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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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COMMISSION FILE NUMBER: 1-10739
SENSORMATIC ELECTRONICS CORPORATION
(Exact name of Registrant as specified in its charter)
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DELAWARE 34-1024665
(State of Incorporation) (I.R.S. Employer
Identification Number)
951 YAMATO ROAD 33431-0700
BOCA RATON, FLORIDA (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code: 561-989-7000
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
Name of each exchange on which registered:
NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [X] No [ ]
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The aggregate market value of Common Stock held by non-affiliates of the
Registrant as of September 22, 1998 was $594,940,184.
As of September 22, 1998, there were 74,367,523 shares of the common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive proxy statement for the Company's 1998 Annual Meeting of Stockholders
(incorporated in Part III to the extent provided in Items 10, 11, 12 and 13
hereof).
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Founded in 1966, Sensormatic is the leading designer, manufacturer and marketer
of electronic security, sensing and tracking systems in the world. Sensormatic
has a leading market share in its three major market segments: electronic
article surveillance ("EAS") systems, closed circuit television ("CCTV") and
video systems, and access control and asset management systems. The Company's
EAS products include reuseable hard tags and disposable labels as well as
detection and deactivation systems. Sensormatic's CCTV products include various
types of micro-processor-controlled cameras and monitoring systems. The
Company's access control and asset management systems provide intelligent
tagging, tracking and access systems to monitor the movements of people and/or
assets.
Sensormatic's installed base of customers (i.e. customers at which Sensormatic
products are installed) includes a substantial majority of the top 100 retailers
in the world, as well as more than half of the global Fortune 500 companies. The
Company operates directly and through dealers and distributors in more than 90
countries and has the largest sales and service network in the industry, with
more than 1,700 personnel directly serving retail customers and more than 600
independent dealers and distributors serving commercial/ industrial customers.
The Company operates in a single business segment. Certain information about the
Company's operations by geographic area is contained in Note 14 of Notes to
Consolidated Financial Statements under Item 8 of this report.
The Company has its principal executive offices at 951 Yamato Road, Boca Raton,
Florida 33431-0700 (561-989-7000). As used in this report, the terms "Company"
and "Sensormatic" refer to Sensormatic Electronics Corporation and its
subsidiaries unless the context indicates otherwise.
STRATEGIC RESTRUCTURING AND OTHER STRATEGIES
The Company's rapid growth and success in the late 1980's and first half of the
1990's took Sensormatic from $100 million in revenues in fiscal 1987 to
approximately $1 billion in fiscal 1998. These results were driven by internal
growth as well as strategic acquisitions. This rapid growth caused the Company
to outgrow its infrastructure and systems. As a result, in 1996 the management
team, led by newly recruited senior management personnel, began implementing a
long-term strategic restructuring plan to harness the Company's growth, rebuild
and improve the infrastructure of the Company and restore stability to the
Company's operations. The plan is centered around three main priorities: (i)
expense and asset control, (ii) investments in processes and systems and (iii)
quality, sustainable growth. The plan included an extensive and systematic
review of the Company's operations, cost structure and balance sheet aimed at
reducing its operating expenses and manufacturing costs while increasing
efficiencies. This review of the Company's global operations focused on
operational and organizational structures and systems, facilities utilization,
product rationalization, quality improvements, inventory valuation and accounts
receivable balances and related collection efforts. In fiscal 1996, as a result
of the aforementioned initiatives, the Company recorded restructuring and
special charges of $186.0 million, with an after-tax impact of $118.2 million.
The fiscal 1996 pre-tax charges were $85.3 million for restructuring and $100.7
million for special charges. The estimated cash outlay as a result of such
charges was $33.3 million. To date, the savings realized as a result of this
plan have been partially offset by reinvestment in the Company's business,
including costs associated with the addition of approximately 250 employees in
strategic growth and key technical areas, the new enterprise-wide management
information system and additional consultants, and by increased legal fees
relating principally to then pending litigation and government investigations.
These savings were also partially reflected as reductions in manufacturing costs
which have helped to generally maintain gross profit margins in the face of
intense price competition.
At the end of fiscal 1997, the Company recorded additional restructuring charges
which included the divestiture of non-core businesses and additional
cost-reduction plans, which mainly included staff reductions within its European
operations. These restructuring actions resulted in total restructuring and
special charges of $91.9 million with an after-tax impact of $64.7 million
recorded in the fourth quarter of fiscal 1997 and the
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first quarter of fiscal 1998. The pre-tax charges were $56.0 million for
restructuring and $35.9 million for special charges. The Company's U.S.
commercial/industrial direct sales and service business, which was sold in
September 1997, constituted the largest non-core business divested. The Company
elected to exit the commercial/industrial direct sales and service business due
to market conflicts with its indirect sales channels (dealers and distributors).
This strategic decision allows the Company to focus on partnering with dealers
and distributors to promote products in the commercial/industrial markets and
thereby lower its distribution and installation costs while improving customer
service. The special charges principally related to the allowances for accounts
receivable, receivables financed with third parties, and other matters. In
connection with this restructuring plan, the Company has planned for the
reduction in workforce of approximately 1,200 positions, of which 600 relate to
the divestiture of non-core businesses and the remaining positions principally
represent the termination of administrative personnel. As of June 30, 1998,
approximately 900 positions have been eliminated, including the positions
associated with the divested business units. The estimated cash outlay as a
result of such charges, net of expected proceeds from the divestiture of
non-core businesses, was $30.0 million. As of June 30, 1998, $11.8 million had
been disbursed, offset by $8.2 million of proceeds received from the sale of
non-core businesses. Upon completion of these restructuring activities, the
Company expects net annualized savings of approximately $50 million.
In connection with its restructuring plan, the Company embarked upon a long-term
process improvement and total quality management program internally referred to
as "Q(3)". The program's objective is to provide superior value for customers,
shareholders and employees, by establishing a culture of "continuous
improvement" in all of the Company's business processes. Q(3) is a multi-year,
enterprise-wide, effort in which the Company is reengineering operations in
every function and business unit globally. In connection with Q(3), the Company
initiated the implementation of a new enterprise-wide management information
system and an extensive internal training program, both of which are expected to
significantly enhance global operational efficiencies and improve customer
service.
The Company is organized into four principal sales organizations: North America
Retail, Europe Retail, International Retail (which principally consists of the
Asia Pacific, the Middle East and the Latin America regions) and
Commercial/Industrial Worldwide ("C/I Worldwide"). Product line management for
the Company's electronic article surveillance products is performed by the EAS
Division. The EAS product line management division services
commercial/industrial and retail customers and sales organizations as well as
coordinates engineering, marketing and quality control. The sales and product
line management function for C/I Worldwide operates as a single business unit.
The EAS division and C/I Worldwide are supported by a supply chain management
organization with responsibility for purchasing, logistics and manufacturing.
The Company has a Global Source Tagging Division, with responsibility for
managing and directing the Company's source tagging initiatives globally. The
Global Source Tagging Division is staffed with sales, marketing and technical
personnel who work globally with major retailers, manufacturers, packaging
companies, licensees, associations and industry consultants to implement and
expand the use of source tagging by manufacturers and distributors.
STRATEGIC MERGERS AND ACQUISITIONS
Over the past several years, the Company has increased its presence in a number
of the geographic areas in which it markets its products and has expanded into
new geographic areas. Additionally, the Company has expanded its
commercial/industrial business through several strategic acquisitions.
The Company's strategy to expand internationally also has included the use of
distribution arrangements with independent, local businesses in certain
countries, and, in some cases, controlling interest ventures with local
businesses, Brazil in particular. The Company has also acquired its distributors
in certain countries, e.g., Colombia and Argentina. The Company presently
markets its products directly in more than 25 countries throughout North
America, Europe and certain Asia/Pacific and South American countries, and, in
more than 65 other countries, the Company sells its products to distributors for
resale or lease. The Company will continue to explore expanding into additional
countries in the Middle East, Latin America, Asia, Africa and eastern Europe
using distribution arrangements.
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The Company has over the past several years expanded its commercial/industrial
business through several strategic acquisitions, including Software House, Inc.
("Software House"), a designer and marketer of high-end access control systems;
Robot Research, Inc. ("Robot Research"), a manufacturer and marketer of
sophisticated CCTV display and transmission systems; and American Dynamics, a
manufacturer of CCTV components, switchers and controllers. As a result of these
acquisitions, the Company acquired additional product lines to complement its
previously existing CCTV and access control products, together with well
established dealer/distribution sales channels. These acquisitions have enabled
the Company to integrate certain product lines thereby improving product
compatibility and performance.
PRINCIPAL PRODUCTS AND SYSTEMS
Sensormatic's products and systems are focused in three general categories:
- - EAS systems and devices, consisting of electronic detection units which work
in conjunction with specially designed reusable tags and/or disposable labels
and label deactivation units, and benefit denial products. These systems and
devices are most commonly used by retailers to help prevent shoplifting,
reduce inventory shrinkage and enhance or improve merchandising of products.
- - CCTV and video systems, consisting of computer controlled cameras integrated
with sophisticated video switching, storage and transmission products which
monitor activity throughout an establishment for operational safety and/or
theft deterrence and detection purposes.
- - Access control and asset management systems, which are software-based products
used to monitor, protect and track people and assets. These systems
electronically regulate access to facilities to protect equipment and assets,
as well as track products throughout the supply chain.
EAS Systems
EAS systems come in many different forms and make use of a number of different
technologies. The Company's typical EAS system is comprised of an electronic
detection unit, tags and/or labels and a detacher or deactivator. Detection
units can be installed directly into floors as pedestals or concealed under
floors, mounted on walls or hung from ceilings, and are usually placed in high
traffic areas, such as entrances and exits of stores or office buildings,
distribution centers and/or checkout lanes. Specially designed and sensitized
reusable tags or disposable labels are affixed to or embedded in the merchandise
or assets to be protected. When an active tag or label passes through the
detection unit, the system sounds an alarm, a light is activated and/or other
suitable control devices are set into operation indicating a possible theft in
progress. Tags and labels are available in a variety of shapes, sizes and
configurations. Tags are easily removed from merchandise using a specially
designed detacher, enabling the merchandise or asset to be taken through a
controlled zone without incident, and can then be reused. Labels are deactivated
by a deactivator positioned at the cash register and are generally disposed of
after use. Certain labels can be reactivated with the Company's reactivation
devices.
To satisfy many types of customers on a global basis, the Company offers every
major EAS technology type available in addition to the Company's proprietary
technologies. The following is a description of the principal EAS technologies,
as well as the systems and products which incorporate such technologies, offered
by the Company.
Ultra-Max(R) systems utilize a proprietary acousto-magnetic technology which is
the most advanced and rapidly growing anti-theft technology in the world. This
technology is used in over 15 different electronic anti-theft systems sold by
the Company under various brand names including Pro-Max(R), Floor-Max(R),
Euro-Max(TM), Sensor-Max, Mega-Max, MAX Checkout(TM), and Ultra-Post(TM). The
versatility of Ultra-Max enables it to protect assets, merchandise, people,
property and information for retailers and commercial/ industrial businesses.
The success of Ultra-Max is attributable to its unique combination of features,
unobstructed coverage of wide exits, a high "pick rate" or ability to detect
labels or tags, ease of deactivation, ability to be reactivated, and ability to
work in close proximity to metal. This technology's sophisticated electronic
capability and the unique signal from the label or tag virtually eliminate false
alarms, a problem often encountered by retailers using other technologies.
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For use in source tagging, the Company markets Ultra-Strip(TM) labels, which are
used in conjunction with Ultra-Max systems and have the performance
characteristics inherent in the acousto-magnetic technology. Ultra-Strip labels
are the smallest EAS labels available with wide exit coverage performance and
are offered in a standard and narrow width size. These labels have demonstrated
superior pick rates, are compatible with a wide range of packaging materials and
product substances, including foil and metal, are unaffected by moisture and are
well suited for application in high-speed manufacturing processes.
SensorStrip(TM)Checkout (the latest generation of AisleKeeper(R)) systems
utilize proprietary advanced magnetostrictive technology and standard low
frequency electromagnetic technology. These systems are designed to protect
high-theft items in supermarkets and hypermarkets around the world as well as
bookstores, libraries, health clubs, liquor stores and video stores. The
magnetostrictive technology sold by the Company includes SensorStrip Checkout
and SensorStrip Checkout Plus (formerly known as AisleKeeper and AisleKeeper II,
respectively, in the U.S., and as Checkout Control and Checkout Control II,
respectively, in Europe). The SensorStrip Checkout Plus is especially engineered
to comply with the Americans with Disabilities Act as well as the European
Disabilities Acts. The standard SensorStrip label is a thin micromagnetic wire
encapsulated in transparent tape attached to merchandise which is passed around
the system during the checkout process or, with certain versions, may be
deactivated by a device which can be fitted in the conveyor belt at a checkout
station. Like Ultra-Max, Sensormatic's electromagnetic technology supports
source tagging programs.
Microwave systems are anti-shoplifting systems that utilize high radio frequency
technology. Microwave systems protect wide exits and are widely used by
department stores and soft goods (apparel merchandisers) specialty retailers.
These systems are marketed under the names of MicroMax(R), SlimLine(R), and
Sensormat(R) II and offer a variety of features and benefits, such as concealed
protection which allows for wide exit, flexible installations which can fit in
multiple store configurations, and a variety of lightweight tags and labels.
Microwave systems are the most widely used technology with soft good retailers
and the large base of Microwave system installations represents the largest
potential for upgrade to Ultra-Max.
Swept-RF or swept radio frequency systems utilize low radio frequency technology
and are principally used to cover single door exits. The Company markets this
technology under the brand name of System One(R).
Benefit Denial products are non-electronic anti-theft devices that, when
tampered with, can destroy or damage valuable merchandise or otherwise make it
unfit for resale or use, thereby reducing the incentive to steal. Benefit denial
products can be used alone or in conjunction with other anti-theft systems to
provide an incremental level of security for retailers. The Company's Inktag(R)
and Microlock(R) products are part of a family of benefit denial products. The
Company's Inktag products are fastened to clothing and other soft goods in the
retail market. When unauthorized removal of an Inktag product is attempted, the
vials of ink inside the unit break and stain the merchandise. The Company's
Inktag products are sold primarily to department, specialty, discount and mass
merchandise stores. The Microlock product is used to protect items such as
eyeglasses and jewelry products by creating physical obstructions to the use of
the merchandise until removed. The Microlock product is designed for use
primarily in department, specialty, discount, mass merchandise, jewelry, optical
and drug stores.
CCTV Systems
CCTV video surveillance systems are used by a wide-variety of businesses,
industries and government agencies to protect against inventory shrinkage in
retail businesses and for the protection and monitoring of personnel and assets
in office and manufacturing complexes, hospitals, casinos, nuclear facilities,
warehouses, and numerous other facilities. Sensormatic's CCTV systems can be
used alone, integrated with other CCTV components or used in combination with
EAS, Access Control and Asset Management systems. The following is a description
of key CCTV products and systems offered by the Company.
Video cameras can be used indoors and outdoors to monitor, investigate and
record events. The Company offers multiple types of cameras which include fixed,
pan/tilt/zoom and the more sophisticated SpeedDome(R) cameras. These cameras
include digital and high resolution color or monochrome features. SpeedDome
cameras have advanced surveillance features which include the ability to deliver
high resolution images of
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stationary or moving objects and focus on objects at a distance in low light
conditions, as well as the ability to acquire, zoom and focus on targets in less
than one second. SpeedDome cameras may be integrated with other Sensormatic
products to create a more comprehensive overall security program.
Video switchers/controllers are used to switch cameras to view an object in
response to an alarm or at an operator's command. The Company markets a full
line of video switchers/controllers, ranging from systems which can support up
to sixteen cameras to more complex systems which support more than 1,000
cameras. Video switchers/controllers are marketed under various brand names
including high-end video switchers/ controllers such as the AD2050 (1,024
cameras/128 monitors) and AD2052 (512 cameras/32 monitors) used in large complex
configurations and the more retail oriented family of products consisting of
View Manager 8, View Manager 16 and View Manager(R) 96 ("VM96"), which when used
with a Touch Tracker(R) keyboard, can control 8, 16, and 96 cameras,
respectively. The VM96 is a PC-based switcher/controller which can be programmed
to automatically pan, tilt and zoom cameras in response to an alarm or at an
operator's command.
Video multiplexers provide for sophisticated video manipulation of up to 16
video inputs recorded to a single VCR. This technology captures high quality
video from multiple cameras, providing for security surveillance of multiple
areas within a facility to be viewed on a single video monitor.
Video transmission systems allow for the capability to remotely view stores,
warehouses, and other facilities and are marketed under the SensorLink(TM) PC or
HyperScan(R) Ultra brand names. These video transmission systems are PC based
and can be operated over standard telephone lines or the ISDN lines ("Integrated
Services Digital Network"), allowing users to view video images and/or control
and operate cameras, alarm inputs, and relay controls from remote locations.
SensorLink PC and HyperScan(R) allow users to view up to sixteen cameras
simultaneously.
Intelligent Digital Video systems search video recordings, and based on
parameters set by the user, locate and playback preprogrammed alarm events,
light level changes, or special types of motion normally associated with a
security breach. Proprietary video tools provide image magnification and
enhancement to further improve alarm event analysis and documentation.
Intelligent digital video systems are marketed under the brand name
Intellex(TM). A new Intellex unit introduced in 1997 won the Security Industry
Association's 1997 "Judge's Choice" award of the Security Industry Association,
an association of manufacturers and distributors of security systems and
services. Candidates for the "Judge's Choice" award are judged on innovation,
the value of the problems solved and needs addressed, ease of product
installation and implementation, the number of product strengths and benefits
and the value of such benefits.
Access Control and Asset Management Systems
Access control systems are designed to monitor, control and appropriately
authorize passage (pedestrian, asset or vehicular) into and out of designated
areas. In a typical access control system application, each individual is issued
a badge and inserts or swipes the badge at a door reader to gain access to
buildings, rooms, and other enclosures. The Company's access control systems
offer a variety of features and benefits such as environmental security of
people, assets and information, automatic data collection and report generation.
Access Control systems can be integrated with CCTV, and alarm management
systems, thus providing for additional security and protection.
The Company offers a full line of Access Control systems to address a wide range
of customers and their requirements. Systems include the C-CURE 1 Plus Ultra, a
high end integrated security system that monitors and controls entrances and
exits with a fully embedded photo imaging system; C-CURE 800, a mid-range to
high end integrated access control and security management system allowing
manual control and viewing from display screens; and C-Cure 750, a small
facility software application that manages access control and alarm monitoring.
These systems range in capacities from two readers with 3,000 cardholders up to
2,048 readers with 250,000 cardholders.
Asset management systems are new and important initiatives within Sensormatic
which utilize "smart" tags that combine the security benefits of conventional
EAS tags with the intelligence capabilities of RFID technology -- i.e., "radio
frequency identification". RFID chips provide a miniature database able to store
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variable data, such as warranty information, time, date, and location of sale or
manufacture. Asset tracking systems will combine existing proprietary asset
protection and access control applications with RFID tags and software to create
a complete range of sensing and tracking solutions which can be used to protect
and track assets in commercial/industrial and retail environments. Asset
management, service, warranty, lease information, perpetual inventory
management, and reverse logistics management are some of the applications to be
provided by asset tracking systems.
The Company began test marketing its new C-Cure Trac system in fiscal 1998.
C-Cure Trac combines the power and flexibility of the Company's C-Cure data base
management and reporting system with RFID reader or sensors for the purpose of
reading and tracking "smart" tags. These smart tags are RFID transporters that
are attached to, or imbedded within, employee access control badges, high value
assets, vehicles or other objects. The C-Cure Trac system can function in a
stand alone mode, be combined within access control applications, function as a
hands free access control system or be integrated into other security
applications.
Consolidated reported revenues by principal products and systems for the years
ended June 30, 1998, 1997 and 1996 are presented below. The reported amounts,
for all principal products and systems, were negatively impacted by foreign
currency fluctuations and divestitures. Eliminating the impact of foreign
currency fluctuations and divestitures, total revenues increased 8% in fiscal
1998 and 3% in fiscal 1997.
CONSOLIDATED REVENUES BY PRINCIPAL PRODUCTS AND SYSTEMS
YEARS ENDED JUNE 30
($ in millions)
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1998(1) 1997 1996
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EAS(2)...................................................... $539.8 $ 533.0 $542.2
CCTV........................................................ 295.7 314.6 297.5
Access Control and Asset Management......................... 44.0 60.7 60.8
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Subtotal.......................................... 879.5 908.3 900.5
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Installation, Maintenance and Other......................... 107.4 117.4 94.1
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Total............................................. $986.9 $1,025.7 $994.6
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(1) Includes $11.4 in revenues related to the divested U.S.
commercial/industrial direct sales and service business, as compared with
approximately $80.0 in revenues in the prior years. This impacted CCTV and
Access Control product lines. See Item 7, Management's Discussion and
Analysis of Operations and Financial Condition.
(2) Increases in Ultra-Max revenue of 19% in fiscal 1998 and 27% in fiscal 1997,
partially offset by declines in other EAS system revenues. See Item 7,
Management's Discussion and Analysis of Results of Operations and Financial
Condition.
MARKETS AND MARKETING STRATEGY
Markets
The Company principally markets its EAS products and systems directly to
retailers. In many retail environments, the use of EAS systems has become a
standard operating practice because these products and systems have proven 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, and normally ranges from 1% to 5% of sales. EAS products and systems help
improve a retailer's profitability not only by reducing inventory shrinkage, but
also by allowing the use of open merchandising which increases product
accessibility to customers.
EAS products and systems were first used by soft goods retailers to protect
clothing. Due to technological advances, applications for hard goods merchandise
(non-apparel merchandise) have become economical and effective. Hard goods and
food retailers, such as supermarkets, hypermarkets, home improvement centers,
drug, mass merchandise, optical, music, hardware, book, video, and entertainment
stores have increasingly become users of EAS products and systems. The Company
believes that it holds a significant market share of
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this worldwide EAS market. Retailers also make extensive use of CCTV products
and systems to enhance security and the safety of their operations as well as
access control systems.
Several of the newer EAS technologies used by retailers are used in
commercial/industrial markets 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.
Commercial/industrial installations of the Company's CCTV, access control and/or
asset management products and systems range from small to medium size businesses
to large domestic and international operations and businesses. The Company sells
its commercial/industrial products and systems to end-user customers primarily
through an indirect network of dealers and distributors. This network of dealers
and distributors is global in scale and provides comprehensive coverage of the
commercial/industrial market worldwide. The Company engages in various direct
advertising and marketing activities to stimulate demand for its products and
partners with the dealers and distributors to fulfill the needs of end-user
customers.
The Company has a broad range of electronic security products and systems, and
the Company's customers in general are increasingly receptive to the Company's
ability to design, supply, install and service integrated security systems that
combine the technologies of the Company's various products and systems. The
Company supplies a substantial majority of the top 100 retailers in the world
and more than half of the global Fortune 500 companies use its products.
Marketing Strategy
The Company's principal marketing strategies are as follows:
1. Ultra-Max technology expansion
The Company's marketing and sales efforts are focused on offering choice to
retailers recognizing that there are different technologies for different
circumstances. Each technology has its advantages and disadvantages. While
Ultra-Max is the newest and fastest growing technology with broad utilization,
the Company's approach is to comply with the customer's choice.
2. Recurring label sales
The sale of EAS systems and devices to hard goods retailers has been growing
significantly in recent years and the Company believes that there is potential
for continued growth. Hard goods merchandise is protected with labels which
leave the store with the merchandise, representing a source of recurring
revenues to the Company. Labels may be self-adhesive, stick-on labels which are
attached to merchandise by the retailer or applied at the point of manufacture
or distribution.
3. Source tagging
The Company has formed relationships with manufacturers, packaging companies and
a number of its retail customers around the world, from virtually all retail
segments (including department stores, specialty apparel, discount, drug stores,
hypermarkets, food, multi-media, home improvement and automotive parts stores),
to apply EAS labels during manufacturing or packaging processes. Source tagging
is intended to help retailers increase product sales and profitability through
open merchandising and product exposure, reduce shrinkage, and reduce costs by
eliminating the need for sales associates to apply security tags and labels to
merchandise. Currently, nearly 800 vendors in the U.S. and approximately 1,800
worldwide participate in source tagging with the Company's EAS technologies. The
Company estimates that in fiscal 1998, these suppliers provided U.S. and
international retailers with more than 650 million source tagged items, which
represents 24% of total Company EAS label sales. To facilitate source tagging,
the Company has entered into technology licensing agreements with various label
manufacturers. This licensing is intended to provide customers with multiple
sources of EAS labels, and to increase the level of research and development
resources directed to these technologies. Source tagging programs at the Company
are expected to grow at a rapid pace in fiscal 1999.
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The increased utilization of source tagging is expected to result in increased
label sales and/or royalty income as well as increased system sales.
4. Licensing label production
The Company has entered into license agreements with leading label producing
companies to manufacture the Company's Ultra-Strip labels. The Company believes
its licensing programs will allow it to gain efficiencies in label
manufacturing, distribution and application for source tagging that are expected
to reduce the overall cost of source tagging programs to retailers and suppliers
as well as reduce the Company's capital investment in label manufacturing. These
programs are expected to result in a broader distribution of Ultra-Strip labels
and, therefore, facilitate the growth of Ultra-Max technology, as well as allow
Sensormatic to focus on systems and security solutions. Royalty fees to be paid
to the Company based on sales generated by the licensees will provide recurring
revenue to the Company.
