth.
(5) Excludes 100,000 shares held by a trust for the benefit of Mr.
Nicolette's wife as to which Mr. Nicolette disclaims beneficial
ownership. Includes 90,000 shares held by Mr. Nicolette as co-trustee
under trusts for the benefit of his minor children as to which shares Mr.
Nicolette disclaims beneficial ownership.
- 51 -
<PAGE> 278
DESCRIPTION OF CAPITAL STOCK OF KNOGO N.A.
AUTHORIZED CAPITAL STOCK
Prior to the Knogo N.A. Stock Distribution, Knogo N.A. will amend its
Certificate of Incorporation (as so amended, the "Restated Certificate"), among
other things, to increase the currently authorized number of shares of Knogo
N.A. Common Stock to 10,000,000 and to authorize the issuance of up to
3,000,000 shares of Preferred Stock. The Board of Directors of Knogo N.A. will
be authorized, without further action by the stockholders, to provide for the
issuance of Preferred Stock from time to time, in different series, and to fix
before issuance the powers, designation, preferences and relative rights of
each series, the qualifications, limitations or restrictions thereof, and the
number of shares included in each series. There presently are no outstanding
shares of Preferred Stock nor has the Board of Directors fixed the terms of any
series of Preferred Stock to be issued in the future. See "Preferred Stock and
Additional Common Stock."
Based on the shares of Knogo Common Stock expected to be outstanding
at the time of the Distribution, approximately 5,633,073 shares of Knogo N.A.
Common Stock will be issued to shareholders of Knogo in the Knogo N.A. Stock
Distribution. In addition, shares will be issued in settlement of certain
Knogo employee stock options. All the shares of Knogo N.A. Common Stock to be
distributed to Knogo shareholders in the Knogo N.A. Stock Distribution will be
fully paid and non-assessable.
The following summary of certain terms of Knogo N.A.'s capital stock
describes material provisions of, but does not purport to be complete and is
subject to, and qualified in its entirety by, the Restated Certificate attached
as Annex II hereto, the By-Laws of Knogo N.A. attached as Annex III hereto and
by applicable provisions of law.
KNOGO N.A. COMMON STOCK
The holders of Knogo N.A. Common Stock are entitled to one vote on
each matter submitted to a vote at a meeting of stockholders for each share of
Knogo N.A. Common Stock held of record by such holder as of the record date for
such meeting.
Under certain circumstances, the holders of at least 80% of the
outstanding voting stock of Knogo N.A. must approve (a) any merger or
consolidation with, any disposal of a substantial part of the assets of Knogo
N.A. or any subsidiary to, or any issuance or sale by Knogo N.A. or a
subsidiary of any stock of Knogo N.A. or a subsidiary to, a beneficial owner of
5% or more of the outstanding voting stock of Knogo N.A., unless such
transaction is approved by the Board of Directors and a majority of the
directors so approving are continuing directors (as defined in the Knogo N.A.
Certificate), (b) any dissolution of Knogo N.A., any offer by Knogo N.A. to
purchase its shares, or any reclassification, recapitalization or other
transaction designed to decrease the number of holders of shares of Knogo
N.A.'s voting stock, if any person or entity is then the beneficial owner of 5%
or more of the outstanding voting stock of Knogo N.A., unless such action is
approved by the Board of Directors and a majority of the directors so approving
are continuing directors, (c) any change in the provisions of the Knogo N.A.
Certificate or Knogo N.A.'s By-Laws regarding the number, classification, term
of office, qualifications, election and removal of directors and the filling of
vacancies and newly created directorships, or the provision to the effect that
stockholders of Knogo N.A. may not take action by written consent, or any
changes in the provisions of the Knogo N.A. Certificate regarding the
limitation of liability of directors or the indemnification of officers and
directors, unless such change is submitted to the stockholders with the
unanimous recommendation of the entire Board of Directors, or (d) any amendment
to the foregoing supermajority voting requirements, unless such amendment is
submitted to the stockholders with the unanimous recommendation of the entire
Board of Directors.
- 52 -
<PAGE> 279
Certain of the foregoing provisions of the Knogo N.A. Certificate may
make more difficult, and therefore discourage, attempts to acquire control of
Knogo N.A. through acquisitions of shares of Knogo N.A. Common Stock or
otherwise, in transactions not approved by Knogo N.A.'s Board of Directors. As
a result of these provisions, transactions or proposed transactions which might
have the short-term effect of increasing the market price of Knogo N.A. Common
Stock may be discouraged, and management of Knogo N.A. may be able to resist
changes which the stockholders might otherwise have the power to impose. The
division of Knogo N.A.'s Board of Directors into three classes could discourage
third parties from seeking to acquire control of the Board of Directors and
could impede proxy contests or other attempts to change Knogo N.A.'s
management.
NO PREEMPTIVE RIGHTS
No holder of any stock of any class of Knogo N.A. authorized at the
time of the Knogo N.A. Stock Distribution will then have any preemptive right
to subscribe to any Knogo N.A. securities of any kind or class.
CERTAIN CHARTER AND BY-LAW PROVISIONS
Classified Board of Directors
The Restated Certificate provides for Knogo N.A.'s Board of Directors
to be divided into three classes of Directors serving staggered three-year
terms. As a result, approximately one-third of Knogo N.A.'s Board of Directors
will be elected each year. See "Management--Directors."
This provision could prevent a party who acquires control of a
majority of the outstanding voting stock from obtaining control of Knogo N.A.'s
Board of Directors until the second annual stockholders' meeting following the
date the acquiror obtains the controlling stock interest, and thus could have
the effect of discouraging a potential acquiror from making a tender offer or
otherwise attempting to obtain control of Knogo N.A.. Accordingly, this
provision could increase the likelihood that incumbent Directors will retain
their positions.
Number of Directors; Removal; Vacancies
The Restated Certificate provides that the number of Directors shall
be determined from time to time by a majority of Knogo N.A.'s Board of
Directors, provided that in no event shall such number be less than three. The
By-Laws provide that Knogo N.A.'s Board shall have the exclusive right to fill
vacancies including vacancies created by expansion of the Board.
The Restated Certificate further provides that Directors may be
removed only for cause and then only at any annual meeting or special meeting
of the stockholders, the notice of which states that the removal of a Director
or Directors is among the purposes of the meeting, and only by the affirmative
vote of the holders of at least 80% of the Voting Stock, voting together as a
single class. This provision, in conjunction with the provision of the By-Laws
authorizing the Board to fill vacant directorships, would prevent stockholders
from removing incumbent Directors without cause and filling the resulting
vacancies with their own nominees.
Stockholder Action by Unanimous Consent; Special Meetings
The Restated Certificate provides that any action required or
permitted to be taken by the stockholders of Knogo N.A. must be effected at a
duly called annual or special meeting of stockholders of Knogo N.A. and may not
be effected by any consent in writing of such stockholders. Special meetings
of stockholders of Knogo N.A. may be called only by the Chairman of the Board
or the Secretary of Knogo N.A. within 10 calendar days after receipt of the
written request of a majority of the total number of Directors which Knogo N.A.
would have if there were no vacancies. At an annual meeting or special meeting
of stockholders of Knogo N.A., only
- 53 -
<PAGE> 280
such business will be conducted or considered as has been brought before such
meeting in the manner provided in the By-Laws of Knogo N.A..
Advance Notice for Raising Business or Making Nominations at Meetings
The By-Laws of Knogo N.A. establish an advance notice procedure for
business being brought before an annual meeting of stockholders of Knogo N.A.
by the stockholders and for nominations by the stockholders of candidates for
election as Directors at an annual meeting or a special meeting called for the
purpose of electing Directors. Subject to applicable law, including, without
limitation, Rule 14a-8 under the Exchange Act, only such business may be
conducted at an annual meeting as has been brought before the meeting by, or at
the direction of, Knogo N.A.'s Board of Directors, or by a stockholder who has
given to the Secretary of Knogo N.A. timely written notice, in proper form, of
the stockholder's intention to bring that business before the meeting. In
addition, only persons who are nominated by, or at the direction of, Knogo
N.A.'s Board of Directors or who are nominated by a stockholder who has given
timely written notice, in proper form, to the Secretary prior to a meeting at
which Directors are to be elected will be eligible for election as Directors of
Knogo N.A..
To be timely, notice of nominations or other business to be brought
before an annual meeting must be received by the Secretary of Knogo N.A. not
less than 60 nor more than 90 days prior to the meeting; however, if the date
of the meeting is first publicly announced or disclosed less than 75 days prior
to the date of the meeting, notice shall be given not more than 10 days after
such date is first announced or disclosed. Similar advance notice requirements
are applicable to nominations to be brought before a special meeting called for
the purpose of electing Directors.
Amendment of Certain Charter and By-Laws Provisions
The Restated Certificate provides that the Board may adopt, amend, or
repeal any provision of the By-Laws of Knogo N.A.. Any By-Law made by the
Board may be amended or repealed by the Board or by the stockholders in the
manner provided in the By-Laws. Notwithstanding the foregoing, certain By-Laws
may not be amended or repealed by the stockholders, and no provision
inconsistent therewith may be adopted by the stockholders, without the
affirmative vote of the holders of at least 80% of the Voting Stock, voting
together as a single class. The By-Laws may be amended or repealed at any
time, either at any meeting of stockholders, provided that any amendment or
supplement proposed to be acted upon at any such meeting has been described or
referred to in the notice of such meeting, or at any meeting of the Board,
provided that no amendment adopted by the Board may vary or conflict with any
amendment adopted by the stockholders.
Preferred Stock and Additional Common Stock
Under the Restated Certificate, Knogo N.A.'s Board of Directors will
have the authority to provide by Board resolution for the issuance of shares of
one or more series of Preferred Stock. Knogo N.A.'s Board of Directors is
authorized to fix by resolution the terms and conditions of each such series.
The authorized shares of Knogo N.A.'s Preferred Stock, as well as authorized
but unissued shares of Knogo N.A. Common Stock, will be available for the
issuance without further action by Knogo N.A.'s stockholders, unless
stockholder action is required by applicable law or the rules of any stock
exchange on which any series of Knogo N.A.'s stock may then be listed.
These provisions give Knogo N.A.'s Board of Directors the power to
approve the issuance of a series of preferred stock of Knogo N.A. that could,
depending on its terms, either impede or facilitate the completion of a merger,
tender offer or other takeover attempt. For example, the issuance of new
shares might impede a business combination if the terms of those shares include
voting rights which would enable a holder to block business combinations.
- 54 -
<PAGE> 281
The form of the Restated Certificate is attached to this Prospectus as
Annex II and is incorporated herein by reference. The foregoing description of
certain provisions of the Restated Certificate does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the
Restated Certificate, including the definitions therein of certain terms.
Liability and Indemnification of Officers and Directors
Pursuant to authority conferred by Delaware General Corporation Law
Section 102(6)(7), the Restated Certificate contains a provision providing that
no Director of Knogo N.A. shall be liable to it or its stockholders for
monetary damages for breach of fiduciary duty as a Director, except to the
extent that such exemption from liability or limitation thereof is not
permitted under the Delaware General Corporation Law as currently in effect or
as the same may be amended. This provision is intended to eliminate the risk
that a Director might incur personal liability to Knogo N.A. or its
stockholders for breach of the duty of care.
Delaware General Corporation Law Section 145 contains provisions
permitting, and in some situations requiring, Delaware corporations, such as
Knogo N.A., to provide indemnification to their officers and Directors for
losses and litigation expenses incurred in connection with their service to the
corporation in those capacities. The Restated Certificate contains provisions
requiring indemnification by Knogo N.A. of, and advancement of expenses to, its
directors and officers to the fullest extent permitted by law. Among other
things, these provisions provide indemnification for officers and directors
against liabilities for judgments in and settlements of lawsuits and other
proceedings and for the advance and payment of fees and expenses reasonably
incurred by the director or officer in defense of any such lawsuit or
proceeding.
VALIDITY OF SHARES
The validity of the Shares to be issued pursuant to the Knogo N.A.
Stock Distribution and the Merger will be passed upon by Stroock & Stroock &
Lavan, New York, New York, counsel for Knogo N.A. and Knogo. William A.
Perlmuth, a partner of Stroock & Stroock & Lavan, is presently a Director of
Knogo and Knogo N.A. and, following the Knogo N.A. Stock Distribution and the
Merger, will continue to be a Director of Knogo N.A. Mr. Perlmuth holds (i)
906,655 shares held as Executor of the Estate of Arthur J. Minasy, (b) 266,800
shares held as trustee under trusts for the benefit of Mr. Minasy's adult
children, and (c) 4,000 shares which he owns beneficially. Other members of
such firm beneficially own additional shares of Common Stock of Knogo. Mr.
Perlmuth is also the holder of an option to purchase 10,000 shares of Common
Stock of Knogo. Under the policies of Stroock & Stroock & Lavan, Mr. Perlmuth
will share any economic benefits of the option with other members of the firm.
See "Security Ownership of Certain Beneficial Owners and Management."
EXPERTS
The consolidated financial statements included in this prospectus and
the related financial statement schedules included elsewhere in the
registration statement as of February 28, 1993 and 1994 and for each of the
three fiscal years then ended have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein and elsewhere
in the registration statement (which report expresses an unqualified opinion
and includes an explanatory paragraph referring to the Merger with
Sensormatic), and has been so included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
- 55 -
<PAGE> 282
KNOGO NORTH AMERICA INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-2
Consolidated Balance Sheets - February 28, 1993 and 1994
and August 31, 1994 (unaudited) F-3
Consolidated statements of operations and shareholders' equity -
Years ended February 29, 1992 and February 28, 1993 and
1994 and the six months ended August 31, 1993 (unaudited)
and 1994 (unaudited) F-4
Consolidated statements of cash flows - Years ended February 29,
1992 and February 28, 1993 and 1994 and the six months ended
August 31, 1993 (unaudited) and 1994 (unaudited) F-6
Notes to consolidated financial statements F-7
F-1
<PAGE> 283
INDEPENDENT AUDITORS' REPORT
The accompanying consolidated financial statements of Knogo North America Inc.
and subsidiaries have been prepared to give effect to the transactions
described in Note 1 to the consolidated financial statements to be completed as
of, or prior to, the effective date of the Registration Statement. On the
effective date of the Registration Statement, we expect to be able to issue the
following report assuming that from September 29, 1994 to the date of such
transactions described in Note 1 to the consolidated financial statements no
other material events have occurred that would affect the accompanying
consolidated financial statements or require disclosure therein:
"Board of Directors
Knogo North America Inc.
Hauppauge, New York
We have audited the accompanying consolidated balance sheets of Knogo North
America Inc. and subsidiaries as of February 28, 1993 and 1994 and the related
consolidated statements of operations and shareholders' equity and cash flows
for each of the three years in the period ended February 28, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Knogo North America
Inc. and subsidiaries as of February 28, 1993 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended February 28, 1994 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the Company
and Knogo Corporation have entered into a Merger Agreement with Sensormatic
Electronics Corporation.
Jericho, New York
September 29, 1994"
/s/ Deloitte & Touche LLP
- -------------------------
Jericho, New York
November 21, 1994
F-2
<PAGE> 284
KNOGO NORTH AMERICA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
February 28, August 31,
---------------- ----------
1993 1994 1994
---- ---- ----
ASSETS (unaudited)
- ------
<S> <C> <C> <C>
CASH $ 1,168 $ 4,331 $ 1,185
ACCOUNTS RECEIVABLE, less allowance
for doubtful accounts of $1,234, $1,491 and
$1,438, respectively 6,673 5,159 3,714
NET INVESTMENT IN SALES-TYPE LEASES 3,178 2,018 1,963
INVENTORIES 7,764 8,553 8,660
SECURITY DEVICES ON LEASE, net 547 505 715
PROPERTY, PLANT AND EQUIPMENT, net 13,092 12,830 12,823
INTANGIBLES, including patent costs, less
accumulated amortization of $381, $442 and
$481, respectively 409 331 298
OTHER ASSETS 715 856 974
------- ------- -------
$33,546 $34,583 $30,332
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
ACCOUNTS PAYABLE $ 1,339 $ 2,153 $ 1,072
ACCRUED LIABILITIES 2,003 3,304 2,787
INCOME TAXES PAYABLE 326 758 336
OBLIGATIONS UNDER CAPITAL LEASES 797 688 607
DEFERRED INCOME TAXES 503 356 362
DEFERRED LEASE RENTALS 270 269 280
------- ------- -------
5,238 7,528 5,444
------- ------- -------
COMMITMENTS AND CONTINGENCIES
(Notes 9, 10, 11 and 12)
SHAREHOLDERS' EQUITY 32,991 32,580 32,096
LESS: DUE FROM AFFILIATES (4,683) (5,525) (7,208)
------- ------- -------
Total Shareholders Equity 28,308 27,055 24,888
------- ------- -------
$33,546 $34,583 $30,332
======= ======= =======
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 285
KNOGO NORTH AMERICA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
YEAR ENDED THE LAST DAY OF FEBRUARY AUGUST 31,
----------------------------------- ----------
1992 1993 1994 1993 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales of security devices and related interest
income $20,667 $19,518 $15,385 $ 7,965 $ 6,302
Sales to affiliates 9,734 10,072 11,375 5,325 4,981
Lease rentals and other 3,575 3,074 2,858 1,827 1,363
------- ------- ------- ------- -------
33,976 32,664 29,618 15,117 12,646
COSTS AND EXPENSES:
Cost of security devices sold 10,211 9,959 8,405 4,242 2,954
Cost of sales to affiliates 7,180 7,334 7,172 3,626 3,401
Depreciation and amortization of security
devices and property, plant and equipment 1,949 1,623 1,245 794 611
Research and development 576 866 557 325 253
Selling, general and administrative expenses 13,602 11,688 11,118 5,577 5,759
Interest expense 146 46 359 185 47
Business restructuring charges 1,050 - - - -
------- ------- ------- ------- -------
34,714 31,516 28,856 14,749 13,025
------- ------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES (738) 1,148 762 368 (379)
INCOME TAXES 319 524 639 153 8
------- ------- ------- ------- -------
NET INCOME (LOSS) (1,057) 624 123 215 (387)
SHAREHOLDERS' EQUITY AT
BEGINNING OF PERIOD 42,688 35,038 32,991 32,991 32,580
TRANSFERS TO AFFILIATES (Note 1) (6,593) (2,671) (534) (4,224) (97)
------- ------- ------- -------- -------
SHAREHOLDERS' EQUITY
AT END OF PERIOD $35,038 $32,991 $32,580 $28,982 $32,096
======= ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 286
KNOGO NORTH AMERICA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
YEAR ENDED THE LAST DAY OF FEBRUARY AUGUST 31,
----------------------------------- ----------
1992 1993 1994 1993 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $(1,057) $ 624 $ 123 $ 215 $ (387)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization of security
devices and property, plant and equipment 1,949 1,623 1,245 794 611
Amortization of intangibles 75 91 97 43 39
Deferred income taxes (169) 97 (147) 72 6
Provision for bad debts 1,409 236 601 359 63
Provision for restructuring charges 1,050 - - - -
Changes in operating assets and liabilities:
Decrease in accounts receivable 2,944 872 848 595 1,382
(Increase) decrease in net investment in
sales-type leases 1,517 (388) 1,225 1,402 55
(Increase) decrease in inventories 1,592 (272) (789) 836 (107)
(Increase) decrease in other assets 1,100 201 (141) 187 (118)
Increase (decrease) in accounts payable
and accrued liabilities (1,271) (1) 2,115 352 (1,598)
Increase (decrease) in income taxes payable (420) 247 432 (24) (422)
Increase (decrease) in deferred lease rentals (31) (39) (1) 55 11
(Increase) decrease in due from affiliates 1,203 (1,701) (842) 511 (1,683)
------- ------- ------- ------ -------
Net cash provided by (used in)
operating activities 9,891 1,590 4,766 5,397 (2,148)
------- ------- ------- ------ -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property, plant and equipment, net (500) (109) (640) (352) (462)
Increase in security devices on lease (384) (73) (261) (241) (352)
Increase in intangibles (93) (56) (19) (23) (6)
------- ------- ------- ------ -------
Net cash used in investing
activities (977) (238) (920) (616) (820)
------- ------- ------- ------ -------
</TABLE>
(Continued)
See notes to consolidated financial statements
F-5
<PAGE> 287
KNOGO NORTH AMERICA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
YEAR ENDED THE LAST DAY OF FEBRUARY AUGUST 31,
----------------------------------- ----------
1992 1993 1994 1993 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Transfers to affiliates (6,593) (2,671) (534) (4,224) (97)
Repayment of obligations under capital leases - (52) (149) (70) (81)
------- ------- ------ ------- -------
Net cash used in financing activities (6,593) (2,723) (683) (4,294) (178)
------- ------- ------ ------- -------
INCREASE (DECREASE) IN CASH 2,321 (1,371) 3,163 487 (3,146)
CASH, at beginning of period 218 2,539 1,168 1,168 4,331
------- ------- ------ ------- -------
CASH, at end of period $ 2,539 $ 1,168 $4,331 $ 1,655 $ 1,185
======= ======= ====== ======= =======
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 146 $ 46 $ 72 $ 35 $ 118
======= ======= ====== ======= =======
Income taxes $ 817 $ 180 $ 354 $ 105 $ 459
======= ======= ====== ======= =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Capital lease obligation incurred for the purchase
of office equipment and other assets $ - $ 849 $ 40 $ - $ -
======= ======= ====== ======= =======
</TABLE>
(Concluded)
See notes to consolidated financial statements
F-6
<PAGE> 288
KNOGO NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 1992 AND FEBRUARY 28, 1993 AND 1994 AND THE
SIX MONTHS ENDED AUGUST 31, 1993 AND 1994 (INFORMATION AS IT RELATES TO THE SIX
MONTHS ENDED AUGUST 31, 1993 AND 1994 IS UNAUDITED)
1. BASIS OF PRESENTATION
Knogo North America Inc. and subsidiaries ("Knogo N.A." or the
"Company") is a wholly owned subsidiary of Knogo Corporation
("Knogo"). The Company was incorporated in Delaware on August 12,
1994 and was established in contemplation of the transactions
described below .