5. Commercial/Industrial market
Through the C/I Worldwide operations, the Company intends to further gain market
share in the expanding commercial/industrial market. C/I Worldwide sales
personnel will continue to build the breadth and quality in its network of
dealers and distributors to sell and market the Company's broad portfolio of
products. In addition, the Company plans to focus on improving levels of
customer service and support to dealers and distributors. The foundation of the
Company's C/I Worldwide strategy is to provide high value products that easily
integrate to meet customer needs. It is the Company's objective to become the
sought after provider of products and services for commercial/industrial
customers.
SALES AND SERVICE ORGANIZATION
At June 30, 1998, the Company employed approximately 2,422 sales and customer
engineering personnel worldwide to market and service its products directly to
retail and commercial/industrial customers. In addition, the Company's products
are marketed and serviced by a large network of sales and customer engineering
personnel employed by dealers and distributors throughout the world. Sales and
service personnel are directed from offices located throughout the U.S. and in
more than 90 countries worldwide. The Company believes that a major factor in
its success has been the high quality of its extensive and experienced sales and
service organization.
The Company has organized its sales force into specialized sales groups to
market its systems to specific customer groups. For example, in addition to the
C/I Worldwide business unit and the Global Source Tagging Division, retail
specialized sales groups have been created to target the supermarket industry
and key soft goods retailers in the U.S. Similar specialized sales groups,
concentrating on self-service stores and hypermarkets, have been formed in
Europe. The Company will continue to specialize its sales force and believes
such specialization will accelerate its success in marketing to targeted user
groups and provide improved customer service. Approximately 400 personnel
employed in the U.S. commercial/industrial direct sales and service business
were transferred to the purchaser of such operations in September 1997. C/I
Worldwide has retained a smaller sales force which will support dealers and
distributors in promoting the Company's products and will engage in national
marketing.
BACKLOG
As of June 30, 1998 and June 30, 1997, the Company had a backlog of orders of
$53.5 million and $77.1 million, respectively. Backlog includes only expected
revenues from firm orders which are expected to be installed or delivered within
one year. The June 30, 1997 backlog included orders of $18.1 million for the
U.S. commercial/industrial direct sales and installation business which was sold
in September 1997. Backlog at any time is not necessarily indicative of the
level of business to be expected in the ensuing period.
SEASONAL ASPECT OF THE BUSINESS
Although the business of the Company is not necessarily seasonal, it has been
the Company's experience, with respect to its worldwide retail customers, that
new orders and installations generally decrease during the
8
<PAGE> 10
December through February period. The Company believes this is attributable to
the preoccupation of retail store management with the holiday selling season and
year-end inventory analysis during this period. Additionally, the traditional
European vacation period during the months of July and August results in a
general decline of new orders and installations during this period.
PATENTS AND RELATED RIGHTS
The Company owns or is the exclusive licensee of 246 active patents issued by
the U.S. Patent and Trademark Office (as well as 489 corresponding foreign
patents). These patents cover a variety of inventions and features, including
the Company's acousto-magnetic (Ultra-Max), electromagnetic, microwave, swept-RF
systems and CCTV systems. The Company has 96 patent applications pending in the
U.S. for various other inventions relating to its products. Patents
corresponding to many of the U.S. patents have been issued or are pending in
various foreign countries. There can be no assurance that any patents will be
issued to the Company on any of its pending applications. The Company is also a
non-exclusive licensee under certain patents issued in the U.S. and various
foreign countries relating to the manufacture, use and sale of certain labels
for use with its electromagnetic systems.
The Company 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 the Company's patent program is important, the Company believes that
because of its technical knowledge and experience, the abilities of its
established and experienced sales and service organization and its leadership
position in the industry, it is not dependent upon patent protection to maintain
its leadership in the electronic security industry.
SUPPLY CHAIN OPERATIONS AND DISTRIBUTION
The Company's major production facilities are located in Puerto Rico, Florida
and Ireland. The Company also has a manufacturing facility in Brazil.
Approximately two thirds of the Company's production takes place in its Puerto
Rico facility, which accounts for approximately 70% of the manufacturing
personnel. The Company's manufacturing operation in Cork, Ireland allows the
Company to manufacture a wide range of products closer to its large European
customer base.
The Company's strategy is to maintain critical manufacturing processes in-house
and to form alliances with independent manufacturing partners to produce its
products at the lowest possible cost. This in-house capability, combined with
such alliances, provides control over costs and quality, while increasing
responsiveness to the demands of the market which results in a distinct
competitive advantage. Independent suppliers provide various component products
and materials used to manufacture the Company's products, and also manufacture
certain component parts and label products to the Company's specifications.
Certain magnetic materials used in the manufacture of Ultra-Max labels and tags
are currently purchased from one or two suppliers. While there are potential
alternative sources of supply of such materials, the loss or disruption of one
or both of such existing suppliers could result in increased costs or product
shortages or otherwise materially adversely affect the Company's business. The
Company is seeking to develop alternative sources of supply for such materials.
A core supplier base of approximately 100 major suppliers has been established
worldwide to maintain a reliable flow of quality materials at the lowest
possible cost.
The Company has improved, and expects to continue to improve, its production
efficiencies and cost structures through new processes, increased automation and
improved product designs. Such improvements, particularly to increase capacity
and lower product costs of EAS products, have required additional capital
investment for new production equipment.
The Company continues to pursue a consolidation strategy for its warehousing and
distribution locations on a worldwide basis. This consolidation strategy
leverages the use of third party logistics service providers, enabling the
Company to capitalize on "best in class" logistics services and resources. These
consolidation
9
<PAGE> 11
efforts commenced at the beginning of fiscal year 1998 and will continue through
the upcoming fiscal year. The number of warehouses will be reduced significantly
during this timeframe.
COMPETITION
The electronic security industry continues to be highly competitive. There are
many alternatives available to protect people and assets, in addition to the use
of EAS, CCTV, and access control systems. These alternatives include, 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 the Company's knowledge, there are several other companies
that market EAS equipment to retail stores directly or through distributors,
such as Sentry Technology Corporation in the U.S., Checkpoint Systems, Inc. in
the U.S., Europe, Latin America and Asia and Esselte Meto and Nedap B.V. in
Europe, all of which are principal competitors of the Company. With respect to
CCTV system components and access control systems, there are numerous companies,
including Philips, Panasonic and Pelco, that market directly or through
distributors such equipment to both retail and non-retail customers. There are
many competing companies in the sale of access control systems, including
Cardkey Inc., Westinghouse Electronic Corporation, Northern Computers Inc. and
Casi-Rusco Inc.
The Company competes in marketing its systems and products principally on the
basis of product performance, multiple technologies, service and price. Price
competition has been especially intense in some market segments in recent years.
There can be no assurance that other firms with greater financial and other
resources may not enter into direct competition, or expand the scope of their
existing competition, with the Company, nor that new technologies will not be
developed and introduced into the market place, which could adversely affect the
Company's business.
SALES REVENUE
Direct Sales and Sales-Type Leases
The Company's sales revenues are predominantly generated by direct sales and
sales-type leases of new products and systems. Additionally, the Company
generates sales revenues by export sales of new products and systems to
distributors in foreign countries and through the sale of selected new equipment
to dealers and system integrators.
The Company sells its systems on a current, deferred or installment payment
basis. Substantially all deferred payment obligations are payable within one
year. Installment contract obligations are payable monthly over terms generally
up to five years. Both types of obligations are subject to stated or imputed
interest at prevailing market rates and are generally secured by the purchased
equipment. The Company's sales-type leases consist of non-cancelable leases of
new equipment generally with terms of 60 months or greater. The Company believes
that offering its customers flexible terms, including long-term financing, is an
advantageous competitive marketing program. For each of the three fiscal years
in the period ended June 30, 1998, no single customer accounted for 10% or more
of the Company's consolidated revenues.
Rental and Installation, Maintenance and Other Revenues
The Company also leases systems under non-cancelable operating leases. Such
leases are generally for terms of 36 to 54 months. Additionally, the Company
generates revenues from the installation, service and maintenance of its
systems.
WORKING CAPITAL ITEMS
The Company historically maintains a high level of accounts receivables and
sales-type leases outstanding, measured as a percentage of revenues. This
results, in part, from a key element of the Company's marketing strategy to
increase market penetration by providing alternative financing options to its
retail customers including deferred billing and long-term installment sales and
lease terms, resulting in extended accounts receivable recovery periods.
Additionally, the Company has experienced a historical pattern of delayed
payments by certain retail customers and, accordingly, the Company's levels of
receivables past due represent
10
<PAGE> 12
a relatively high percentage of total receivables. This strategy has given the
Company a competitive marketing program and has helped the Company penetrate
markets and increase customer loyalty and commitment to Sensormatic. The ability
to pursue such a strategy results from the Company's relatively high gross
profit margins and the financing programs the Company has put in place which
allow the Company to sell its customer receivables and leases.
PRODUCT RESEARCH, DEVELOPMENT AND ENGINEERING
The Company has increased its research, development and engineering expenditures
during the past decade. The increase in these activities has resulted in the
continued broadening of the systems and technology offered by the Company,
resulting in the expansion of the applications and customer base for the
Company's systems. New product development in all product categories continues
to be a high priority for the Company.
The Company has 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, digital signal processing and certain application
software development skills. Several of the Company's EAS systems depend on the
use of magnetic materials. Software is another major element in the Company's
new product designs and manufacturing processes. At June 30, 1998, the Company
employed a staff of 202 engineering professionals, including 78 with Masters and
Ph.D. degrees.
In fiscal 1998, 1997 and 1996, the Company incurred approximately $27.2 million,
$24.5 million and $27.7 million, respectively, for research, development and
engineering costs. The reduced level of spending in fiscal 1997 was the result
of planned consolidations and product rationalizations. During fiscal 1999, the
Company expects spending for research, development and engineering to be
approximately 15% higher than in fiscal 1998.
GOVERNMENTAL REGULATION
The sale and use of the Company's products are subject to regulation by
governmental authorities having jurisdiction over the sale and use of electronic
and communication equipment (i.e., the U.S. Federal Communications Commission
and like authorities in other countries) or health and safety standards (e.g.,
the U.S. Department of Health and Human Services). Such systems are in
compliance with currently applicable requirements and standards under the
regulations of government authorities in the U.S., in countries in which the
Company markets such products directly or through its subsidiaries and in many
other countries. In particular, EMF emissions from the Company's EAS systems are
within the levels permitted by the current U.S. safety standards applicable to
such equipment. Although there can be no assurance that rules or regulations
establishing more restrictive standards will not be adopted in the U.S., the
Company believes that the EMF levels generated by its EAS systems will remain
within any such new safety standards which may be established. In addition, in
view of the Company's high level of business activity in the EU, the Company
actively participates in the development of evolving technical standards issued
by CENELEC and ETSI. As of January 1, 1996 new standards were required to be met
to apply the CE Mark to market products in the EU, and the Company certified its
products to the CE Mark requirements. Meeting CE Mark requirements includes
meeting standards established by CENELEC, ETSI and other standards-setting
organizations. Such standard-setting organizations are continually considering
the establishment of new standards and reconsidering existing standards,
including health and safety standards. There can be no assurance that adverse
changes or amendments to existing regulations or standards, or new adverse
regulations or standards, will not be adopted, or that all products of the
Company subject to regulations or standards will meet the requirements of all
such regulations and standards in all countries in which the Company desires its
products to be marketed.
The Federal Food and Drug Administration ("FDA") has been conducting studies
into the effects of various devices such as airport metal detectors, store
security systems and some cellular telephones on implantable medical devices.
The Company is also aware of studies as to whether any hazards are posed to
wearers of implantable medical devices by a number of devices, including EAS
systems. While the Company believes there to be substantial evidence that no
health hazard is posed by the interactions between the Company's
11
<PAGE> 13
EAS systems and such medical devices, and has presented such evidence to the
FDA, and offers such evidence to persons conducting such studies, there can be
no assurance that one or more of such studies will not result in the publication
of an adverse report, the recommendation of precautionary measures and/or the
adoption of regulations which could adversely affect the Company. The Company is
also aware of attempts by one of its competitors to generate adverse publicity
regarding this issue. There can be no assurance that such attempts will not
adversely affect the Company.
EMPLOYEES
As of June 30, 1998, the Company employed approximately 5,800 persons worldwide.
The Company had announced plans to reduce its workforce by approximately 1,200
employees in connection with the divestment of non-core businesses and
cost-reduction plans. As of June 30, 1998, the net work force reduction was more
than 700 employees from June 30, 1997 levels pursuant to such plans, with a
major portion of such reduction resulting from the sale of the U.S.
commercial/industrial sales and installation business. The Company also uses
temporary staff, particularly in manufacturing areas, to balance workload during
peak periods.
ITEM 2. PROPERTIES
Domestically, the Company owns or leases facilities in Florida, Puerto Rico,
California, Massachusetts, and New York for executive, marketing, product
development, manufacturing and warehousing activities. The Company also leases
space in various locations throughout the U.S. for sales and customer
engineering offices and warehouse space in order to most effectively serve its
customers.
The Company's international subsidiaries own or lease office and warehouse space
for their operations. The principal facilities are located in Argentina,
Australia, Belgium, Brazil, Canada, France, Germany, Ireland, Italy, Mexico, The
Netherlands, Singapore, Spain, Sweden and the U.K.
Previously, the Company maintained its corporate headquarters, primary U.S.
operations and research and development activities in Deerfield Beach, Florida,
where the Company owned three buildings. During fiscal 1996 and 1997, the
Company relocated its corporate headquarters, U.S. operations, research and
development activities and U.S. repair center operations from its Deerfield
Beach facilities to Boca Raton, Florida, where it currently owns two buildings.
As of June 30, 1998, all of the Deerfield Beach facilities have been sold.
The Company considers its key properties identified above as suitable to its
business and, in general, adequate for its current and near-term needs. All such
properties are fully utilized, except as discussed above.
ITEM 3. LEGAL PROCEEDINGS
The following summarizes legal proceedings against the Company that were settled
or terminated during the fourth quarter of fiscal 1998.
The action filed against the Company and certain of its current and former
directors and officers, on or about July 3, 1996, in the United States District
Court for the Northern District of Illinois, entitled Gilford Partners, L.P. v.
Sensormatic Electronics Corp., et al., 96 Civ. 4072, was dismissed by the Court
in July 1998. The dismissal was pursuant to defendant's previously filed motion
to dismiss in light of the injunction against litigation entered by the United
States District Court for the Southern District Court of Florida in connection
with the settlement of the consolidated shareholder class action entitled
Ehrenreich, et al. v. Sensormatic Electronics Corporation, et al. The settled
actions had been filed against the Company and certain of its current and former
directors and officers following announcements by the Company that earnings for
the quarter and year ended June 30, 1995 would be substantially below
expectations, that the scope of the Company's year-end audit for fiscal 1995 had
been expanded and results for the third quarter of fiscal 1995 had been
restated.
The Company has reached an agreement in principle for the settlement of the
three derivative actions filed against certain directors and former directors of
the Company in the Court of Chancery of the State of Delaware by Marion Lord and
Norman Rabinstein, Harry Lewis, and Alan Freberg on or about September 7,
September 13 and September 14, 1995. These actions arose out of alleged
statements and omissions regarding,
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<PAGE> 14
among other things, the Company's financial results and accounting practices for
the fiscal period ended on June 30, 1995, and prior periods, that were also
generally the subject of the Ehrenreich action referred to above. The settlement
provides, among other things, for the payment of plaintiff's legal fees in an
amount that would not be material. The agreement in principle is subject to
final documentation and Court approval.
The complaint in the action entitled Wolf v. Ronald G. Assaf, et al., C.A. No.
15339, filed on November 13, 1996 against the Company and certain members of its
Board of Directors in the Court of Chancery of the State of Delaware,
challenging the adequacy of the disclosures in the Company's September 30, 1996
proxy statement, was dismissed by the Court in June 1998.
The action filed against the Company and certain of its officers and directors
in the United States District Court for the Southern District of Florida, Miami
Division by Reliance Insurance Company ("Reliance") in May 1997, Case No.
97-8364, was settled in April 1998. Reliance was an excess directors and
officers liability insurance carrier of the Company for the period December 15,
1994 to December 15, 1995. Pursuant to the Reliance settlement, Reliance has
paid $10.0 million in connection with, among other things, the settlement of the
Ehrenreich shareholder class action and the derivative actions referred to
above.
The Company has reached an agreement in principle to settle the action filed by
Federal Insurance Company ("Federal"), the other excess directors and officers
liability insurance carrier of the Company for the period December 15, 1994 to
December 15, 1995, against the Company and certain of its current and former
directors and officers in the United States District Court for the Southern
District of Florida, Miami Division in July 1997, Case No. 97-8560. The
agreement in principle, which is subject to final documentation, provides for
the payment by Federal of $6.25 million in settlement of its insurance
obligations in connection with, among other things, the settlements of the
shareholder class actions and derivative action referred to above.
Pursuant to the Company's agreement with certain of its current and former
directors and officers, certain of such insurance proceeds will be held in
escrow for the benefit of such directors and officers to satisfy any claims they
may have that were covered under such policies, with any balance in such escrow
account thereafter being paid over to the Company.
The above actions were described in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1997, as updated by the Quarterly Reports on Form
10-Q for the quarters ended September 30 and December 31, 1997 and March 31,
1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information as of September 22, 1998 with respect
to the executive officers of the Company.
<TABLE>
<CAPTION>
OFFICER
NAME AGE SINCE POSITION
- ---- --- ------- --------
<S> <C> <C> <C>
Robert A. Vanourek................ 56 1995 President and Chief Executive Officer
Kenneth W. Chmiel................. 54 1997 Senior Vice President of Supply Chain Operations
Olin S. Giles..................... 57 1985 Senior Vice President and Chief Technical Officer
Jerry T. Kendall.................. 55 1993 Senior Vice President and President of North America
Retail Operations
Garrett E. Pierce................. 54 1996 Senior Vice President, Chief Administrative Officer
and Chief Financial Officer
Ronald F. Premuroso............... 44 1996 Senior Vice President and President of Europe Retail
Operations
Walter A. Engdahl................. 60 1992 Vice President -- Corporate Counsel and Secretary
</TABLE>
13
<PAGE> 15
The terms of office of each of the officers, pursuant to the By-Laws of the
Company, will continue until the next Annual Meeting of the Board of Directors
(to be held after the next Annual Meeting of Stockholders) and until a successor
is elected and qualified.
Robert A. Vanourek joined the Company as President and Chief Operating Officer
in October 1995 and on August 12, 1996 became President and Chief Executive
Officer. Prior to joining the Company, Mr. Vanourek was President and Chief
Executive Officer of Recognition International, Inc. ("Recognition"), an
international provider of document processing hardware, software and services.
Prior to joining Recognition, he spent eight years at Pitney Bowes, including
four years as Group Vice President. Prior to that, he had positions with Avery
Dennison Corporation and Couroc Corporation.
Kenneth W. Chmiel joined the Company in July 1997 as Senior Vice President of
Supply Chain Operations and is responsible for managing product manufacturing
and distribution. Prior to joining the Company, Mr. Chmiel served as Executive
Vice President and Chief Operating Officer of Amerail/Morrison Knudsen
Corporation's Transit Systems Group from 1993, and as Executive Vice President
of the Rail Systems Group from 1990. From 1973 to 1989, Mr. Chmiel held a number
of different management positions with Allied Signal.
Olin S. Giles was appointed Vice President of Engineering in May 1985, then
served as Vice President of Operations from July 1987 to October 1988, when he
was then re-appointed as Vice President of Engineering. In March 1996, Mr. Giles
was appointed Senior Vice President and Chief Technical Officer of the Company.
Prior to joining the Company, Mr. Giles served for over 20 years in a number of
management positions with General Electric Company.
Jerry T. Kendall joined Sensormatic as Senior Vice President -- Sales, Marketing
and Service of Security Tag Systems, Inc., which was acquired by the Company
during fiscal 1993, and was appointed Vice President of Marketing in September
1993. In 1996, Mr. Kendall was appointed Vice President, North America Retail
Operations, with responsibilities to lead the retail business unit field sales,
service and administrative organization in the U.S. and Canada. In July 1997,
Mr. Kendall was appointed Senior Vice President and President of North America
Retail Operations.
Garrett E. Pierce joined the Company as Senior Vice President and Chief
Financial Officer in January 1996. He was named Chief Administrative Officer in
July 1998. Prior to joining the Company, Mr. Pierce was the Executive Vice
President and Chief Financial Officer of California Microwave, Inc., a leading
supplier of microwave, radio frequency, and satellite systems and products for
communications and wireless networks. From 1980 to 1993, Mr. Pierce was with
Materials Research Corporation, a leading provider of thin film equipment and
material technology to the semiconductor, telecommunications and media storage
industries, where he progressed from Chief Financial Officer to President and
Chief Executive Officer. Materials Research Corporation was acquired by Sony
Corporation as a wholly-owned subsidiary in 1989. From 1972 to 1980, Mr. Pierce
held various management positions with Allied Signal.
Ronald F. Premuroso was the Managing Director of the Asia Pacific Operations
from 1989 to 1992 and Vice President of the Asia Pacific Operations from 1992 to
1996. In 1996, Mr. Premuroso was appointed Vice President of International
Retail Operations with responsibility to lead the retail business unit field
sales, service and administrative organizations in Asia Pacific, the Middle
East, Africa and Latin America. In July 1997, Mr. Premuroso was appointed Senior
Vice President and President of the International Retail Operations. In April
1998, Mr. Premuroso was appointed Senior Vice President and President of Europe
Retail Operations.
Walter A. Engdahl was appointed Vice President -- Corporate Counsel of the
Company in February 1992 and became Secretary of the Company in 1993. He is a
member of the Bars of both Florida and New York.
None of the above executive officers has any family relationship with any other
director or executive officer of the Company.
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<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol SRM. The following table sets forth for the periods indicated,
the range of the high and low sales prices per common share:
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C> <C> <C>
FISCAL 1998:
First Quarter............................................. $14 3/8 $12 3/8
Second Quarter............................................ 17 13 9/16
Third Quarter............................................. 19 5/8 16 5/16
Fourth Quarter............................................ 16 15/16 12 9/16
FISCAL 1997:
First Quarter............................................. $19 3/4 $13 7/8
Second Quarter............................................ 21 1/8 12 11/16
Third Quarter............................................. 18 14 1/2
Fourth Quarter............................................ 17 1/2 12 7/8
</TABLE>
As of September 22, 1998, there were 4,344 shareholders of record of the
Company's Common Stock.
The Company did not pay any dividends on the Common Stock during fiscal 1998.
Certain of the Company's financial agreements currently prohibit the payment of
cash dividends until after the preparation of its audited financial statements
for fiscal 1999, and, it is unlikely that the Company would be able to pay cash
dividends until after the preparation of its audited financial statements for
fiscal 2000 at the earliest. The Company intends to pay dividends on the
Preferred Stock with shares of its Common Stock prior to the time it is able to
pay such cash dividends. The Company did pay a quarterly cash dividend of $.055
per common share during fiscal 1997.
On April 13, 1998, 6,900,000 Depositary Shares were issued by the Company, each
representing a one-tenth interest in a share of Preferred Stock (See Note 10 of
Notes to Consolidated Financial Statements for further details). The aggregate
gross proceeds of the April 13, 1998 Offering were $172.5 million, and the net
proceeds thereof, after deduction of discounts and commissions of $0.75 per
depositary share and estimated expenses of $650,000, were approximately $166.7
million. Such proceeds were used to repay borrowings under the Company's
revolving credit facility, to fund the remaining balance due under the
settlement of the shareholder class action (see Note 13 of Notes to Consolidated
Financial Statements for additional information) and for working capital and
general corporate purposes. The Company has filed a registration statement on
Form S-3 with respect to the Depositary Shares, the Preferred Stock and Common
Stock issuable.
Pursuant to the terms of the Preferred Stock, the Company also issued
approximately 189,425 shares and will issue approximately 348,289 shares of
common stock in payment of the dividends payable on July 1, 1998 and October 1,
1998, respectively. (Registration of these shares is not required because no
additional consideration was paid therefor.) The resale of these shares will
also be covered by the registration statement.
15
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA AND QUARTERLY SUMMARY AND STATISTICAL
INFORMATION
SELECTED FINANCIAL DATA
(in millions, except per share amounts)
<TABLE>
<CAPTION>
1998(1) 1997(1) 1996(1) 1995(5) 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
YEAR ENDED
Total revenues............................... $ 986.9 $1,025.7 $ 994.6 $ 889.1 $ 656.0
======== ======== ======== ======== ========
Operating income (loss)...................... $ 32.8 $ 2.1 $ (134.5) $ 97.9 $ 104.8
======== ======== ======== ======== ========
(Loss) income from continuing operations..... $ (37.1) $ (21.4) $ (97.7) $ 69.6 $ 72.1
======== ======== ======== ======== ========
Net (loss) income............................ $ (37.1) $ (21.4) $ (97.7) $ 73.7 $ 72.1
======== ======== ======== ======== ========
Basic (loss) earnings per common share:
Continuing operations...................... $ (0.50) $ (0.29) $ (1.33) $ 0.98 $ 1.20
======== ======== ======== ======== ========
Net (loss) income............................ $ (0.50) $ (0.29) $ (1.33) $ 1.04 $ 1.20
======== ======== ======== ======== ========
Diluted (loss) earnings per common share:
Continuing operations...................... $ (0.50)(2) $ (0.29)(2) $ (1.33)(2) $ 0.96 $ 1.13
======== ======== ======== ======== ========
Net (loss) income............................ $ (0.50)(2) $ (0.29)(2) $ (1.33)(2) $ 1.02 $ 1.13
======== ======== ======== ======== ========
Cash dividends per common share.............. $ -- $ 0.22 $ 0.22 $ 0.22 $ 0.21
======== ======== ======== ======== ========
AT YEAR-END
Total assets................................. $1,802.4 $1,646.6 $1,621.3 $1,570.9 $1,155.5
======== ======== ======== ======== ========
Total debt................................... $ 548.7 $ 523.3 $ 516.5(4) $ 326.7 $ 219.2
======== ======== ======== ======== ========
Total stockholders' equity................... $ 897.6(3) $ 772.9 $ 831.7 $ 952.7 $ 727.7(4)
======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Includes the following pre-tax charges:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- ------
<S> <C> <C> <C>
Restructuring............................................... $29.2 $26.8 $ 85.3
Special..................................................... 13.8 22.1 100.7
Litigation settlement, net.................................. 45.7 -- --
----- ----- ------
$88.7 $48.9 $186.0
===== ===== ======
</TABLE>
(2) Amounts are not adjusted as the effect is anti-dilutive.