On August 14, 1994, Knogo and Knogo N.A. entered into a Merger
Agreement with Sensormatic Electronics Corporation ("Sensormatic").
The Merger Agreement contemplates that Knogo will be merged into
Sensormatic (the "Merger"). A condition of the Merger requires Knogo
to contribute to Knogo N.A., immediately prior to the Merger, certain
assets and liabilities of Knogo relating to Knogo's operations in the
United States, Canada and Puerto Rico (the "Divestiture Agreement").
Pursuant to the Divestiture Agreement, Knogo shareholders will receive
one share of Knogo N.A. common stock for each share of Knogo stock
held. Consummation of the Merger is subject to Knogo shareholder and
regulatory approval. The distribution of the Knogo N.A. common stock
to Knogo's shareholders has not yet been declared and will not be
effected unless the Merger is approved and about to occur.
The accompanying consolidated financial statements include certain
assets and liabilities of Knogo, on an historical basis, relating to
Knogo's operations in the United States, Canada and Puerto Rico
("Knogo N.A. Territory"). Pursuant to the Divestiture Agreement, the
net worth of Knogo N.A. will be adjusted to a target net worth of
approximately $24 million as explained more fully in Note 10b. In
addition, as a result of the Merger and Divestiture Agreements, the
worldwide corporate headquarters of Knogo which will serve as Knogo
N.A.'s corporate headquarters will be written-down by approximately
$3,000,000 from Knogo's historical carrying value due to the manner
and extent that it will be utilized on a prospective basis.
Transactions with affiliates represent transactions with Knogo and
Knogo's international subsidiaries. Certain expenses reflected in the
consolidated financial statements include corporate allocations from
Knogo, which were based on specific personnel, space, estimates of
time spent to provide services, or other appropriate bases. These
allocations include financial reporting, personnel, insurance, legal,
information management, and other miscellaneous services. Included in
selling, general and administrative expenses were $1,883,000,
$1,870,000, $2,163,000, $1,006,000 and $1,395,000, of allocated
corporate expenses for the years ended February 29, 1992 and February
28, 1993 and 1994 and for the six months
F-7
<PAGE> 289
ended August 31, 1993 and 1994, respectively. In addition, research
and development expenses totaling $576,000, $866,000, $557,000,
$325,000 and $253,000, for the years ended February 29, 1992 and
February 28, 1993 and 1994 and for the six months ended August 31,
1993 and 1994, respectively represent corporate allocations.
Management believes the foregoing allocations were made on a
reasonable basis and would approximate the costs which would have been
incurred had the Company operated on a stand-alone basis and in a
similar manner. Following the contribution, Knogo N.A.'s internal
forecasts and assumptions relating to its future operations, including
the Supply Agreement, anticipate there will be sufficient cash flow
from operations to meet its cash flow needs for at least the next
twelve months.
2. SIGNIFICANT ACCOUNTING POLICIES
a. Business - Knogo N.A. is engaged in only one segment and line
of business, the manufacture, distribution, installation and
servicing of systems designed to detect the unauthorized
movement of articles and persons. The Company's customers are
principally in the retail industry.
b. Revenue recognition - The Company manufactures security
devices which it offers for sale or lease. Revenue related to
the sale of equipment is recorded at the time of shipment or
upon acceptance by a third-party leasing company of a customer
lease and the related equipment. In addition, in accordance
with Statement of Financial Accounting Standards No. 13,
"Accounting for Leases", lease contracts which meet the
following criteria are accounted for as sales-type leases:
collection is reasonably assured, there are no important
uncertainties, and (1) the present value of the rental
payments over the term of the lease is at least 90% of the
fair value of the equipment or (2) the lease term is equal to
75% or more of the estimated economic life of the equipment or
(3) the lease contains a bargain purchase option. Under this
method, revenue is recognized as a sale at the time of
installation or acceptance by the lessee in an amount equal to
the present value of the required rental payments under the
fixed, noncancellable lease term. The difference between the
total lease payments and the present value is amortized over
the term of the lease so as to produce a constant periodic
rate of return on the net investment in the lease.
The operating method of accounting for leases is followed for
lease contracts not meeting the above criteria. Under this
method of accounting, aggregate rental revenue is recognized
over the term of the lease (usually 12-48 months), which
commences with date of installation or acceptance by the
lessee.
Service revenues are recognized as earned and maintenance
revenues are recognized ratably over the service contract
period. Warranty costs associated with products sold with
warranty protection are estimated based on the Company's
historical experience and recorded in the period the product
is sold.
c. Inventories - Inventories are stated at the lower of cost
(first-in, first-out method) or market. Component parts and
systems in inventory available for assembly and customer
installation are considered as work-in-process.
d. Security devices on lease - Security devices on lease are
stated at cost and consist of completed systems which have
been installed.
F-8
<PAGE> 290
e. Depreciation and amortization - Depreciation of security
devices on lease and property, plant and equipment is provided
for using the straight-line method over their related
estimated useful lives. The security devices generally have
estimated useful lives of six years, except the cost of
security devices related to operating leases with purchase
options are depreciated over the life of the lease.
f. Intangibles - Costs and expenses incurred in obtaining patents
are amortized over the remaining life of the patents, not
exceeding 17 years, using the straight-line method.
g. Deferred lease rentals - Deferred lease rentals consist of
amounts of rentals related to operating leases billed or paid
in advance.
h. Income taxes - The Company accounts for income taxes under
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", which requires an asset and
liability approach to financial accounting and reporting for
income taxes.
The Company has computed its provision for income taxes
assuming that it has operated on a stand-alone basis. Certain
amounts have been allocated to the Company from Knogo relating
to the estimated settlement costs of tax examinations.
i. Foreign currency translation - The functional currency of the
Company's foreign entity is the US dollar. Therefore, assets
and liabilities of the foreign entity is translated using a
combination of current and historical rates. Income and
expense accounts are translated primarily using the average
rate in effect during the year. Unrealized foreign exchange
losses resulting from the translation of this entity are
included in selling, general and administrative expenses and
amounted to approximately $54,000, $170,000 and $164,000 for
the years ended February 29, 1992 and February 28, 1993 and
1994, respectively, and $133,000 and $1,000 for the six months
ended August 31, 1993 and 1994, respectively.
j. Unaudited interim financial statements - In the opinion of
management, the unaudited consolidated financial statements
for the six months ended August 31, 1993 and 1994 are
presented on a basis consistent with the audited consolidated
financial statements and reflect all adjustments, consisting
of only normal recurring adjustments, necessary for a fair
presentation of the results thereof.
The results of operations for interim periods are not
necessarily indicative of the results to be expected for the
entire year.
3. BUSINESS RESTRUCTURING CHARGES
During fiscal 1992, the Company initiated a restructuring plan to
respond to changing market conditions and improving product
technology. This restructuring resulted in the write-down of earlier
generation products, the consolidation of research and development
facilities and the recording of severance amounts to former
executives.
F-9
<PAGE> 291
4. NET INVESTMENT IN SALES-TYPE LEASES AND OPERATING LEASE DATA
The Company is the lessor of security devices under agreements
expiring in various years through 1999. The net investment in
sales-type leases consist of:
<TABLE>
<CAPTION>
February 28, August 31,
----------------- ----------
1993 1994 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Minimum lease payments receivable $4,101 $2,596 $2,472
Allowance for uncollectible minimum lease payments (193) (128) (123)
Unearned income (733) (462) (416)
Unguaranteed residual value 3 12 30
------ ------ ------
$3,178 $2,018 $1,963
====== ====== ======
</TABLE>
The future minimum lease payments receivable under sales-type leases
and noncancellable operating leases are as follows (in thousands):
February 28, 1994 August 31, 1994
---------------------- ----------------------
Sales-Type Operating Sales-Type Operating
Leases Leases Leases Leases
---------- --------- ---------- ---------
[S] [C] [C] [C] [C]
1995 $ 925 $408 $ 399 $ 305
1996 715 251 807 393
1997 595 96 707 303
1998 279 94 382 139
1999 82 22 177 62
------ ---- ------ ------
$2,596 $871 $2,472 $1,202
====== ==== ====== ======
5. INVENTORIES
<TABLE>
<CAPTION>
February 28, August 31,
------------------ ----------
Inventories consist of the following: 1993 1994 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Raw materials $2,748 $2,469 $2,500
Work-in-process 3,163 3,471 3,514
Finished goods 1,853 2,613 2,646
------ ------ ------
$7,764 $8,553 $8,660
====== ====== ======
</TABLE>
Reserves for excess and obsolete inventory totaled $2,461,000
$2,678,000 and $2,766,000 as of February 28, 1993 and 1994 and August
31, 1994, respectively and have been included as a component of the
above amounts.
F-10
<PAGE> 292
6. SECURITY DEVICES ON LEASE
Security devices are stated at cost and are summarized as follows:
<TABLE>
<CAPTION>
February 28, August 31,
----------------- ----------
1993 1994 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Security devices on lease $1,220 $1,414 $1,336
Less allowance for depreciation 673 909 621
------ ------ ------
$ 547 $ 505 $ 715
====== ====== ======
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are summarized as
follows:
<TABLE>
<CAPTION>
February 28, August 31,
Estimated Useful ------------------ ----------
Lives (Years) 1993 1994 1994
---------------- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Land $ 3,099 $ 3,099 $ 3,099
Buildings and improvements 25-40 8,934 8,982 8,949
Machinery and equipment 3-10 5,753 5,483 5,706
Furniture, fixtures and
office equipment 3-10 2,927 2,569 2,799
------- ------- -------
20,713 20,133 20,553
Less allowance for depreciation 7,621 7,303 7,730
------- ------- -------
$13,092 $12,830 $12,823
======= ======= =======
</TABLE>
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
February 28, August 31,
----------------- ----------
1993 1994 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Accrued salaries, employee benefits and payroll taxes $ 741 $ 913 $ 832
Accrued warranty costs 575 650 715
Customer deposits payable - 400 -
Other accrued liabilities 687 1,341 1,240
------ ------ ------
$2,003 $3,304 $2,787
====== ====== ======
</TABLE>
F-11
<PAGE> 293
9. OBLIGATIONS UNDER CAPITAL LEASES
The Company leases computer equipment and related items under capital
lease arrangements expiring in October, 1997 with interest charged at
a rate of 9%. Minimum annual rentals for the period subsequent to
1994 and in the aggregate are as follows (in thousands):
<TABLE>
<CAPTION>
February 28, 1994 August 31, 1994
----------------- ---------------
<S> <C> <C>
1995 $221 $110
1996 221 221
1997 221 221
1998 146 146
---- ----
809 698
Less amount representing interest 121 91
---- ----
Present value of minimum rentals $688 $607
==== ====
</TABLE>
The computer equipment and related items are included in property and
equipment and other assets with a gross value of $889,000 at February
28, 1994 and August 31, 1994 and a net book value of $810,000 and
$766,000 at February 28, 1994 and at August 31, 1994, respectively.
10. SHAREHOLDERS' EQUITY
a. Stock option plan - Knogo N.A. will adopt the 1994 Stock
Incentive Plan of Knogo North America Inc. (the "1994 Plan"),
which will be approved by Knogo, the sole shareholder of Knogo
N.A., prior to the divestiture date. The 1994 Plan will
provide for grants up to 725,000 options to purchase the
Company's common stock. Awards may be granted by the stock
option committee to eligible employees in the form of stock
options, restricted stock awards, phantom stock awards or
stock appreciation rights. Stock options may be granted as
incentive stock options or non-qualified stock options. In
addition, employees and directors who hold outstanding options
to purchase Knogo common stock will be granted substitute
options under the 1994 Plan to purchase a number of shares of
Knogo N.A. common stock determined pursuant to the formula set
forth in the Merger Agreement.
b. Target equity - The Merger Agreement provides that, at the
time of the divestiture, Knogo N.A. will have a net worth of
approximately $24 million (the "Target Net Worth"), based on
the historical carrying value of Knogo's assets and
liabilities at the divestiture date. While no specific plan
has been finalized, management believes that the Target Net
Worth will be achieved at the divestiture date by a
combination of the Company's net loss through the divestiture
date as well as the transfer of certain assets and the
assumption of certain liabilities to occur on the divestiture
date.
F-12
<PAGE> 294
11. INCOME TAXES
The components of the Company's income tax provisions are as follows:
Six Months Ended
Year Ended Last Day of February August 31,
------------------------------- ----------
1992 1993 1994 1993 1994
---- ---- ---- ---- ----
(in thousands)
Domestic:
Current $ 70 $286 $ 396 $ - $-
Deferred - - - - -
----- ---- ----- ---- --
70 286 396 - -
----- ---- ----- ---- --
Puerto Rico:
Current 418 141 390 81 2
Deferred (169) 97 (147) 72 6
----- ---- ----- ---- --
249 238 243 153 8
----- ---- ----- ---- --
$ 319 $524 $ 639 $153 $8
===== ==== ===== ==== ==
The reconciliation between total tax expense and the expected U.S.
Federal income tax is as follows:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended Last Day of February August 31,
------------------------------- ----------
1992 1993 1994 1993 1994
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Expected tax expense
(benefit) at 34% $ (251) $ 390 $ 259 $ 125 $(129)
Add/(deduct):
U.S. losses producing
no tax benefit 1,474 712 1,433 532 674
Benefits of nontaxable income
of Puerto Rico subsidiary (904) (864) (1,324) (504) (537)
Prior years' estimated
tax adjustment - 286 271 - -
------ ----- ------- ----- -----
$ 319 $ 524 $ 639 $ 153 $ 8
====== ===== ======= ===== =====
</TABLE>
F-13
<PAGE> 295
Significant components of deferred tax assets and liabilities are
comprised of:
<TABLE>
<CAPTION>
February 28, 1993 February 28, 1994
Deferred Tax Deferred Tax
(Assets) Liabilities (Assets) Liabilities
-------------------- --------------------
(in thousands)
<S> <C> <C>
Assets:
-------
Accounts receivable $ (420) $ (507)
Inventories (815) (832)
Accrued liabilities (278) (308)
Security devices on lease (102) (108)
Intercompany transactions (42) (54)
------- -------
Gross deferred tax assets (1,657) (1,809)
Less: Valuation allowance 1,435 1,496
------- -------
(222) (313)
------- -------
Liabilities:
-----------
Tollgate taxes 549 416
Property, plant and equipment 176 253
------- -------
Gross deferred tax liabilities 725 669
------- -------
Net deferred tax liability $ 503 $ 356
======= =======
</TABLE>
The increase in the valuation allowance during the year ended February
28, 1994 was primarily due to the increase in deferred tax assets for
which realization was not more likely than not.
The Company's Puerto Rico manufacturing subsidiary is exempt from
Federal income taxes under Section 936 of the Internal Revenue Code.
Also, the Company was granted a partial income tax exemption under the
provisions of the Puerto Rico Industrial Incentives Act of 1978 from
the payment of Puerto Rico taxes on income derived from marketing
certain products manufactured by the subsidiary. The grant provides
for a 90% exemption from Puerto Rico taxes until January 1, 2008. The
Company provides tollgate taxes on the earnings of the Puerto Rico
subsidiary which it intends to remit, in the form of a dividend, to
the parent company based upon the applicable rates. Such provisions
amounted to $107,000, $106,000, $51,000, $73,000 and $1,000 for the
years ended February 29, 1992 and February 28, 1993 and 1994 and the
six months ended August 31, 1993 and 1994, respectively.
The prior years income tax returns of Knogo are currently being
examined by certain taxing authorities. The Company has recorded its
allocated portion of the estimated settlement costs for these matters.
Any further liability, if any, that may result upon the conclusion of
these examinations will be borne by Sensormatic as a result of the
Merger Agreement.