(3) In fiscal 1998, the Company issued 6 1/2% Convertible Preferred Stock for
net proceeds of $166.7.
(4) In fiscal 1996, the Company issued $350.0 Senior Notes (see Note 9 of Notes
to Consolidated Financial Statements); in fiscal 1994, approximately $114.0
of the $114.2 issued of 7% convertible subordinated debentures at June 30,
1993, were converted to approximately 7.3 million shares of Common Stock.
(5) In fiscal 1995, the Company acquired Knogo Corporation's operations
primarily in Europe and Australia.
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<PAGE> 18
QUARTERLY SUMMARY AND STATISTICAL INFORMATION (UNAUDITED)
(In millions, except per share amounts)
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
- ------------- ------------- ------------ --------- --------
<S> <C> <C> <C> <C>
1998(1)(2)
Total revenues.................................... $245.4 $243.7 $237.0 $260.8
Operating income (loss)........................... $(30.1) $ 19.2 $ 20.9 $ 22.8
Net income (loss)................................. $(65.9) $ 5.4 $ 13.0 $ 10.4
Basic and diluted earnings (loss) per common
share.......................................... $(0.89) $ 0.07 $ 0.18 $ 0.14
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
- ------------- ------------- ------------ --------- --------
<S> <C> <C> <C> <C>
1997(3)
Total revenues.................................... $246.0 $256.6 $250.1 $273.0
Operating income (loss)........................... $ 10.9 $ 17.3 $ 15.0 $(41.1)
Net income (loss)................................. $ 2.1 $ 6.1 $ 5.8 $(35.4)
Basic and diluted earnings (loss) per common
share.......................................... $ 0.03 $ 0.08 $ 0.08 $(0.48)
</TABLE>
- ---------------
(1) Includes pre-tax restructuring charges of $29.2 and special charges of
$13.8, recorded in the first quarter. The restructuring charges were
allocated to the geographic areas of North America & Other for $4.5 and
Europe for $24.7. The special charges were allocated to the geographic areas
of North America & Other for $7.1 and Europe for $6.7.
(2) Includes a pre-tax litigation settlement charge of $53.0 recorded in the
first quarter, and a litigation insurance recovery of $7.3 recorded in the
third quarter.
(3) Includes pre-tax restructuring charges of $26.8 and special charges of
$22.1, recorded in the fourth quarter. The restructuring charges were
allocated to the geographic areas of North America & Other for $23.9 and
Europe for $2.9. The special charges were allocated to the geographic areas
of North America & Other for $7.0 and Europe for $15.1.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with the consolidated
financial statements.
RESULTS OF OPERATIONS
OVERVIEW
Consolidated revenues decreased 4% to $986.9 million in fiscal 1998 versus
$1,025.7 million in fiscal 1997, as compared to an increase of 3% in fiscal 1997
versus fiscal 1996. Reported revenues for fiscal 1998 declined due to the
strengthening of the U.S. dollar against European and Asian currencies, along
with the disposition of non-core businesses. Excluding these effects, fiscal
1998 revenues increased 8% on a comparable basis to fiscal 1997. By business
unit comparable basis, fiscal 1998 revenues increased 14% in North America
Retail, 2% in Europe Retail, 18% in International Retail and 5% in C/I Worldwide
as compared with fiscal 1997.
Results of operations reflected operating income of $32.8 million in fiscal 1998
versus $2.1 million in fiscal 1997 and a loss from operations of $134.5 million
in fiscal 1996. The Company reported a net loss of $37.1 million, or a per share
loss of $.50, in fiscal 1998, versus a loss of $21.4 million, or a per share
loss of $.29, in fiscal 1997 and a net loss of $97.7 million, or a per share
loss of $1.33, in fiscal 1996. The Company's results for fiscal 1998, 1997 and
1996 include the effects of restructuring charges of $29.2, $26.8 and $85.3,
respectively, special charges of $13.8, $22.1 and $100.7, respectively, and net
litigation settlement charges in fiscal 1998 of $45.7, on a pre-tax basis. See
"Restructuring, Special Charges and Net Litigation Settlement Charges" below and
Notes 2 and 13 of Notes to the Consolidated Financial Statements for further
discussion.
17
<PAGE> 19
The following table presents earnings, both as reported and excluding
restructuring, special charges and net litigation settlement charges, for fiscal
1998 as compared to fiscal 1997 and fiscal 1996 (in millions, except per share
amounts):
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- --------------------
AS EXCLUDING AS EXCLUDING AS EXCLUDING
REPORTED CHARGES REPORTED CHARGES REPORTED CHARGES
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Operating Income (Loss)................. $ 32.8 $ 75.8 $ 2.1 $ 51.0 $(134.5) $ 51.5
Net (Loss) Income....................... $(37.1) $ 24.6 $(21.4) $ 13.2 $ (97.7) $ 20.5
(Loss) Earnings Per Share............... $ (.50) $ .33 $ (.29) $ .18 $ (1.33) $ .28
</TABLE>
RESTRUCTURING AND SPECIAL CHARGES, NET LITIGATION SETTLEMENT CHARGE AND OTHER
STRATEGIES
Sensormatic has grown from a single technology, single market company to a
global provider of multiple electronic security solutions with revenues of
nearly $1 billion in fiscal 1998. This growth was attained principally through
internally developed new products, various strategic acquisitions and increased
market penetration in existing and new markets. The rapid growth experienced by
the Company in sales, customers and product diversity and the demands of
integrating acquired businesses outpaced the Company's growth in corporate
infrastructure and systems. In addition, expenses and working capital
requirements increased to unacceptable levels. Consequently, in fiscal 1996, the
Company launched a strategic restructuring plan with the following objectives:
(i) expense reduction and asset control, (ii) improved processes and systems,
and (iii) quality, sustainable growth.
The initial phase of this plan included an extensive and systematic review of
the Company's operations, cost structure and balance sheet aimed at reducing its
operating expenses and manufacturing costs while increasing efficiencies. This
review of the Company's global operations focused primarily on operational
systems, organizational structures, facilities utilization, product
rationalization, quality improvements, inventory levels and accounts receivable
balances and related collection efforts. In fiscal 1996, as a result of the
above initiatives, the Company recorded restructuring and special charges
totaling $186.0 million with an after-tax impact of $118.2 million. This pre-tax
charge included $85.3 of restructuring charges and $100.7 of special charges.
At the end of fiscal 1997, the Company announced further restructuring actions
which included the divestiture of non-core businesses and additional
cost-reduction plans, which mainly included staff reductions within its European
operations, and special charges principally for increases to the valuation
allowances for accounts receivable, receivables financed with third parties, and
other matters. These recent actions resulted in total restructuring and special
charges of $91.9 million with an after-tax impact of $64.7 million. In fiscal
1997, the Company recorded $48.9 million of these pre-tax charges and recorded
the remaining $43.0 million in the first quarter of fiscal 1998. These pre-tax
charges included $29.2 and $26.8 of restructuring charges and $13.8 and $22.1 of
special charges for fiscal 1998 and 1997, respectively.
Restructuring Charges
As a result of its 1996 restructuring plan, the Company instituted a major
reorganization of its business units. The principal objective of the
reorganization was to improve market focus, customer service and product quality
while reducing costs and eliminating redundancies. Related to the fiscal 1996
restructuring plan, the Company planned for the reduction of 875 people and the
sale, disposal or termination of lease arrangements of 30 locations, principally
in the U.K. and U.S. All planned terminations have been completed and more than
one-half of the facilities have been eliminated or subleased. The Company also
reviewed its existing product lines and product sourcing to discontinue
marginally profitable products and outsource other products.
The fiscal 1996, pre-tax restructuring charges were $85.3 million (of which
$19.6 million was recorded in "costs of sales") and the related estimated cash
outlay was $33.3 million. Upon completion of the restructuring activities,
anticipated savings in operating expenses and manufacturing costs are estimated
to be $44 million. To date, the savings realized as a result of this plan have
been partially offset by reinvestment in the Company's business, including costs
associated with the addition of approximately 250 employees in strategic growth
and key technical areas, the new enterprise-wide management information system
and
18
<PAGE> 20
additional consultants, and by increased legal fees relating principally to
then-pending litigation and government investigations including the matters
referred to under Legal Proceedings of Item 3. These savings were also partially
reflected as reductions in manufacturing costs which have helped to generally
maintain gross profit margins in the face of intense price competition.
In fiscal 1997, the Company continued to review its organization to improve
market focus and customer service as well as reduce costs. Accordingly, the
Company announced additional restructuring activities in fiscal 1997 which
include the divestiture of non-core businesses and workforce reductions,
principally in its European operations. The principal non-core business divested
by the Company was its U.S. commercial/ industrial direct sales and installation
business which was sold in September 1997. The Company elected to exit this
commercial/industrial direct sales and installation activity due to market
conflicts with its indirect sales channels (dealers and distributors). This
strategic decision allows the Company to focus on partnering with dealers and
distributors to promote products in the commercial/industrial division. In
connection with this restructuring plan, the Company has planned for the
reduction in workforce of approximately 1,200 positions, of which 600 relate to
the divestiture of non-core businesses and the remaining positions principally
represent the termination of administrative personnel. As of June 30, 1998,
approximately 900 positions had been eliminated, including the positions
associated with the divested business units. The pre-tax restructuring charges
related to this restructuring plan were $56.0 million of which $26.8 million
(including $4.2 million recorded in "costs of sales") was recorded in the fourth
quarter of fiscal 1997 and the remainder of $29.2 million was recorded in the
first quarter of fiscal 1998. Total cash outlay related to this restructuring
plan, net of expected proceeds from the divestiture of non-core businesses, was
estimated to be $30 million. As of June 30, 1998, $11.8 million had been
disbursed, offset by $8.2 million of proceeds received from the sale of non-core
businesses. Upon completion of the planned restructuring activities, the Company
expects annualized savings of approximately $50 million.
The most significant portion of the savings from restructuring (approximately
58% or approximately $53.8 million) was expected to result from involuntary
employee terminations. In the fiscal 1996 charge the Company planned for
involuntarily termination of 875 employees. Approximately 63% of these employees
were in Europe. These terminations were completed as of March 31, 1997. In the
fiscal 1998 charge, the Company planned for the involuntary termination of 600
employees (excluding an additional 600 employees that would leave the Company's
employment upon the disposition of non-core businesses). Approximately 44% of
these employees were in Europe. Worldwide, through June 30, 1998, 344 employees
have been involuntarily terminated. Of the remaining employees, 150 are
scheduled to be terminated by September 30, 1998, and the rest will be
terminated shortly thereafter. The realized savings in the U.S. are consistent
with those originally expected. In Europe, realized and expected savings from
yet to be completed involuntary terminations of employees, are expected to
produce the savings initially contemplated.
In general, the involuntary terminations of employees in Europe is a lengthy
process because of the individual administrative process which needs to be
followed in each country. In addition, as a result of successive changes in
European management, implementation of the European restructuring plan has been
delayed. While the speed of execution is slower than originally anticipated, no
changes have been made to the original restructuring plan. The Company is
proceeding with the remaining involuntary employee separations and location
consolidations and expects these to be substantially completed by September 30,
1998 or shortly thereafter.
Special Charges
In fiscal 1996, as part of the Company's plan to focus on asset management and
review its balance sheet in view of the then existing business environment, the
Company performed an extensive review of the collectibility of accounts
receivable, including off-balance sheet receivables. This initiative was
primarily the result of the overall weakening in the retail industry following a
poor holiday season. In addition, several commercial/industrial and retail
customers had filed for bankruptcy and other customers experienced financial
difficulties. The Company also conducted a review of slow moving and potentially
obsolete inventory in light of softening demand for certain EAS products.
19
<PAGE> 21
As a result of these reviews, the Company recorded a charge to operations of
$100.7 million in fiscal 1996, which primarily represented increases in the
valuation allowances for doubtful accounts receivable and inventories. Of this
amount, $55.8 million related to receivables, $25.1 million related to
inventories and revenue equipment, and $19.8 million related to employee
separation, warranty and certain distributor/contract resolution costs.
In fiscal 1997 and 1998, the Company recorded additional special charges of
$22.1 million and $13.8 million, respectively, which principally represent
increases to valuation allowances for accounts receivable, receivables financed
with third parties, inventory, employee separation and other matters.
Net Litigation Settlement Charge
In November 1997, the Company reached an agreement to settle a series of class
action lawsuits filed during fiscal 1995. The class action stockholder lawsuit
challenged the Company's prior revenue recognition practices in fiscal 1995 and
earlier. The terms of the agreement provide for an approximately $53.5 million
settlement payment. The Company recorded a net pre-tax charge of $53.0 million
with an after-tax effect of $37.1 million in the first quarter of fiscal 1998.
The Company also recovered a portion of the settlement amount and related
expenses from its primary directors and officers liability insurance policy,
which has a policy limit of $10.0 million, and has also been paid an amount
equal to the policy limit of $10.0 million by one of its two excess directors
and officers liability insurers pursuant to a settlement. The Company recorded a
net pre-tax insurance recovery of $7.3 million with an after-tax effect of $5.6
million in the third quarter of fiscal 1998. In addition, subsequent to June 30,
1998, the Company has reached an agreement in principle, subject to final
documentation, with its other excess insurance carrier providing for the payment
by the carrier of $6.25 million in settlement of its insurance obligations in
connection with, among other things, settlement of the above class action. Once
the documentation is finalized, the Company will record the related insurance
recovery.
Other Strategies
To assist with the Company's restructuring plan objective to improve processes
and systems, the Company has embarked upon a process improvement and total
quality management program internally referred to as "Q(3)". The program's
objective is to provide superior value for customers, shareholders and
employees. Q(3) is a multi-year effort in which the Company will reengineer the
way it operates enterprise-wide. The program will also establish a culture of
"continuous improvement" in all of the Company's business processes to reduce
cost and increase customer satisfaction. In connection with this program, the
Company has committed to the implementation of a new enterprise-wide management
information system and an extensive internal training program, both of which are
expected to significantly enhance operational efficiencies and improve customer
service.
RESULTS OF OPERATIONS -- FISCAL 1998 COMPARED TO FISCAL 1997
Except as otherwise indicated, the following discussion of operating results
excludes the effects of the restructuring and special charges and the net
litigation settlement charges recorded in fiscal 1998 and 1997, which were
discussed above.
Revenues
Revenues for fiscal 1998 decreased 4%, or $38.8 million, over fiscal 1997.
Fiscal 1998 results were negatively affected by the strengthening of the U.S.
dollar against currencies in Europe and Asia and the related impact of foreign
currency fluctuations, resulting in a reduction in revenues of approximately
$38.4. Fiscal 1998 revenues also reflect the decline in revenues of certain
non-core businesses, principally the U.S. commercial/ industrial direct sales
and service business which was sold in September 1997. Excluding the effects of
the strengthening of the U.S. dollar against currencies in Europe and Asia and
the divestiture of non-core businesses, fiscal 1998 revenues increased
approximately 8%.
Consolidated revenues for the EAS product lines remained relatively unchanged
from fiscal 1997. However, Ultra-Max revenues increased 19% in fiscal 1998 as
compared to fiscal 1997. Unit level volume for source
20
<PAGE> 22
tagging, which is based on Ultra-Max technology, increased by approximately 50%
in fiscal 1998 as compared to fiscal 1997, resulting in sales of more than 650
million labels. The increase in Ultra-Max revenues was partially offset by
declines in other EAS system revenues, principally the SensorStrip Checkout
systems. Revenues from SensorStrip Checkout systems, principally sold in Europe,
decreased 21% from fiscal 1997 where they were negatively affected by the
strengthening of the U.S. dollar against most European currencies and market
saturation in certain countries.
Overall CCTV revenues decreased 6% in fiscal 1998 as compared to fiscal 1997. A
significant percentage of CCTV revenues and nearly all of Access Control
revenues are generated by C/I Worldwide which was negatively impacted in fiscal
1998 by the decline in revenues partially due to the divestiture of a non-core
business. Due to channel conflicts, the Company made a strategic decision to
exit the commercial/industrial direct sales and service business in the U.S. and
partner with its dealers and distributors to promote its products in the
commercial/industrial markets and thereby lower its distribution and
installation costs. The Company's U.S. commercial/industrial direct sales and
service business, which had fiscal year 1997 revenues of approximately $80
million, was sold to Security Technologies Group, Inc. ("STG"). The Company also
agreed in such transaction to sell to STG the Company's monitoring business, the
sale of which was consummated in October 1997. Installation and product revenues
from the divested business unit were approximately $11.4 million in fiscal 1998.
North America Retail revenue for fiscal 1998 increased 11% versus fiscal 1997.
EAS market penetration increased in the following market segments: music,
discounters, mass merchants, automotive, office supply, home centers, video and
shoes. Excluding the effect on revenues of a divested non-core business, North
America Retail revenues increased 14% in fiscal 1998 as compared with fiscal
1997.
Europe Retail revenues decreased 7% in fiscal 1998 as compared to fiscal 1997.
Excluding the effect of exchange due to foreign currency fluctuations, Europe
Retail revenues increased 2% in fiscal 1998 as compared with fiscal 1997. The
Company expects Europe Retail revenues to remain flat through fiscal 1999. The
Company believes that Europe Retail's results during fiscal 1998 were negatively
impacted by a shift from direct sales to indirect sales, a decrease in sales to
low end users and increased competition.
International Retail revenues, which includes Latin America, Asia Pacific and
the Middle East, increased 12% in fiscal 1998 as compared to fiscal 1997. The
increase in International Retail was largely due to Latin America revenues which
increased by 30% in fiscal 1998 as compared to fiscal 1997. Beginning in the
second quarter of fiscal 1998, Asia Pacific revenue growth was negatively
impacted by the Asian currency volatility. The Company expects this trend to
continue into fiscal 1999. Excluding the effect of acquisitions and currency
effects, International Retail revenues for fiscal 1998 increased 18% as compared
to fiscal 1997.
Revenues generated by C/I Worldwide decreased by 24% in fiscal 1998 as compared
to fiscal 1997. The decrease in revenues is principally due to the divestiture
referred to above in September 1997 of the U.S. commercial/industrial direct
sales and service business. Excluding the effect on revenues of this divested
non-core business and foreign exchange, C/I Worldwide indirect revenues
increased 5% in fiscal 1998 as compared to fiscal 1997.
Gross Margins and Operating Income
Before restructuring and special charges, gross margins were 45.1% for fiscal
1998 compared with 45.6% for fiscal 1997. The decrease in gross margin
percentages reflect pricing pressures in some market segments for retail article
protection equipment, partially offset by savings from cost reduction efforts.
Excluding restructuring and special charges, operating income for fiscal 1998
was $75.8 million or 7.7% of total revenue, versus $51.0 million or 5.0% of
total revenue in fiscal 1997.
Selling, General and Administrative Expenses
Excluding special charges, total selling, general and administration expenses,
as a percentage of total revenues, were 30.1% in fiscal 1998 versus 33.8% in
fiscal 1997. The decrease in expenses as a percentage of revenue for fiscal 1998
reflects the benefit from cost reduction efforts resulting from the
restructuring actions previously discussed. The remaining decrease in expenses
as a percentage of revenues for fiscal 1998 reflects the
21
<PAGE> 23
divestiture of the U.S. commercial/industrial direct sales and service business
which typically had a higher operating expense level in relation to revenues.
Provision for Doubtful Accounts
Excluding special charges, provision for doubtful accounts, as a percentage of
total revenues, was 2.4% and 2.6% in fiscal 1998 and 1997, respectively.
Research, Development and Engineering Expenses
Research, development and engineering expenses increased to 2.8% of revenue in
fiscal 1998 versus 2.4% in fiscal 1997. Research, development and engineering
spending has increased as a percentage of revenues as compared to the prior year
due to the Company's increased focus on new product development in all product
categories. New product development continues to be a high priority of the
Company, and the Company expects fiscal 1999 spending levels for research,
development and engineering to be approximately 15% higher than in fiscal 1998.
Other (Expenses) Income
Non-operating expenses, which include interest expense and interest income,
increased from $32.4 million in fiscal 1997 to $41.2 million in fiscal 1998. The
increase is principally due to an increase in interest expense due to higher
average debt levels in fiscal 1998 as compared to fiscal 1997 as well as the
Company's decision to substitute long-term fixed rate borrowings for short-term
variable rate borrowings to insulate the Company from interest rate volatility.
Fiscal 1997 non-operating expenses also included a gain of approximately $2.4
million as a result of the cancellation of certain foreign currency contracts.
These forward contracts, which allowed the Company to sell British Pounds for a
fixed U.S. dollar amount, were canceled as a result of the recapitalization of
its U.K. affiliate.
Taxes
The Company's worldwide effective tax rate benefit for fiscal 1998 was 31.5% as
compared to 29.4% in fiscal 1997. Both fiscal 1998 and 1997 rates include the
effect of restructuring and special charges, along with the net litigation
settlement charge for fiscal 1998. Excluding the effect of restructuring
charges, special charges and the net litigation settlement charge, the Company's
effective tax rate was 28.9% and 29.0%, respectively. The effective tax rate for
continuing operations for fiscal 1999 is expected to be approximately 30.0%.
In August 1996, Congress repealed the favorable tax status in Puerto Rico which
is being phased out over a ten year period for years beginning in 1996. The
Company does not anticipate any material adverse effect on net income as a
result of the new law through fiscal 2002; for years thereafter, the Company is
evaluating the impact which is linked to the Company's further growth and
investment in its Puerto Rico manufacturing facility.
Under Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes", a deferred tax asset is recognized for deductible future
temporary differences. A valuation allowance against this asset is recognized
if, based upon the weight of the available evidence, it is more likely than not
that some portion or all of the deferred tax asset will not be realized.
The Company has evaluated its deferred tax assets. Management believes that
future taxable income, more likely than not, will be sufficient to realize
substantially all of these assets; however, there can be no assurance that this
will be the case. In addition, the Company has identified tax planning
strategies it would utilize to realize a substantial portion of the recorded
deferred tax assets. A significant portion of these deferred tax assets relate
to the future benefit of tax net operating loss and credit carryforwards. The
Company has analyzed the use of the carryforwards on a country by country basis
and recognized the related tax benefit where the carryforwards are expected to
be utilized.
In determining the need for a valuation allowance, SFAS No. 109 requires an
assessment of all available evidence both positive and negative. Where a
valuation allowance was not recorded, the Company believes that there was
sufficient positive evidence to support its conclusion not to record a valuation
allowance. Management believes that the Company will utilize the loss
carryforwards to offset future taxable income
22
<PAGE> 24
because: (1) prior to the restructuring charges and shareholder litigation
settlement costs, the Company had a history of pre-tax income; (2) a significant
portion of the loss carryforwards resulted from restructuring and shareholder
litigation settlement costs, which are not expected to recur; (3) management
believes that restructuring of the Company's businesses will reduce their cost
structures and that they will be profitable and will generate taxable income in
the near term; (4) management is aware of viable tax strategies that could be
implemented to accelerate taxable income in order to realize recorded deferred
tax assets; and (5) a significant portion of the net operating losses have an
indefinite life or do not expire in the near term. However, there can be no
assurance that the Company will generate taxable income or that all of its loss
carryforwards will be utilized.
See Note 8 of Notes to Consolidated Financial Statements for further discussion,
including amounts of net operating losses by country and expiration dates.
RESULTS OF OPERATIONS -- FISCAL 1997 COMPARED TO FISCAL 1996
Except as otherwise indicated, the following discussion of operating results
excludes the effects of the restructuring and special charges recorded in fiscal
1997 and 1996, which were discussed above.
Revenues
Revenues for fiscal 1997 increased 3%, or $31.1 million, over fiscal 1996 as a
result of increased revenue by North America Retail, International Retail and
the Global Source Tagging Division. The revenue growth resulted principally from
increased sales of Ultra-Max and CCTV systems and products. Ultra-Max revenues
increased 27% from $240.2 million in fiscal 1996 to $304.5 million in fiscal
1997. CCTV revenues increased 6% from $297.5 million in fiscal 1996 to $314.6
million in fiscal 1997. Installation, maintenance and other revenue also
increased 25% to $117.4 million in fiscal 1997 as compared to $94.1 million in
fiscal 1996 as the Company's installed base has increased. Worldwide Access
Control system revenues remained flat at $60.7 million in fiscal 1997 as
compared to $60.8 million in fiscal 1996.