F-14
<PAGE> 296
12. COMMITMENTS AND CONTINGENCIES
a. Operating Leases - Aggregate annual rent expense under leases
for office, warehouse, manufacturing facilities, automobiles
and other rental equipment amounted to approximately $304,000,
$262,000 and $230,000 for the years ended February 29, 1992
and February 28, 1993 and 1994, respectively. At February 28,
1994, the minimum rental commitments under all noncancellable
operating leases were $137,000 and $69,000 for Fiscal 1995 and
1996, respectively.
b. Litigation - The Company is a party to litigation arising in
the normal course of business. Management believes the final
disposition of such matters will not have a material adverse
effect on the consolidated financial statements.
c. Supply Agreement - As contemplated by the Merger, Knogo N.A.
will enter into a supply agreement in which Sensormatic will
be obligated to purchase products from Knogo N.A. in the
amount of $12,000,000 during the first 12 months and an
additional $12,000,000 during the ensuing 18 months. Such
products will be priced to yield Knogo N.A. a 35% gross
margin.
d. License Agreement - As contemplated by the Merger, Knogo N.A.
will enter into a license agreement in which Knogo N.A. will
have the exclusive right to manufacture and sell existing
Knogo products within the Knogo N.A. Territory, and
Sensormatic shall have such right elsewhere, except that Knogo
N.A. and Sensormatic will each have the right to develop and
market the SuperStrip technology in the Knogo N.A. territory.
The license agreement also provides that Knogo N.A. will
perform certain ongoing training and consulting services
without additional consideration.
e. Employment Agreements - The Company and several key executives
have agreed in principle, as of the divestiture date, to enter
into employment agreements for terms of one to three years for
which the Company will have a minimum commitment of
approximately $800,000. In addition, such employment
agreements provide that the Company will grant options to
purchase approximately 220,000 shares of Knogo N.A. common
stock on terms set forth therein.
f. 401(k) Plan - Knogo N.A. will adopt the Knogo North America
Inc. Retirement Savings 401(k) Plan (the "Plan"), which will
be approved by Knogo, the sole shareholder of Knogo N.A. prior
to the divestiture date. The Plan permits eligible employees
to make voluntary contributions to a trust, up to a maximum of
10% of compensation, subject to certain limitations, with the
Company making a matching contribution equal to a designated
percentage of the eligible employee's deferral election. The
Company may also contribute a discretionary contribution,
subject to certain conditions, as defined in the Plan.
F-15
<PAGE> 297
ANNEX I
1994 STOCK INCENTIVE PLAN
OF
KNOGO NORTH AMERICA INC.
As Adopted and in Effect at November 2, 1994
<PAGE> 298
1994 STOCK INCENTIVE PLAN
OF
KNOGO NORTH AMERICA INC.
1. Purpose. The purpose of this Stock Incentive Plan is to advance
the interests of the Corporation by encouraging and enabling the acquisition of
a larger personal proprietary interest in the Corporation by officers,
management and key employees of the Corporation and its Subsidiaries upon whose
judgment and keen interest the Corporation is largely dependent for the
successful conduct of its operations and by providing such officers, management
and key employees with incentives to put forth maximum efforts for the success
of the Corporation's business. It is anticipated that the acquisition of such
proprietary interest in the Corporation and such incentives will stimulate the
efforts of such officers, management and key employees on behalf of the
Corporation and its Subsidiaries and strengthen their desire to remain with the
Corporation and its Subsidiaries. It is also expected that such incentives and
the opportunity to acquire such a proprietary interest will enable the
Corporation and its Subsidiaries to attract desirable personnel.
2. Definitions. When used in this Plan, unless the context otherwise
requires:
(a) "Alternative Rights" shall have the meaning set forth in
Section 7.
(b) "Board of Directors" or "Board" shall mean the Board of
Directors of the Corporation, as constituted at any time.
(c) "Chairman of the Board" shall mean the person who at the
time shall be Chairman of the Board of Directors.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "Committee" shall mean the Committee hereinafter
described in Section 3.
(f) "Conjunctive Rights" shall have the meaning set forth in
Section 7.
(g) "Corporation" shall mean Knogo North America Inc., a
Delaware corporation.
(h) "Eligible Persons" shall mean those persons described in
Section 4 who are potential recipients of Incentive Awards.
(i) "Fair Market Value" on a specified date shall mean the
closing price at which a Share is traded on the stock exchange, if
any, on which Shares are primarily traded or, if the Shares are not
then traded on a stock exchange, the closing price of a Share as
reported on the NASDAQ National Market System or, if the Shares are
not then traded on the NASDAQ National Market System, the average of
the closing bid and asked prices at which a Share is traded on the
over-the- counter market, but if no Shares were traded on such date,
then on the last previous date on which a Share was so traded, or, if
none of the above are applicable, the value of a Share as established
by the Committee for such date using any reasonable method of
valuation.
(j) "Incentive Award" shall mean an Option, Phantom Stock
Award, Restricted Stock Award or Rights granted pursuant to this Plan.
(k) "Merger Agreement" shall mean the Agreement and Plan of
Merger dated as of August 14, 1994, among Sensormatic Electronics
Corporation, Knogo Corporation and the Corporation.
(l) "Phantom Stock Award" shall mean an award granted in
accordance with the provisions of Section 13 hereof, which shall
entitle the holder thereof to receive from the Corporation cash or
Shares,
<PAGE> 299
or a combination of cash or Shares, based upon the Fair Market Value
of Shares at the time of the expiration of the vesting period under
such award, subject to the terms and conditions of the Plan.
(m) "Phantom Stock Units" shall mean the units of Phantom
Stock credited to the holder of a Phantom Stock Award, each of which
unit shall be a fictitious share of common stock which is the
equivalent of one Share.
(n) "Options" shall mean the Stock Options granted pursuant
to this Plan.
(o) "Plan" shall mean this 1994 Stock Incentive Plan of Knogo
North America Inc., as adopted by the Board of Directors on November
2, 1994, as such Plan from time to time may be amended.
(p) "President" shall mean the person who at the time shall
be the President of the Corporation.
(q) "Restricted Shares" shall mean the Shares issued as a
result of a Restricted Stock Award.
(r) "Restricted Stock Award" shall mean a grant of Shares or
of the right to purchase Shares pursuant to Section 12 hereof. Such
Shares, when and if issued, shall be subject to such transfer
restrictions and risk of forfeiture as the Committee shall determine
at the time the Award is granted, until such specific conditions are
met. Such conditions may be based on continuing employment or
achievement of pre-established performance objectives, or both.
(s) "Rights" shall mean stock appreciation rights granted
pursuant to the Plan, which shall entitle the holder thereof to
receive from the Corporation cash or Shares or a combination of cash
and Shares based upon the excess of the Fair Market Value of Shares at
the time of exercise over the purchase price of the Shares subject to
the related Option, or the Fair Market Value of Shares on the date the
Rights were granted, as the case may be, subject to the terms and
conditions of the Plan.
(t) "Share" shall mean a share of common stock of the
Corporation.
(u) "Spread" shall mean (i) with respect to Conjunctive
Rights and Alternative Rights, the excess of the Fair Market Value of
one Share on the date of exercise of such Rights over the purchase
price per Share payable under the related Option and (ii) with respect
to Rights not granted in connection with an Option, the excess of the
Fair Market Value of one Share on the date of exercise of such Rights
over the Fair Market Value of one Share on the date such Rights were
granted.
(v) "Subsidiary" shall mean any corporation 50% or more of
whose stock having general voting power is owned by the Corporation,
or by another Subsidiary as herein defined, of the Corporation.
3. Committee. The Plan shall be administered by a Committee, which
shall consist of three or more directors of the Corporation, each of whom shall
be a "disinterested person" within the meaning of Rule 16b-3(c)(2) under the
Securities Exchange Act of 1934, as from time to time amended (the "Exchange
Act"). The Board of Directors may from time to time remove and appoint members
of the Committee in substitution for, or in addition to, members previously
appointed and may fill vacancies, however caused, in the Committee. The
Committee may prescribe, amend and rescind rules and regulations for
administration of the Plan and shall have full power and authority to construe
and interpret the Plan. The Committee may correct any defect or any omission
or reconcile any inconsistency in the Plan or in any Incentive Award made
hereunder in the manner and to the extent it shall deem desirable.
4. Participants. All key employees of the Corporation or a
Subsidiary, as determined by the Committee, shall be eligible to receive
Incentive Awards under the Plan. The parties to whom Incentive Awards are
granted under this Plan, and the number of Shares subject to each such
Incentive Award, shall be determined by the Committee in its sole discretion,
subject, however, to the terms and conditions of this Plan. Persons to whom
-2-
<PAGE> 300
Incentive Awards may be granted include key employees who are also directors of
the Corporation or a Subsidiary. Each director of the Corporation who is not
also an employee of the Corporation and/or its Subsidiaries (hereinafter
referred to as a "Non-Employee Director") shall be eligible to receive Options
in accordance with the provisions of Section 14 hereof.
5. Shares. Subject to the provisions of Section 19 hereof, the
Committee may grant Options, Phantom Stock Awards (other than any Phantom Stock
Awards which are payable only in cash), Restricted Stock Awards and Rights with
respect to an aggregate of up to 725,000 Shares, all of which Shares may be
either Shares held in treasury or authorized but unissued Shares; provided,
that Alternative Rights shall not be subject to the foregoing limitation. If
the Shares that would be issued or transferred pursuant to any such Incentive
Awards are not issued or transferred and cease to be issuable or transferable
for any reason (including the extent to which payment pursuant to a Phantom
Stock Award is made in cash), or if Restricted Shares which are subject to a
Restricted Stock Award are forfeited and the recipient did not receive any
rights of a beneficial owner other than voting rights or dividends which also
are forfeited with respect to such Shares, the number of Shares subject to such
Incentive Award will no longer be charged against the limitation provided for
herein and may again be made subject to Incentive Awards; provided, however,
that Shares as to which an Option has been surrendered in connection with the
exercise of a related Right shall not again be available for the grant of any
further Incentive Awards; and provided, further, that the counting of Shares
subject to Incentive Awards granted under the Plan against the number of Shares
available for further Incentive Awards shall in all cases conform to the
requirements of Rule 16b-3 under the Exchange Act.
6. Grant of Options. The number of Options to be granted to any
Eligible Person shall be determined by the Committee in its sole discretion.
At the time an Option is granted, the Committee may, in its sole discretion,
designate whether such Option (a) is to be considered as an incentive stock
option within the meaning of Section 422 of the Code, (b) is not to be treated
as an incentive stock option for purposes of this Plan and the Code or (c) is
in part to be considered an incentive stock option and in part is not to be
considered an incentive stock option.
Notwithstanding any other provision of this Plan to the contrary, to
the extent that the aggregate Fair Market Value (determined as of the date an
Option is granted) of the Shares with respect to which Options which are
designated as (or deemed to be) incentive stock options granted to an employee
(and any incentive stock options granted to such employee under any other
incentive stock option plan maintained by the Corporation or any Subsidiary
that meets the requirements of Section 422 of the Code) first become
exercisable in any calendar year exceeds $100,000, such Options shall be
treated as Options which are not incentive stock options. Options with respect
to which no designation is made by the Committee shall be deemed to be
incentive stock options to the extent that the $100,000 limitation described in
the preceding sentence is met. This paragraph shall be applied by taking
options into account in the order in which they are granted.
Nothing herein contained shall be construed to prohibit the issuance of
Options at different times to the same person.
The form of Option shall be determined from time to time by the
Committee. A certificate of Option signed by the Chairman of the Board or the
President or a Vice President of the Corporation, attested by the Treasurer or
an Assistant Treasurer, or Secretary or an Assistant Secretary of the
Corporation and bearing the seal of the Corporation affixed thereto, shall be
issued to each person to whom an Option is granted. The certificate of Option
for an Option shall be legended to indicate whether or not the Option is an
incentive stock option.
7. Grant of Rights. The Committee shall have the authority in its
discretion to grant to any Eligible Person Rights which may be granted
separately, or in connection with an Option at the time of grant of the Option.
Rights granted in connection with an Option shall be granted with respect to
the same number of Shares covered by the Option, subject to adjustment pursuant
to the provisions of Section 19 hereof, and may be exercised, as determined by
the Committee in its discretion at the time of the grant of the Rights, either
in conjunction with, or as an alternative to, the exercise of the related
Option.
-3-
<PAGE> 301
Conjunctive Rights ("Conjunctive Rights") granted in connection with an
Option shall entitle the holder thereof to receive payment from the
Corporation, determined as hereinafter provided, only if and to the extent that
the related Option is exercisable and is exercised. Upon any exercise of an
Option in respect of which Conjunctive Rights shall have been granted, the
holder of the Rights shall be entitled to receive payment of an amount equal to
the product obtained by multiplying (i) the Spread, or a portion of the Spread
determined by the Committee at the time of grant, by (ii) the number of Shares
in respect of which the related Option shall have then been so exercised.
Alternative Rights ("Alternative Rights") granted in connection with an
Option shall entitle the holder thereof to receive payment from the
Corporation, determined as hereinafter provided, only if and to the extent that
the related Option is exercisable, by surrendering the Option with respect to
the number of Shares as to which such Rights are then exercised. Upon any
exercise of Alternative Rights, the holder thereof shall be entitled to receive
payment of an amount equal to the product obtained by multiplying (i) the
Spread, or a portion of the Spread determined by the Committee at the time of
grant, by (ii) the number of Shares in respect of which the Rights shall have
then been so exercised.
Rights granted without relationship to an Option shall be exercisable
for a duration determined by the Committee, but in no event more than ten years
from the date of grant. Such Rights shall entitle the holder, upon the
exercise thereof, to receive payment from the Corporation of an amount equal to
the product obtained by multiplying (i) the Spread, or a portion of the Spread
determined by the Committee at the time of grant, by (ii) the number of Shares
in respect of which the Rights shall have then been so exercised.
Notwithstanding anything contained herein, the Committee may, in its
sole discretion, limit the amount payable upon the exercise of Rights. Any
such limitation shall be determined as of the date of grant and noted on the
certificate evidencing the grant of the Rights.
At the holder's election, payment of the amount determined hereunder
upon the exercise of Rights may be made solely in cash, or solely in Shares
valued at their Fair Market Value on the date of exercise of Rights, or in a
combination of cash and Shares. Notwithstanding any other provision of the
Plan or of any Option or Rights, upon the exercise of Rights, the Committee
shall have the power, in its sole discretion, to disapprove the holder's
election as to the form (i.e., cash or Shares, or part in cash and part in
Shares) in which payment of the Rights will be made and to substitute therefor
payment as it determines. If the Committee does not disapprove an election
made upon the exercise of Rights within 60 days after such exercise or election
then the Committee shall be deemed to have approved such election. No
fractional Shares shall be issued by the Corporation, and settlement therefor
shall be made in cash.
Notwithstanding any other provision of the Plan or of the Rights, for
purposes of determining the amount of the Spread in the case of a holder of
Rights who is a director or officer subject to Section 16(b) of the Exchange
Act, the Committee, in its sole discretion, may designate a single Fair Market
Value per Share with respect to all such holders who exercise Rights during any
single ten-day period specified in Rule 16b-3(e)(3) under the Exchange Act;
provided, however, that the Fair Market Value per Share designated by the
Committee during any such period shall in no event be greater than the highest
Fair Market Value per Share on any day during such period or less than the
lowest Fair Market Value per Share on any day during such period.
The form of Rights shall be as determined from time to time by the
Committee. A certificate of Rights signed by the Chairman of the Board or the
President or a Vice President, attested by the Treasurer or an Assistant
Treasurer, or Secretary or an Assistant Secretary, of the Corporation and
having the seal of the Corporation affixed thereto, shall be delivered to each
person to whom Rights are granted.
8. Purchase Price. The purchase price per Share for Restricted Shares
to be purchased pursuant to Restricted Stock Awards, or for the Shares to be
purchased pursuant to the exercise of an Option, shall be fixed by the
Committee at the time of the grant of the Restricted Stock Award or Option;
provided, however, that the purchase price per Share for the Shares to be
purchased pursuant to the exercise of an incentive stock option shall
-4-
<PAGE> 302
be at least 100% of the Fair Market Value of a Share on the date such incentive
stock option is granted. Payment of the purchase price pursuant to Restricted
Stock Awards shall be made in cash or by check payable to the order of the
Corporation, or by such other method as the Committee may permit.
9. Duration of Options and Related Rights. The duration of any Option
granted under this Plan shall be for a period of ten years from the date upon
which the Option is granted. The duration of any Rights granted in connection
with any Option shall be coterminous with the duration of the related Option.
10. Ten Percent Stockholders. Notwithstanding any other provision of
this Plan to the contrary, no Option which is intended to qualify as an
incentive stock option may be granted under this Plan to any employee who, at
the time the Option is granted, owns shares possessing more than 10 percent of
the total combined voting power or value of all classes of stock of the
Corporation, unless the exercise price under such Option is at least 110% of
the Fair Market Value of a Share on the date such Option is granted and the
duration of such Option is no more than five years.
11. Exercise of Options and Rights. Except as otherwise provided
herein, Options and Rights, after the grant thereof, shall be exercisable by
the holder at such rate and times as may be fixed by the Committee.
Notwithstanding the foregoing, all or any part of any remaining unexercised
Options or Rights granted to any person may be exercised in the following
circumstances (but in no event during the six-month period commencing on the
date of grant): (a) immediately upon (but prior to the expiration of the term
of the Option or Rights) the holder's retirement from the Corporation and all
Subsidiaries on or after his 65th birthday, (b) subject to the provisions of
Section 18 hereof, upon the disability (to the extent and in a manner as shall
be determined by the Committee in its sole discretion) or death of the holder,
(c) upon a Change of Control while the holder is employed by, or serving as a
director of, the Corporation or a Subsidiary, or (d) upon the occurrence of
such special circumstance or event as in the opinion of the Committee merits
special consideration.
For purposes of the Plan, a "Change of Control" of the Corporation
shall have occurred if: (1) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Corporation representing 30% or more of the combined voting power of the
Corporation's then outstanding securities; (2) during any one-year period (not
including any period prior to the execution of this Agreement), individuals who
at the beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof; (3) the shareholders of the Corporation
approve a merger or consolidation of the Corporation with any other
corporation, other than a merger or consolidation which would result in all or
substantially all of the individuals and entities who were the respective
beneficial owners of the voting securities of the Corporation outstanding
immediately prior thereto continuing to beneficially own more than 80% of the
combined voting power of the voting securities of the Corporation or such
surviving entity outstanding immediately after such merger or consolidation in
substantially the same proportions as their ownership, immediately prior to
such merger or consolidation, of the voting securities of the Corporation then
outstanding; or (4) the shareholders of the Corporation approve a plan of
complete liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of all or substantially all of the Corporation's
assets.
An Option shall be exercised by the delivery of a written notice duly
signed by the holder thereof to such effect ("Exercise Notice"), together with
the Option certificate and the full purchase price of the Shares purchased
pursuant to the exercise of the Option, to the Chairman of the Board or an
officer of the Corporation appointed by the Chairman of the Board for the
purpose of receiving the same. Payment of the full purchase price shall be
made as follows: in cash or by check payable to the order of the Corporation;
by delivery to the Corporation of Shares which shall be valued at their Fair
Market Value on the date of exercise of the Option; by providing with the
Exercise Notice an order to a designated broker to sell part or all of the
Shares and to deliver sufficient proceeds to the Corporation, in cash or by
check payable to the order of the Corporation, to pay the full purchase price
of the Shares and all applicable withholding taxes; or by such other methods as
the Committee may permit from time to time. Any Conjunctive Rights granted in
connection with such Option shall be exercised by the
-5-
<PAGE> 303
inclusion in the Exercise Notice of a notice of exercise of Rights, together
with the Rights certificate and a specification of the percentages of the
Rights which the holder desires to receive in cash and in Shares.