Consolidated revenues for the EAS product lines were down slightly from $542.2
million in fiscal 1996 to $533.0 million in fiscal 1997, a 2% decrease. As
previously mentioned, Ultra-Max revenues increased 27% in fiscal 1997 as
compared to fiscal 1996. This increase was offset by a decrease in other EAS
system revenues, principally the radio frequency technology systems and
SensorStrip Checkout systems. Radio frequency systems are being phased out in
connection with the Company's strategy to upgrade users from the older EAS
technologies to Ultra-Max technology. Revenues from SensorStrip Checkout
systems, principally sold in Europe, were negatively impacted by a weak European
economy, legislation that restricted the expansion of hypermarkets and increased
competition.
Overall CCTV revenues increased 6%, in fiscal 1997 as compared to fiscal 1996. A
significant percentage of CCTV revenues and nearly all of Access Control
revenues are generated by C/I Worldwide which was negatively impacted in fiscal
1997 by market conflicts with its indirect sales channels, product shortages and
late new product introductions. As a result of the channel conflict, the Company
made a strategic decision to exit the commercial/industrial direct sales and
service business in the U.S. and will partner with its dealers and distributors
to promote its products in the commercial/industrial markets and thereby lower
its distribution and installation costs. In September 1997, the Company
completed the sale of its U.S. commercial/industrial direct sales and service
business. Installation and product revenues from this business unit were
approximately $80 million in fiscal 1997.
North America Retail revenue for fiscal 1997 increased 12% versus fiscal 1996.
Fiscal 1996 North America Retail revenues were negatively impacted by product
shortages as well as restructuring activities. This business unit entered fiscal
1997 with a significant backlog which at the end of fiscal 1997 was
approximately one-half of its fiscal 1996 year-end backlog. Significant
increases in revenues were noted in the soft goods and food divisions, with
increases over prior year of 40% and 59%, respectively, as a result of greater
penetration of the retail apparel and food markets along with improved
technology solutions. North America Retail CCTV system revenues increased 20 %
in fiscal 1997 as compared to fiscal 1996 as a result of increased sales to all
market segments.
23
<PAGE> 25
Europe Retail revenues decreased 8% in fiscal 1997 as compared to fiscal 1996.
European revenues were negatively affected by management changes and a
repositioning of the Company's market focus in the United Kingdom, a weak
economy in southern Europe and France, and the strengthening of the U.S. dollar
which resulted in a decrease to revenues of approximately $18 million. The
Company hired a new management team in the United Kingdom during fiscal 1997,
which is in the process of implementing a new higher-end market EAS strategy.
France's revenue growth was negatively impacted by a weak economy as well as
legislation which has restricted the expansion of hypermarkets. A large
percentage of France's revenue is from the hypermarket industry and as a result
of the legislation, France's market strategy has been to upgrade existing
customers to newer technologies. The Company has also experienced increased
competition in Europe during the year.
Fiscal 1997 revenues in International Retail grew 33% over the prior year. More
specifically, Asia Pacific revenues increased 19% as compared to the prior year
and Latin America revenues increased 45% as compared to the prior year. The
fiscal 1997 increase in Asia Pacific revenues is due principally to increased
business partner revenues, notably in Japan, and the recent opening of a sales
office in Beijing. Revenues were slightly affected by some softness in
Australia's economy over the course of the year. Fiscal 1997 Latin America
revenues include revenues from Argentina, which was acquired in October 1996,
and Colombia, which was acquired in May 1996. Excluding these acquisitions,
fiscal 1997 Latin America revenues increased 9% as compared to fiscal 1996, with
significant increases in Brazil, a 51% owned affiliate, and Mexico.
In fiscal 1997, C/I Worldwide was negatively affected by market conflicts with
its indirect sales channels, product shortages, and late new product
introductions. C/I Worldwide revenues were flat in fiscal 1997 as compared to
fiscal 1996. Fiscal 1997 continued to be a transition year for C/I Worldwide as
this new business unit, formed within the Company in late 1996 in connection
with the Company's strategy to expand into and sell integrated security
solutions to the commercial/industrial market, reorganized its management staff
and administrative functions, aligned and just recently segregated product
development and manufacturing activities from its sales organization and
realigned its marketing strategy to partner with its dealers and distributors
rather than sell directly to customers. Additionally, C/I Worldwide has
centralized the administrative functions of its indirect sales business in
Europe during fiscal 1997. The above activity negatively affected revenue growth
during fiscal 1997.
Gross Margins and Operating Income
Before restructuring and special charges, gross margins were 45.6% for fiscal
1997 compared with 44.8% for fiscal 1996. The increase in margins is due to the
Company's overall cost reduction efforts and principally represents favorable
purchase prices on materials used in the manufacturing process. The effect of
these savings on gross margins has been offset by lower product pricing
resulting from competition in certain segments of the EAS markets and higher
costs associated with the transfer of more production to the Company's facility
in Ireland to support operations in Europe. The Company has experienced pricing
pressures from certain EAS retail customers.
Excluding restructuring and special charges, operating income for fiscal 1997
was $51.0 million or 5.0% of total revenue, versus $51.5 million or 5.2% of
total revenue in fiscal 1996.
Selling, General and Administrative Expenses
Excluding special charges, total selling, general and administration expenses,
as a percentage of total revenues, were 33.8% in fiscal 1997 versus 32.6% in
fiscal 1996. In absolute dollars, selling expenses increased in fiscal 1997
versus fiscal 1996 due to higher commission expenses as a result of increased
revenue. Operating expenses in the Company's European Retail business unit were
higher than fiscal 1996 as a percentage of revenues due to a significant
overhead structure. Accordingly, the Company has recently announced additional
cost reduction programs to reduce overhead cost, principally in its European
Retail business unit. These programs include the centralization of
administrative services and workforce reductions. C/I Worldwide operating
expenses as a percentage of revenue increased over fiscal 1996 levels. The
divestiture of non-core businesses, including the exit of the systems
integration business, are expected to decrease C/I Worldwide operating expenses
as a percentage of revenues below fiscal 1997 levels. Fiscal 1997 corporate
administrative
24
<PAGE> 26
expense levels were higher than in fiscal 1996 as a result of increased
consulting fees paid in connection with the Company's process improvement
programs. Legal expenses were comparable to fiscal 1996 levels but remain at
higher than normal levels due to expenses incurred to defend against certain
actions which have been brought against the Company and in connection with an
investigation by the Securities and Exchange Commission.
In fiscal 1997 and fiscal 1996 the Company incurred expenses of $4.2 million and
$6.2 million, respectively, related to its involvement as the official
electronic security sponsor and supplier to the Games. The Company's association
with the Games is part of its strategy to expand general awareness of the
Company's total electronic security capabilities. The sales benefit from the
world "showcase" exposure has benefited the Company through new business.
Provision for Doubtful Accounts
Excluding special charges, provision for doubtful accounts, as a percentage of
total revenues, was 2.6% in both fiscal 1997 and 1996.
Research, Development and Engineering Expenses
Research, development and engineering expenses decreased to 2.4% of revenue in
fiscal 1997 versus 2.7% in fiscal 1996. The reduced level of spending is the
result of planned consolidations and product rationalizations. New product
development in all product categories continues to be a high priority for the
Company. During fiscal 1997 the Company introduced 12 major new products,
including UltraPost, Intellex and ScanThru(TM).
Other (Expenses) Income
Non-operating expenses, which include interest expense and interest income,
increased from $25.4 million in fiscal 1996 to $32.4 million in fiscal 1997. The
increase is principally due to an increase in interest expense due to higher
average debt levels in fiscal 1997 as compared to fiscal 1996 as well as the
Company's decision to substitute long-term fixed rate borrowings for short-term
variable rate borrowings to insulate the Company from interest rate volatility.
In the third and fourth quarters of fiscal 1996, the Company issued $350 million
Senior Notes, the proceeds of which were used to repay short-term U.S. and
European bank borrowings and for general corporate purposes. Fiscal 1997
non-operating expenses also included a gain of approximately $2.4 million as a
result of the cancellation of certain foreign currency contracts. The Company
canceled certain forward contracts which allowed it to sell British Pounds for a
fixed U.S. dollar amount as a result of the recapitalization of its U.K.
affiliate.
Taxes
The Company's worldwide effective tax rate benefit for fiscal 1997 was 29.4% as
compared to 38.9% in fiscal 1996. Both fiscal 1997 and 1996 rates include the
effect of restructuring and special charges. Excluding the effect of
restructuring and special charges, the Company's effective tax rate was 29% and
21.4%, respectively. The effective tax rate for continuing operations for fiscal
1998 is expected to be approximately 30%.
In August 1996, Congress repealed the favorable tax status in Puerto Rico which
will be phased out over a ten year period for years beginning in 1996. The
Company does not anticipate any material adverse effect on net income as a
result of the new law through fiscal 2002; for years thereafter, the Company is
evaluating the impact which is linked to the Company's further growth and
investment in its Puerto Rico manufacturing facility.
Under Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes", a deferred tax asset is recognized for deductible future
temporary differences. A valuation allowance against this asset is recognized
if, based upon the weight of the available evidence, it is more likely than not
that some portion or all of the deferred tax asset will not be realized.
The Company has evaluated its deferred tax assets. Management believes that
future taxable income, more likely than not, will be sufficient to realize
substantially all of these assets; however, there can be no assurance that this
will be the case. In addition, the Company has identified tax planning
strategies it would utilize to realize a substantial portion of the recorded
deferred tax assets. A significant portion of these deferred tax
25
<PAGE> 27
assets relate to the future benefit of tax net operating loss and credit
carryforwards. The Company has analyzed the use of the carryforwards on a
country by country basis and recognized the related tax benefit where the
carryforwards are expected to be utilized.
In determining the need for a valuation allowance, SFAS No. 109 requires an
assessment of all available evidence both positive and negative. Where a
valuation allowance was not recorded, the Company believes that there was
sufficient positive evidence to support its conclusion not to record a valuation
allowance. Management believes that the Company will utilize the loss
carryforwards to offset future taxable income because: (1) prior to the
restructuring charges and shareholder litigation settlement costs, the Company
had a history of pre-tax income; (2) a significant portion of the loss
carryforwards resulted from restructuring and shareholder litigation settlement
costs, which are not expected to recur; (3) management believes that
restructuring of the Company's businesses will reduce their cost structures and
that they will be profitable and will generate taxable income in the near term;
(4) management is aware of viable tax strategies that could be implemented to
accelerate taxable income in order to realize recorded deferred tax assets; and
(5) a significant portion of the net operating losses have an indefinite life or
do not expire in the near term. However, there can be no assurance that the
Company will generate taxable income or that all of its loss carryforwards will
be utilized.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1998, cash and cash equivalents increased $105.3 million primarily
due to the issuance of Convertible Preferred Stock in early April, 1998. Cash
flow used in operating activities was $34.9 million in fiscal 1998 compared with
$2.1 million in fiscal 1997 and $34.3 million in fiscal 1996. The increase in
cash used in operations in fiscal 1998 as compared to fiscal 1997 was primarily
due to an increase in the net loss for the year, as a result of the settlement
of shareholder litigation claims.
The Company historically maintains a high level of receivables and sales-type
leases outstanding, measured as a percentage of revenues. This results, in part,
from a key element of the Company's marketing strategy, which has been to
provide alternative financing options to its retail customers, including
deferred billing and long-term installment sales and lease terms, resulting in
extended accounts receivable recovery periods. Additionally, the Company has
experienced a historical pattern of delayed payments by certain retail customers
and, accordingly, the Company's levels of receivables past due represent a
relatively high percentage of total receivables. The Company's strategy has
helped it penetrate markets and increase customer loyalty and commitment to
Sensormatic. The ability to pursue such a strategy results from the Company's
relatively high gross profit margins and the various accounts receivable
securitization programs the Company has put in place which allow the Company to
sell its customer receivables.
The terms of certain of the Company's principal receivable securitization
programs provide for overcollateralization and accordingly the Company does not
receive the full balance of the receivable until the customer receivable has
been paid in full to financing institutions. The Company accounts for this
overcollateralization as a "Receivable due from financing institution" which is
included in "Other current assets" and "Patents and other assets -- net".
The Company aggressively pursues the sale and/or securitization of all its
long-term customer receivables and a significant portion of its trade customer
receivables. The Company believes the gross profit margin it receives on the
sale of its products, combined with the interest income it receives on such
receivables, are sufficient to cover the carrying cost of the long-term customer
receivables which it is unable to securitize and the overcollateralization
holdbacks.
The Company's investing activities used $53.9 million of cash in fiscal 1998,
compared to $85.2 million in fiscal 1997. Additions to property, plant and
equipment totaled $29.3 million, primarily including investments in
manufacturing operations for new production equipment and additions to the
Company's enterprise wide-management information system software. Additional
investing activities also included increases in revenue equipment of $23.3,
which represents equipment held under operating leases, and additional
investments in acquisitions of $19.7 million relating to on-going payments for
commitments relating to prior year acquisitions,
26
<PAGE> 28
all partially offset by the net proceeds received from the sale of the U.S.
commercial/industrial direct sales and service business and the Deerfield Beach
facility.
Fiscal 1998 financing activities generated cash of $194.1 million as compared
with cash used of $4.7 million in fiscal 1997. The increase is principally due
to proceeds received from the issuance of the new series of 6 1/2% Convertible
Preferred Stock. The proceeds from the Convertible Preferred Stock were
primarily used to repay the outstanding balance under the Company's revolving
credit line, the payable associated with the shareholder litigation settlement,
and working capital and general corporate purposes (See Notes 10 and 13 of Notes
to Consolidated Financial Statements for further discussion).
The Company's percentage of total debt to total capital was 37.9% at June 30,
1998 as compared to 40.4% at June 30, 1997. Certain of the Company's financial
agreements currently prohibit the payment of cash dividends until after the
preparation of its audited financial statements for fiscal 1999, and it is
unlikely that the Company would be able to pay cash dividends until after the
preparation of its audited financial statements for fiscal year 2000 at the
earliest. The Company intends to pay dividends on the Convertible Preferred
Stock with shares of Common Stock prior to the time it is able to pay such cash
dividends.
The Company anticipates continuing to provide vendor financing to its customers
and aggressively pursues collection of all accounts receivable past due. The
Company is closely monitoring inventory and overall working capital requirements
and has implemented numerous programs that are expected to result in reduced
working capital requirements.
The Company requires significant cash flow to meet its debt service and other
continuing obligations. As of June 30, 1998, the Company has $548.7 million of
total indebtedness outstanding. The Company's principal liquidity requirements
are expected to be to provide working capital, finance customer equipment
purchases, invest in revenue equipment and capital expenditures and meet debt
service requirements, including the payment of principal and interest on
borrowings under the Revolving Credit Facility and interest on the Senior Notes.
At June 30, 1998, the Company's principal sources of liquidity are (i) cash on
hand, (ii) cash flow from operations, (iii) borrowings under the $250.0 million
Revolving Credit Facility, of which none was utilized and there was unused
availability of $250.0 million, and (iv) receivable securitization facilities
totaling $190.0 million, of which approximately $130.3 million was utilized as
of June 30, 1998. The Company believes that cash on hand and cash flow from
operations, together with borrowings under the Revolving Credit Facility, will
be sufficient to meet its liquidity needs for the foreseeable future. During
1999, the Company plans to invest approximately $30.0 million in capital
projects. The projects include investments in manufacturing operations for new
production equipment and management information systems.
CURRENCY RISKS
See Item 7A, Quantitative and Qualitative Disclosures about Market Risk
INTEREST RATE RISKS AND DERIVATIVES
See Item 7A, Quantitative and Qualitative Disclosures about Market Risk
ACCOUNTING STANDARDS
In fiscal 1998, the Company adopted SFAS No. 128 "Earnings Per Share" and SFAS
No. 129 "Disclosure of Information about Capital Structure" which are effective
for periods ending after December 15, 1997. SFAS No. 128 simplifies the previous
required calculation of earnings per share ("EPS") under APB No. 15, "Earnings
per Share", by replacing the previously required calculation of primary EPS with
a basic EPS calculation. It requires a dual presentation, for complex capital
structures, of basic and diluted EPS on the face of the income statement and
requires a reconciliation of basic EPS factors to diluted EPS factors. SFAS No.
129 requires disclosing information about an entity's capital structure.
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130 "Reporting Comprehensive Income," which is effective for fiscal years
beginning after December 15, 1997. This Statement establishes standards for the
reporting and display of comprehensive income and its components in
27
<PAGE> 29
a full set of general purpose financial statements. The new rule requires that
the Company (a) classify items of other comprehensive income by their nature in
a financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in-capital in the equity section of the balance sheet. The Company plans to
adopt SFAS No. 130 in fiscal 1999 with impact only to the Company's disclosure
information.
Also in June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. This Statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise", and amends SFAS No.
94, "Consolidation of All Majority-Owned Subsidiaries". This Statement requires
annual financial statements to disclose information about products and services,
geographic areas and major customers based on a management approach, along with
interim reports. The management approach requires disclosing financial and
descriptive information about an enterprise's reportable operating segments
based on reporting information the way management organizes the segments for
making business decisions and assessing performance. It also eliminates the
requirement to disclose additional information about subsidiaries that were not
consolidated. This new management approach may result in more information being
disclosed and require new interim information not previously presented. The
Company plans to adopt SFAS No. 131 in fiscal 1999 with impact only to the
Company's disclosure information.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits -- an amendment of FASB Statements
No. 87, 88 and 106" which is effective for fiscal years beginning after December
15, 1997. This statement revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or recognition
of those plans. The Company plans to adopt SFAS No. 132 in fiscal 1999 with
impact only to the Company's disclosure information.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which is effective for fiscal quarters of
fiscal years beginning after June 15, 1999. This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This statement amends SFAS No. 52 "Foreign Currency Translation",
and supersedes SFAS No. 80 "Accounting for Future Contracts", No. 105
"Disclosure of Information about Financial Instruments with Off-Balance-Sheet
Risk and Financial Instruments with Concentration of Credit Risk", No. 107
"Disclosures about Fair Value of Financial Instruments", and No. 119 "Disclosure
about Derivative Financial Instruments". The Company plans to adopt SFAS No. 133
in fiscal 2000 and is currently assessing the impact this statement will have on
its consolidated financial statements.
YEAR 2000 ISSUE
In connection with the implementation of a new enterprise-wide management
information system, commenced in fiscal 1996, the Company has implemented a Year
2000 program which is expected to ensure that the Company's computer systems and
applications will function properly beyond 1999 in all material respects. There
can be no assurance, however, that the Company's Year 2000 date conversion
program will be successfully completed on a timely basis. The Company has not
separately estimated the expenditures expected to address the Year 2000 issue,
as such expenditures were originally incorporated in the planned expenditures
(estimated at $20.0 million) for the new management information project prior to
the widespread recognition of the Year 2000 issue.
To further address the Year 2000 issue, the Company developed a task force
consisting of internal resources and a third party expert. A questionnaire was
developed and sent to the Company's service providers and key suppliers to aid
in assessing their Year 2000 readiness. The Company is in the process of
accumulating and reviewing the information.
The Company believes it has no material exposure to contingencies related to the
Year 2000 issue for the products it has sold.
28
<PAGE> 30
While the Company believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner, there can be no assurance that the failure
of the Company or of third parties with whom the Company transacts business to
adequately address their respective Year 2000 issues will not have a material
adverse affect on the Company's business, financial condition, cash flows and
results of operations.
EURO CONVERSION
On January 1, 1999, certain member nations of the European Economic and Monetary
Union ("EMU") will adopt a common currency, the Euro. For the three-year
transition period, both the Euro and individual participant's currencies will
remain in circulation. After January 1, 2002, the Euro will be the sole legal
tender for EMU countries. The adoption of the Euro will affect a multitude of
financial systems and business applications as the commerce of these nations
will be transacted in the Euro and the existing national currency. For the year
ended June 30, 1998, approximately 34.2% of the Company's revenues were derived
from EMU countries.
The Company is currently addressing Euro related issues and its impact on
information systems, currency exchange rate risk, taxation, contracts,
competition and pricing. Action plans currently being implemented are expected
to result in compliance with all laws and regulations. While the Company does
not expect the Euro conversion will have a material impact on its operations,
financial condition or liquidity, there can be no certainty that action plans
will be successfully implemented or that external factors will not have an
adverse effect on the Company's operations.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Except for historical matters, the matters discussed in this Form 10-K are
forward looking statements which reflect the Company's current views with
respect to future events and financial performance. These forward-looking
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from historical results or those
anticipated. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
The following factors, among other possible factors, could cause actual results
to differ materially from historical results or those anticipated: (1) changes
in international operations, (2) exchange rate risk, (3) market conditions for
the Company's products, (4) the Company's ability to provide innovative and
cost-effective solutions, (5) development risks, (6) competition, and (7)
changes in the economic climate.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates and foreign
currency exchange rates which may adversely affect its results of operations and
financial condition. The Company seeks to minimize the risks from these interest
rates and foreign currency exchange rate fluctuations through its regular
operating and financing activities and, when considered appropriate, through the
use of derivative financial instruments. The Company's policy is to not use
financial instruments for trading or other speculative purposes and is not a
party to any leveraged financial instruments.
A discussion of the Company's accounting policies for Interest Rate Swap and
Foreign Currency Forward Agreements is included in Notes 1 and 16 of Notes to
Consolidated Financial Statements.
The Company manages market risk by restricting the use of derivative financial
instruments to hedging activities and by limiting potential interest and
currency rate exposures to amounts that are not material to the Company's
consolidated results of operations and cash flows. The Company also has
procedures to monitor the impact of market risk on the fair value of its
long-term debt, short-term debt instruments and other financial instruments,
considering reasonably possible changes in interest and currency rates.
29
<PAGE> 31
EXPOSURE TO SHORT-TERM INTEREST RATES
The Company utilizes primarily fixed-rate debt as described in Note 9 of Notes
to Consolidated Financial Statements. The Company uses interest rate swaps
agreements to further limit the Company's exposure to short-term interest rate
movements relating to off balance sheet receivable financings.
At June 30, 1998 the Company's fixed rate long-term debt had a face value and
carrying value of $485.0 million. The fair value of long-term debt at June 30,
1998 was $471.3 million. Based upon a hypothetical 10% increase in the period
end market interest rate, the fair value of this liability would decrease by
approximately $17.3 million.
At June 30, 1998 the notional amount of interest rate swaps totaled $131.1
million. The carrying value and fair value of the liability for these agreements
were $.5 million and $.9 million, respectively. Based upon a hypothetical 10%
increase in the period end market interest rate, the fair value of this
liability would decrease by approximately $3.1 million.
These amounts are determined by considering the impact of the hypothetical
interest rates on the Company's borrowing cost and interest rate swap
agreements. These analyses do not consider the effects of the reduced level of
overall economic activity that could exist in such an environment. Further, in
the event of a change of such magnitude, management would likely take actions to
further mitigate its exposure to the change. However, due to the uncertainty of
the specific actions that would be taken and their possible effects, the
sensitivity analysis assumes no changes in the Company's financial structure.
EXPOSURE TO EXCHANGE RATES
As a result of the sales of its products in foreign markets the Company's
offshore operations are affected by fluctuations in the value of the U.S.
dollars as compared to foreign currencies. Its offshore operations are in
Europe, Asia and Latin America. Foreign currency forward contracts are used to
hedge against the earnings effects of short-term fluctuation in significant
foreign jurisdictions.
The Company uses foreign currency forward contracts to hedge the exposure to
adverse changes in foreign currency exchange rates. Therefore, increases and
decreases in the fair value of foreign currency forward agreements are offset by
changes in the fair value of net underlying foreign currency transaction
exposures. The Company's principal currency exposures relate to the French
franc, the German deutsche mark and the British pound against the U.S. dollar.
The Company's exposure to changes in foreign currency exchange rates arises from
intercompany loans utilized to finance foreign subsidiaries, receivables,
payables and firm commitments arising from international transactions. The
Company attempts to have all such transaction exposures hedged with internal
natural offsets to the fullest extent possible and, once these opportunities
have been exhausted, through derivative financial instruments with third parties
using forwards.
At June 30, 1998 the Company has in place foreign currency forward contracts
with a notional amount of $260.6 million. The carrying value and fair value of
these contracts was a liability of $7.1 million and an asset of $.3 million at
June 30, 1998, respectively. Based upon a 10% strengthening of the U.S. dollar
compared to these foreign currencies, the estimated fair value of the asset
would increase by $24.7 million. This calculation assumes that each exchange
rate would change in the same direction relative to the U.S. dollar. In addition
to the direct effects of changes in exchange rates quantified above, changes in
exchange rates also change the dollar value of the resulting sales and affect
the volume of sales or the foreign currency sales price as competitors' products
become more or less attractive. The Company's sensitivity analysis of the
effects of changes in foreign currency exchange rates does not factor in a
potential change in levels of local currency prices or sales reported in U.S.
dollars.
The above discussion of the Company's procedures to monitor market risk and the
estimated changes in fair value resulting from the Company's sensitivity
analyses are forward-looking statements of market risk assuming certain adverse
market conditions occur. Actual results in the future may differ materially from
these estimated results due to actual developments in the global financial
markets. The analysis methods used by the Company to assess and mitigate risk
discussed above should not be considered projections of future events or losses.