Within a reasonable time after the exercise of an Option, the
Corporation shall cause to be delivered to the person entitled thereto, a
certificate for the Shares purchased pursuant to the exercise of the Option
and, if Conjunctive Rights have been exercised in connection therewith, the
amount of cash and/or a certificate for the number of Shares determined in
accordance with Section 7 hereof. If the Option and any Conjunctive Rights
shall have been exercised with respect to less than all of the Shares subject
to the Option and Rights, the Corporation shall also cause to be delivered to
the person entitled thereto a new Option certificate and a new Rights
certificate in replacement of the certificates surrendered at the time of the
exercise of the Option and Rights, indicating the number of Shares with respect
to which the Option and Rights remain available for exercise, or the original
Option certificate and Rights certificate shall be endorsed to give effect to
the partial exercise thereof.
Alternative Rights or Rights not granted in connection with an Option
shall be exercised by the delivery of a duly signed notice in writing to such
effect, together with the Rights certificate, and a specification of the
percentages of the Rights which the holder desires to receive in cash and in
Shares. Holders of Alternative Rights shall also surrender the related Option
certificate. Within a reasonable time thereafter, the Corporation shall cause
to be delivered to the person entitled thereto, the amount of cash and/or a
certificate for the number of Shares determined in accordance with Section 7
hereof. Upon the exercise of Alternative Rights, the number of Shares subject
to exercise under the related Option or portion thereof shall be reduced by the
number of Shares represented by the Option or portion thereof surrendered.
Shares subject to Options or portions thereof surrendered upon the exercise of
Alternative Rights shall not be available for subsequent Incentive Awards under
the Plan. If the Rights shall have been exercised with respect to less than
all of the Shares subject thereto (or to the related Option, if any), the
Corporation shall also cause to be delivered to the person entitled thereto a
Rights certificate (and an Option certificate, in the case of Alternative
Rights) with respect to the difference between the number of Shares of the
Rights certificate (and related Option certificate, if any) surrendered at the
time of the exercise of the Rights and the number of Shares with respect to
which the Rights were so exercised (and the related Option, if any, was so
surrendered), or the original Rights certificate (and related Option
certificate, if any) shall be endorsed to give effect to the partial exercise
(and surrender) thereof.
Notwithstanding any other provision of the Plan or of any Option or
Rights, no Option or Rights granted pursuant to the Plan may be exercised at
any time when the Option or Rights or the granting or exercise thereof violates
any law or governmental order or regulation.
12. Terms and Conditions of Restricted Stock Awards.
(a) All Restricted Shares granted to or purchased by an
Eligible Person pursuant to the Plan shall be subject to the following
conditions:
(i) the Restricted Shares may not be sold, transferred,
or otherwise alienated or hypothecated until the
restrictions are satisfied, removed or expire;
(ii) each certificate representing Restricted Shares
issued pursuant to a Restricted Stock Award under
this Plan shall bear a legend making appropriate
reference to the restrictions imposed; and
(iii) the Committee may impose such other conditions as it
may deem advisable on any Restricted Shares granted
to or purchased by an eligible person pursuant to a
Restricted Stock Award under this Plan, including,
without limitation, restrictions under the
requirements of any stock exchange upon which such
Shares or shares of the same class are then listed,
and under any securities law applicable to such
Shares.
-6-
<PAGE> 304
(b) The restrictions imposed under subsection (a) hereof
upon Restricted Stock Awards shall lapse in accordance with a schedule
or such other conditions as shall be determined by the Committee,
subject to the provisions of Section 18 hereof.
(c) Prior to the satisfaction, expiration or lapse of all
of the restrictions and conditions imposed upon Restricted Shares, a
stock certificate or certificates representing such Restricted Shares
shall be registered in the holder's name but shall be retained by the
Corporation for the holder's account. The holder shall have the right
to vote such Restricted Shares and shall have all other rights and
privileges of a beneficial and record owner with respect thereto,
including, without limitation, the right to receive dividends,
distributions and adjustments with respect thereto; provided, however,
that such dividends, distributions and adjustments may be retained by
the Corporation for the holder's account and for delivery to the
holder, together with the stock certificate or certificates
representing such Restricted Shares, as and when said restrictions and
conditions shall have been satisfied, expired or lapsed.
13. Terms and Conditions of Phantom Stock Awards. The Committee shall
have the authority in its discretion to grant to any Eligible Person Phantom
Stock Awards which shall be subject to the following conditions:
(a) The Phantom Stock Units credited to the holder of a
Phantom Stock Award shall be subject to a vesting period which shall
mean a period commencing on the date the Award is granted and ending
in accordance with a schedule or other conditions as determined by the
Committee, subject to the provisions of Section 18 hereof. The
Committee may provide for the expiration of the vesting period in
installments where deemed appropriate.
(b) A Phantom Stock Award shall entitle the holder, upon
the expiration of the vesting period, to receive payment from the
Corporation of an amount equal to the product obtained by multiplying
(i) the Fair Market Value of one Share on the date of such expiration
by (ii) the number of Phantom Stock Units in respect of which the
vesting period shall have then expired. The payment of such amount
may be made solely in cash, or solely in Shares valued at their Fair
Market Value on the date of expiration of the vesting period, or in a
combination of cash and Shares, subject to such terms and conditions
as are determined by the Committee; provided, however, that no
fractional Shares shall be issued by the Corporation, and settlement
therefor shall be made in cash.
(c) The Committee may impose such other conditions as it
may deem advisable on any Shares which may be issued pursuant to a
Phantom Stock Award under this Plan, including, without limitation,
restrictions under the requirements of any stock exchange upon which
such Shares or shares of the same class are then listed, and under any
securities law applicable to such Shares.
(d) Prior to the expiration of the vesting period under a
Phantom Stock Award, amounts equal to the dividends payable with
respect to the same number of shares as the number of Phantom Stock
Units as to which the vesting period has not expired shall be credited
to the holder's account under such Award; provided, however, that such
dividend-equivalent amounts may be retained by the Corporation for the
holder's account and for delivery to the holder only as and when said
vesting period shall have expired.
14. Grants of Options to Non-Employee Directors. Each Non-Employee
Director who is a member of the Board as of the Effective Time (as defined in
the Merger Agreement) shall be granted an Option at such Effective Time to
purchase 10,000 Shares at a purchase price per share equal to $2.00. Each such
Non-Employee Director also shall be granted an Option on each anniversary of
the date of his election to the Board while such person continues to serve as a
member of the Board and each Non-Employee Director who is elected to the Board
after the Effective Time (as defined in the Merger Agreement) shall be granted
an Option on the date of his election and on each anniversary thereof while
such person continues to serve as a member of the Board. Each Option granted
pursuant to the preceding sentence shall entitle the Non-Employee Director to
purchase 2,000 Shares
-7-
<PAGE> 305
at a purchase price per share equal to the Fair Market Value of a Share on the
date of grant. Each Option granted pursuant to this Section 14 shall have a
duration of ten years from the date of grant and shall become exercisable
cumulatively as to 20% of the Shares on each of the first, second, third,
fourth and fifth anniversaries of the date of grant. Notwithstanding the
preceding, all or any part of any remaining unexercised Options granted
pursuant to this Section 14 may be exercised (but in no event during the
six-month period commencing on the date of grant) in the event of the holder's
cessation of service as a member of the Board on or after his 65th birthday,
the holder's permanent disability (within the meaning of Section 22(e)(3) of
the Code), or the holder's death, during the period beginning on the date of
such event and ending three months after the holder's cessation at or after age
65 or disability, or six months after the holder's death, as the case may be,
but in no event after the expiration of the term of the Option. All or any
part of any remaining unexercised Options granted pursuant to this Section 14
also may be exercised (but in no event during the six-month period commencing
on the date of grant) upon the occurrence of a Change of Control while the
holder is serving as a member of the Board. Any Option granted pursuant to
this Section 14, to the extent unexercised, shall terminate immediately upon
the holder's ceasing to serve as a member of the Board (for reasons other than
deciding to no longer serve as such at or after age 65, permanent disability
(within the meaning of Section 22(e)(3) of the Code) or death), except that the
holder shall have until the end of the third business day following the
cessation of such service to exercise any unexercised Option that he could have
exercised on the day on which such service terminated; provided that such
exercise must be accomplished prior to the expiration of the term of such
Option. Notwithstanding the preceding, if the service of any holder of an
Option granted pursuant to this Section 14 shall be terminated because of the
holder's (a) fraud or intentional misrepresentation, or (b) embezzlement,
misappropriation or conversion of assets or opportunities of the Corporation or
any Subsidiary, then all such unexercised Options of the holder shall terminate
immediately upon such termination of the holder's service.
Upon the exercise of any Option granted pursuant to this Section 14,
payment of the full purchase price shall be made in cash or by check payable to
the order of the Corporation.
Except as provided in Section 15, no Incentive Award may be granted to
a Non-Employee Director other than in accordance with this Section 14.
Notwithstanding any other provision of the Plan to the contrary, the provisions
of this Section 14 shall not be amended more than once every six months, other
than to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the rules and regulations promulgated
thereunder.
15. Options Granted by Other Corporations. Options may be granted
under the Plan from time to time in substitution for Options held by employees
of the Corporation or any Subsidiary as a result of any "corporate transaction"
as defined in the Treasury Regulations promulgated under Section 424 of the
Code. Without limiting the generality of the foregoing, Options shall be
granted under the Plan to Eligible Persons and Non-Employee Directors of the
Corporation, in substitution for options held by such individuals to purchase
shares of the common stock of Knogo Corporation, pursuant to Section 1.9(c) of
the Merger Agreement.
16. Consideration for Incentive Awards. The Corporation shall obtain
such consideration for the grant of an Incentive Award as the Committee in its
discretion may determine.
17. Non-transferability of Incentive Awards. Options, Phantom Stock
Awards and Rights shall not be transferable or assignable by the holder thereof
except to the extent that the Estate or heirs of a deceased holder of Options,
Phantom Stock Awards or Rights may be permitted to exercise them. Restricted
Stock Awards shall not be transferable or assignable by the holder thereof,
except that any Restricted Shares subject to restrictions at the time of the
holder's death (and any dividends, distributions and adjustments with respect
thereto) shall be transferred to the holder's Estate or heirs. Incentive
Awards may be exercised or surrendered during the holder's lifetime only by the
holder thereof.
18. Termination of Employment. All or any part of any Option and/or
Rights, to the extent unexercised, shall terminate immediately, upon the
cessation or termination for any reason of the holder's employment by the
Corporation or any Subsidiary, except that the holder shall have until the end
of the third business day following
-8-
<PAGE> 306
the cessation of his employment with the Corporation or its Subsidiaries, and
no longer, to exercise any unexercised Option and/or Rights that he could have
exercised on the day on which such employment terminated; provided, that such
exercise must be accomplished prior to the expiration of the term of such
Option and Rights. Notwithstanding the foregoing, if the cessation of
employment is due to retirement on or after attaining the age of sixty-five
(65) years, or to disability (to an extent and in a manner as shall be
determined in each case by the Committee in its sole discretion) or to death,
the holder or the representative of the Estate or the heirs of a deceased
holder shall have the privilege of exercising the Options and Rights which are
unexercised at the time of such retirement, or of such disability or death;
provided, however, that such exercise must be accomplished prior to the
expiration of the term of such Option and Rights and (a) within three months of
the holder's retirement or disability, or (b) within six months of the holder's
death, as the case may be. If the employment of any holder with the
Corporation or a Subsidiary shall be terminated because of the holder's
violation of the duties of such employment with the Corporation or its
Subsidiaries as he may from time to time have, the existence of which violation
shall be determined by the Committee in its sole discretion and which
determination by the Committee shall be conclusive, all unexercised Options and
Rights of such holder shall terminate immediately upon the termination of the
holder's employment with the Corporation or a Subsidiary, and a holder whose
employment with the Corporation or a Subsidiary is so terminated shall have no
right after such termination to exercise any unexercised Option or Rights he
may have exercised prior to the termination of his employment with the
Corporation or a Subsidiary.
Except as hereinafter provided, if a holder of a Restricted Stock
Award shall voluntarily or involuntarily leave the employ of the Corporation or
any Subsidiary, all such Restricted Shares subject to restrictions at the time
his employment terminates (and any dividends, distributions and adjustments
retained by the Corporation with respect thereto) shall be forfeited and any
consideration received therefor from the holder shall be returned to the
holder. Notwithstanding the foregoing, all restrictions to which Restricted
Stock Awards are subject shall lapse (a) upon the death or disability of the
holder, (b) upon a Change of Control while the holder is employed by the
Corporation or a Subsidiary, or (c) upon the occurrence of such special
circumstance or event as in the opinion of the Committee merits special
consideration.
Except as hereinafter provided, if a holder of a Phantom Stock Award
shall voluntarily or involuntarily leave the employ or service of the
Corporation and its Subsidiaries prior to the complete expiration of the
vesting period, all amounts theretofore remaining payable pursuant to such
Award (including any dividend-equivalent amounts retained by the Corporation
with respect thereto) shall be forfeited. Notwithstanding the foregoing, the
vesting period under a Phantom Stock Award shall completely expire, and all
amounts remaining payable thereunder shall be payable (a) upon the death or
disability of the holder, (b) upon a Change of Control while the holder is
employed by the Corporation or a Subsidiary, or (c) upon the occurrence of such
special circumstance or event as in the opinion of the Committee merits special
consideration.
19. Adjustment Provision. If prior to the complete exercise of any
Option, or prior to the satisfaction, expiration or lapse of all of the
restrictions and conditions imposed pursuant to a Restricted Stock Award, there
shall be declared and paid a stock dividend upon the Shares or if the Shares
shall be split up, converted, exchanged, reclassified, or in any way
substituted for,
(a) in the case of an Option, then the Option, to the extent that it
has not been exercised, shall entitle the holder thereof upon the
future exercise of the Option to such number and kind of securities or
cash or other property subject to the terms of the Option to which he
would have been entitled had he actually owned the Shares subject to
the unexercised portion of the Option at the time of the occurrence of
such stock dividend, split-up, conversion, exchange, reclassification
or substitution, and the aggregate purchase price upon the future
exercise of the Option shall be the same as if the originally optioned
Shares were being purchased thereunder; and
(b) in the case of a Restricted Share issued pursuant to a Restricted
Stock Award, the holder of such Award shall receive, subject to the
same restrictions and other conditions of such Award as determined
pursuant to the provisions of Section 12, the same securities or cash
or other property as are received by
-9-
<PAGE> 307
the holders of the Corporation's Shares pursuant to such stock
dividend, split-up, conversion, exchange, reclassification or
substitution.
Any fractional shares or securities issuable upon the exercise of the Option as
a result of such adjustment shall be payable in cash based upon the Fair Market
Value of such shares or securities at the time of such exercise. If any such
event should occur, the number of Shares with respect to which Incentive Awards
remain to be issued, or with respect to which Incentive Awards may be reissued,
shall be adjusted in a similar manner.
In addition to the adjustments provided for in the preceding
paragraph, upon the occurrence of any of the events referred to in said
paragraph prior to the complete exercise of any Rights, or prior to the
complete expiration of the vesting period under a Phantom Stock Award, the
Committee, in its sole discretion, shall determine the amount of cash and/or
number of Shares or other property to which the holder of the Rights shall be
entitled upon their exercise, or to which the holder of the Phantom Stock Award
shall be entitled upon the expiration of the vesting period, so that there
shall be no increase or dilution in the cash and/or value of the Shares or
other property to which the holder of Rights or of a Phantom Stock Award shall
be entitled by reason of such events.
Notwithstanding any other provision of the Plan, in the event of a
recapitalization, merger, consolidation, rights offering, separation,
reorganization or liquidation, or any other change in the corporate structure
or outstanding Shares, the Committee may make such equitable adjustments to the
number of Shares and the class of shares available hereunder or to any
outstanding Incentive Awards as it shall deem appropriate to prevent dilution
or enlargement of rights.
Notwithstanding the foregoing, upon the occurrence of a termination of
employment of an Option holder (other than a Non- Employee Director) in
connection with a Change of Control, in lieu of Shares issuable upon exercise
of outstanding Options granted to such Option holder hereunder, such Option
holder shall receive an amount in cash equal to the product of (1) in the case
of incentive stock options the excess of the Fair Market Value of the Shares on
the date nearest the date of such termination and, in the case of all other
Options, the higher of such Fair Market Value on such date or the highest per
share price for Shares actually paid in connection with any Change of Control
of the Corporation, over the per Share Option price of each Option held by such
Option holder (whether or not then fully exercisable), and (2) the number of
Shares covered by each such Option; provided, however, that such an Option
holder shall not be entitled to such cash in lieu of Shares if the transaction
resulting in the Change of Control was approved by a majority of the Continuing
Directors (as such term is defined in the Certificate of Incorporation of the
Corporation).
20. Issuance of Shares and Compliance with Securities Act. The
Corporation may postpone the issuance and delivery of Shares pursuant to the
grant or exercise of any Incentive Award until (a) the admission of such Shares
to listing on any stock exchange on which Shares of the Corporation of the same
class are then listed, and (b) the completion of such registration or other
qualification of such Shares under any State or Federal law, rule or regulation
as the Corporation shall determine to be necessary or advisable. Any holder of
an Incentive Award shall make such representations and furnish such information
as may, in the opinion of counsel for the Corporation, be appropriate to permit
the Corporation, in the light of the then existence or non-existence with
respect to such Shares of an effective Registration Statement under the
Securities Act of 1933, as from time to time amended (the "Securities Act"), to
issue the Shares in compliance with the provisions of the Securities Act or any
comparable act. The Corporation shall have the right, in its sole discretion,
to legend any Shares which may be issued pursuant to the grant or exercise of
any Incentive Award, or may issue stop transfer orders in respect thereof.
21. Income Tax Withholding. If the Corporation or a Subsidiary shall
be required to withhold any amounts by reason of any Federal, State or local
tax rules or regulations in respect of the issuance of Shares pursuant to the
grant or exercise of any Incentive Award, the Corporation or the Subsidiary
shall be entitled to deduct and withhold such amounts from any cash payments to
be made to the holder of such Incentive Award. In any event, the holder shall
make available to the Corporation or Subsidiary, promptly when requested by the
Corporation or such Subsidiary, sufficient funds to meet the requirements of
such withholding; and the Corporation or Subsidiary shall be entitled to take
and authorize such steps as it may deem advisable in order to have such
-10-
<PAGE> 308
funds made available to the Corporation or Subsidiary out of any funds or
property due or to become due to the holder of such Incentive Award.
22. Administration and Amendment of the Plan. Except as hereinafter
provided, the Board of Directors or the Committee may at any time withdraw or
from time to time amend the Plan as it relates to, and the terms and conditions
of, any Incentive Awards not theretofore granted, and the Board of Directors or
the Committee, with the consent of the affected holder of an Incentive Award,
may at any time withdraw or from time to time amend the Plan as it relates to,
and the terms and conditions of, any outstanding Incentive Award.
Notwithstanding the foregoing, any amendment by the Board of Directors or the
Committee which would increase the number of Shares issuable under the Plan, or
change the class of Eligible Persons shall be subject to the approval of the
stockholders of the Corporation within one year of such amendment.
Determinations of the Committee as to any question which may arise
with respect to the interpretation of the provisions of the Plan and Incentive
Awards shall be final. The Committee may authorize and establish such rules,
regulations and revisions thereof not inconsistent with the provisions of the
Plan, as it may deem advisable to make the Plan and Incentive Awards effective
or provide for their administration, and may take such other action with regard
to the Plan and Incentive Awards as it shall deem desirable to effectuate their
purpose.
The Plan is intended to comply with Rule l6b-3 under the Exchange Act.
Any provision inconsistent with such Rule shall be inoperative and shall not
affect the validity of the Plan.
23. No Right of Employment. Nothing contained herein or in an
Incentive Award shall be construed to confer on any employee any right to be
continued in the employ of the Corporation or any Subsidiary or derogate from
any right of the Corporation and any Subsidiary to retire, request the
resignation of or discharge such employee (without or with pay), at any time,
with or without cause.
24. Final Issuance Date. No Incentive Award shall be granted under
the Plan after November 1, 2004.
-11-
<PAGE> 309
ANNEX II
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
KNOGO NORTH AMERICA INC.
As Adopted and in Effect at November 2, 1994
<PAGE> 310
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
KNOGO NORTH AMERICA INC.
(A Delaware corporation)
FIRST. The name of the corporation is KNOGO NORTH AMERICA INC. (the
"Company").
SECOND. The address of the Company's registered office in the State
of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle,
Delaware 19805. The name of the Company's registered agent at such address is
Corporation Service Company.
THIRD. The purpose of the Company is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH. Section 1. Authorized Capital Stock. The Company is
authorized to issue two classes of capital stock, designated Common Stock and
Preferred Stock. The total number of shares of capital stock that the Company
is authorized to issue is 13,000,000 shares, consisting of 10,000,000 shares of
Common Stock, par value $0.01 per share, and 3,000,000 shares of Preferred
Stock, par value $0.01 per share.
Section 2. Preferred Stock. The Preferred Stock may be issued in one
or more series. The Board of Directors of the Company (the "Board") is hereby
authorized to issue the shares of Preferred Stock in such series and to fix
from time to time before issuance the number of shares to be included in any
such series and the designation, relative powers, preferences, and rights and
qualifications, limitations, or restrictions of all shares of such series. The
authority of the Board with respect to each such series will include, without
limiting the generality of the foregoing, the determination of any or all of
the following:
(a) the number of shares of any series and the designation to
distinguish the shares of such series from the shares of all other
series;
(b) the voting powers, if any, and whether such voting powers
are full or limited in such series;
(c) the redemption provisions, if any, applicable to such
series, including the redemption price or prices to be paid;
(d) whether dividends, if any, will be cumulative or
noncumulative, the dividend rate of such series, and the
dates and preferences of dividends on such series;
(e) the rights of such series upon the voluntary or
involuntary dissolution of, or upon any distribution of the assets of,
the Company;
(f) the provisions, if any, pursuant to which the shares of
such series are convertible into, or exchangeable for, shares of any
other class or classes or of any other series of the same or any other
class or classes of stock, or any other security, of the Company or
any other corporation or other entity, and the price or prices or the
rates of exchange applicable thereto;
<PAGE> 311
(g) the right, if any, to subscribe for or to purchase any
securities of the Company or any other corporation or other entity;
(h) the provisions, if any, of a sinking fund applicable to
such series; and
(i) any other relative, participating, optional, or other
special powers, preferences, rights, qualifications, limitations, or
restrictions thereof;
all as may be determined from time to time by the Board and stated in the
resolution or resolutions providing for the issuance of such Preferred Stock
(collectively, a "Preferred Stock Designation").
Section 3. Common Stock. Except as may otherwise be provided in a
Preferred Stock Designation, the holders of Common Stock will be entitled to
one vote on each matter submitted to a vote at a meeting of stockholders for
each share of Common Stock held of record by such holder as of the record date
for such meeting.
FIFTH. The Board may make, amend, and repeal the By-Laws of the
Company. Any By-Law made by the Board under the powers conferred hereby may be
amended or repealed by the Board or by the stockholders in the manner provided
in the By-Laws of the Company. Notwithstanding the foregoing and anything
contained in this Amended and Restated Certificate of Incorporation to the
contrary, By-Laws 3, 8, 10, 11, 12, 13, and 39 may not be amended or repealed
by the stockholders, and no provision inconsistent therewith may be adopted by
the stockholders, without the affirmative vote of the holders of at least 80%
of the Voting Stock, voting together as a single class. The Company may in its
By-Laws confer powers upon the Board in addition to the foregoing and in
addition to the powers and authorities expressly conferred upon the Board by
applicable law. For the purposes of this Amended and Restated Certificate of
Incorporation, "Voting Stock" means stock of the Company of any class or series
entitled to vote generally in the election of Directors. Notwithstanding
anything contained in this Amended and Restated Certificate of Incorporation to
the contrary, the affirmative vote of the holders of at least 80% of the Voting
Stock, voting together as a single class, is required to amend or repeal, or to
adopt any provisions inconsistent with, this Article Fifth.
SIXTH. Subject to the rights of the holders of any series of
Preferred Stock:
(a) any action required or permitted to be taken by the
stockholders of the Company must be effected at a duly called annual
or special meeting of stockholders of the Company and may not be
effected by any consent in writing of such stockholders; and
(b) special meetings of stockholders of the Company may be
called only by (i) the Chairman of the Board (the "Chairman") or (ii)
the Secretary of the Company (the "Secretary") within 10 calendar days
after receipt of the written request of a majority of the total number
of Directors which the Company would have if there were no vacancies
(the "Whole Board").
At any annual meeting or special meeting of stockholders of the Company, only
such business will be conducted or considered as has been brought before such
meeting in the manner provided in the By-Laws of the Company. Notwithstanding
anything contained in this Amended and Restated Certificate of Incorporation to
the contrary, the affirmative vote of at least 80% of the Voting Stock, voting
together as a single class, will be required to amend or repeal, or adopt any
provision inconsistent with, this Article Sixth.
SEVENTH. Section 1. Number, Election, and Terms of Directors.
Subject to the rights, if any, of the holders of any series of Preferred Stock
to elect additional Directors under circumstances specified in a Preferred
Stock Designation, the number of the Directors of the Company will not be less
than three nor more than 12 and will be fixed from time to time in the manner
described in the By-Laws of the Company. The Directors, other than those who
may be elected by the holders of any series of Preferred Stock, will be
classified with respect to the time for which they severally hold office into
three classes, as nearly equal in number as possible, designated
-2-
<PAGE> 312
Class I, Class II, and Class III. The Directors first appointed to Class I
will hold office for a term expiring at the annual meeting of stockholders to
be held in 1995; the Directors first appointed to Class II will hold office for
a term expiring at the annual meeting of stockholders to be held in 1996; and
the Directors first appointed to Class III will hold office for a term expiring
at the annual meeting of stockholders to be held in 1997, with the members of
each class to hold office until their successors are elected and qualified. At
each succeeding annual meeting of the stockholders of the Company, the
successors of the class of Directors whose terms expire at that meeting will be
elected by plurality vote of all votes cast at such meeting to hold office for
a term expiring at the annual meeting of stockholders held in the third year
following the year of their election. Election of Directors of the Company
need not be by written ballot unless requested by the Chairman or by the
holders of a majority of the Voting Stock present in person or represented by
proxy at a meeting of the stockholders at which Directors are to be elected.
Section 2. Nomination of Director Candidates. Advance notice of
stockholder nominations for the election of Directors must be given in the
manner provided in the By-Laws of the Company.
Section 3. Newly Created Directorships and Vacancies. Subject to the
rights, if any, of the holders of any series of Preferred Stock to elect
additional Directors under circumstances specified in a Preferred Stock
Designation, newly created directorships resulting from any increase in the
number of Directors and any vacancies on the Board resulting from death,
resignation, disqualification, removal, or other cause will be filled solely by
the affirmative vote of a majority of the remaining Directors then in office,
even though less than a quorum of the Board, or by a sole remaining Director.
Any Director elected in accordance with the preceding sentence will hold office
for the remainder of the full term of the class of Directors in which the new
directorship was created or the vacancy occurred and until such Director's
successor has been elected and qualified. No decrease in the number of
Directors constituting the Board may shorten the term of any incumbent
Director.
Section 4. Removal. Subject to the rights, if any, of the holders of
any series of Preferred Stock to elect additional Directors under circumstances
specified in a Preferred Stock Designation, any Director may be removed from
office by the stockholders only for cause and only in the manner provided in
this Section 4. At any annual meeting or special meeting of the stockholders,
the notice of which states that the removal of a Director or Directors is among
the purposes of the meeting, the affirmative vote of the holders of at least
80% of the Voting Stock, voting together as a single class, may remove such
Director or Directors for cause. Except as may be provided by applicable law,
cause for removal will be deemed to exist only if the Director whose removal is
proposed has been adjudged by a court of competent jurisdiction to be liable to
the Company or its stockholders for misconduct as a result of (a) a breach of
such Director's duty of loyalty to the Company, (b) any act or omission by such
Director not in good faith or which involves a knowing violation of law, or (c)
any transaction from which such Director derived an improper personal benefit,
and such adjudication is no longer subject to direct appeal.
Section 5. Amendment, Repeal, Etc. Notwithstanding anything contained
in this Amended and Restated Certificate of Incorporation to the contrary, the
affirmative vote of at least 80% of the Voting Stock, voting together as a
single class, is required to amend or repeal, or adopt any provision
inconsistent with, this Article Seventh.
EIGHTH. Section 1. Notwithstanding any other provision of this
Amended and Restated Certificate of Incorporation and except as set forth in
Section 2 of this Article EIGHTH, the affirmative vote of at least 80% of the
Voting Stock, voting together as a single class, shall be required:
I. For the adoption of any agreement for the merger or
consolidation of the Company or any Subsidiary (as defined in Section
5 of this Article EIGHTH) with or into any other person (as defined in
Section 5 of this Article EIGHTH).
-3-
<PAGE> 313
II. To authorize any sale, lease, transfer or exchange of, or
any mortgage or pledge of or the granting of any other security
interest in, or any other disposition of, all or any substantial part
of the assets of the Company or any Subsidiary to or with any other
person (in a single transaction or in a series of related
transactions).
III. To authorize the issuance or transfer by the Company or
any Subsidiary of any securities of the Company or any Subsidiary
(except securities issued pursuant to a stock option, purchase, bonus
or other plan or arrangement, for natural persons who are directors,
employees, consultants and/or agents of the Company or a Subsidiary,
or securities issued upon exercise of any conversion rights, warrants,
options or rights which shall have been outstanding at the time of
adoption of this Article EIGHTH or which shall have been issued in a
transaction not in contravention of the provisions of this Article
EIGHTH) to any other person in exchange for cash, securities or other
assets or a combination thereof, if, in the case of any of the
foregoing transactions (as of the date of any action taken by the
Board with respect to any such proposed transaction, or as of the
record date for the determination of stockholders entitled to notice
of and to vote on any such proposed transaction or immediately prior
to the consummation of any such proposed transaction), such other
person is, or at any time within the preceding 12 months has been, the
beneficial owner, directly or indirectly, of 5 percent or more of the
outstanding shares of Voting Stock of the Company.
Section 2. The provisions of Section 1 of this Article EIGHTH shall
not apply to (1) any transaction described in such Section 1 if the Board shall
by resolution have approved a memorandum of agreement with such person setting
forth the principal terms of such transaction and such transaction is
substantially consistent therewith, provided that a majority of those directors
voting in favor of such resolution are Continuing Directors (as defined in
Section 5 of this Article EIGHTH), (2) any transaction described in such
Section 1 if the other party to such transaction is a Major Subsidiary (as
defined in Section 5 of this Article EIGHTH) or (3) any transaction described
in such Section 1 (other than a merger or consolidation to which the Company
would be a party) if the fair value of the securities, assets or other
consideration proposed to be issued or transferred, in any way disposed of, or
received, by the Company or any Subsidiary in connection with any such
transaction or any series of such transactions which are related is less than
$2,000,000.
Section 3. Notwithstanding any other provisions of this Amended and
Restated Certificate of Incorporation and except as set forth in Section 4 of
this Article EIGHTH, the affirmative vote of the holders of at least 80 % of
the Voting Stock, voting together as a single class, shall be required:
I. To authorize a liquidation or dissolution of the Company,
II. To authorize any offer by the Company to purchase shares
of its outstanding Voting Stock (except pursuant to redemption
provisions of any preferred stock of the Company),
III. To authorize any reclassification of securities of the
Company, any recapitalization or any other transaction in each case
designed to decrease the number of holders of Voting Stock of the
Company,
if (as of the date of any action taken by the Board with respect to any such
proposed transaction, or as of the record date for the determination of
stockholders entitled to notice of and to vote on any such proposed transaction
or immediately prior to the consummation of any such proposed transaction) any
other person is the beneficial owner, directly or indirectly, of 5 percent or
more of the outstanding shares of Voting Stock of the Company.
Section 4. The provisions of Section 3 of this Article EIGHTH shall
not apply to any transaction described in such Section 3 if the Board shall by
resolution have approved a memorandum setting forth the principal terms of such
transaction and such transaction is substantially consistent therewith,
provided that a
-4-
<PAGE> 314
majority of those directors voting in favor of such resolution are Continuing
Directors (as defined in Section 5 of this Article EIGHTH).
Section 5. For the purpose of this Article EIGHTH:
I. Any person shall be deemed to be the "beneficial owner"
of any shares of stock of the Company (i) which it owns, directly or
indirectly, whether of record or not, or which it has the right to
acquire pursuant to any agreement, or upon exercise of conversion
rights, warrants or options, or otherwise, or (ii) which are
beneficially owned, directly or indirectly (including shares deemed
owned through application of clause (i) above), by any other person
which is its affiliate or associate (as defined in this Section 5) or
with which it or any of its affiliates or associates has any
agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of stock of the Company. The outstanding
shares of any class of stock of the Company shall be deemed to include
shares deemed owned, through application of clauses (i) and (ii)
above, but shall not include any other shares which may be issuable
pursuant to any agreement, or upon exercise of conversion rights,
warrants or options, or otherwise.
II. An "affiliate" of a specified person is any person that,
directly or indirectly, controls or is controlled by, or is under
common control with, the person specified. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect
to any person, shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of the specified person, whether through the ownership of
voting securities or by contract or otherwise.
III. The term "associates" used to indicate a relationship
with any specified person means (i) any person in which such specified
person has a significant financial interest or as to which such
specified person's relationship is such that such specified person
substantially influences its management and policies or any person
having a significant financial interest in such specified person or
which substantially influences the management and policies of such
specified person, and without limitation to the foregoing, (ii) any
person of which such specified person is an officer, director or
partner or is, directly or indirectly, the beneficial owner of 5
percent or more of any class of equity securities, (iii) any trust or
other estate in which such specified person has a substantial
beneficial interest or as to which such person serves as trustee or in
a similar fiduciary capacity, and (iv) any relative or spouse of such
specified person, or any relative of such spouse, who has the same
home as such specified person or who is a director or officer of such
specified person or any corporation which controls or is controlled by
such specified person.
IV. A "person" is any individual, corporation or other
entity.
V. The term "securities" shall include, without limitation,
any stocks, bonds, debentures, notes and evidences of indebtedness,
and any warrants, options and other rights to subscribe to or purchase
any of the foregoing.
VI. A "Subsidiary" is any corporation of which at least a
majority of the outstanding shares of equity stock is owned of record
or beneficially by the Company and/or its Subsidiaries. A "Major
Subsidiary" is any corporation of which at least 80 percent of the
outstanding shares of equity stock is owned of record and beneficially
by the Company and/or its Major Subsidiaries.
VII. The term "Continuing Director" shall mean a person who
was a duly elected and acting director of the Company at the time of
the adoption of this Article EIGHTH or became a duly elected and
acting director of the Company prior to the time that, for the
purposes of Section 2 or Section 4, as the case may be, of this
Article EIGHTH, such other person became a beneficial owner, directly
or indirectly, of 5 percent or more of the Voting Stock of the
Company, or a person designated (whether
-5-
<PAGE> 315
before or after election as a director) to be a Continuing Director by
a majority of the Continuing Directors.
Section 6. A majority of the Continuing Directors shall have the
power and duty to determine for the purposes of this Article EIGHTH, on the
basis of information known to them, whether a proposed transaction is subject
to the provisions of Section 1 or Section 3 of this Article EIGHTH, and in
particular and without limitation, whether (1) any person beneficially owns 5
percent or more of the outstanding shares of Voting Stock of the Company, (2)
any person is an "affiliate" or "associate" of any other person, (3) any person
has an agreement, arrangement or understanding with any other person, (4) any
proposed transaction involves a substantial part of the assets of the Company
or any Subsidiary, (5) the fair value of securities, assets or other
consideration referred to in Section 2 of this Article EIGHTH is less than
$2,000,000, (6) any series of transactions are related, and (7) the memorandum
referred to in Section 2 or Section 4 of this Article EIGHTH is substantially
consistent with the transaction to which it relates. Any such determination
shall be conclusive and binding for all purposes of this Article EIGHTH.
Section 7. The affirmative vote of stockholders required by this
Article EIGHTH shall be in lieu of any lesser vote or consent of the holders of
the stock of the Company otherwise required by law or in any agreement to which
the Company is a party, and shall be in addition to any voting requirements
imposed by law or any other provisions of the Amended and Restated Certificate
of Incorporation of the Company, including resolutions providing for the
issuance of a class or series of stock adopted by the Board pursuant to
authority vested in it by the provisions of the Amended and Restated
Certificate of Incorporation, in favor of certain classes of stock.
Section 8. No amendment to this Amended and Restated Certificate of
Incorporation, directly or indirectly by merger, consolidation or otherwise,
shall amend, alter, change or repeal any of the provisions of this Article
EIGHTH, unless the amendment effecting such amendment, alteration, change or
repeal shall receive the affirmative vote of the holders of at least 80 percent
of the outstanding shares of stock of the Company entitled to vote in elections
of directors; provided that this Section 8 shall not apply to any such
amendment if such amendment is submitted to the stockholders for adoption with
the unanimous recommendation of the entire Board.
NINTH. To the full extent permitted by the Delaware General
Corporation Law or any other applicable law currently or hereafter in effect,
no Director of the Company will be personally liable to the Company or its
stockholders for or with respect to any acts or omissions in the performance of
his or her duties as a Director of the Company. Any repeal or modification of
this Article Ninth will not adversely affect any right or protection of a
Director of the Company existing prior to such repeal or modification.