30
<PAGE> 32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Financial Statements:
Report of Independent Certified Public Accountants........ 32
Consolidated Balance Sheets at June 30, 1998 and 1997..... 33
Consolidated Statements of Operations for the years ended
June 30, 1998, 1997 and 1996........................... 34
Consolidated Statements of Cash Flows for the years ended
June 30, 1998, 1997 and 1996........................... 35
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1998, 1997 and 1996............... 36
Notes to Consolidated Financial Statements................ 37-54
Financial Statement Schedules:
For the three years ended June 30, 1998:
Schedule II -- Valuation and Qualifying Accounts....... S-1
</TABLE>
Consolidated Financial Statement schedules not included have been omitted
because they are not applicable or the required information is shown in the
Consolidated Financial Statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
31
<PAGE> 33
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors --
Sensormatic Electronics Corporation
We have audited the accompanying consolidated balance sheets of Sensormatic
Electronics Corporation as of June 30, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1998. Our audit also
included the financial statement schedule listed at Item 8. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Sensormatic Electronics Corporation at June 30, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended June 30, 1998, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
West Palm Beach, Florida
August 13, 1998
32
<PAGE> 34
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1997
(In millions, except par value amounts)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 127.0 $ 21.7
Customer receivables........................................ 326.2 303.6
Inventories, net............................................ 203.6 199.6
Current portion of deferred income taxes.................... 36.2 42.9
Other current assets........................................ 43.7 54.4
-------- --------
TOTAL CURRENT ASSETS.............................. 736.7 622.2
Customer receivables -- noncurrent.......................... 132.5 138.5
Revenue equipment, less accumulated depreciation of $60.3 in
1998 and $55.3 in 1997.................................... 69.2 66.8
Property, plant and equipment, net.......................... 137.2 145.5
Costs in excess of net assets acquired, less accumulated
amortization of $74.4 in 1998 and $61.2 in 1997........... 465.5 482.7
Deferred income taxes....................................... 152.3 102.5
Patents and other assets, less accumulated amortization of
$33.2 in 1998 and $24.5 in 1997........................... 109.0 88.4
-------- --------
TOTAL ASSETS................................................ $1,802.4 $1,646.6
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt............................................. $ 33.5 $ 21.8
Accounts payable............................................ 57.0 67.2
Other current liabilities and deferred income taxes......... 253.6 243.4
-------- --------
TOTAL CURRENT LIABILITIES......................... 344.1 332.4
Long-term debt.............................................. 515.2 501.5
Other noncurrent liabilities and deferred income taxes...... 45.5 39.8
-------- --------
TOTAL LIABILITIES................................. 904.8 873.7
Commitments and other matters (Note 13)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10.0 shares authorized..... -- --
6 1/2% Convertible Preferred Stock, 0.7 shares
outstanding............................................ 166.7 --
Common stock, $.01 par value, 125.0 shares authorized, 74.4
and 74.3 shares outstanding in 1998 and 1997,
respectively.............................................. 733.7 730.5
Retained earnings........................................... 103.9 143.7
Treasury stock at cost and other, 1.7 shares in 1998 and
1997...................................................... (11.7) (14.0)
Currency translation adjustments............................ (95.0) (87.3)
-------- --------
TOTAL STOCKHOLDERS' EQUITY........................ 897.6 772.9
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $1,802.4 $1,646.6
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE> 35
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
(In millions, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
------ -------- --------
<S> <C> <C> <C>
Revenues:
Sales....................................................... $831.9 $ 853.0 $ 850.8
Rentals..................................................... 47.6 55.3 49.7
Installation, maintenance and other......................... 107.4 117.4 94.1
------ -------- --------
Total revenues.................................... 986.9 1,025.7 994.6
------ -------- --------
Operating costs and expenses:
Costs of sales.............................................. 525.8 543.6 579.8
Depreciation on revenue equipment........................... 18.6 20.8 20.3
Selling, general and administrative......................... 308.2 349.8 336.2
Provision for doubtful accounts............................. 23.4 42.8 82.3
Restructuring charges....................................... 29.2 22.6 65.7
Research, development and engineering....................... 27.2 24.5 27.7
Amortization of intangible assets........................... 21.7 19.5 17.1
------ -------- --------
Total operating costs and expenses................ 954.1 1,023.6 1,129.1
------ -------- --------
Operating income (loss)..................................... 32.8 2.1 (134.5)
------ -------- --------
Other (expenses) income:
Interest income............................................. 16.0 16.2 16.9
Interest expense............................................ (50.8) (47.9) (38.4)
Litigation settlement, net.................................. (45.7) -- --
Other, net.................................................. (6.4) (0.7) (3.9)
------ -------- --------
Total other (expenses) income..................... (86.9) (32.4) (25.4)
------ -------- --------
Loss before income taxes.................................... (54.1) (30.3) (159.9)
Benefit for income taxes.................................... (17.0) (8.9) (62.2)
------ -------- --------
Net loss.................................................... $(37.1) $ (21.4) $ (97.7)
------ -------- --------
Basic and Diluted loss per common share:.................... $(0.50) $ (0.29) $ (1.33)
====== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE> 36
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
(In millions)
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(37.1) $(21.4) $(97.7)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.............................................. 42.6 46.7 42.1
Amortization.............................................. 21.7 19.5 17.1
Restructuring and special charges, net.................... 22.2 40.9 174.6
Net changes in operating assets and liabilities, net of
effects of acquisitions:
Customer receivables, net................................. (20.9) (30.0) (118.7)
Inventories............................................... (11.0) (45.8) 43.0
Current and deferred income taxes relating to
restructuring, special and net litigation settlement
charges................................................ (27.0) (14.3) (67.8)
Accounts payable.......................................... (10.0) 8.4 (4.3)
Other, net................................................ (15.4) (6.1) (22.6)
------ ------ ------
Net cash used in operating activities............. (34.9) (2.1) (34.3)
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net................................. (29.3) (38.4) (49.8)
Increase in revenue equipment, net........................ (23.3) (23.0) (36.8)
Acquisitions, net of cash................................. -- (14.8) (8.6)
Additional investments in acquisitions.................... (19.7) (16.4) (14.9)
Proceeds from sale of business............................ 8.2 -- --
Proceeds from sales and maturities of marketable
securities............................................. -- 2.4 23.3
Other, net................................................ 10.2 5.0 9.0
------ ------ ------
Net cash used in investing activities............. (53.9) (85.2) (77.8)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank borrowings and other debt............................ 442.4 105.5 1.3
Repayments of bank borrowings and other debt.............. (416.1) (96.0) (160.2)
Proceeds from issuance of Convertible Preferred Stock,
net.................................................... 166.7 -- --
Proceeds from the issuance of Senior Notes, net........... -- -- 348.3
Dividends paid............................................ -- (16.7) (16.1)
Proceeds from issuance of common stock under employee
benefit plans and for acquisitions..................... 1.1 5.6 8.9
Other, net................................................ -- (3.1) --
------ ------ ------
Net cash provided by (used in) financing
activities...................................... 194.1 (4.7) 182.2
------ ------ ------
Net increase (decrease) in cash and cash equivalents........ 105.3 (92.0) 70.1
Cash and cash equivalents at beginning of year.............. 21.7 113.7 43.6
------ ------ ------
Cash and cash equivalents at end of year.................... $127.0 $ 21.7 $113.7
====== ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid during the year......................... $ 9.2 $ 10.8 $ 10.3
Interest paid during the year............................. $ 49.5 $ 43.5 $ 30.4
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE> 37
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
(In millions)
<TABLE>
<CAPTION>
TREASURY CURRENCY
PREFERRED COMMON RETAINED STOCK TRANSLATION
STOCK STOCK EARNINGS AND OTHER ADJUSTMENTS TOTAL
--------- ------- -------- -------------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995................ $ -- $713.9 $295.6 $(13.2) $(43.6) $952.7
Stock issued pursuant to employee
benefit plans......................... -- 9.9 -- (1.1) -- 8.8
Common stock cash dividends............. -- -- (16.1) -- -- (16.1)
Net loss................................ -- -- (97.7) -- -- (97.7)
Other................................... -- -- -- 0.9 (16.9) (16.0)
------ ------ ------ ------ ------ ------
Balance at June 30, 1996................ -- 723.8 181.8 (13.4) (60.5) 831.7
Stock issued pursuant to employee
benefit plans......................... -- 6.7 -- (1.3) -- 5.4
Common stock cash dividends............. -- -- (16.7) -- -- (16.7)
Net loss................................ -- -- (21.4) -- -- (21.4)
Other................................... -- -- -- 0.7 (26.8) (26.1)
------ ------ ------ ------ ------ ------
Balance at June 30, 1997................ -- 730.5 143.7 (14.0) (87.3) 772.9
Stock issued pursuant to employee
benefit plans......................... -- 1.7 -- -- -- 1.7
Convertible Preferred Stock issued, net
of issuance cost of $5.8.............. 166.7 -- -- -- -- 166.7
Preferred stock dividend................ -- 2.4 (2.4) -- -- --
Net loss................................ -- -- (37.1) -- -- (37.1)
Other................................... -- (0.9) (0.3) 2.3 (7.7) (6.6)
------ ------ ------ ------ ------ ------
Balance at June 30, 1998................ $166.7 $733.7 $103.9 $(11.7) $(95.0) $897.6
====== ====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE> 38
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Consolidated Financial Statements include the accounts of Sensormatic
Electronics Corporation and all of its subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated.
Cash and cash equivalents
Cash equivalents include short-term highly liquid investments with a maturity of
three months or less from date of acquisition. The recorded amounts approximate
fair value because of the short maturities of these investments.
Inventories
Inventories are stated at the lower of cost or market, cost being determined on
a first-in, first-out basis.
Revenue equipment and property, plant and equipment
Revenue equipment (principally equipment on lease) and property, plant and
equipment (including assets acquired under capital leases) are recorded at cost
and depreciated using the straight-line method over their estimated useful lives
(4 years and 6 years for revenue equipment, 10 years through 40 years for
buildings and improvements and 3 years through 10 years for property, plant and
equipment).
Revenue recognition
Revenue from product sales is recognized at the time the product is shipped in
accordance with the terms agreed upon by the parties. Revenue from sales-type
leases (primarily with terms of 60 months or greater) is recognized as a "sale"
upon shipment in an amount equal to the present value of the minimum rental
payments under the fixed non-cancelable lease term. The deferred finance charges
applicable to these leases are recognized over the terms of the leases using the
effective interest method.
The Company also leases equipment under long-term operating leases (primarily
leases with terms of 36 to 54 months) which are generally non-cancelable. Rental
revenues are recognized as earned over the term of the lease. Minimum future
rentals on non-cancelable operating leases at June 30, 1998 aggregated $69.5 and
are due as follows: 1999 -- $29.8; 2000 -- $21.4; 2001 -- $11.8; 2002 -- $4.7;
2003 -- $1.7 and thereafter -- $0.1.
Installation and service revenues are recognized as earned and maintenance
revenues are recognized ratably over the service contract term.
Research, development and engineering
In fiscal 1998, 1997 and 1996 "Research, development and engineering" included
research and development expenses of $21.0, $19.0 and $21.4, respectively.
Accounting for currency translation and transactions
Foreign currency transactions and financial statements (except for those
relating to countries with highly inflationary economies) are translated into
U.S. dollars at the rate in effect on the date of the transaction or the date of
the financial statements, except that revenues, costs and expenses are
translated at average exchange rates during each reporting period. Resulting
translation adjustments and transaction gains or losses attributable to certain
intercompany transactions that are of a long-term investment nature are excluded
from results of operations and accumulated in a separate component of
consolidated stockholders' equity. Gains and losses attributable to other
intercompany transactions are included in results of operations.
The financial statements of subsidiaries located in countries with highly
inflationary economies are remeasured as if the functional currency were the
U.S. dollar. The remeasurement creates translation adjustments that are
37
<PAGE> 39
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
reflected in net income. Allocations for income taxes included in the
translation adjustments account in stockholders' equity were not significant.
Interest rate swap and foreign currency forward agreements
The Company enters into interest rate swap agreements and foreign exchange
forward contracts to manage exposure to fluctuations in interest and foreign
currency exchange rates.
The cash differentials paid or received on interest rate swap agreements are
accrued and recognized as adjustments to interest expense or interest income.
Gains and losses realized upon the settlement of these agreements are deferred
and either amortized to interest expense over a period relevant to the agreement
if the underlying hedged instrument remains outstanding, or recognized
immediately if the underlying hedged instrument is settled and the swap
agreement is terminated. Interest rate agreements are stated at cost, if any.
The Company principally uses foreign exchange forward contracts to hedge certain
identifiable, foreign currency intercompany commitments and certain short-term
intercompany advances. Gains and losses on the contracts which hedge
anticipatory intercompany commitments are deferred and recorded in net income in
the period in which the related transaction occurs. Gains and losses on the
contracts which hedge intercompany advances are recorded as adjustments to net
income because such advances are expected to be repaid in the foreseeable
future. Forward contracts and options which hedge anticipatory intercompany
commitments and intercompany advances are stated at cost (if any) and market
value, respectively.
Cash flows related to interest rate agreements and foreign exchange forward and
option contracts are classified as operating activities in the Consolidated
Statements of Cash Flows.
Cost in Excess of Net Assets Acquired and Other Intangibles
Costs in excess of net assets acquired (goodwill) are amortized using the
straight-line method over 20 to 40 years. Patents, stated at cost, are amortized
using the straight-line method over 17 years.
Earnings per share
Basic earnings per common share is calculated by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per share
includes the dilutive effect of common stock equivalents outstanding during the
period using the treasury stock method. Common stock equivalents include stock
options issued under employee benefit plans.
Impairment
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of", the Company reviews
long-lived assets and related goodwill for impairment whenever events or changes
in circumstances indicate that the carrying amount of such assets may not be
fully recoverable. If this review indicates that goodwill will not be
recoverable, as generally determined based on estimated undiscounted cash flows
over the remaining amortization period, the carrying amount of goodwill would be
adjusted to fair value.
Impact of Recently Issued Accounting Standards
In fiscal 1998, the Company adopted SFAS No. 128 "Earnings Per Share" and SFAS
No. 129 "Disclosure of Information about Capital Structure" which are effective
for periods ending after December 15, 1997. SFAS No. 128 simplifies the previous
required calculation of earnings per share ("EPS") under APB No. 15, "Earnings
per Share", by replacing the existing calculation of primary EPS with a basic
EPS calculation. It requires a dual presentation, for complex capital
structures, of basic and diluted EPS on the face of the income statement and
requires a reconciliation of basic EPS factors to diluted EPS factors. SFAS No.
129 requires disclosing information about an entity's capital structure.
38
<PAGE> 40
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income,"
which is effective for fiscal years beginning after December 15, 1997. This
Statement establishes standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
The new rule requires that the Company (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in-capital in the equity section of the balance sheet. The
Company plans to adopt SFAS No. 130 in fiscal 1999 with impact only to the
Company's disclosure information.
Also in June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. This Statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise", and amends SFAS No.
94, "Consolidation of All Majority-Owned Subsidiaries". This Statement requires
annual financial statements to disclose information about products and services,
geographic areas and major customers based on a management approach, along with
interim reports. The management approach requires disclosing financial and
descriptive information about an enterprise's reportable operating segments
based on reporting information the way management organizes the segments for
making business decisions and assessing performance. It also eliminates the
requirement to disclose additional information about subsidiaries that were not
consolidated. This new management approach may result in more information being
disclosed and require new interim information not previously presented. The
Company plans to adopt SFAS No. 131 in fiscal 1999 with impact only to the
Company's disclosure information.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits -- an amendment of FASB Statements
No. 87, 88 and 106" which is effective for fiscal years beginning after December
15, 1997. This statement revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or recognition
of those plans. The Company plans to adopt SFAS No. 132 in fiscal 1999 with
impact only to the Company's disclosure information.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which is effective for fiscal quarters of
fiscal years beginning after June 15, 1999. This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This statement amends SFAS No. 52 "Foreign Currency Translation",
and supersedes SFAS No. 80 "Accounting for Future Contracts", No. 105
"Disclosure of Information about Financial Instruments with Off-Balance-Sheet
Risk and Financial Instruments with Concentration of Credit Risk", No. 107
"Disclosures about Fair Value of Financial Instruments", and No. 119 "Disclosure
about Derivative Financial Instruments". The Company plans to adopt SFAS No. 133
in fiscal 2000 and is currently assessing the impact this statement will have on
its consolidated financial statements.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Reclassifications
Certain amounts in the prior years' Consolidated Financial Statements have been
reclassified to conform to the current fiscal year's presentation.
39
<PAGE> 41
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. RESTRUCTURING AND SPECIAL CHARGES
In fiscal 1996, the Company initiated a review of its global operations, cost
structure and balance sheet directed at reducing its operating expenses,
manufacturing costs and increasing efficiencies. This review focused primarily
on operational and organizational structures and systems, facilities
utilization, product rationalization and inventory valuation, receivable
balances and related collection efforts and certain other matters. This review
resulted in charges totaling $186.0, with an after-tax impact of approximately
$118.2. This pretax charge included $85.3 of restructuring charges and $100.7 of
special charges. The cash outlay related to these charges is estimated to be
approximately $33.3.
The Company recorded additional restructuring and special charges in the fourth
quarter of fiscal 1997 as a result of further cost-reduction actions, primarily
workforce reductions in the Company's European operations, and the divestiture
of non-core businesses which included the U.S. commercial/industrial direct
sales and service business sold in September 1997. As a result of these
activities, the Company recorded restructuring and special charges totaling
$48.9 pretax in the fourth quarter of fiscal 1997 and $43.0 pretax in the first
quarter of fiscal 1998. These pretax charges included $29.2 and $26.8 of
restructuring charges and $13.8 and $22.1 of special charges for fiscal 1998 and
1997, respectively. The total cash outlay related to these charges, net of
expected proceeds from the divestment of non-core businesses, is estimated to be
approximately $30.0, of which $11.8 has been disbursed and partially offset by
the proceeds received from the non-core operation divestitures as of June 30,
1998.
Restructuring Charges
As a result of the review described above, in fiscal 1996 the Company recorded a
charge related to discontinued products and equipment used in the manufacture of
certain products which will no longer be manufactured or purchased from third
party suppliers. In connection with its review of operational and organizational
structures and systems, management adopted a plan to consolidate certain sales
and manufacturing facilities, reorganize certain business units and corporate
functions, and eliminate redundant positions. The Company planned for the
termination of approximately 875 manufacturing and administrative personnel in
North America and Europe and the reduction of approximately 30 facilities. As of
June 30, 1998, all planned terminations have been completed and more than
one-half of the facilities have been eliminated or subleased. Certain terminated
employees are receiving severance payments over time.
The Company's 1997 and 1998 announced restructuring activities principally
included workforce reductions in the Company's European operations and the
divestment of non-core businesses which includes the U.S. commercial/industrial
direct sales and service business sold in September 1997. The Company planned
for the reduction in workforce of approximately 1,200 positions, of which 600
would be eliminated in connection with the divestment of non-core businesses and
the remaining positions principally represented the termination of
administrative personnel.
An expanded summary of the restructuring charges are as follows:
<TABLE>
<CAPTION>
1998(1) 1997(2) 1996(2) TOTAL
------- ------- ------- ------
<S> <C> <C> <C> <C>
Product rationalization, related equipment charges
and other.......................................... $ -- $ 2.9 $45.3 $ 48.2
Closure of facilities and related costs.............. 8.8 6.5 23.5 38.8
Employee termination and related costs............... 20.4 .5 16.5 37.4
Non-core business divestitures....................... -- 16.9 -- 16.9
----- ----- ----- ------
Total...................................... $29.2 $26.8 $85.3 $141.3
===== ===== ===== ======
</TABLE>
- ---------------
(1) To conform with the current interpretation of Emerging Issue Task Force
Abstracts ("EITF") No. 94-3 "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)", approximately $13.8 of the previously
disclosed fiscal 1998 charge of $43.0 has been reclassified primarily to
"Selling, General and Administrative" expenses.
40
<PAGE> 42
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) To conform with the current interpretation of EITF No. 96-9 "Classification
of Inventory Markdowns and Other Costs Associated with a Restructuring",
$4.2 and $19.6 in fiscal 1997 and 1996, respectively, of such amounts have
been reclassified to "Costs of Sales".
The following table sets forth the details and the activity of the restructuring
charge reserves for fiscal 1998:
<TABLE>
<CAPTION>
ACCRUAL ACCRUAL
BALANCE AT UTILIZATION BALANCE AT
JUNE 30, 1998 ----------------- JUNE 30,
1997 ADDITIONS CASH NON-CASH 1998
---------- --------- ------ -------- ----------
<S> <C> <C> <C> <C> <C>
Product rationalization, related
equipment charges and other........... $ 4.4 $ -- $ -- $ (2.7) $ 1.7
Closure of facilities and related
costs................................. 12.2 8.8 (0.5) (5.4) 15.1
Employee termination and related
costs................................. 3.8 20.4 (13.7) -- 10.5
Non-core business divestitures.......... 16.9 -- 7.4 (5.5) 18.8
----- ----- ------ ------ -----
Total......................... $37.3 $29.2 $ (6.8) $(13.6) $46.1
===== ===== ====== ====== =====
</TABLE>
The restructuring activity is expected to be substantially complete by September
30, 1998 or shortly thereafter and the Company believes the provisions recorded
are adequate to cover the costs associated with these plans.
Special Charges
In 1996, the Company conducted an extensive evaluation and review of the
collectibility of its receivable balances (including off-balance sheet
receivables) and related collection efforts. This initiative was primarily the
result of the overall weakening in the retail industry following a poor holiday
season. In addition, several commercial/industrial and retail customers filed
for bankruptcy and other customers experienced financial difficulties. The
Company also conducted a review of slow moving inventory in light of softening
demand for certain EAS products.
As a result of these reviews, in fiscal 1996 the Company recorded a charge to
operations of $100.7 which primarily represented increases in the valuation
allowances for doubtful accounts receivable and inventories. Of this amount,
$55.8 related to receivables, $25.1 related to inventories and revenue
equipment, and $19.8 related to other matters. The special charges are recorded
in the fiscal 1996 Consolidated Statement of Operations as follows: $29.1 in
costs of sales, $2.6 in depreciation on revenue equipment, $12.0 in selling,
general and administrative expenses, $56.5 in provision for doubtful accounts
and $0.5 in research, development and engineering expense.
In fiscal 1997 and 1998 the Company recorded additional special charges of $22.1
and $13.8, respectively, which principally represents increases to valuation
allowances for accounts receivable, receivables financed with third parties, and
other matters. The special charges are recorded in the fiscal 1997 and 1998
Consolidated Statement of Operations as follows: $2.5 and $3.0 in costs of
sales, respectively, and $3.5 and $10.8 in selling, general and administrative
expenses, respectively, and $16.1 in provision for doubtful accounts in fiscal
1997.
41
<PAGE> 43
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. CUSTOMER RECEIVABLES
Amounts due to the Company in the form of accounts receivable (which are
generally due within 90 days), deferred receivables (which are generally due
within one year), installment receivables (which generally have periodic
payments over a term of five years) and net investment in sales-type leases
(which principally have periodic payments over lease terms of five years or
greater) at June 30, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Trade accounts receivable due in 1 year..................... $303.9 $291.2
Allowance for doubtful accounts............................. (33.2) (39.6)
------ ------
Trade accounts receivable due in 1 year, net...... $270.7 $251.6
====== ======
Deferred receivables........................................ $ 4.9 $ 7.3
Installment receivables..................................... 38.8 46.0
Allowance for doubtful accounts............................. (5.6) (7.8)
Unearned interest and maintenance........................... (14.5) (18.0)
------ ------
Total deferred and installment receivables, net... 23.6 27.5
Less: Amounts due in 1 year, net............................ (19.0) (17.6)
------ ------
Total noncurrent deferred and installment
receivables, net................................ $ 4.6 $ 9.9
====== ======
Sales-type leases-minimum lease payments receivable......... $225.1 $215.5
Allowance for uncollectible minimum lease payments.......... (20.3) (16.4)
Unearned interest and maintenance........................... (40.4) (36.1)
------ ------
Total sales-type leases, net...................... 164.4 163.0
Less: Amounts due in 1 year, net............................ (36.5) (34.4)
------ ------
Total noncurrent sales-type leases, net........... $127.9 $128.6
====== ======
Total customer receivables.................................. $458.7 $442.1
Less: Amounts due in 1 year, net............................ 326.2 303.6
------ ------
Total noncurrent customer receivables............. $132.5 $138.5
====== ======
</TABLE>
Net receivables and sales-type lease receivables at June 30, 1998 are due as
follows: 1999 -- $326.2; 2000 -- $42.3; 2001 -- $36.6; 2002 -- $27.5;
2003 -- $17.8 and $8.3 thereafter.
At June 30, 1998 and 1997, credit risk concentration for receivables (including
those subject to recourse) due from supermarkets and specialty, department and
discount store sectors of the U.S. retail market, aggregated $115.6 and $96.9,
respectively. Assuming the obligors under these receivables were to fail to
completely perform according to the terms of the receivables, at June 30, 1998,
the Company estimates its aggregate exposure to loss in these customer groups to
be $81.3. The estimate takes into consideration the related allowances for
doubtful accounts and the estimated realizable value of the collateralized
equipment securing these receivables. The Company minimizes its exposure to
credit risk through its credit review procedures and collection practices and
its general policy of retaining a security interest in the underlying equipment
and ability to re-market such equipment if repossessed.
4. ACCOUNTS RECEIVABLE FINANCING
Effective January 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities", and accordingly, subsequent to the
adoption of SFAS No. 125, only receivables sold or transferred under financing
agreements which meet the criteria for off-balance sheet treatment as defined by
SFAS No. 125 are
42
<PAGE> 44
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
recognized as sales. All other transfers of receivables are treated as financing
transactions. In conjunction with the adoption of SFAS No. 125, the Company
entered into three new receivable financing agreements.