TENTH. Each person who is or was or had agreed to become a Director
or officer of the Company, and each such person who is or was serving or who
had agreed to serve at the request of the Board or an officer of the Company as
an employee or agent of the Company or as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust, or other
entity, whether for profit or not for profit (including the heirs, executors,
administrators, or estate of such person), will be indemnified by the Company
to the full extent permitted by the Delaware General Corporation Law or any
other applicable law as currently or hereafter in effect. The right of
indemnification provided in this Article Tenth (a) will not be exclusive of any
other rights to which any person seeking indemnification may otherwise be
entitled, including without limitation pursuant to any contract approved by a
majority of the Whole Board (whether or not the Directors approving such
contract are or are to be parties to such contract or similar contracts), and
(b) will be applicable to matters otherwise within its scope whether or not
such matters arose or arise before or after the adoption of this Article Tenth.
Without limiting the generality or the effect of the foregoing, the Company may
adopt By-Laws, or enter into one or more agreements with any person, which
provide for indemnification greater or different than that provided in this
Article Tenth or the DGCL. Notwithstanding anything contained in this Amended
and Restated Certificate of Incorporation to the contrary, the amendment or
repeal of, or adoption of any provision inconsistent with, this Article Tenth
will require the affirmative vote of the holders of at least 80% of the Voting
Stock, voting together as a single class. Any amendment or repeal of, or
adoption of any provision inconsistent
-6-
<PAGE> 316
with, this Article Tenth will not adversely affect any right or protection
existing hereunder prior to such amendment, repeal, or adoption.
ELEVENTH: Whenever a compromise or arrangement is proposed between
the Company and its creditors or any class of them and/or between the Company
and its stockholders or any class of them, any court of equitable jurisdiction
within the State of Delaware may, on the application in a summary way of the
Company or any creditor or stockholder thereof or on the application of any
receiver or receivers appointed for the Company under the provisions of Section
291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Company under the
provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders, of the Company, as the case may be, to be summoned in such manner
as the said court directs. If a majority in number representing three-fourths
in value of the creditors or class of creditors, and/or of the stockholders or
class of stockholders, of the Company, as the case may be, agree to any
compromise or arrangement and to any reorganization of the Company as a
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders, of
the Company, as the case may be, and also on the Company.
-7-
<PAGE> 317
ANNEX III
KNOGO NORTH AMERICA INC.
BY-LAWS
(As of November 2, 1994)
<PAGE> 318
KNOGO NORTH AMERICA INC.
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
STOCKHOLDERS' MEETINGS
1. Time and Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
4. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
5. Inspectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
6. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
7. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
8. Order of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
DIRECTORS
9. Function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
10. Number, Election, and Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 3
11. Vacancies and Newly Created Directorships . . . . . . . . . . . . . . . . . . . 3
12. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
13. Nominations of Directors; Election . . . . . . . . . . . . . . . . . . . . . . . 3
14. Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
15. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
16. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
17. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
18. Participation in Meetings by Telephone
Conference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
19. Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
20. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
21. Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
NOTICES
22. Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
23. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
OFFICERS
24. Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
25. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
26. Succession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
27. Authority and Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
-i-
<PAGE> 319
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
STOCK
28. Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
29. Classes of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
30. Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
31. Lost, Stolen, or Destroyed Certificates . . . . . . . . . . . . . . . . . . . . 7
32. Record Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
INDEMNIFICATION
33. Damages and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
34. Insurance, Contracts, and Funding . . . . . . . . . . . . . . . . . . . . . . . 11
GENERAL
35. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
36. Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
37. Reliance upon Books, Reports, and Records . . . . . . . . . . . . . . . . . . . 11
38. Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
39. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
40. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
-ii-
<PAGE> 320
STOCKHOLDERS' MEETINGS
1. Time and Place of Meetings. All meetings of the stockholders for
the election of Directors or for any other purpose will be held at such time
and place, within or without the State of Delaware, as may be designated by the
Board or, in the absence of a designation by the Board, the Chairman, the
President, or the Secretary, and stated in the notice of meeting. The Board
may postpone and reschedule any previously scheduled annual or special meeting
of the stockholders.
2. Annual Meeting. An annual meeting of the stockholders will be
held at such date and time as may be designated from time to time by the Board,
at which meeting the stockholders will elect by a plurality vote the Directors
to succeed those whose terms expire at such meeting and will transact such other
business as may properly be brought before the meeting in accordance with
By-Law 8.
3. Special Meetings. Special meetings of the stockholders may be
called only by (a) the Chairman or (b) the Secretary within 10 calendar days
after receipt of the written request of a majority of the Whole Board. Any
such request by a majority of the Whole Board must be sent to the Chairman and
the Secretary and must state the purpose or purposes of the proposed meeting.
Special meetings of holders of the outstanding Preferred Stock, if any, may be
called in the manner and for the purposes provided in the applicable Preferred
Stock Designation. At a special meeting of stockholders, only such business
may be conducted or considered as (i) has been specified in the notice of the
meeting (or any supplement thereto) given by or at the direction of the
Chairman or a majority of the Whole Board or (ii) otherwise is properly brought
before the meeting by the presiding officer of the meeting (as described in
By-Law 8) or by or at the direction of a majority of the Whole Board.
4. Notice of Meetings. Written notice of every meeting of the
stockholders, stating the place, date, and hour of the meeting and, in the case
of a special meeting, the purpose or purposes for which the meeting is called,
will be given not less than 10 nor more than 60 calendar days before the date
of the meeting to each stockholder of record entitled to vote at such meeting,
except as otherwise provided herein or by law. When a meeting is adjourned to
another place, date, or time, written notice need not be given of the adjourned
meeting if the place, date, and time thereof are announced at the meeting at
which the adjournment is taken; provided, however, that if the adjournment is
for more than 30 calendar days, or if after the adjournment a new record date
is fixed for the adjourned meeting, written notice of the place, date, and time
of the adjourned meeting must be given in conformity herewith. At any
adjourned meeting, any business may be transacted which properly could have
been transacted at the original meeting.
5. Inspectors. The Board may appoint one or more inspectors of
election to act as judges of the voting and to determine those entitled to vote
at any meeting of the stockholders, or any adjournment thereof, in advance of
such meeting. The Board may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the presiding officer of
the meeting may appoint one or more substitute inspectors.
6. Quorum. Except as otherwise provided by law or in a Preferred
Stock Designation, the holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, will constitute a quorum at all meetings of the stockholders for the
transaction of business thereat. If, however, such quorum is not present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, will have the power to
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum is present or represented.
7. Voting. Except as otherwise provided by law, by the Certificate
of Incorporation, or in a Preferred Stock Designation, each stockholder will be
entitled at every meeting of the stockholders to one vote for each share of
stock having voting power standing in the name of such stockholder on the books
of the Company on the record date for the meeting and such votes may be cast
either in person or by written proxy. Every proxy must be duly executed and
filed with the Secretary. A stockholder may revoke any proxy that is not
irrevocable by attending the meeting
<PAGE> 321
and voting in person or by filing an instrument in writing revoking the proxy
or another duly executed proxy bearing a later date with the Secretary. The
vote upon any question brought before a meeting of the stockholders may be by
voice vote, unless otherwise required by the Certificate of Incorporation or
these By-Laws or unless the Chairman or the holders of a majority of the
outstanding shares of all classes of stock entitled to vote thereon present in
person or by proxy at such meeting otherwise determine. Every vote taken by
written ballot will be counted by the inspectors of election. When a quorum is
present at any meeting, the affirmative vote of the holders of a majority of
the stock present in person or represented by proxy at the meeting and entitled
to vote on the subject matter and which has actually been voted will be the act
of the stockholders, except in the election of Directors or as otherwise
provided in these By-Laws, the Certificate of Incorporation, a Preferred Stock
Designation, or by law.
8. Order of Business. (a) The Chairman, or such other officer of
the Company designated by a majority of the Whole Board, will call meetings of
the stockholders to order and will act as presiding officer thereof. Unless
otherwise determined by the Board prior to the meeting, the presiding officer of
the meeting of the stockholders will also determine the order of business and
have the authority in his or her sole discretion to regulate the conduct of any
such meeting, including without limitation by imposing restrictions on the
persons (other than stockholders of the Company or their duly appointed proxies)
who may attend any such stockholders' meeting, by ascertaining whether any
stockholder or his proxy may be excluded from any meeting of the stockholders
based upon any determination by the presiding officer, in his sole discretion,
that any such person has unduly disrupted or is likely to disrupt the
proceedings thereat, and by determining the circumstances in which any person
may make a statement or ask questions at any meeting of the stockholders.
(b) At an annual meeting of the stockholders, only such business will
be conducted or considered as is properly brought before the meeting. To be
properly brought before an annual meeting, business must be (i) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board, (ii) otherwise properly brought before the meeting by the
presiding officer or by or at the direction of a majority of the Whole Board,
or (iii) otherwise properly requested to be brought before the meeting by a
stockholder of the Company in accordance with paragraph (c) of this By-Law 8.
(c) For business to be properly requested to be brought before an
annual meeting by a stockholder, the stockholder must (i) be a stockholder of
the Company of record at the time of the giving of the notice for such annual
meeting provided for in these By-Laws, (ii) be entitled to vote at such
meeting, and (iii) have given timely notice thereof in writing to the
Secretary. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the Company not less than 60
calendar days prior to the annual meeting; provided, however, that in the event
public announcement of the date of the annual meeting is not made at least 75
calendar days prior to the date of the annual meeting, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th calendar day following the day on which public
announcement is first made of the date of the annual meeting. A stockholder's
notice to the Secretary must set forth as to each matter the stockholder
proposes to bring before the annual meeting (A) a description in reasonable
detail of the business desired to brought before the annual meeting and the
reasons for conducting such business at the annual meeting, (B) the name and
address, as they appear on the Company's books, of the stockholder proposing
such business and the beneficial owner, if any, on whose behalf the proposal is
made, (C) the class and number of shares of the Company that are owned
beneficially and of record by the stockholder proposing such business and by
the beneficial owner, if any, on whose behalf the proposal is made, and (D) any
material interest of such stockholder proposing such business and the
beneficial owner, if any, on whose behalf the proposal is made in such
business. Notwithstanding anything in these By-Laws to the contrary, no
business will be conducted at an annual meeting except in accordance with the
procedures set forth in this By-Law 8. The presiding officer of the annual
meeting will, if the facts warrant, determine that business was not properly
brought before the meeting in accordance with the procedures prescribed in this
By-Law 8 and, if he or she should so determine, he or she will so declare to
the meeting and any such business not properly brought before the meeting will
not be transacted. Notwithstanding the foregoing provisions of this By-Law 8,
a stockholder must also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this By-Law 8. For
purposes of this By-Law and By-Law 13, "public announcement" means disclosure
in a press release reported by the Dow Jones News Service, Associated Press, or
comparable national news service or in a document publicly
-2-
<PAGE> 322
filed by the Company with the Securities and Exchange Commission pursuant to
Sections 13, 14, or 15(d) of the Securities Exchange Act of 1934, as amended.
Nothing in this By-Law 8 will be deemed to affect any rights of stockholders to
request inclusion of proposals in the Company's proxy statement pursuant to
Rule 14a-8 under the Securities Exchange Act of 1934, as amended.
DIRECTORS
9. Function. The business and affairs of the Company will be managed
under the direction of its Board.
10. Number, Election, and Terms. Subject to the rights, if any, of
any series of Preferred Stock to elect additional Directors under circumstances
specified in a Preferred Stock Designation, the authorized number of Directors
may be determined from time to time only by a vote of a majority of the Whole
Board or by the affirmative vote of the holders of at least 80% of the Voting
Stock, voting together as a single class, but in no case will the number of
Directors be other than as provided in the Certificate of Incorporation. The
Directors, other than those who may be elected by the holders of any series of
the Preferred Stock, will be classified with respect to the time for which they
severally hold office in accordance with the Certificate of Incorporation.
11. Vacancies and Newly Created Directorships. Subject to the
rights, if any, of the holders of any series of Preferred Stock to elect
additional Directors under circumstances specified in a Preferred Stock
Designation, newly created directorships resulting from any increase in the
number of Directors and any vacancies on the Board resulting from death,
resignation, disqualification, removal, or other cause will be filled solely by
the affirmative vote of a majority of the remaining Directors then in office,
even though less than a quorum of the Board, or by a sole remaining Director.
Any Director elected in accordance with the preceding sentence will hold office
for the remainder of the full term of the class of Directors in which the new
directorship was created or the vacancy occurred and until such Director's
successor is elected and qualified. No decrease in the number of Directors
constituting the Board will shorten the term of an incumbent Director.
12. Removal. Subject to the rights, if any, of the holders of any
series of Preferred Stock to elect additional Directors under circumstances
specified in a Preferred Stock Designation, any Director may be removed from
office by the stockholders only for cause and only in the manner provided in
the Certificate of Incorporation and, if applicable, any amendment to these
By-Laws.
13. Nominations of Directors; Election. (a) Subject to the rights,
if any, of the holders of any series of Preferred Stock to elect additional
Directors under circumstances specified in a Preferred Stock Designation, only
persons who are nominated in accordance with the following procedures will be
eligible for election as Directors of the Company.
(b) Nominations of persons for election as Directors of the Company
may be made at a meeting of stockholders (i) by or at the direction of the
Board or (ii) by any stockholder who is a stockholder of record at the time of
giving of notice provided for in this By-Law 13 who is entitled to vote for the
election of Directors at the meeting and who complies with the procedures set
forth in this By-Law 13. All nominations by stockholders must be made pursuant
to timely notice in proper written form to the Secretary.
(c) To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Company not less
than 60 calendar days prior to the meeting; provided, however, that in the
event that public announcement of the date of the meeting is not made at least
75 calendar days prior to the date of the meeting, notice by the stockholder to
be timely must be so received not later than the close of business on the 10th
calendar day following the day on which public announcement is first made of
the date of the meeting. To be in proper written form, such stockholder's
notice must set forth or include (i) the name and address, as they appear on
the Company's books, of the stockholder giving the notice and of the beneficial
owner, if any, on whose behalf the nomination is made; (ii) a representation
that the stockholder giving the notice is a holder of record of stock of
-3-
<PAGE> 323
the Company entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (iii) the class and number of shares of stock of the Company owned
beneficially and of record by the stockholder giving the notice and by the
beneficial owner, if any, on whose behalf the nomination is made; (iv) a
description of all arrangements or understandings between or among any of (A)
the stockholder giving the notice, (B) the beneficial owner on whose behalf the
notice is given, (C) each nominee, and (D) any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are to
be made by the stockholder giving the notice; (v) such other information
regarding each nominee proposed by the stockholder giving the notice as would
be required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had the nominee been nominated,
or intended to be nominated, by the Board; and (vi) the signed consent of each
nominee to serve as a director of the Company if so elected. At the request of
the Board, any person nominated by the Board for election as a Director must
furnish to the Secretary that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. The
presiding officer of the meeting for election of Directors will, if the facts
warrant, determine that a nomination was not made in accordance with the
procedures prescribed by this By-Law 13, and if he or she should so determine,
he or she will so declare to the meeting and the defective nomination will be
disregarded. Notwithstanding the foregoing provisions of this By-Law 13, a
stockholder must also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this By-Law 13.
14. Resignation. Any Director may resign at any time by giving
written notice of his resignation to the Chairman or the Secretary. Any
resignation will be effective upon actual receipt by any such person or, if
later, as of the date and time specified in such written notice.
15. Regular Meetings. Regular meetings of the Board may be held
immediately after the annual meeting of the stockholders and at such other time
and place either within or without the State of Delaware as may from time to
time be determined by the Board. Notice of regular meetings of the Board need
not be given.
16. Special Meetings. Special meetings of the Board may be called by
the Chairman or the President on one day's notice to each Director by whom such
notice is not waived, given either personally or by mail, telephone, telegram,
telex, facsimile, or similar medium of communication, and will be called by the
Chairman or the President in like manner and on like notice on the written
request of five or more Directors. Special meetings of the Board may be held
at such time and place either within or without the State of Delaware as is
determined by the Board or specified in the notice of any such meeting.
17. Quorum. At all meetings of the Board, a majority of the total
number of Directors then in office will constitute a quorum for the transaction
of business. Except for the designation of committees as hereinafter provided
and except for actions required by these By-Laws or the Certificate of
Incorporation to be taken by a majority of the Whole Board, the act of a
majority of the Directors present at any meeting at which there is a quorum
will be the act of the Board. If a quorum is not present at any meeting of the
Board, the Directors present thereat may adjourn the meeting from time to time
to another place, time, or date, without notice other than announcement at the
meeting, until a quorum is present.
18. Participation in Meetings by Telephone Conference. Members of
the Board or any committee designated by the Board may participate in a meeting
of the Board or any such committee, as the case may be, by means of telephone
conference or similar means by which all persons participating in the meeting
can hear each other, and such participation in a meeting will constitute
presence in person at the meeting.
19. Committees. (a) The Board, by resolution passed by a majority
of the Whole Board, will designate an executive committee (the "Executive
Committee"). The Executive Committee will have and may exercise the powers of
the Board, except the power to declare dividends, to amend these By-Laws, to
elect officers, or to rescind or modify any prior action of the Board and
except as otherwise provided by law.
-4-
<PAGE> 324
(b) The Board, by resolution passed by a majority of the Whole Board,
may designate one or more additional committees, each such committee to consist
of one or more Directors and each to have such lawfully delegable powers and
duties as the Board may confer.
(c) The Executive Committee and each other committee of the Board
will serve at the pleasure of the Board or as may be specified in any
resolution from time to time adopted by the Board. The Board may designate one
or more Directors as alternate members of any such committee, who may replace
any absent or disqualified member at any meeting of such committee. In lieu of
such action by the Board, in the absence or disqualification of any member of a
committee of the Board, the members thereof present at any such meeting of such
committee and not disqualified from voting, whether or not they constitute a
quorum, may unanimously appoint another member of the Board to act at the
meeting in the place of any such absent or disqualified member.
(d) Except as otherwise provided in these By-Laws or by law, any
committee of the Board, to the extent provided in Paragraph (a) of this By-Law
or, if applicable, in the resolution of the Board, will have and may exercise
all the powers and authority of the Board in the direction of the management of
the business and affairs of the Company. Any such committee designated by the
Board will have such name as may be determined from time to time by resolution
adopted by the Board. Unless otherwise prescribed by the Board, a majority of
the members of any committee of the Board will constitute a quorum for the
transaction of business, and the act of a majority of the members present at a
meeting at which there is a quorum will be the act of such committee. Each
committee of the Board may prescribe its own rules for calling and holding
meetings and its method of procedure, subject to any rules prescribed by the
Board, and will keep a written record of all actions taken by it.
20. Compensation. The Board may establish the compensation for, and
reimbursement of the expenses of, Directors for membership on the Board and on
committees of the Board, attendance at meetings of the Board or committees of
the Board, and for other services by Directors to the Company or any of its
majority-owned subsidiaries.
21. Rules. The Board may adopt rules and regulations for the conduct
of their meetings and the management of the affairs of the Company.