The new agreements entered into include a five year L100 million (approximately
$160.0) asset backed commercial paper conduit program (the "Program") which
allows for the sale of accounts receivables from eligible equipment lease
contracts originating in the United Kingdom and Scotland on a nonrecourse basis
to Mont Blanc Receivables Financing Limited ("MBRF"), an entity sponsored by the
Union Bank of Switzerland ("UBS"). Under the Program, the Company periodically
sells receivables to MBRF which in turn sells a percentage ownership in the
receivables to a commercial paper conduit sponsored by UBS. The Company receives
a subordinated receivable from MBRF equal to the difference between the value of
the receivables sold and the cash received from MBRF.
Effective June 1997, the Company, through a non-consolidated wholly-owned
special purpose corporation, established a committed securitization facility
sponsored by a major U.S. financial institution which will provide for the
transfer of up to $30.0 of the Company's long-term U.S. receivables. Under the
agreement, the Company periodically sells its receivables to the special purpose
corporation which in turn sells a percentage ownership interest in the long-term
receivables to a commercial paper conduit sponsored by the major U.S. financial
institution. The Company retains an investment in the special purpose
corporation equal to the difference between the value of the receivables sold
and the cash received from the special purpose corporation.
Additionally, the Company has established an uncommitted facility with a French
financial institution which will allow it to transfer, and record as a sale
under SFAS No. 125, its long-term French equipment leases.
Prior to December 31, 1996, the Company's two U.S. factoring agreements met the
requirements for sales treatment. The Company modified its principal U.S.
factoring agreement to continue to qualify for sales treatment under SFAS No.
125 and subsequently cancelled the second agreement. Under the Company's U.S.
factoring agreement, certain pre-approved U.S. accounts receivables are assigned
to the financial institution without customer non-payment recourse. The
financing institution advances, in anticipation of customer collections, to the
Company at fluctuating interest rates of 45 basis points in excess of the May
31, 1998 and 1997 LIBOR.
During fiscal 1998, the Company sold approximately $395.4 under all of the above
facilities. A portion of the sale of receivables is reflected in the financial
statements, primarily in other noncurrent assets, and such amounts of
approximately $34.5 are recorded at fair market value based on management's
assessment of realization and the expected timing of cash flows. Cash proceeds
from the sale of receivables under these facilities are included in cash flows
from operating activities in the Consolidated Statements of Cash Flows. The
Company is retained as servicer of the receivables sold under all of the above
agreements except for its remaining U.S. factoring agreements. Estimating the
fair value of the servicing asset or liability was not considered practicable
and accordingly, a servicing asset or liability has not been recognized.
The uncollected principal balance of receivables and sales-type leases sold
prior to January 1, 1997, under then existing agreements, which are subject to
varying amounts of recourse totaled $128.7 at June 30, 1998. Loss reserves have
been provided for receivables and sales-type lease receivables sold, as deemed
necessary, and are included in accrued liabilities.
43
<PAGE> 45
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Finished goods.............................................. $165.4 $145.0
Parts....................................................... 56.3 58.8
Work-in-process............................................. 14.7 24.9
------ ------
236.4 228.7
Less allowance for inventory losses......................... (32.8) (29.1)
------ ------
Total inventories, net............................ $203.6 $199.6
====== ======
</TABLE>
Refer to Note 2 for discussion of restructuring and special charges related to
inventories.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Machinery and equipment..................................... $148.4 $139.2
Buildings and improvements.................................. 52.0 60.3
Leasehold improvements and furniture and fixtures........... 33.3 31.5
Land........................................................ 11.9 16.8
------ ------
245.6 247.8
Less accumulated depreciation and amortization.............. (108.4) (102.3)
------ ------
Total property, plant and equipment, net.......... $137.2 $145.5
====== ======
</TABLE>
Refer to Note 2 for discussion of restructuring charges related to property,
plant and equipment.
The Company leases certain operating plant and equipment. The future lease
commitments for plant and equipment and other assets at June 30, 1998 aggregated
$42.6 and are due as follows: 1999 -- $16.2; 2000 -- $8.6; 2001 -- $5.1;
2002 -- $2.9; 2003 -- $2.6 and $7.2 thereafter. Rent expense for certain
operating plant and equipment was charged to operations as follows:
1998 -- $9.2; 1997 -- $13.8 and 1996 -- $18.9.
7. EARNINGS PER SHARE
In 1997, the FASB issued SFAS No. 128, "Earnings Per Share". SFAS No. 128
supersedes Accounting Principles Board Opinion ("APB") No. 15, "Earnings Per
Share" and various other authoritative pronouncements regarding earnings per
share ("EPS"). SFAS No. 128 became effective for periods ending after December
15, 1997. Accordingly, the Company adopted SFAS No. 128 effective December 31,
1997.
Under SFAS No. 128, primary earnings per share in accordance with APB No. 15 is
replaced with a simpler calculation called "basic earnings per share", which
excludes the dilutive effect of options, warrants and convertible securities.
Diluted earnings per share under SFAS No. 128 has not changed significantly as
compared to fully diluted earnings per share under APB No. 15, but has been
renamed "diluted earnings per share".
44
<PAGE> 46
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All earnings per share amounts for all periods have been presented in accordance
with the requirements of SFAS No. 128. There was no material change to the
Company's previously reported calculation of primary and fully diluted earnings
per share under APB No. 15 as a result of the adoption of SFAS No. 128. The
following table sets forth the computation of basic and diluted earnings per
share under SFAS No. 128:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Numerator:
Net Income............................................. $(37.1) $(21.4) $(97.7)
====== ====== ======
Denominator:
Basic EPS -- weighted average shares................... 74.2 74.0 73.6
Dilutive effect: Stock options......................... 0.3 0.2 0.5
------ ------ ------
Diluted EPS -- weighted average shares................. 74.5 74.2 74.1
====== ====== ======
Basic earnings per share............................... $(0.50) $(0.29) $(1.33)
====== ====== ======
Diluted earnings per share............................. --(a) --(a) --(a)
====== ====== ======
</TABLE>
- ---------------
(a) Excluded as result is anti-dilutive.
8. INCOME TAXES
Sensormatic applies SFAS No. 109 "Accounting for Income Taxes" which specifies
an asset and liability approach requiring the recognition of deferred tax assets
and liabilities with respect to the expected future tax consequences of events
that have been recorded in the Consolidated Financial Statements and tax
returns.
The income tax (benefits) provisions on (loss) income from continuing operations
are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
U.S. Federal income taxes:
Current................................................... $ 1.6 $ 6.0 $ 4.8
Deferred.................................................. (22.9) (21.9) (27.3)
Foreign income taxes:
Current................................................... 15.2 13.1 3.6
Deferred.................................................. (6.0) (4.7) (36.0)
State and other............................................. (4.9) (1.4) (7.3)
------ ------ ------
Total............................................. $(17.0) $ (8.9) $(62.2)
====== ====== ======
</TABLE>
The 1998, 1997 and 1996 deferred provisions include a tax benefit of $15.9,
$14.2 and $59.2, respectively, relating to net operating losses.
The United States (including Puerto Rico) and foreign components of (loss)
income from continuing operations before income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -------
<S> <C> <C> <C>
United States............................................... $(58.6) $(35.5) $ (74.3)
Foreign..................................................... 4.5 5.2 (85.6)
------ ------ -------
Total............................................. $(54.1) $(30.3) $(159.9)
====== ====== =======
</TABLE>
45
<PAGE> 47
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The U.S. Federal tax rate reconciles to the effective tax rate for continuing
operations as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
U.S. Federal tax rate....................................... (35.0)% (35.0)% (35.0)%
Benefits due to tax exempt earnings and investment income of
the Puerto Rico operations................................ (11.9) (19.2) (3.1)
Amortization of costs in excess of net assets acquired...... 6.0 14.4 2.4
International tax rate differentials, net of foreign tax
credits................................................... 11.2 (3.2) 0.9
Tax benefit of foreign sales corporation.................... (2.4) (4.4) (0.3)
State income tax effect, net of Federal benefit............. (5.9) (3.1) (3.0)
Adjustment of prior years' accruals......................... 4.4 -- --
Valuation allowance......................................... 2.0 18.0 (2.5)
Other....................................................... 0.1 3.5 1.7
----- ----- -----
(31.5)% (29.0)% (38.9)%
===== ===== =====
</TABLE>
Undistributed earnings of international subsidiaries are indefinitely reinvested
except for earnings of the Company's German subsidiary which are periodically
distributed to utilize the lower German integrated tax rate. No provision has
been made for income taxes that might be payable upon the remittance of the
indefinitely reinvested earnings. Upon distribution of those earnings, the
Company would be subject to both U.S. income taxes and withholding taxes payable
to the various foreign countries. The Company has not determined the amount of
tax liability associated with an unplanned distribution of these permanently
reinvested earnings.
Certain Commonwealth of Puerto Rico taxes (tollgate taxes) are due upon
distribution of earnings at rates ranging from none to 10% depending on the
fiscal year earned. At June 30, 1998, approximately $162.9 of undistributed
earnings were considered indefinitely reinvested in the Puerto Rico subsidiary,
upon which no tollgate taxes have been provided.
The effects of temporary differences and carryforwards that give rise to
deferred tax assets and liabilities at June 30, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Property, plant and equipment...................... $ 38.7 $ 1.4 $ 27.2 $ 0.4
Reserves and allowances............................ 23.7 (1.0) 42.1 (1.4)
Sales-type leases.................................. (66.7) 6.9 (82.9) 7.0
Undistributed earnings of German subsidiary........ (3.2) -- (0.4) --
Prepaid royalties.................................. -- -- -- --
Deemed sales revenues from Puerto Rico
operations....................................... 44.2 -- 30.5 --
Restructuring and special charges.................. 13.6 2.8 19.6 --
NOL and tax credit carryforwards................... 166.1 (0.6) 144.7 (1.8)
Valuation allowance................................ (19.7) -- (25.3) 0.3
Other.............................................. (8.2) 0.6 (10.1) 1.3
------ ----- ------ -----
Total deferred income taxes.............. $188.5 $10.1 $145.4 $ 5.8
====== ===== ====== =====
</TABLE>
Because deferred tax assets and liabilities are netted by jurisdiction, the
above disclosure reflects the asset and liability characterization based upon
the netting as reflected in the Consolidated Balance Sheets.
SFAS No. 109 requires a valuation allowance to reduce deferred tax assets if,
based on the weight of the available evidence, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. In
determining the need for a valuation allowance, SFAS No. 109 requires an
assessment of all
46
<PAGE> 48
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
available evidence both positive and negative. Management has determined that a
$19.7 valuation allowance at June 30, 1998 is necessary. The decrease in the
valuation allowance for the years ended June 30, 1998 and 1997 was $5.6 and
$2.8, respectively. The decrease in the 1998 deferred tax asset related to
disallowed loss carryforwards. The related valuation allowance was reduced by an
equal amount.
A significant portion of the deferred tax assets recognized relate to net
operating loss and credit carryforwards. Because the Company operates in
multiple off shore jurisdictions, it considered the need for a valuation
allowance on a country by country basis taking into account the effects of local
tax law. Where a valuation allowance was not recorded, the Company believes that
there was sufficient positive evidence to support its conclusion not to record a
valuation allowance. Management believes that the Company will utilize the loss
carryforwards in the future because: (1) prior to the restructuring charges and
shareholder litigation settlement costs, the Company had a history of pre-tax
income; (2) a significant portion of the loss carryforwards resulted from
restructuring and shareholder litigation settlement costs; (3) management
believes that the restructuring of the Company's businesses will reduce their
cost structures and that the Company will be profitable and will generate
taxable income in the near term; (4) management is aware of viable tax
strategies that could be implemented to accelerate taxable income in order to
realize a substantial portion of the recorded deferred tax assets; and (5) a
significant portion of the net operating losses have an indefinite life or do
not expire in the near term. However, there can be no assurance that the Company
will generate taxable income or that all of its loss carryforwards will be
utilized.
Net operating losses exist as follows:
- - Losses expiring in fiscal 1998 -- 2000: France $1.1, Norway $0.2
- - Losses expiring in fiscal 2001 -- 2005: France $12.9, Italy $9.3, Norway $1.6,
Other $10.6, United States $5.8
- - Losses expiring in fiscal 2006 -- 2010: Norway $6.7, United States $45.6
- - Losses expiring after fiscal 2010: United States losses of $60.0, $31.7 and
$51.3 expiring in fiscal 2011, 2012 and 2013, respectively
- - Losses with indefinite life: Belgium $31.4, France $10.0, Germany $23.7,
Sweden $12.0, U.K. $67.7, Other $10.5
- - Foreign tax credits expiring in fiscal 2000 through 2002 are $0.8.
9. DEBT
Debt is summarized as follows :
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
8.04% Senior Notes due March, 2006.......................... $230.0 $230.0
7.21% Senior Notes due March, 2000.......................... 70.0 70.0
7.34% Senior Notes due March, 2001.......................... 50.0 50.0
8.21% Senior Notes due January, 2003........................ 135.0 135.0
Unsecured revolving credit note payable, at 5.97% to
8.50%..................................................... -- 10.0
Other debt, at 2.88% to 11.0%, net of unamortized interest
of $3.5 and $4.4 at 1998 and 1997, respectively........... 63.7 28.3
------ ------
Total debt........................................ 548.7 523.3
------ ------
Less: Amounts payable in 1 year............................. (33.5) (21.8)
------ ------
Total noncurrent debt............................. $515.2 $501.5
====== ======
</TABLE>
47
<PAGE> 49
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has a committed line of credit agreement expiring in December 1999
with a group of U.S. and international banks which provides for aggregate
unsecured borrowings by the Company of up to $250.0 of which none was utilized
as of June 30, 1998. Borrowings under this agreement bear interest at the London
Interbank Offered Rate (LIBOR) plus 0.375% and are subject to an annual facility
fee of 0.225% of the total credit line. Additionally, the Company has various
uncommitted lines-of-credit with several financial institutions of which $15.3
was utilized at June 30, 1998. Borrowings under these agreements bear interest
at rates from 2.88% to 11.00%.
Under the terms of the Company's principal borrowing and financing agreements,
the Company is required, among other things to maintain a minimum interest
coverage ratio, to maintain a minimum net worth, as defined, is allowed to incur
debt up to a level whereby certain debt-to-total capitalization ratios would not
be exceeded, and is subject to certain limitations with respect to repurchases
of its Common Stock and the payment of cash dividends. The Company was in full
compliance with all of these terms at June 30, 1998 and 1997.
10. CONVERTIBLE PREFERRED STOCK
In April 1998, the Company issued 6,900,000 Depositary Shares for gross proceeds
of $172.5, or $166.7 net of commissions, discounts and other estimated expenses.
Each Depositary Share represents a one-tenth interest in a share of 6 1/2%
Convertible Preferred Stock with a liquidation preference of $250.00 per share
of preferred stock. Dividends on the Preferred Stock will accrue at a rate per
annum equal to 6 1/2% of the liquidation preference per share of Preferred Stock
and will be payable quarterly on January 1, April 1, July 1 and October 1 of
each year, commencing July 1, 1998. The Company issued approximately 189,425 and
348,289 shares of Common Stock which are not currently registered, in payment of
the dividends payable on July 1, 1998 and October 1, 1998, respectively.
Dividends are payable in cash or, at the option of the Company, in shares of
Common Stock of the Company or a combination thereof. Certain of the Company's
financial agreements currently prohibit the payment of cash dividends until
after the preparation of its audited financial statements for fiscal 1999, and,
it is unlikely that the Company would be able to pay cash dividends until after
the preparation of its audited financial statements for fiscal year 2000 at the
earliest. The Company intends to pay dividends on the Convertible Preferred
Stock with shares of Common Stock prior to the time it is able to pay cash
dividends. The Depositary Shares are convertible, subject to prior redemption,
at any time after July 13, 1998, at the option of the holder thereof into shares
of Common Stock at a conversion price of $19.52 per share of Common Stock,
subject to certain adjustments. The Preferred Stock will be redeemable, at the
option of the Company, in whole or in part, at any time on or after April 4,
2001, at prices commencing with 103.71% of liquidation preference, declining to
100% of liquidation preference on April 4, 2005. The Preferred Stock ranks
junior in right of payment to all indebtedness and other liabilities of the
Company.
11. STOCK OPTION PLANS
Under the Company's existing stock incentive plan (the "1995 Plan") stock
options may be granted to officers, key employees, and directors who are also
officers or employees or otherwise participate in the 1995 Plan. The 1995 Plan
provides for granting of other awards, such as stock appreciation rights, stock
awards and cash awards, although the Company intends to continue to principally
grant stock options under this plan. The Company also has a Directors Stock
Option Plan under which non-qualified stock options may be granted to directors
not covered by the 1995 Plan.
The exercise price of a stock option granted under all stock option plans is not
less than the fair market value of the Common Stock on the date of grant. Stock
options granted under all such plans generally become exercisable, cumulatively,
in equal annual installments over three years, and expire five or ten years from
the date of grant. The Company has granted to certain corporate officers
performance-based options under the 1995 Plan. These options become exercisable
from four to ten years after grant depending upon the Company's attainment of
certain performance objectives.
48
<PAGE> 50
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All such options are non-compensatory; therefore, any U.S. Federal income tax
benefits received upon their exercise are recorded as an increase to Common
Stock.
Information for all such plans is summarized for fiscal 1998, 1997 and 1996 as
follows (in millions, except for price per option amounts):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Options outstanding at beginning of year.............. 7.3 6.6 4.6
Granted............................................... 1.9 1.0 2.3
Exercised............................................. -- (0.1) (0.2)
Canceled.............................................. (1.1) (0.2) (0.1)
--------- --------- ---------
Options outstanding at end of year.................... 8.1 7.3 6.6
========= ========= =========
Average price of options exercised.................... $ 10.29 $ 15.24 $ 13.72
$ 7.42 to $ 7.42 to $ 5.87 to
Exercise prices of options outstanding at end of
year................................................ $ 36.38 $ 36.38 $ 36.38
Average exercise price of options outstanding at end
of year............................................. $ 19.48 $ 21.73 $ 22.22
Exercisable options at end of year.................... 3.9 2.8 2.8
Options available for future grants at end of year.... 1.0 1.7 0.8
</TABLE>
At both June 30, 1998 and 1997, 9.2 million shares of Common Stock were reserved
for issuance of which 9.1 million and 9.0 million, respectively, were reserved
for the exercise of stock options.
The Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation."
As permitted by SFAS No. 123, the Company continues to follow the measurement
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and does not recognize compensation expense for its
stock-based incentive plans. Had compensation cost for the Company's stock based
incentive compensation plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the methodology
prescribed by SFAS No. 123, the Company's net income and earnings per share for
fiscal 1998, 1997 and 1996 would have been reduced to the pro forma amounts
indicated below.
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Net loss:
As reported............................................... $(37.1) $(21.4) $(97.7)
Pro forma................................................. $(43.7) $(26.0) $(99.6)
Basic loss per common share:
As reported............................................... $(0.50) $(0.29) $(1.33)
Pro forma................................................. $(0.59) $(0.35) $(1.35)
</TABLE>
These pro forma amounts may not be indicative of future pro forma income and
earnings per share.
49
<PAGE> 51
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model, with the following historical weighted
average assumptions applied to grants in fiscal 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Dividend yields............................................. -- 1.17% 1.16%
Expected volatility......................................... .361 .398 .389
Risk-free interest rates.................................... 5.83% 6.26% 5.78%
Expected life (in years)(1)................................. 5 5 5
</TABLE>
- ---------------
(1) With the exception of employee stock purchase plan grants with an expected
life of 1 year.
Based upon the above assumptions, the weighted-average fair value of options
granted during 1998, 1997 and 1996 was $5.64, $7.75 and $7.38, respectively.
12. DEFINED CONTRIBUTION PLANS
The Company has: (a) retirement plans for U.S. employees, Puerto Rico employees
and for certain European employees which allow or require employee
contributions; (b) a Senior Executive Defined Contribution Retirement Plan for
certain officers; and (c) a Key Executive Supplemental Retirement Plan covering
certain officers and key employees. Annual contributions by the Company to all
such retirement plans are discretionary.
The Company charged to operations $7.1, $5.7 and $4.4 in fiscal 1998, 1997,
1996, respectively, related to the plans described under this section.
13. COMMITMENTS AND OTHER MATTERS
Contingent royalty payments
In connection with certain acquisitions, the Company pays royalties (ranging
from 3% to 10%) on revenues generated by the acquired businesses for periods
expiring through 2004. Such contingent payments, when incurred, will be recorded
as additional cost of the related acquisitions and amortized over the remaining
amortization period. Royalty payments in fiscal 1998, 1997, and 1996 were $19.7,
$16.4, and $14.9, respectively.
Litigation
During the first six months of fiscal 1996, a number of class actions were filed
in federal court by alleged shareholders of the Company following announcements
by the Company that, among other things, its earnings for the quarter and year
ended June 30, 1995, would be substantially below expectations and, in the later
actions or complaint amendments, that the scope of the Company's year-end audit
for the fiscal year ended 1995 had been expanded and that results for the third
quarter of fiscal 1995 were being restated. These actions were consolidated. The
consolidated complaint alleged, among other things, that the Company and certain
of its current and former directors, officers and employees, as well as the
Company's auditors, violated certain Federal securities laws.
The Company has settled the above-referenced consolidated class action. The
settlement agreement, requiring payment by the Company of approximately $53.5,
was approved by the Court and has been fully performed by the Company. The
Company has recovered a portion of the settlement amount and related expenses
from its primary directors and officers liability insurance policy, which has a
policy limit of $10.0, and has also been paid $10.0 by one of its two excess
directors and officers liability insurers. Subsequent to June 30, 1998, the
Company also reached an agreement in principle providing for the payment of
$6.25 by the other insurer (once documentation is finalized, the Company will
record the related insurance recovery). A pretax charge of $53.0, with an
after-tax effect of $37.1, was recorded by the Company for payments made in
connection with
50
<PAGE> 52
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
this settlement in the first quarter of fiscal 1998. Subsequently, during the
third quarter of fiscal 1998, the Company also recorded a net estimated
insurance recovery of $7.3 ($5.6 after-tax).
14. BUSINESS SEGMENT, GEOGRAPHIC AREA AND INTERNATIONAL OPERATIONS DATA
The Company operates in a single business segment and its principal products and
systems are electronic article surveillance, closed circuit television and
access control products and systems. The Company's operations by geographic area
are as follows:
<TABLE>
<CAPTION>
1998 1997 1996(4)
-------- -------- --------
<S> <C> <C> <C>
Revenues:
North America.......................................... $ 579.1 $ 629.9 $ 617.6
Europe................................................. 356.3 388.4 417.3
Other regions.......................................... 112.7 86.5 59.4
Inter area transfers................................... (61.2) (79.1) (99.7)
-------- -------- --------
Total consolidated............................. $ 986.9 $1,025.7 $ 994.6
======== ======== ========
Operating income (loss)(1)(2):
North America.......................................... $ 95.7 $ 35.7 $ (52.6)
Europe................................................. (50.7) (26.0) (48.3)
Other regions.......................................... 15.0 20.8 8.2
Corporate items........................................ (27.2) (28.4) (41.8)
-------- -------- --------
Subtotal................................................. 32.8 2.1 (134.5)
Total other (expenses)(3)...................... (86.9) (32.4) (25.4)
-------- -------- --------
Loss from continuing operations before income taxes...... $ (54.1) $ (30.3) $ (159.9)
======== ======== ========
Identifiable assets:
North America.......................................... $ 895.4 $ 777.3 $ 776.8
Europe................................................. 714.7 703.7 738.9
Other regions.......................................... 127.4 110.4 63.2
Corporate items........................................ 64.9 55.2 42.4
-------- -------- --------
Total consolidated............................. $1,802.4 $1,646.6 $1,621.3
======== ======== ========
</TABLE>
- ---------------
(1) Fiscal 1998, 1997 and 1996 include restructuring charges of $29.2, $26.8 and
$85.3, respectively. These charges were allocated to the geographical areas
of North America for $4.5, $23.9 and $57.2, respectively, and to Europe for
$24.7, $2.9 and $28.1, respectively.
(2) Fiscal 1998, 1997 and 1996 include special charges of $13.8, $22.1 and
$100.7, respectively. These charges were allocated to the geographical areas
of North America for $7.1, $7.0 and $57.4, respectively, and to Europe for
$6.7, $15.1 and $43.3, respectively.
(3) Fiscal 1998 includes a net litigation settlement charge of $45.7.
(4) Fiscal 1996 has been reclassified to conform to the fiscal 1997
presentation.
The Company operates in over fifteen European countries and one of these
countries, the United Kingdom, is considered significant with assets of $349.0,
$386.5 and $337.2 at June 30, 1998, 1997 and 1996, respectively. Fiscal 1998,
1997 and 1996 revenue for the United Kingdom was $109.0, $82.9 and $101.2,
respectively and operating income (loss) was $1.6, $(15.1) and $(2.7),
respectively.
In fiscal 1998, 1997, and 1996, export sales of $55.9, $31.7 and $37.6,
respectively, are reported in North America revenues. Transfers from North
America to Europe are accounted for at prices sufficient to recover a reasonable
profit margin. Corporate expenses include general corporate expenses, research,
development and engineering expenses and amortization of patents. Identifiable
assets are comprised of those assets of the Company that are identified with the
operations in each geographic area. Corporate assets are comprised principally
of patents and deferred costs.
51
<PAGE> 53
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. ACQUISITIONS AND DIVESTMENTS
In connection with acquisitions during fiscal 1997 and 1996, the market value of
the assets acquired was as follows:
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Cash paid (net of cash acquired)............................ $15.5 $ 8.6
Liabilities assumed and/or incurred......................... 1.2 4.3
Common stock issued......................................... -- --
----- -----
Market value of assets acquired............................. $16.7 $12.9
===== =====
</TABLE>
No acquisitions occurred in fiscal 1998.
In September 1997, the Company sold its U.S. Commercial/Industrial systems
integration business. The Company also agreed, in such transaction, to sell its
monitoring business, the sale of which was consummated in October 1997. The
Company received total proceeds of approximately $10.5 from the sale of these
operations. In addition, the Company retained ownership of all of the net
accounts receivable related to these operations totaling approximately $30.7 at
such time. The revenues of these operations prior to the divestiture date and
included in the Company's Consolidated Condensed Statement of Operations for
June 30, 1998 and 1997 were $11.4 and approximately $80.0, respectively.
16. FINANCIAL INSTRUMENTS
At June 30, 1998 and 1997, the recorded value of all financial instruments
reported as assets such as cash, short-term investments, trade receivables and
payables and short-term debt approximated their fair values, based on the
short-term maturities and floating rate characteristics of these instruments.
Fair value of balance sheet financial instruments
The recorded value of balance sheet financial instruments reported as
liabilities, where there is a difference between recorded value and estimated
market value, were as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Senior Note debt
Recorded value............................................ $485.0 $485.0
Fair value................................................ $471.3 $467.9
</TABLE>
Fair value is determined based on expected future cash flows (discounted at
market interest rates), quotes from financial institutions and other appropriate
valuation methodologies.
Interest rate agreements
The Company enters into interest rate agreements, principally to manage the
interest rate exposure associated with its sale of certain U.S. receivables.
Under the primary receivable financing agreement in the U.S., the Company sells
fixed interest rate receivables. Under such agreement, the financing institution
earns interest at a floating rate based on the one month LIBOR. Any resulting
differential in interest caused by the varying rates (variance amount) is either
paid or received by the Company. In order to manage the risk associated with the
variance amount, the Company enters into interest rate agreements for notional
amounts equal to the outstanding principal amounts of receivables sold, which
have the effect of converting the floating discount rate to a fixed discount
rate, thereby limiting the variance amount paid or received by the Company.
52
<PAGE> 54
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 1998, the Company was a party to the following interest rate
agreements:
FLOATING TO FIXED SWAP AGREEMENTS
<TABLE>
<CAPTION>
NOTIONAL EXPIRATION FIXED RATE FLOATING RATE
AMOUNT DATE TO BE PAID TO BE RECEIVED
- -------- -------------- ---------- --------------
<S> <C> <C> <C>
$ 3.0..................................... May 1999 7.75% 1 Month LIBOR
2.5..................................... September 1999 5.84 1 Month LIBOR
4.0..................................... May 2000 6.16 1 Month LIBOR
1.0..................................... April 2000 6.58 1 Month LIBOR
0.4..................................... April 1999 4.60 1 Month LIBOR
0.1..................................... August 1998 4.80 1 Month LIBOR
0.1..................................... March 1999 4.65 1 Month LIBOR
30.0..................................... March 2001 5.68 3 Month LIBOR
30.0..................................... March 2000 5.92 3 Month LIBOR
30.0..................................... March 2003 6.05 3 Month LIBOR
30.0..................................... March 2002 6.01 3 Month LIBOR
</TABLE>
In the third quarter of fiscal 1998, the Company entered into four interest rate
swap agreements with notional amounts totaling $120.0. As a result of these
recent interest rate swap agreements combined with existing swap agreements and
the terms of various finance agreements, approximately 70.0% of the Company's
interest rate exposure is fixed and 30.0% is variable.
The weighted average interest rates paid and received under all such Floating to
Fixed Swap Agreements in fiscal year 1998 were 6.03% and 5.69%, respectively,
and would have been the same assuming market conditions existing at June 30,
1998.
The notional amount of the Company's interest rate agreements at June 30, 1998
and 1997 was $131.1 and $24.1, respectively. Notional amounts do not quantify
risks or represent assets or liabilities of the Company, but are used in the
calculation of cash settlements under the agreements.
The fair value of the interest rate agreements represents the discounted cash
flow differential between offsetting interest rate agreements at market interest
rates and existing interest rate agreements at their coupon rates. At June 30,
1998 and 1997 the fair value of these agreements, as determined by the financial
institution counterparties, was immaterial.
In fiscal 1995, the Company entered into an interest rate cap agreement expiring
in September 1999, with a notional amount at June 30, 1998, of $1.0. Under the
agreement the Company will be paid an amount equal to the excess, if any, of the
one month LIBOR over 7% multiplied by the notional amount. At June 30, 1998
there was no such excess.
The Company has entered into a floating to fixed interest rate swap agreement
with a party to its U.K. receivable financing program. The effect of the
interest rate swap agreement is to revert to the Company the differential
between the fixed rate to be received on the receivables sold under this program
and the floating rate to be paid to the purchasers of the receivables. As of
June 30, 1998 the notional amount of this interest rate swap agreement was L63.7
million. The interest rate agreement will expire when the underlying receivables
are paid down. At June 30, 1998 the floating rate to be paid by the Company is
the one month Fed AA commercial paper composite rate and the fixed rate to be
received is approximately 7.67%. Under SFAS No. 125, financial components
received or incurred in connection with the transfer of financial assets
accounted for as a sale are to be recorded at fair market value at the date of
sale with changes in fair value recognized immediately in earnings. The fair
market value of this interest rate swap agreement was not determinable due to
the open ended expiration date and consequently has not been recognized in the
Consolidated Balance Sheet at June 30, 1998.
53
<PAGE> 55
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign currency contracts
The Company conducts business in a wide variety of currencies and consequently
enters into foreign exchange forward and option contracts to manage its exposure
to fluctuations in foreign currency exchange rates. These contracts generally
involve the exchange of one currency for another at a future date and are used
to hedge the Company's anticipatory intercompany commitments. At June 30, 1998
and 1997, the Company had contract principal amounts of approximately $260.6 and
$173.1, respectively in contracts to sell foreign currency in the future. At
June 30, 1998 and 1997, the Company would have gained $0.3 and $22.2,
respectively, to retire these agreements in the OTC market as determined by the
financial institution counterparties; such amounts represent the fair value of
these instruments.
At June 30, 1998, the Company owned forward and option contracts which allowed
it to sell currencies for the indicated U.S. dollar amounts, in fiscal year 1999
and 1998, as follows:
<TABLE>
<CAPTION>
2000 1999
CURRENCIES ----- ------
<S> <C> <C>
German Mark................................................. $ -- $ 65.9
Italian Lire................................................ -- 40.6
French Francs............................................... -- 69.6
Swedish Krona............................................... -- 13.8
British Pounds.............................................. -- 54.8
Spanish Pesetas............................................. -- 27.9
Irish Punts................................................. -- (9.5)
Belgium Franc............................................... (0.2) (2.2)
Other....................................................... -- (0.1)
----- ------
Total............................................. $(0.2) $260.8
===== ======
</TABLE>
Credit risk
The Company is exposed to credit risk to the extent of potential nonperformance
by counterparties on financial instruments. In the event of nonperformance by
the counterparties to the Company's interest rate agreements, the effective
interest rate on the underlying transaction would revert to the respective
contractual rate. The counterparties to the Company's interest rate agreements
and foreign currency contracts are limited to major financial institutions with
investment grade ratings; thus the Company believes the risk of incurring losses
due to credit risk is remote. Refer to Note 3 for disclosure regarding accounts
receivables subject to concentrations of credit risks.
Market risk
Exposure to market risk on financial instruments results from fluctuations in
interest and currency rates during the periods in which the contracts are
outstanding. The mark-to-market valuations of interest rate, foreign currency
agreements and of associated underlying exposures are closely monitored. Overall
financial strategies and the effects of using derivatives are reviewed
periodically.
54
<PAGE> 56
PART III
ITEMS 10 TO 13 INCLUSIVE.
The information required by Item 10 (Directors and Executive Officers of the
Registrant) (other than information as to executive officers of the Company,
which is set forth in Part I under the caption "Executive Officers of the
Registrant"), Item 11 (Executive Compensation), Item 12 (Security Ownership of
Certain Beneficial Owners and Management) and Item 13 (Certain Relationships and
Related Transactions) is incorporated by reference to the Company's definitive
proxy statement for the 1998 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before October 28, 1998, except that
the "Report of the Governance and Stock Incentive Plan Committees" and the
"Performance Graph" and the text describing it contained in the proxy statement
are not incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2) The following documents are filed as a part of this report:
Financial Statements and Financial Statement Schedules -- See Index to
Consolidated Financial Statements at Item 8 of this report.
(3) Listing of exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C> <C>
3(a) Composite Restated Certificate of Incorporation of the
Company filed pursuant to Rule 232.102(c) of Regulation S-T
(incorporated by reference to Exhibit 4(d) to Registration
Statement No. 33-61626).
3(b) By-Laws of the Company (incorporated by reference to Exhibit
3(b) to Form 10-K for the fiscal year end June 30, 1996).
4(a) Article FOURTH of the Restated Certificate of Incorporation
of the Company (incorporated by reference to Exhibit 4(d) to
Registration Statement No. 33-61626).
4(b) Note Agreement, dated as of March 29, 1996, among the
Company, and the other Purchasers named therein, including
the form of 6.99% Senior Notes due March 2001, 7.74% Senior
Notes due March 2001, and 7.11% Senior Notes due March 2001,
issued thereunder (incorporated by reference to Exhibit 4(a)
to Form 10-Q for the fiscal quarter ended March 31, 1996).
4(c) Note Agreement, dated as of January 15, 1993, among the
Company, The Northwestern Mutual Life Insurance Company and
the other Purchasers named therein, including the form of
8.21% Senior Notes due January 30, 2003, issued thereunder,
and First Amendment to such Note Agreement dated as of May
31, 1993 (incorporated by reference to Exhibit 4.4 to
Registration Statement No. 33-62750).
4(d) Certificate of Designations of the Powers Preferences and
Relative, Participating Optional and Other Special Rights of
Preferred Stock and Qualifications, Limitations and
Restrictions thereof of 6 1/2% Convertible Preferred Stock
of the Company, filed with the Secretary of State of the
State of Delaware on April 9, 1998 (incorporated by
reference to Exhibit 4 to Form 10-Q for the fiscal quarter
ended March 31, 1998).
4(e) 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.
</TABLE>
55
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C> <C>
10(a) Grant of Industrial Tax Exemption to Sensormatic Electronics
Corporation (Puerto Rico) from the Commonwealth of Puerto
Rico (incorporated by reference to Exhibit 10(n) to Form
10-K for the fiscal year ended May 31, 1986) and Order of
Conversion of Grant of Industrial Tax Exemption
(incorporated by reference to Exhibit 10(m) to Form 10-K for
the fiscal year ended May 31, 1988).
10(b) Description of Non-qualified Stock Option Plan (incorporated
by reference to Registration Statement No. 2-74526) and
representative form of non-qualified stock option
(incorporated by reference to Exhibit 3(c) to Registration
Statement No. 2-74526) and representative form of
non-qualified stock option (incorporated by reference to
Exhibit 3(c) to Registration Statement No. 2-74526).
10(c) Amended 1989 Stock Incentive Plan and representative forms
of non-qualified stock option under such Plan (incorporated
by reference to Exhibit 10(c) to Form 10-K for the fiscal
year ended June 30, 1994).
10(d) 1995 Stock Incentive Plan and representative forms of
non-qualified stock options and Restricted Stock Agreement
under such Plan (incorporated by reference to Exhibit 10(d)
to Form 10-K for the fiscal year ended June 30, 1995).
10(e) Directors Stock Option Plan, amended and restated as of
September 18, 1998, filed herewith, and representative form
of a non-qualified stock option under such Plan
(incorporated by reference to Exhibit 10(h) to Form 10-K for
the fiscal year ended May 31, 1992).
10(f) Stock Purchase Loan Plan (incorporated by reference to
Exhibit 10(g) to Form 10-K for the fiscal year ended May 31,
1986).
10(g) Executive Salary Continuation Plan and representative form
of agreement thereunder (incorporated by reference to
Exhibit 10(g) to Form 10-K for the fiscal year ended May 31,
1989).
10(h) Board of Directors Retirement Plan and representative form
of agreement thereunder (incorporated by reference to
Exhibit 10(h) to Form 10-K for the fiscal year ended May 31,
1989).
10(i) Senior Executive Defined Contribution Retirement Plan and
representative form of agreement thereunder (incorporated by
reference to Exhibit 10(h) to Form 10-K for the fiscal year
ended June 30, 1994).
10(j) Employment Agreement, dated as of October 14, 1995, between
the Company and Robert A. Vanourek, President and Chief
Executive Officer of the Company (incorporated by reference
to Exhibit 10(v) to Form 10-K/A for the fiscal year ended
June 30, 1995).
10(k) Agreement, dated as of September 1, 1998, between the
Company and Robert A. Vanourek, President and Chief
Executive Officer of the Company.
10(l) Employment Agreement, dated as of December 21, 1995, between
the Company and Garrett E. Pierce, Senior Vice President,
Chief Administrative Officer and Chief Financial Officer of
the Company (incorporated by reference to Exhibit 10(m) to
Form 10-K for the fiscal year ended June 30, 1996).
10(m) Agreement, dated as of September 1, 1998, between the
Company and Garrett E. Pierce, Senior Vice President, Chief
Administrative Officer and Chief Financial Officer of the
Company.
10(n) Agreement, dated as of September 1, 1998, between the
Company and Ronald G. Assaf, Chairman of the Board of the
Company, amending and superseding Agreement, dated as of
December 23, 1988, between the Company and Mr. Assaf.
</TABLE>
56
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C> <C>
10(o) Agreement, dated as of August 9, 1996, between the Company
and Ronald G. Assaf, Chairman of the Board, and former
President and Chief Executive Officer of the Company
(incorporated by reference to Exhibit 10(o) to Form 10-K for
the fiscal year ended June 30, 1996) and amendment thereto
dated as of September 1, 1998 filed herewith.
10(p) Agreement, dated as of September 1, 1998, between the
Company and James E. Lineberger, Chairman of the Executive
Committee and a director of the Company, amending and
superseding Agreement, dated as of December 23, 1988,
between the Company and Mr. Lineberger.
10(q) Form of Agreement, dated as of September 1, 1998, between
the Company and each of Thomas V. Buffett, Timothy P.
Hartman and John T. Ray, Jr., directors of the Company,
amending and superseding Agreements, dated as of February
12, 1996, between the Company and such individuals.
10(r) Form of Agreement, dated as of September 1, 1998, between
the Company and each of Fred A. Breidenbach and J. Richard
Munro, directors of the Company.
10(s) Agreement, dated as of August 31, 1997, between the Company
and Jerry T. Kendall, Senior Vice President of the Company
and President of North America Retail Operations.
10(t) Agreement, dated as of September 1, 1998, between the
Company and Jerry T. Kendall, Senior Vice President of the
Company and President of North America Retail Operations.
10(u) Agreement, dated as of June 25, 1997, between the Company
and Ronald F. Premuroso, Senior Vice President of the
Company and President of Europe Retail Operations.
10(v) Agreement, dated as of September 1, 1998, between the
Company and Ronald F. Premuroso Senior Vice President of the
Company and President of Europe Retail Operations.
10(w) Directors and Officers Liability Insurance Policies
(incorporated by reference to Exhibit 10(v) to Form 10-K for
the fiscal year ended June 30, 1996).
10(x) Amended and Restated Credit Agreement, dated as of December
12, 1995, between the Company, Wachovia Bank of Georgia,
N.A., ABN Amro Bank N.V., the other Borrowers listed therein
and the domestic banks and foreign company banks listed
therein (incorporated by reference to Exhibit 10(w) to Form
10-K for the fiscal year ended June 30, 1996).
10(y) Amended and Restated Multicurrency Revolving Credit
Agreement, dated as of March 18, 1997, between the Company
and The First National Bank of Boston as Agent and other
lenders referred to therein (incorporated by reference to
Exhibit 10(w) to Form 10-K for the fiscal year ended June
30, 1997).
10(z) Second Amendment, dated as of February 20, 1998, to the
Amended and Restated Multicurrency Revolving Credit
Agreement, dated as of March 18, 1997, between the Company
and BankBoston, N.A. and other lending institutions
(incorporated by reference to Exhibit 10 to Form 10-Q for
the fiscal quarter ended March 31, 1998).
12 Computation of Ratio of Earnings to Fixed Charges
21 List of Subsidiaries of the Company.
23(a) Consent of Independent Certified Public Accountants
(reference to Exhibit 23(a) to Form S-8 Nos. 2-19339,
33-26786, 33-38753, 33-54626 and 33-58299).
23(b) Consent of Independent Certified Public Accountants
(reference to Exhibit 23(b) to Form S-4 No. 33-51957).
27 Financial Data Schedule (EDGAR version only).
</TABLE>
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the three month period
ended June 30, 1998.
57
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized, on September 28, 1998.
SENSORMATIC ELECTRONICS
CORPORATION
By: /s/ GARRETT E. PIERCE
------------------------------------
Garrett E. Pierce
Senior Vice President, Chief
Administrative Officer and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Company and in
the capacities indicated on September 28, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ ROBERT A. VANOUREK President and Chief Executive Officer
- ----------------------------------------------------- (Principal Executive Officer) and Director
Robert A. Vanourek
/s/ GARRETT E. PIERCE Senior Vice President, Chief
- ----------------------------------------------------- Administrative Officer and Chief Financial
Garrett E. Pierce Officer
(Principal Financial Officer)
/s/ GREGORY C. THOMPSON Vice President and Controller
- ----------------------------------------------------- (Principal Accounting Officer)
Gregory C. Thompson
/s/ RONALD G. ASSAF Chairman of the Board of Directors
- -----------------------------------------------------
Ronald G. Assaf
/s/ THOMAS V. BUFFETT Director
- -----------------------------------------------------
Thomas V. Buffett
/s/ TIMOTHY P. HARTMAN Director
- -----------------------------------------------------
Timothy P. Hartman
/s/ FRED A. BREIDENBACH Director
- -----------------------------------------------------
Fred A. Breidenbach
/s/ JAMES E. LINEBERGER Director
- -----------------------------------------------------
James E. Lineberger
/s/ J. RICHARD MUNRO Director
- -----------------------------------------------------
J. Richard Munro
/s/ JOHN T. RAY, JR. Director
- -----------------------------------------------------
John T. Ray, Jr.
</TABLE>
58
<PAGE> 60
SCHEDULE II
SENSORMATIC ELECTRONICS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDING JUNE 30, 1998, 1997, AND 1996
(In millions)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
1998(1) 1997(1) 1996(1)
------- ------- -------
<S> <C> <C> <C>
Balance, beginning of period................................ $ 63.8 $ 62.8 $ 26.4
Additions charged to income................................. 23.4 21.1 25.8
Special charges(2).......................................... 0.4 6.1 56.5
Amounts written off......................................... (22.4) (28.7) (47.3)
Other (including currency translation)...................... (6.1) 2.5 1.4
------ ------ ------
Balance, end of period...................................... $ 59.1 $ 63.8 $ 62.8
====== ====== ======
</TABLE>
ALLOWANCE FOR INVENTORY LOSSES
<TABLE>
<CAPTION>
1998(1) 1997(1) 1996(1)
------- ------- -------
<S> <C> <C> <C>
Balance, beginning of period................................ $29.1 $ 38.0 $ 10.3
Additions charged to income................................. 7.8 11.6 16.5
Restructuring and special charges........................... 3.9 4.2 39.8
Amounts written off......................................... (7.6) (19.2) (30.2)
Other (including currency translation)...................... (0.4) (5.5) 1.6
----- ------ ------
Balance, end of period...................................... $32.8 $ 29.1 $ 38.0
===== ====== ======
</TABLE>
- ---------------
(1) Refer to Note 2 of the Notes to the Consolidated Financial Statements for
discussion of restructuring and special charges.
(2) For the year ending June 30, 1997, a liability of $12.0 relating to the
disposition of a non-core business has been reclassified to other liability.
S-1
<PAGE> 61
SENSORMATIC ELECTRONICS CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions, except ratio amounts)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Income (loss) from operations before income taxes.... $ 96.0 $ 89.0 $(159.9) $(30.3) $(54.1)
Add (deduct):
Fixed charges less preferred stock dividends....... 23.7 30.8 40.5 49.8 52.4
Minority interest in consolidated subsidiaries..... 0.5 1.0 1.6 2.7 4.5
Minority interest adjustment for losses of majority
owned subsidiaries.............................. -- -- -- -- --
Net losses related to 50% or less owned
subsidiaries.................................... -- -- -- -- --
------ ------ ------- ------ ------
Adjusted Earnings.................................... $120.2 $120.8 $(117.8) $ 22.2 $ 2.8
====== ====== ======= ====== ======
Fixed Charges:
Interest........................................... $ 22.7 $ 29.0 $ 38.4 $ 47.9 $ 50.8
Amortization of debt expense and debt discounts.... -- 0.3 0.6 0.8 0.9
Portion of Rents representive of interest factor... 1.0 1.5 1.5 1.1 0.7
Preferred Stock dividends(1).......................
------ ------ ------- ------ ------
Total fixed charges........................ $ 23.7 $ 30.8 $ 40.5 $ 49.8 $ 52.4
====== ====== ======= ====== ======
Ratio of Earnings to fixed charges(2)......... 5.07 3.92 -- 0.45 0.05
====== ====== ======= ====== ======
</TABLE>
- ---------------
(1) Preferred stock dividends declared in fiscal 1998 were in the form of common
stock, thereby not effecting fixed charges or the income statement.
(2) Earnings for the year ended June 30, 1996 was not able to cover fixed
charges by $158.3.
<PAGE> 1
EXHIBIT 10(e)
SENSORMATIC ELECTRONICS CORPORATION
DIRECTORS STOCK OPTION PLAN
1. Purpose. The purpose of the Directors Stock Option Plan
(the "Plan") is to aid the Company in attracting, retaining and motivating
directors by providing them with incentives for making significant contributions
to the growth and profitability of the Company. The Plan is designed to
accomplish this goal by the granting of stock options, thereby providing
Participants with a proprietary interest in the growth, profitability and
success of the Company. The Plan succeeds the Directors Stock Option Plan (the
"1990 Directors Plan"), which was established in March 1990 as a subplan under
the Company's 1989 Stock Incentive Plan. Stock options granted to directors of
the Company pursuant to the 1990 Directors Plan are deemed to have been granted
under the Plan and are governed by the terms and conditions of the Plan.
2. Definitions.
(a) Board. The Board of Directors of the Company.
(b) Code. The Internal Revenue Code of 1986, as amended from
time to time.
(c) Committee. The members of the Board or a committee
composed of not less than two members thereof as may be designated from time to
time by the Board, who shall administer the Plan.
(d) Company. Sensormatic Electronics Corporation.
(e) Discretionary Stock Incentive Plan. The Company's 1995
Stock Incentive Plan, together with its predecessor stock incentive plans and
any successor stock incentive plans.
(f) Exchange Act. The Securities Exchange Act of 1934, as
amended.
(g) Fair Market Value. If the Stock is listed on the New York
Stock Exchange (or other national exchange), the average of the high and low
sale prices as reported on the New York Stock Exchange (or such other exchange)
or, if the Stock is not listed on a national exchange, the average of the high
and low sale prices of the Stock in the over-the-counter market, as reported by
the National Association of Securities Dealers through its Automated Quotation
System or otherwise, in either case for the date in question, provided that if
no transactions in the Stock are reported for that date, the average of the high
and low sale prices as so reported for the preceding day on which transactions
in the Stock were effected.
(h) Non-Employee Directors. Directors of the Company who are
not officers or employees of the Company or any direct or indirect subsidiary of
the Company.
<PAGE> 2
(i) Option. A non-qualified stock option to purchase shares of
Stock granted, or deemed to have been granted, pursuant to the terms and
conditions of the Plan.
(j) Option Agreement. An agreement between the Company and a
Participant setting forth the terms, conditions and limitations applicable to
an Option.
(k) Participant. A director of the Company to whom an Option
has been granted.
(l) Stock. Authorized and issued or unissued shares of Common
Stock of the Company or any security issued in exchange or substitution
therefor.
(m) Stock Incentive Plan Committee. The committee designated
to administer a Discretionary Stock Incentive Plan.
3. Eligibility. Only the following persons are eligible to
participate in the Plan: (a) directors who are members of a Stock Incentive Plan
Committee and (b) Non-Employee Directors who (i) have not been designated by
the Board within 30 days after becoming a director as being eligible to receive
awards under a Discretionary Stock Incentive Plan or, (ii) having been eligible
to participate in a Discretionary Stock Incentive Plan, have ceased to be so
eligible as a result of a determination by the Board. The eligibility of any
such director to participate in the Plan shall cease if such director is
subsequently designated as being eligible to receive awards (as defined in the
Discretionary Stock Incentive Plan) under a Discretionary Stock Incentive Plan.