NOTICES
22. Generally. Except as otherwise provided by law, these By-Laws,
or the Certificate of Incorporation, whenever by law or under the provisions of
the Certificate of Incorporation or these By-Laws notice is required to be
given to any Director or stockholder, it will not be construed to require
personal notice, but such notice may be given in writing, by mail, addressed to
such Director or stockholder, at the address of such Director or stockholder as
it appears on the records of the Company, with postage thereon prepaid, and
such notice will be deemed to be given at the time when the same is deposited
in the United States mail. Notice to Directors may also be given by telephone,
telegram, telex, facsimile, or similar medium of communication or as otherwise
may be permitted by these By-Laws.
23. Waivers. Whenever any notice is required to be given by law or
under the provisions of the Certificate of Incorporation or these By-Laws, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time of the event for which notice is to be
given, will be deemed equivalent to such notice. Attendance of a person at a
meeting will constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
-5-
<PAGE> 325
OFFICERS
24. Generally. The officers of the Company will be elected by the
Board and will consist of a Chairman (who, unless the Board specifies
otherwise, will also be the Chief Executive Officer), a President, a Secretary,
and a Treasurer. The Board of Directors may also choose any or all of the
following: one or more Vice Chairmen, one or more Assistants to the Chairman,
one or more Vice Presidents (who may be given particular designations with
respect to authority, function, or seniority), and such other officers as the
Board may from time to time determine. Notwithstanding the foregoing, by
specific action the Board may authorize the Chairman to appoint any person to
any office other than Chairman, President, Secretary, or Treasurer. Any number
of offices may be held by the same person. Any of the offices may be left
vacant from time to time as the Board may determine. In the case of the
absence or disability of any officer of the Company or for any other reason
deemed sufficient by a majority of the Board, the Board may delegate the absent
or disabled officer's powers or duties to any other officer or to any Director.
25. Compensation. The compensation of all officers and agents of the
Company who are also Directors of the Company will be fixed by the Board or by
a committee of the Board. The Board may fix, or delegate the power to fix, the
compensation of other officers and agents of the Company to an officer of the
Company.
26. Succession. The officers of the Company will hold office until
their successors are elected and qualified. Any officer may be removed at any
time by the affirmative vote of a majority of the Whole Board. Any vacancy
occurring in any office of the Company may be filled by the Board.
27. Authority and Duties. Each of the officers of the Company will
have such authority and will perform such duties as are customarily incident to
their respective offices or as may be specified from time to time by the Board.
STOCK
28. Certificates. Certificates representing shares of stock of the
Company will be in such form as is determined by the Board, subject to
applicable legal requirements. Each such certificate will be numbered and its
issuance recorded in the books of the Company, and such certificate will
exhibit the holder's name and the number of shares and will be signed by, or in
the name of, the Company by the Chairman and the Secretary or an Assistant
Secretary, or the Treasurer or an Assistant Treasurer, and will also be signed
by, or bear the facsimile signature of, a duly authorized officer or agent of
any properly designated transfer agent of the Company. Any or all of the
signatures and the seal of the Company, if any, upon such certificates may be
facsimiles, engraved, or printed. Such certificates may be issued and
delivered notwithstanding that the person whose facsimile signature appears
thereon may have ceased to be such officer at the time the certificates are
issued and delivered.
29. Classes of Stock. The designations, preferences, and relative
participating, optional, or other special rights of the various classes of
stock or series thereof, and the qualifications, limitations, or restrictions
thereof, will be set forth in full or summarized on the face or back of the
certificates which the Company issues to represent its stock, or in lieu
thereof, such certificates will set forth the office of the Company from which
the holders of certificates may obtain a copy of such information.
30. Transfers. Upon surrender to the Company or the transfer agent
of the Company of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment, or authority to transfer, it will be
the duty of the Company to issue, or to cause its transfer agent to issue, a
new certificate to the person entitled thereto, cancel the old certificate, and
record the transaction upon its books.
-6-
<PAGE> 326
31. Lost, Stolen, or Destroyed Certificates. The Secretary may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Company alleged to have
been lost, stolen, or destroyed, upon the making of an affidavit of that fact,
satisfactory to the Secretary, by the person claiming the certificate of stock
to be lost, stolen, or destroyed. As a condition precedent to the issuance of
a new certificate or certificates, the Secretary may require the owners of such
lost, stolen, or destroyed certificate or certificates to give the Company a
bond in such sum and with such surety or sureties as the Secretary may direct
as indemnity against any claims that may be made against the Company with
respect to the certificate alleged to have been lost, stolen, or destroyed or
the issuance of the new certificate.
32. Record Dates. (a) In order that the Company may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board may fix a record date, which will not be
more than 60 nor less than 10 calendar days before the date of such meeting.
If no record date is fixed by the Board, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders will
be at the close of business on the calendar day next preceding the day on which
notice is given, or, if notice is waived, at the close of business on the
calendar day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of the stockholders will apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
meeting.
(b) In order that the Company may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion, or exchange of stock, or for the purpose of any other
lawful action, the Board may fix a record date, which record date will not be
more than 60 calendar days prior to such action. If no record date is fixed,
the record date for determining stockholders for any such purpose will be at
the close of business on the calendar day on which the Board adopts the
resolution relating thereto.
(c) The Company will be entitled to treat the person in whose name
any share of its stock is registered as the owner thereof for all purposes, and
will not be bound to recognize any equitable or other claim to, or interest in,
such share on the part of any other person, whether or not the Company has
notice thereof, except as expressly provided by applicable law.
INDEMNIFICATION
33. Damages and Expenses. (a) Without limiting the generality or
effect of Article Ninth of the Certificate of Incorporation, the Company will
to the fullest extent permitted by applicable law as then in effect indemnify
any person (an "Indemnitee") who is or was involved in any manner (including
without limitation as a party or a witness) or is threatened to be made so
involved in any threatened, pending, or completed investigation, claim, action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(including without limitation any action, suit, or proceeding by or in the
right of the Company to procure a judgment in its favor) (a "Proceeding") by
reason of the fact that such person is or was or had agreed to become a
Director, officer, employee, or agent of the Company, or is or was serving at
the request of the Board or an officer of the Company as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust,
or other entity, whether for profit or not for profit (including the heirs,
executors, administrators, or estate of such person), or anything done or not
by such person in any such capacity, against all expenses (including attorneys'
fees), judgments, fines, and amounts paid in settlement actually and reasonably
incurred by such person in connection with such Proceeding. Such
indemnification will be a contract right and will include the right to receive
payment in advance of any expenses incurred by an Indemnitee in connection with
such Proceeding, consistent with the provisions of applicable law as then in
effect.
(b) The right of indemnification provided in this By-Law 33 will not
be exclusive of any other rights to which any person seeking indemnification
may otherwise be entitled, and will be applicable to Proceedings
-7-
<PAGE> 327
commenced or continuing after the adoption of this By-Law 33, whether arising
from acts or omissions occurring before or after such adoption.
(c) In furtherance, but not in limitation of the foregoing
provisions, the following procedures, presumptions, and remedies will apply
with respect to advancement of expenses and the right to indemnification under
this By-Law 33:
(i) All reasonable expenses incurred by or on behalf of an
Indemnitee in connection with any Proceeding will be advanced to the
Indemnitee by the Company within 30 calendar days after the receipt by
the Company of a statement or statements from the Indemnitee
requesting such advance or advances from time to time, whether prior
to or after final disposition of such Proceeding. Such statement or
statements will reasonably evidence the expenses incurred by the
Indemnitee and, if and to the extent required by law at the time of
such advance, will include or be accompanied by an undertaking by or
on behalf of the Indemnitee to repay such amounts advanced as to which
it may ultimately be determined that the Indemnitee is not entitled.
If such an undertaking is required by law at the time of an advance,
no security will be required for such undertaking and such undertaking
will be accepted without reference to the recipient's financial
ability to make repayment.
(ii) To obtain indemnification under this By-Law 33, the
Indemnitee will submit to the Secretary a written request, including
such documentation supporting the claim as is reasonably available to
the Indemnitee and is reasonably necessary to determine whether and to
what extent the Indemnitee is entitled to indemnification (the
"Supporting Documentation"). The determination of the Indemnitee's
entitlement to indemnification will be made not less than 60 calendar
days after receipt by the Company of the written request for
indemnification together with the Supporting Documentation. The
Secretary will promptly upon receipt of such a request for
indemnification advise the Board in writing that the Indemnitee has
requested indemnification. The Indemnitee's entitlement to
indemnification under this By-Law 33 will be determined in one of the
following ways: (A) by a majority vote of the Disinterested Directors
(as hereinafter defined), if they constitute a quorum of the Board,
or, in the case of an Indemnitee that is not a present or former
officer of the Company, by any committee of the Board or committee of
officers or agents of the Company designated for such purpose by a
majority of the Whole Board; (B) by a written opinion of Independent
Counsel if (1) a Change of Control has occurred and the Indemnitee so
requests or (2) in the case of an Indemnitee that is a present or
former officer of the Company, a quorum of the Board consisting of
Disinterested Directors is not obtainable or, even if obtainable, a
majority of such Disinterested Directors so directs; (C) by the
stockholders (but only if a majority of the Disinterested Directors,
if they constitute a quorum of the Board, presents the issue of
entitlement to indemnification to the stockholders for their
determination); or (D) as provided in subparagraph (iii) below. In
the event the determination of entitlement to indemnification is to be
made by Independent Counsel pursuant to clause (B) above, a majority
of the Disinterested Directors will select the Independent Counsel,
but only an Independent Counsel to which the Indemnitee does not
reasonably object; provided, however, that if a Change of Control has
occurred, the Indemnitee will select such Independent Counsel, but
only an Independent Counsel to which the Board does not reasonably
object.
(iii) Except as otherwise expressly provided in this By-Law
33, the Indemnitee will be presumed to be entitled to indemnification
under this By-Law 33 upon submission of a request for indemnification
together with the Supporting Documentation in accordance with
subparagraph (c) (ii) above, and thereafter the Company will have the
burden of proof to overcome that presumption in reaching a contrary
determination. In any event, if the person or persons empowered under
subparagraph (c) (ii) to determine entitlement to indemnification has
not been appointed or has not made a determination within 60 calendar
days after receipt by the Company of the request therefor together
with the Supporting Documentation, the Indemnitee will be deemed to be
entitled to indemnification and the Indemnitee will be entitled to
such indemnification unless (A) the Indemnitee misrepresented or
failed to disclose a material fact in making the request for
indemnification or in the Supporting Documentation or (B) such
indemnification is prohibited by law. The termination of any
Proceeding described in paragraph (a) of this By-Law 33, or of any
claim,
-8-
<PAGE> 328
issue, or matter therein, by judgment, order, settlement, or
conviction, or upon a plea of nolo contendere or its equivalent, will
not, of itself, adversely affect the right of the Indemnitee to
indemnification or create a presumption that the Indemnitee did not
act in good faith and in a manner which the Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company
or, with respect to any criminal Proceeding, that the Indemnitee had
reasonable cause to believe that his conduct was unlawful.
(iv) (A) In the event that a determination is made pursuant
to subparagraph (c) (ii) that the Indemnitee is not entitled to
indemnification under this By-Law 33, (1) the Indemnitee will be
entitled to seek an adjudication of his or her entitlement to such
indemnification either, at the Indemnitee's sole option, in (x) an
appropriate court of the State of Delaware or any other court of
competent jurisdiction or (y) an arbitration to be conducted by a
single arbitrator pursuant to the rules of the American Arbitration
Association; (2) any such judicial proceeding or arbitration will be
de novo and the Indemnitee will not be prejudiced by reason of such
adverse determination; and (3) in any such judicial proceeding or
arbitration the Company will have the burden of proving that the
Indemnitee is not entitled to indemnification under this By-Law 33.
(B) If a determination is made or deemed to have been made,
pursuant to subparagraph (c)(ii) or (iii) of this By-Law 33 that the Indemnitee
is entitled to indemnification, the Company will be obligated to pay the
amounts constituting such indemnification within five business days after such
determination has been made or deemed to have been made and will be
conclusively bound by such determination unless (1) the Indemnitee
misrepresented or failed to disclose a material fact in making the request for
indemnification or in the Supporting Documentation or (2) such indemnification
is prohibited by law. In the event that advancement of expenses is not timely
made pursuant to subparagraph (c)(i) of this By-Law 33 or payment of
indemnification is not made within five business days after a determination of
entitlement to indemnification has been made or deemed to have been made
pursuant to subparagraph (c)(ii) or (iii) of this By-Law 33, the Indemnitee
will be entitled to seek judicial enforcement of the Company's obligation to
pay to the Indemnitee such advancement of expenses or indemnification.
Notwithstanding the foregoing, the Company may bring an action, in an
appropriate court in the State of Delaware or any other court of competent
jurisdiction, contesting the right of the Indemnitee to receive indemnification
hereunder due to the occurrence of any event described in subclause (1) or (2)
of this clause (B) (a "Disqualifying Event"); provided, however, that in any
such action the Company will have the burden of proving the occurrence of such
Disqualifying Event.
(C) The Company will be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to the provisions of this
subparagraph (c)(iv) that the procedures and presumptions of this By-Law 33 are
not valid, binding, and enforceable and will stipulate in any such court or
before any such arbitrator that the Company is bound by all the provisions of
this By-Law 33.
(D) In the event that the Indemnitee, pursuant to the provisions
of this subparagraph (c)(iv), seeks a judicial adjudication of, or an award in
arbitration to enforce, his rights under, or to recover damages for breach of,
this By-Law 33, the Indemnitee will be entitled to recover from the Company,
and will be indemnified by the Company against, any expenses actually and
reasonably incurred by the Indemnitee if the Indemnitee prevails in such
judicial adjudication or arbitration. If it is determined in such judicial
adjudication or arbitration that the Indemnitee is entitled to receive part but
not all of the indemnification or advancement of expenses sought, the expenses
incurred by the Indemnitee in connection with such judicial adjudication or
arbitration will be prorated accordingly.
(d) For purposes of this paragraph (c):
(A) "Change in Control" means the occurrence of any of the
following events:
(1) The Company is merged, consolidated, or reorganized
into or with another corporation or other legal entity, and as a
result of such merger, consolidation, or reorganization less than a
majority of the combined voting power of the then outstanding
securities of such corporation or entity immediately after
-9-
<PAGE> 329
such transaction are held in the aggregate by the holders of the
Voting Stock immediately prior to such transaction;
(2) The Company sells or otherwise transfers all or
substantially all of its assets to another corporation or other legal
entity and, as a result of such sale or transfer, less than a majority
of the combined voting power of the then-outstanding securities of
such other corporation or entity immediately after such sale or
transfer is held in the aggregate by the holders of Voting Stock
immediately prior to such sale or transfer;
(3) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form, or report or item therein),
each as promulgated pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), disclosing that any person (as the
term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of securities representing 30% or
more of the combined voting power of the Voting Stock;
(4) The Company files a report or proxy statement with
the Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Form 8-K or Schedule 14A (or any successor
schedule, form, or report or item therein) that a change in control of
the Company has occurred or will occur in the future pursuant to any
then-existing contract or transaction; or
(5) If, during any period of two consecutive years,
individuals who at the beginning of any such period constitute the
Directors cease for any reason to constitute at least a majority
thereof; provided, however, that for purposes of this clause (5) each
Director who is first elected, or first nominated for election by the
Company's stockholders, by a vote of at least two-thirds of the
Directors (or a committee of the Board) then still in office who were
Directors at the beginning of any such period will be deemed to have
been a Director at the beginning of such period.
Notwithstanding the foregoing provisions of clauses (3) or (4) of this
paragraph (c)(v)(A), unless otherwise determined in a specific case by majority
vote of the Board, a "Change in Control" will not be deemed to have occurred
for purposes of such clauses (3) or (4) solely because (x) the Company, (y) an
entity in which the Company, directly or indirectly, beneficially owns 50% or
more of the voting securities (a "Subsidiary"), or (z) any employee stock
ownership plan or any other employee benefit plan of the Company or any
Subsidiary either files or becomes obligated to file a report or a proxy
statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K, or
Schedule 14A (or any successor schedule, form, or report or item therein) under
the Exchange Act disclosing beneficial ownership by it of shares of Voting
Stock, whether in excess of 30% or otherwise, or because the Company reports
that a change in control of the Company has occurred or will occur in the
future by reason of such beneficial ownership.
(B) "Disinterested Director" means a Director of the a Company who is
not or was not a party to the Proceeding in respect of which indemnification is
sought by the Indemnitee.
(C) "Independent Counsel" means a law firm or a member of a law firm
that neither presently is, nor in the past five years has been, retained to
represent (1) the Company or the Indemnitee in any matter material to either
such party or (2) any other party to the Proceeding giving rise to a claim for
indemnification under this By-Law 33. Notwithstanding the foregoing, the term
"Independent Counsel" will not include any person who, under the applicable
standards of professional conduct then prevailing under the law of the State of
Delaware, would be precluded from representing either the Company or the
Indemnitee in an action to determine the Indemnitee's rights under this By-Law
33.
(d) If any provision or provisions of this By-Law 33 are held to be
invalid, illegal, or unenforceable for any reason whatsoever: (i) the
validity, legality, and enforceability of the remaining provisions of this
By-Law 33 (including without limitation all portions of any paragraph of this
By-Law 33 containing any such provision held
-10-
<PAGE> 330
to be invalid, illegal, or unenforceable, that are not themselves invalid,
illegal, or unenforceable) will not in any way be affected or impaired thereby
and (ii) to the fullest extent possible, the provisions of this By-Law 33
(including without limitation all portions of any paragraph of this By-Law 33
containing any such provision held to be invalid, illegal, or unenforceable,
that are not themselves invalid, illegal, or unenforceable) will be construed
so as to give effect to the intent manifested by the provision held invalid,
illegal, or unenforceable.
34. Insurance, Contracts, and Funding. The Company may purchase and
maintain insurance to protect itself and any Indemnitee against any expenses,
judgments, fines, and amounts paid in settlement or incurred by any Indemnitee
in connection with any Proceeding referred to in By-Law 33 or otherwise, to the
fullest extent permitted by applicable law as then in effect. The Company may
enter into contracts with any person entitled to indemnification under By-Law
33 or otherwise, and may create a trust fund, grant a security interest, or use
other means (including without limitation a letter of credit) to ensure the
payment of such amounts as may be necessary to effect indemnification as
provided in By-Law 33.
GENERAL
35. Fiscal Year. The fiscal year of the Company will end on December
31 or such date as may be fixed from time to time by the Board.
36. Seal. The Board may adopt a corporate seal and use the same by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
37. Reliance upon Books, Reports, and Records. Each Director, each
member of a committee designated by the Board, and each officer of the Company
will, in the performance of his or her duties, be fully protected in relying in
good faith upon the records of the Company and upon such information, opinions,
reports, or statements presented to the Company by any of the Company's
officers or employees, or committees of the Board, or by any other person or
entity as to matters the Director, committee member, or officer believes are
within such other person's professional or expert competence and who has been
selected with reasonable care by or on behalf of the Company.
38. Time Periods. In applying any provision of these By-Laws that
requires that an act be done or not be done a specified number of days prior to
an event or that an act be done during a period of a specified number of days
prior to an event, calendar days will be used unless otherwise specified, the
day of the doing of the act will be excluded and the day of the event will be
included.
39. Amendments. Except as otherwise provided by law or by the
Certificate of Incorporation, these By-Laws or any of them may be amended in
any respect or repealed at any time, either (i) at any meeting of stockholders,
provided that any amendment or supplement proposed to be acted upon at any such
meeting has been described or referred to in the notice of such meeting, or
(ii) at any meeting of the Board, provided that no amendment adopted by the
Board may vary or conflict with any amendment adopted by the stockholders.
40. Certain Defined Terms. Terms used herein with initial capital
letters that are defined in the Certificate of Incorporation are used herein as
so defined.
-11-
<PAGE> 331
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article TENTH of the Registrant's Restated Certificate of
Incorporation and Article IX of the Registrant's By-Laws provide for
indemnification of officers and directors of the Registrant, to the fullest
extent permitted by applicable law, for expenses, liabilities and losses
actually and reasonably incurred by them in connection with actual or
threatened claims, actions, suits or proceedings by reason of the fact that
such persons are or were officers or directors of the Registrant. Such
indemnification right includes the right to receive payment in advance of
expenses incurred by the persons seeking indemnification in connection with
claims, actions, suits or proceedings, to the fullest extent consistent with
applicable law. The By-Laws provide that the right to indemnification is a
contract right and authorize the Registrant to obtain insurance to effect
indemnification. Section 145 of the General Corporation Law of the State of
Delaware grants each corporation organized thereunder, such as the Registrant,
express powers to indemnify its directors and officers.
The Registrant carries directors' and officers' liability
insurance covering losses up to $20,000,000 (subject to certain deductible
amounts).
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
-------- ----------------------
<S> <C> <C>
* 2(a) -- Amended and Restated Agreement and Plan of Merger ("Merger Agreement") dated as of August 14, 1994, between
Sensormatic Electronics Corporation, Knogo Corporation ("Knogo") and Knogo North America Inc. ("Knogo North
America") (excluding schedules, but including: Exhibit A - Form of Delaware Certificate of Merger; Exhibit B
- Form of New York Certificate of Merger; and Exhibit C - Form of Contribution and Divestiture Agreement (the
"Divestiture Agreement") between Knogo and Knogo North America) (the Merger Agreement and Exhibits A and B
thereto are set forth in Annex I to the Proxy Statement--Prospectus included in the Registration Statement;
the Divestiture Agreement is set forth in Annex II-A to the Proxy Statement--Prospectus included in the
Registration Statement).
* 2(b) -- Form of License Agreement between Knogo and Knogo North America (Exhibit B to Divestiture Agreement),
excluding schedules (set forth in Annex II-B to the Proxy Statement--Prospectus included in the Registration
Statement).
* 2(c) -- Form of Supply Agreement between Knogo and Knogo North America (Exhibit C to Divestiture Agreement),
excluding schedules (set forth in Annex II-C to the Proxy Statement--Prospectus included in the Registration
Statement).
(Schedules to Exhibits 2(a), 2(b) and 2(c) are not included. Copies will be furnished supplementally to the
Securities and Exchange Commission upon request.)
</TABLE>
II-1
<PAGE> 332
<TABLE>
<S> <C> <C>
4(a) -- Copy of Composite Restated Certificate of Incorporation of Sensormatic Electronics Corporation filed pursuant
to Rule 232.102(c) of Regulation S-T (incorporated by reference to Exhibit 4(d) to Registration Statement on
Form S-3, File No. 33-61626).
4(b) -- Copy of By-Laws of Sensormatic Electronics Corporation (incorporated by reference to Exhibit 3(b) to Form 10-
K for the fiscal year ended May 31, 1990 (File Number 1-10739)).
4(c) -- Note Agreement, dated as of January 15, 1993, among the Registrant and the Purchasers named therein, relating
to the Registrant's 8.21% Senior Notes Due January 30, 2003 (incorporated by reference to Exhibit 4.4 to
Registration Statement on Form S-4, File No. 33-62750).
4(d) -- The Registrant agrees to furnish copies of any instrument defining the rights of holders of long-term debt of
the Registrant and its consolidated subsidiaries that does not exceed 10 percent of the total assets of the
Registrant and its consolidated subsidiaries, which is not required to be filed as an exhibit, to the
Commission upon request.
* 5 -- Opinion of Christy & Viener, including consent.
* 8 -- Opinion of Stroock & Stroock & Lavan as to certain tax matters, including consent.
23(a) -- Consent of Christy & Viener (included in Exhibit 5)
23(b) -- Consent of Stroock & Stroock & Lavan (included in Exhibit 8)
* 23(c) -- Consent of Ernst & Young LLP
* 23(d) -- Consent of Deloitte & Touche LLP
* 23(e) -- Consent of Smith Barney Inc.
24 -- Powers of Attorney of Ronald G. Assaf, Thomas V. Buffett, James E. Lineberger, Michael E. Pardue, Lawrence J.
Simmons, Jerome M. LeWine, Dr. Arthur G. Milnes and John T. Ray, Jr. (included on page II-5 of the
Registration Statement).
</TABLE>
____________________
* Filed herewith.
(b) FINANCIAL STATEMENT SCHEDULES.
Not applicable.
II-2
<PAGE> 333
(c) ITEM 4(b) INFORMATION.
The opinion of Smith Barney Inc., dated August 14, 1994, is set forth in
Annex III to the Proxy Statement--Prospectus included in the Registration
Statement.
ITEM 22. UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are
being made, a post-effective amendment to the registration statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(b) That for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment, any of the securities being registered which remain unsold at the
termination of the offering.
(2) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the Registration Statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) (a) The undersigned Registrant hereby undertakes as follows:
that prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement, by
any person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(b) The Registrant undertakes that every prospectus (i) that
is filed pursuant to paragraph (3)(a) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Securities Act of
1933 and is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933,
II-3
<PAGE> 334
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(5) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
(6) The undersigned Registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
<PAGE> 335
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Deerfield
Beach, Florida on the 25th day of November, 1994.
SENSORMATIC ELECTRONICS CORPORATION
By: /s/ RONALD G. ASSAF
--------------------------------------------
Ronald G. Assaf
Chairman of the Board and President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Ronald G. Assaf, James E. Lineberger,
Michael E. Pardue, Lawrence J. Simmons, Miguel A. Flores and Jerome M. LeWine,
or any of them, his attorney-in-fact, for him in any and all capacities, with
full power of substitution and resubstitution, to sign any amendments,
including any post-effective amendments, to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
conforming all that said attorney-in-fact, or his substitutes, may do or cause
to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RONALD G. ASSAF Chairman of the Board of Directors, November 25, 1994
- ------------------------- President and Chief Executive
(Ronald G. Assaf) Officer (principal executive officer)
/s/ THOMAS V. BUFFETT Vice Chairman of the Board of Directors November 25, 1994
- -------------------------
(Thomas V. Buffett)
/s/ JAMES E. LINEBERGER Chairman of the Executive Committee November 25, 1994
- ------------------------- and Director
(James E. Lineberger)
/s/ MICHAEL E. PARDUE Executive Vice President and Chief November 25, 1994
- ------------------------- Operating Officer (principal financial
(Michael E. Pardue) officer) and Director
/s/ LAWRENCE J. SIMMONS Vice President of Finance (principal November 25, 1994
- ------------------------- accounting officer)
(Lawrence J. Simmons)
/s/ JEROME M. LEWINE Director November 25, 1994
- -------------------------
(Jerome M. LeWine)
/s/ DR. ARTHUR G. MILNES Director November 25, 1994
- -------------------------
(Dr. Arthur G. Milnes)
/s/ JOHN T. RAY, JR. Director November 25, 1994
- -------------------------
(John T. Ray, Jr.)
</TABLE>
II-5
<PAGE> 336
Exhibit Index
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE NUMBER
------ ---------------------- -----------
<S> <C>
* 2(a) Amended and Restated Agreement and Plan of Merger ("Merger Agreement") dated as
of August 14, 1994, between Sensormatic Electronics Corporation, Knogo
Corporation ("Knogo") and Knogo North America Inc. ("Knogo North America")
(excluding schedules, but including: Exhibit A - Form of Delaware Certificate
of Merger; Exhibit B - Form of New York Certificate of Merger; and Exhibit C -
Form of Contribution and Divestiture Agreement (the "Divestiture Agreement")
between Knogo and Knogo North America) (the Merger Agreement and Exhibits A and
B thereto are set forth in Annex I to the Proxy Statement--Prospectus included
in the Registration Statement; the Divestiture Agreement is set forth in Annex
II-A to the Proxy Statement--Prospectus included in the Registration Statement).
* 2(b) Form of License Agreement between Knogo and Knogo North America (Exhibit B to
Divestiture Agreement), excluding schedules (set forth in Annex II-B to the
Proxy Statement--Prospectus included in the Registration Statement).
* 2(c) Form of Supply Agreement between Knogo and Knogo North America (Exhibit C to
Divestiture Agreement), excluding schedules (set forth in Annex II-C to the
Proxy Statement--Prospectus included in the Registration Statement).
4(a) Copy of Composite Restated Certificate of Incorporation of Sensormatic
Electronics Corporation filed pursuant to Rule 232.102(c) of Regulation S-T
(incorporated by reference to Exhibit 4(d) to Registration Statement on Form S-
3, File No. 33-61626).
4(b) Copy of By-Laws of Sensormatic Electronics Corporation (incorporated by
reference to Exhibit 3(b) to Form 10-K for the fiscal year ended May 31, 1990
(File Number 1-10739)).
4(c) Note Agreement, dated as of January 15, 1993, among the Registrant and the
Purchasers named therein, relating to the Registrant's 8.21% Senior Notes Due
January 30, 2003 (incorporated by reference to Exhibit 4.4 to Registration
Statement on Form S-4, File No. 33-62750).
4(d) The Registrant agrees to furnish copies of any instrument defining the rights of
holders of long-term debt of the Registrant and its consolidated subsidiaries
that does not exceed 10 percent of the total assets of the Registrant and its
consolidated subsidiaries, which is not required to be filed as an exhibit, to
the Commission upon request.
* 5 Opinion of Christy & Viener, including consent.
* 8 Opinion of Stroock & Stroock & Lavan as to certain tax matters, including
consent.
23(a) Consent of Christy & Viener (included in Exhibit 5)
23(b) Consent of Stroock & Stroock & Lavan (included in Exhibit 8)
</TABLE>
<PAGE> 337
<TABLE>
<S> <C>
* 23(c) Consent of Ernst & Young LLP
* 23(d) Consent of Deloitte & Touche LLP
* 23(e) Consent of Smith Barney Inc.
24 Powers of Attorney of Ronald G. Assaf, Thomas V. Buffett, James E. Lineberger,
Michael E. Pardue, Lawrence J. Simmons, Jerome M. LeWine, Dr. Arthur G. Milnes
and John T. Ray, Jr. (included on page II-5 of the Registration Statement).
</TABLE>
______________
* Filed herewith.
<PAGE> 1
EXHIBIT 5
Christy & Viener
620 Fifth Avenue
New York, New York 10020-2402
(212) 632-5500
November 25, 1994
Sensormatic Electronics Corporation
500 N.W. 12th Avenue
Deerfield Beach, Florida 33442-1795
Re: Registration Statement on Form S-4
Gentlemen:
We have acted as general counsel to Sensormatic Electronics
Corporation, a Delaware corporation (the "Corporation"), in connection with
the preparation of a Registration Statement on Form S-4 (the "Registration
Statement") being filed under the Securities Act of 1933, as amended (the
"Act"), for the registration by the Corporation of up to 3,792,820 shares of
the Corporation's Common Stock (the "Shares") to be issued to shareholders (the
"Shareholders") of Knogo Corporation, a New York corporation ("Knogo"), in
connection with the merger (the "Merger") of Knogo with and into the
Corporation pursuant to an Amended and Restated Agreement and Plan of Merger,
dated as of August 14, 1994 (the "Merger Agreement").
As general counsel of the Corporation, we have examined and
are familiar with the Registration Statement, the Merger Agreement, the
Corporation's Restated Certificate of Incorporation and By-Laws, the
proceedings of its stockholders, Board of Directors and committees thereof, and
such certificates of public officials and such other corporate records and
other documents as we have deemed necessary in rendering this opinion.
Based on the foregoing, we are of the opinion that:
1. The Corporation has been duly incorporated and is
validly existing and in good standing under the laws of the State of Delaware.
<PAGE> 2
Sensormatic Electronics Corporation November 25, 1994
Page 2
2. The Shares have been duly authorized and, when (i)
the Registration Statement has become effective under the Act, (ii) the Merger
has become effective pursuant to the Merger Agreement and (iii) the Shares have
been duly issued to the Shareholders in exchange for shares of common stock of
Knogo, as contemplated by the Registration Statement and the Merger Agreement,
such Shares will be validly issued, fully paid and nonassessable.
We are admitted to practice law only in the State of New York
and do not express any opinion herein on any laws other than the laws of the
State of New York, the federal laws of the United States of America and the
General Corporation Law of the State of Delaware.
We consent to being named in the Registration Statement as
attorneys who have passed on legal matters in connection with the Shares and we
consent to the filing of this opinion as Exhibit 5 to the Registration
Statement.
Very truly yours,
/s/ CHRISTY & VIENER
--------------------
CHRISTY & VIENER
<PAGE> 1
EXHIBIT 8
STROOCK & STROOCK & LAVAN
SEVEN HANOVER SQUARE
NEW YORK, NEW YORK 10004-2696
November 22, 1994
Knogo Corporation
350 Wireless Boulevard
Hauppauge, New York 11788-3907
Re: Sensormatic Electronics Corporation
Registration Statement on Form S-4
Gentlemen:
We have acted as counsel for Knogo Corporation, a New York corporation
("Corporation"), in connection with the preparation and filing of the
Registration Statement of Sensormatic Electronics Corporation, a Delaware
corporation ("Sensormatic") on Form S-4 (the "Registration Statement") under
the Securities Act of 1933, as amended, covering shares of its Common Stock,
par value $.01 per share.
We have reviewed the following documents: (i) the Registration Statement; (ii)
the Amended and Restated Agreement and Plan of Merger among the Corporation,
Sensormatic and Knogo North America Inc., a Delaware corporation, dated August
14, 1994 (the "Merger Agreement"); and (iii) such other documents as we have
deemed necessary or relevant for the purposes of this opinion. As to the
various questions of fact material to this opinion, we have relied upon
statements of officers and representatives of the Corporation, Sensormatic and
others. We have also examined such matters of law as we have deemed necessary
or appropriate for the purposes of this opinion. We note that our opinion is
based on our examination of such law, our review of the documents described
above, the statements and assumptions
<PAGE> 2
Knogo Corporation
November 22, 1994
Page 2
referred to above and in the Proxy Statement/Prospectus included as part of the
Registration Statement (the "Proxy Statement/Prospectus"), the provisions of
the Internal Revenue Code of 1986, as amended, the regulations and published
rulings thereunder, and the judicial interpretation thereof currently in
effect. Any change in applicable law or any of the facts and circumstances
described in the Proxy Statement/Prospectus or inaccuracy of any statements or
assumptions, on which we have relied, may affect the continuing validity of our
opinion.
Attorneys involved in the preparation of this opinion are admitted to practice
law in the State of New York and we do not purport to be experts on, or to
express any opinion herein concerning, any law other than the laws of the State
of New York, the federal laws of the United States of America and the General
Corporation Law of the State of Delaware.
Subject to the caveats and conditions set forth above, it is our opinion that
the discussion set forth under the heading "Certain Federal Income Tax
Consequences" in the Proxy Statement/Prospectus accurately sets forth our views
as to the Federal income tax consequences of the Merger discussed therein. We
note that such discussion does not include a complete analysis of all tax
consequences of the Merger and in particular does not address tax consequences
that may vary with, or are contingent on, individual circumstances. Some of
the tax consequences of the Merger are complex and subject to various
interpretations and are dependent upon certain factual determinations that
cannot be made at this time. No rulings will be obtained from the Internal
Revenue Service with respect to the Federal income tax consequences of the
Merger. Thus, there can be no assurances that the Internal Revenue Service
would not take a position in conflict with the views expressed in the Proxy
Statement/Prospectus and that such position might not ultimately be sustained
by the courts.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this firm under the caption
"Certain Federal Income Tax Consequences" in the Proxy Statement/Prospectus
which forms a part of the
<PAGE> 3
Knogo Corporation
November 22, 1994
Page 3
Registration Statement. In giving such consent, we do not admit hereby that we
come within the category of persons whose consent is required under Section 7
of the Act or the Rules and Regulations of the Commission thereunder.
Very truly yours,
/s/ STROOCK & STROOCK & LAVAN
- -----------------------------
STROOCK & STROOCK & LAVAN
<PAGE> 1
EXHIBIT 23(c)
Consent of Independent
Certified Public Accountants
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4 filed November 25, 1994) and related
Prospectus of Sensormatic Electronics Corporation for the Registration of
3,792,820 shares of its common stock and to the incorporation by reference
therein of our report dated August 8, 1994, with respect to the consolidated
financial statements and schedules of Sensormatic Electronics Corporation
included in its Annual Report (Form 10-K) for the year ended June 30, 1994,
filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
West Palm Beach, Florida
November 25, 1994
<PAGE> 1
EXHIBIT 23(d)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Sensormatic Electronics Corporation on Form S-4 of our report dated May 18,
1994 (September 13, 1994 as to Notes 7, 8, 11, and 14, which report expresses
an unqualified opinion and includes explanatory paragraphs referring to the
Merger with Sensormatic Electronics Corporation and the change in accounting
for income taxes to conform with Statement of Financial Accounting Standards
No. 109), relating to the consolidated financial statements of Knogo
Corporation appearing in Amendment No. 2 on Form 10-K/A of Knogo Corporation
for the year ended February 28, 1994 and to the reference to us under the
heading "Experts" in the Prospectus, which is part of this Registration
Statement.
/s/ Deloitte & Touche LLP
Jericho, New York
November 21, 1994
<PAGE> 1
EXHIBIT 23(e)
CONSENT
OF
SMITH BARNEY INC.
We hereby consent to (i) the inclusion of our opinion letter to the
Board of Directors of Knogo Corporation ("Knogo") as Annex III to the Proxy
Statement-Prospectus of Knogo and Sensormatic Electronics Corporation
("Sensormatic") relating to the proposed merger of Knogo with and into
Sensormatic, and (ii) all references made to our firm and such opinion in such
Proxy Statement-Prospectus under the captions "SUMMARY -- The Merger, the
Divestiture and the Companies -- Opinion of Knogo's Financial Advisor" and "THE
MERGER -- Background of the Merger," "-- Reasons for the Merger -- Knogo" and
"-- Opinion of Knogo's Financial Advisor." In giving such consent, we do not
admit that we come within the category of persons whose consent is required
under, and we do not admit and we disclaim that we are "experts" for purposes
of, the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
By: /s/ SMITH BARNEY INC.
---------------------
SMITH BARNEY INC.
New York, New York
November 25, 1994