4. Stock Available for Options. Subject to Section 8 hereof, a
total of 225,000 shares of Stock (and, subject to shareholder approval, an
additional 350,000 shares) shall be available for issuance pursuant to options
granted under or deemed granted under the Plan, including shares of Stock which
after the effective date of the Plan may be issued under stock options which
were granted originally under the 1990 Directors Plan and were outstanding at
the effective date of the Plan. From time to time, the Board and appropriate
officers of the Company shall file such documents with governmental authorities
and, if the Stock is listed on the New York Stock Exchange (or other national
exchange), with such stock exchange, as are required to make shares of Stock
available for issuance pursuant to Options and publicly trade able. Shares of
Stock related to Options, or portions of Options, that are forfeited, canceled
or terminated, expire unexercised, are surrendered in exchange for other
Options, or in such manner that all or some of the shares covered by an Option
are not and will not be issued to a Participant, shall be restored to the total
number of shares of Stock available for issuance pursuant to Options.
5. Administration. The Plan shall be administered by the
Committee, which shall have full and exclusive power to (a) construe and
interpret the Plan and all Option Agreements, (b) adopt and amend such rules,
procedures, regulations and guidelines for carrying out the Plan as it may deem
necessary or desirable and (c) take any other action necessary for the proper
operation and administration of the Plan, all of which powers shall be exercised
in a manner consistent with the objectives, and in accordance with the terms and
conditions, of the Plan; provided, however, that no discretion regarding the
grant, amount, timing, terms and
-2-
<PAGE> 3
conditions of Options granted, or deemed granted, under the Plan shall be
afforded to the Committee. All actions of the Committee with respect to the Plan
shall require the vote of a majority of its members or, if there are only two
members, by the vote of both. Any action of the Committee may be taken by a
written instrument signed by a majority (or both) of such members and any action
so taken shall be as effective as if it had been taken by a vote of such members
at a meeting. All determinations and acts of the Committee as to any matters
concerning the Plan, including interpretations or constructions of the Plan and
any Option Agreement, shall be conclusive and binding on all Participants and on
any parties validly claiming through any Participants.
6. Granting of Options.
(a) On the date the Plan became effective, each director who
at such date was eligible to participate in the Plan was automatically granted
an Option to purchase 20,000 shares of Stock, unless such director was
previously granted an option to purchase Stock pursuant to Section 5(a) of the
1990 Directors Plan or otherwise pursuant to a Discretionary Stock Incentive
Plan (a "Previous Grant").
(b) On the date of the Annual Meeting of Stockholders held in
November 1991, and on the date of each succeeding Annual Meeting of
Stockholders, each director of the Company who received a Previous Grant and who
remains a director and eligible to participate in the Plan shall automatically
be granted an Option to purchase 7,500 shares of Stock.
(c) On the date that any Non-Employee Director (other than a
director who received a Previous Grant or who received a grant pursuant to
subparagraph (a) of this Sec tion 6) first becomes eligible to participate in
the Plan, such Non-Employee Director shall auto matically be granted an Option
to purchase 20,000 shares of Stock.
(d) Commencing on the date of the Annual Meeting of
Stockholders of the Company (i) on or next preceding the second anniversary of
the date on which a Participant becomes eligible to participate in the Plan, in
the case of a Participant who is granted an Option pursuant to subparagraph (c)
of this Section 6, or (ii) on or next preceding the first anniversary of the
date on which a Non-Employee Director becomes eligible to participate in the
Plan, in the case of a Non-Employee Director who is not granted an Option
pursuant to subparagraph (c) of this Section 6, and, in each case, on the date
of each succeeding Annual Meeting of Stockholders, any such Participant, if
remaining a director and eligible to participate in the Plan, shall
automatically be granted an Option to purchase 7,500 shares of Stock.
(e) Notwithstanding the foregoing, no Option shall be granted
to any person whose service as a director ends at the Annual Meeting of
Stockholders on the date of which the Option would otherwise be granted.
(f) The number of shares of Stock for which Options shall be
granted under this Section 6 is subject to adjustment as set forth in Section
7(l) hereof.
7. Options. Each Option granted pursuant to, or otherwise to
be governed by the terms and conditions of, the Plan shall have the following
terms and conditions:
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<PAGE> 4
(a) Each Option shall have an exercise price equal to the Fair
Market Value of a share of Stock on the date of grant.
(b) The price at which shares of Stock may be purchased upon
exercise of an Option shall be paid in full at the time of exercise, in cash or
by (i) tendering Stock or surrendering another stock option, valued at, or on
the basis of, the Fair Market Value of the Stock on the date of exercise, (ii)
delivery of a promissory note issued by a Participant to the Company pursuant to
the terms and conditions of the Company's Stock Purchase Loan Plan or otherwise
as determined by the Committee, or (iii) other means acceptable to the
Committee. The Committee shall determine acceptable methods for tendering Stock
or surrendering other stock options. Participants may also exercise Options and
simultaneously sell some or all of the shares of Stock so acquired pursuant to a
brokerage or similar arrangement which provides for the payment of the Option
exercise price substantially concurrently with the delivery of such shares.
(c) Each Option shall be exercisable for a period of ten years
from the date of grant.
(d) Each Option shall be exercisable as to one-third of the
shares of Stock subject to such Option on and after the first anniversary of the
date of grant of such Option, as to an additional one-third, on and after the
second anniversary thereof, and as to the remaining one-third, on and after the
third anniversary thereof.
(e) The Company shall have the right to deduct applicable
taxes resulting from any exercise of or other payment on an Option and to
withhold an appropriate number of shares of Stock for payment of tax withholding
obligations, if any, or to take such other action as may be necessary in the
opinion of the Company to satisfy any tax withholding obligations. In addition,
Participants may elect to (i) have the Company deduct applicable taxes by
withhold ing an appropriate number of shares of Stock for payment of taxes
required by law or (ii) tender to the Company for the purpose of satisfying tax
payment obligations other Stock held by the Participant. If the Company
withholds shares of Stock to satisfy tax payment obligations, the value of such
Stock shall be its Fair Market Value on the date the Option is exercised. If a
Participant tenders shares of Stock pursuant to clause (ii) above to satisfy tax
payment obligations, the value of such Stock shall be the Fair Market Value on
the date the Participant tenders such Stock to the Company.
(f) Except as otherwise set forth in the applicable Option
Agreement or as otherwise provided in paragraphs (g), (h), (i) and (j) of this
Section 7, if a Participant's association with the Company terminates, any
unexercised Option (or portion thereof) shall, to the extent it is exercisable
pursuant to the terms of such Option on the date of such termination, remain
exercisable for a period of three months following the date of termination or
until the stated expiration date of the Option, if earlier.
(g) If a Participant dies, any outstanding Option then held by
the Participant shall become fully exercisable as of the date of the
Participant's death. Any such Option shall be exercisable by the Participant's
estate or beneficiaries following the Participant's death through the expiration
date specified in the applicable Option Agreement and in such manner
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<PAGE> 5
as if the Participant were living. Rights with respect to any such Option shall
pass in the following order: (i) to beneficiaries so designated in writing by
the Participant; or if none, then (ii) to the Participant's legal
representatives; or if none, then (iii) to the persons entitled thereto as
determined by a court of competent jurisdiction.
(h) If a Participant ceases to be associated with the Company
because the Participant is deemed by the Company to be disabled, any Option held
by the Participant may be exercised by the Participant, if legally competent, or
by a committee or other legally designated guardian or representative if the
Participant is legally incompetent, through the expiration date specified in the
applicable Option Agreement. Any such Option shall become fully exercisable as
of the date of the Participant's termination of his association with the Company
by virtue of such disability.
(i) If a Participant's association with the Company terminates
in order that such Participant may assume a position with a governmental,
charitable or educational agency or institution, such Participant's Options, to
the extent permitted by law, shall continue in effect and be exercisable beyond
the date of termination, up until the expiration date specified in the
applicable Option Agreement. Any such Option shall become fully exercisable as
of the date of the Participant's termination. To the extent permitted by law,
the Participant may authorize a third party (including, without limitation, the
trustee of a "blind" trust), acceptable to the applicable authorities, the
Participant and the Committee, to act on behalf of the Participant with respect
to such Options.
(j) If a Participant's association with the Company terminates
by reason of the Participant's retirement at 62 years of age or thereafter, any
outstanding Option then held by the Participant shall become fully exercisable
as of the date of the Participant's retirement. Any such Option shall be
exercisable through the expiration date specified in the applicable Option
Agreement.
(k) An Option shall not be assignable or transferable to, or
exercisable by, anyone other than the Participant to whom it is granted, except
(i) as provided in subparagraphs (g), (h), (i) and (j) of this Section 7 and
(ii) to (A) a member of the Participant's immediate family; (B) a trust solely
for the benefit of the Participant and/or one or more members of his immediate
family; or (C) a partnership or limited liability company, all of whose
interests are owned by the Participant and/or one or more members of his
immediate family (any of (A), (B) and (C) referred to as a "Permitted
Transferee"), in each case as set forth in this Section 7(k). A permitted
transfer under subparagraph (ii) hereof may be made only upon written notice
thereof to the Company. A Permitted Transferee may not further assign, sell or
transfer the transferred Option, in whole or in part, other than by will or by
operation of the laws of descent and distribution and upon the terms and
conditions described in subparagraphs (g) or (h) of this Section 7. A Permitted
Transferee shall agree in writing to be bound by the provisions of this Plan.
For purposes of this Section 7(k), "immediate family" shall mean the Optionee's
spouse, children, children-in-law and grandchildren, including adopted and
step-children and grandchildren.
(l) In the event of any change in the number of shares of
outstanding Stock by reason of a stock split, stock dividend, combination or
reclassification of shares,
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<PAGE> 6
recapitalization, merger, consolidation or similar event, the Committee shall
adjust propor tionally the number of shares of Stock covered by each outstanding
Option and the exercise price thereof. In the event of any other change
affecting the Stock or any distribution (other than normal cash dividends) to
holders of Stock, such adjustments as may be deemed equitable by the Committee,
including adjustments to avoid fractional shares, shall be made to give proper
effect to such event.
(m) Notwithstanding the provisions of paragraph (d) of this
Section 7, Options shall be subject to acceleration of exercisability in the
event of a Change in Control of the Company, as provided in agreements between
the Company and certain of its officers and directors which provide for certain
protections and benefits in the event of a Change in Control (as defined in such
agreements), or as shall be provided in applicable Option Agreements. "Change in
Control" for purposes of the Plan and any Options shall mean a change in control
of the Company under such circumstances as shall be specified (i) where
applicable to any Options by any such agreement between the Company and a
Participant as (A) may have been entered into prior to the effective date of the
Plan or (B) shall be entered into after the effective date of the Plan upon such
terms and conditions, to the extent applicable to any Options, as are
substantially the same as those contained in earlier prior agreements with
certain officers and directors, or (ii) in the applicable Option Agreement. For
the purposes of the Plan or any Option, a "Change in Control" may, without
limitation, be deemed to have occurred if (A) a change in control of the Company
of a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A under the Exchange Act occurs; (B) any "person"
or "group" of persons (as the terms "person" and "group" are used in Section
13(d) and 14(d) of the Exchange Act and the rules thereunder) is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the then outstanding
securities of the Company; (C) the Company consummates a merger, consolidation,
share exchange, division or other reorganization of the Company with any other
corporation or entity, unless the stockholders of the Company immediately prior
to such transaction beneficially own, directly or indirectly, (1) if the Company
is the surviving corporation in such transaction, 60% or more of the combined
voting power of the Company's outstanding voting securities as well as 60% or
more of the total market value of the Company's outstanding equity securities,
(2) if the Company is not the surviving corporation, 80% or more of the combined
voting power of the surviving entity's outstanding voting securities as well as
80% or more of the total market value of such entity's outstanding equity
securities, or (3) in the case of a division, 80% or more of the combined voting
power of the outstanding voting securities of each entity resulting from the
division as well as 80% or more of the total market value of each such entity's
outstanding equity securities, in each case in substantially the same proportion
as such stockholders owned shares of the Company prior to such transaction; (D)
the Company adopts a plan of complete liquidation or winding-up of the Company;
(E) the stockholders of the Company approve an agreement for the sale or
disposition (in one transaction or a series of transactions) of all or
substantially all of the Company's assets; or (F) a change of more than 25% in
the composition of the Board occurs within a two-year period unless such change
was approved in advance by at least two-thirds of the previous directors.
8. Adjustments. In the event of any change in the outstanding
Stock by reason of a stock split, stock dividend, combination or
reclassification of shares, recapitaliza-
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<PAGE> 7
tion, merger, consolidation or similar event, the Committee shall adjust
proportionally the number of shares of Stock (a) reserved for issuance pursuant
to the Plan and (b) available for Options.
9. Amendment or Termination. The Committee may amend, modify,
suspend or terminate the Plan for the purpose of (a) meeting or addressing any
changes in any applicable tax, securities or other laws, rules or regulations or
(b) for any other purpose permitted by law. Subject to changes in law or other
legal requirements which would permit otherwise, the Plan may not be amended
without stockholder approval to (i) increase materially the aggregate number of
shares of Stock that may be issued under the Plan (except for any increase
resulting from adjustments pursuant to Section 7(l) or 8 hereof), or (ii)
increase materially the benefits accruing to Participants or (iii) modify
materially the requirements as to eligibility for participation in the Plan.
Further, the Plan may not be amended in a manner that would alter, impair,
amend, modify, suspend or terminate any rights of a Participant or obligation of
the Company under any Options theretofore granted, in any manner adverse to such
affected Participant, without the consent of such affected Participant.
10. Notice. Any written notice to the Company required by any
of the provisions of the Plan shall be addressed to the Committee, c/o the
Secretary of the Company, and shall become effective when received by the
Secretary.
11. Governing Law. The Plan and all determinations made and
actions taken pursuant hereto, to the extent not otherwise governed by the Code
or the securities laws of the United States, shall be governed by and construed
under the laws of the State of Delaware.
12. Effective and Termination Dates. The Plan, and any
amendment hereof requiring stockholder approval, shall become effective as of
the date of its approval by the stockholders of the Company by the affirmative
vote of a majority of the votes cast at a stockholders' meeting at which the
approval of the Plan (or any such amendment) is considered, provided that the
total vote cast represents over 50% of all shares entitled to vote on the
proposal. The Plan shall terminate on November 30, 2006, subject to earlier
termination by the Board pursuant to Section 9 hereof, except as to Options then
outstanding.
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<PAGE> 1
EXHIBIT 10(k)
AGREEMENT
AGREEMENT, dated as of September 1, 1998, by and between
SENSORMATIC ELECTRONICS CORPORATION, a Delaware corporation having its principal
place of business at 951 Yamato Road, Boca Raton, Florida 33431 ("Sensormatic"),
and ROBERT A. VANOUREK ("Executive"), residing at Woodfield Country Club, 3616
Carlton Street, Boca Raton, Florida 33496.
W I T N E S S E T H:
WHEREAS, as of October 14, 1995, Executive became an officer
and employee of Sensormatic, with the position of President and Chief Operating
Officer, and on August 12, 1995, assumed the position of Chief Executive
Officer; and Executive has made and is expected to make a significant
contribution to the performance and growth of Sensormatic;
WHEREAS, the Board of Directors of Sensormatic recognizes
that, as is the case with many publicly-held corporations, the possibility of a
Change in Control (as defined below) exists and that such possibility, and the
uncertainty which it may raise among Sensormatic's management, may result in the
distraction or departure of management personnel to the detriment of Sensormatic
and its stockholders, particularly at a time when Sensormatic is placing heavy
demands on its management in connection with its efforts to expand its product
lines and markets, restructure its operations and reduce its expenses;
WHEREAS, the Board of Directors of Sensormatic has determined
that it is in the best interest of Sensormatic and its stockholders to provide
to Executive certain rights as to termination compensation in the event of a
Change in Control; and
WHEREAS, the Board of Directors of Sensormatic believes that
the grant of such rights to Executive will help assure Executive's continuing
dedication to his duties to Sensormatic, notwithstanding the occurrence of any
Change in Control, and, in particular, will enable Executive to objectively and
impartially assess, and advise the Board of Directors with respect to, any
proposal received by Sensormatic regarding a Change in Control and to take such
action regarding any such proposal as the Board of Directors may deem to be
appropriate;
WHEREAS, this Agreement was contemplated by the Executive's
Employment Agreement with Sensormatic dated October 14, 1995 (the "Employment
Agreement");
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the parties hereto agree as follows:
<PAGE> 2
1. TERM.
(a) The term of this Agreement shall commence on the date
hereof (which for all purposes of this Agreement shall mean the date first above
written) and shall continue after a Change in Control for so long as Sensormatic
has or may have any obligations under Sections 6, 7, 8, 12, 13 or 16 hereof.
(b) Notwithstanding the provisions of Section 1(a) hereof,
this Agreement shall terminate automatically in the event of the voluntary or
involuntary termination of Executive's employment with Sensormatic prior to the
occurrence of a Change in Control, so long as, at the time of such termination
of employment, no Attempted Change in Control shall have occurred and then be
pending. Notwithstanding anything contained in this Agreement to the contrary,
if Executive's employment is terminated by Sensormatic prior to a Change in
Control, which Change in Control occurs, and Executive reasonably demonstrates
that such termination was at the request of a third party who effectuates such
Change in Control or that such termination was directly related to or in
anticipation of such Change in Control, then for all purposes of this Agreement,
Executive shall be entitled to the payments and other benefits provided under
this Agreement, offset by any amounts previously paid pursuant to the Employment
Agreement.
2. SALARY AND BONUS. Executive's present base salary is
$475,000 per year and Executive's target bonus is deemed to be $385,000 per
year. After the date of this Agreement, Executive's annual base salary and
target bonus (subject to Section 3(b) of the Employment Agreement) may be
increased or decreased, to the extent permitted under the Employment Agreement,
as determined by Sensormatic's Board of Directors or any compensation committee
thereof, provided, however, that none of the following shall be effective during
the pendency of an Attempted Change in Control or in the event of a Change in
Control or at any time within 36 months after a Change in Control has occurred:
(i) any decrease in Executive's annual base salary or target bonus from the
amounts set forth above (or any greater amounts subsequently so determined and
approved), (ii) any decrease in the actual amount paid to Executive as a bonus
from the amount of the bonus actually paid for the most recently concluded
fiscal year (except to the extent that such actual amount paid in the
then-current fiscal year exceeds 150% of the greater of the target bonus then in
effect or $385,000), or (iii) any change in the formula then in effect for
calculation of Executive's bonus that could be reasonably anticipated to result
in a decrease in the amount payable thereunder.
3. FRINGE BENEFITS. Sensormatic currently provides to
Executive the fringe benefits listed below, without cost to Executive, and,
while nothing in this Agreement shall be deemed to require Sensormatic to
continue any such benefits or to prohibit Sensormatic from modifying any such
benefits in any respect (subject to the express terms of the Employment
Agreement, as applicable), except that there shall be no material reduction in
any such currently provided benefits (and there shall be no material reduction
in any additional benefits subsequently approved by Sensormatic's Board of
Directors or any committee thereof) during the pendency of an Attempted Change
in Control or in the event of a Change in Control or at any
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<PAGE> 3
time within 36 months after a Change in Control has occurred (and, in addition,
there shall not, at any time following a Change in Control, be any change in
Sensormatic's Senior Executive Defined Contribution Retirement Plan or any
similar or successor plan (the "Senior Executive Plan", which shall include, for
all purposes of this Agreement, any Senior Executive Defined Contribution
Retirement Agreement between Sensormatic and Executive under such Plan)
resulting in a reduction of Executive's benefits thereunder), it is anticipated
that such benefits (together with any such additional benefits) shall continue
to be provided to Executive on the same or a substantially similar basis in the
future in accordance with the terms of the applicable benefit plans and
policies:
(a) group medical and group dental plans in which Executive
and his eligible dependents are participants;
(b) life insurance on Executive's life and accidental death
and dismemberment insurance, each equal to two times Executive's annual
base salary (but not to exceed $1,000,000 or such greater amount as may
be established by Sensormatic for such purposes from time to time);
(c) participation in Sensormatic's retirement and/or profit
sharing plans (including the Senior Executive Plan) and in
Sensormatic's annual contributions, if any, thereto, provided that such
participation is contingent on Executive's continued qualification
prior to any such Change in Control or Attempted Change in Control as
an eligible participant under the provisions of such plans as then in
effect and on Executive's election to continue his participation in
such plans;
(d) the use of a Sensormatic owned or leased automobile and
comprehensive insurance protection on such vehicle;
(e) disability income protection in an amount equal to not
less than 60% of his annual base salary and target bonus;
(f) an annual allowance of $7,500 for fees involved in the
preparation of Executive's federal income tax and state intangible
property tax returns;
(g) payment of such country club/golf fees and airline club
room fees as are necessary or advisable, in the reasonable opinion of
Executive, for Executive's professional activities, including the
entertainment of business associates/clients, and commensurate with
those provided to him under his Employment Agreement as of the date
this Agreement;
(h) reimbursement of Executive for reasonable travel and
entertainment expenses incurred by Executive in connection with the
business of Sensormatic; and
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<PAGE> 4
(i) the provision to Executive of office space befitting
Executive's position, secretarial help, and access to telephone
service, including WATS lines.
Further, Sensormatic expects that, during the term of this Agreement, and so
long as Executive continues to be employed by Sensormatic, Executive's position
shall continue to be located in Palm Beach County or Broward County, Florida,
and that the duties and responsibilities of Executive's position shall not be
significantly diminished.
4. EMPLOYMENT COMMITMENT. As partial consideration for the
benefits available to Executive under this Agreement, Executive hereby agrees to
remain as an officer and employee of Sensormatic during any Attempted Change in
Control and for a period of six months immediately after a Change in Control
first occurs (the "Commitment Period"), and during the Commitment Period to
devote substantially all his business time and efforts to the business and
affairs of Sensormatic, provided that Executive shall be entitled to terminate
his employment by Sensormatic during an Attempted Change in Control or at any
time following a Change in Control in circumstances which constitute an
involuntary termination pursuant to Section 10 hereof. Neither Executive's
participation in other businesses, as a director or otherwise, with the approval
of Sensormatic's Board of Directors (which approval shall be deemed to include
the Board of Directors not objecting to such participation following disclosure
thereof to the Board of Directors by Executive, and which approval may not be
withdrawn following such Change in Control), nor Executive's engaging in
charitable activities and community affairs or managing his personal investments
and affairs, shall be deemed to contravene the foregoing provision. In the event
that Executive voluntarily terminates his em ployment with Sensormatic (other
than by resignation contemplated in Section 10 hereof) at any time during the
Commitment Period, Executive shall not be entitled to any of the benefits
provided for in this Agreement, other than those provided under Sections 6(a),
6(b), 6(c), 6(d), 7(a)(ii), 12, 13 and 16 hereof, and shall promptly repay to
Sensormatic, on an after-tax basis, any benefits previously received by him
pursuant to any provisions of Sections 6 or 7 of this Agreement not referred to
in this sentence, but Sensormatic shall have no other remedy for Executive's
failure to remain an employee and officer as required by this Section 4. Any
amounts or benefits received by Executive pursuant to the Employment Agreement
or any other compensation plan or arrangement of Sensormatic, even if similar or
identical to those to which he would be entitled under this Agreement, shall not
be deemed received pursuant to this Agreement or be repayable to Sensormatic for
purposes of the preceding sentence.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, the term "Change in
Control" shall mean a change in control of Sensormatic of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
provided, that, without limitation, such a change in control shall be deemed to
have occurred if (i) any person (as such term is used in Sections 13(d) and
14(d) of the Exchange Act, "Person") is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act, "Beneficial Owner"), directly or
indirectly, of securities of Sensormatic
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<PAGE> 5
representing 30% or more of the combined voting power of Sensormatic's then
outstanding voting securities, (ii) Sensormatic consummates a merger,
consolidation, share exchange, division or other reorganization of Sensormatic
with any other corporation or entity, unless the shareholders of Sensormatic
immediately prior to such transaction beneficially own, directly or indirectly,
(A) if Sensormatic is the surviving corporation in such transaction, 60% or more
of the combined voting power of Sensormatic's outstanding voting securities as
well as 60% or more of the total market value of Sensormatic's outstanding
equity securities, (B) if Sensormatic is not the surviving corporation, 80% or
more of the combined voting power of the surviving entity's outstanding voting
securities as well as 80% or more of the total market value of such entity's
outstanding equity securities, or (C) in the case of a division, 80% or more of
the combined voting power of the outstanding voting securities of each entity
resulting from the division as well as 80% or more of the total market value of
each such entity's outstanding equity securities, in each case in substantially
the same proportion as such shareholders owned shares of Sensormatic prior to
such transaction; (iii) Sensormatic adopts a plan of complete liquidation or
winding-up of Sensormatic; (iv) the shareholders of Sensormatic approve an
agreement for the sale or disposition (in one transaction or a series of
transactions) of all or substantially all of Sensormatic's assets; or (v) during
any period of 24 consecutive months, individuals (y) who at the beginning of
such period constitute the Board of Directors of Sensormatic or (z) whose
election, appointment or nomination for election was approved prior to such
election or appointment by a vote of at least two-thirds of the directors in
office immediately prior to such election or appointment who were directors at
the beginning of such two-year period (other than any directors who prior to the
Change in Control were associated or affiliated with any Person involved with
any Change in Control or Attempted Change in Control), cease for any reason to
constitute at least three-fourths of the Board of Directors of Sensormatic.
(b) For purposes of this Agreement, an "Attempted Change in
Control" shall be deemed to have occurred (i) if any Person files (or fails to
file when required to do so) with the Securities and Exchange Commission (the
"SEC") a Statement on Schedule 13D relating to voting securities of Sensormatic
(A) disclosing the acquisition of 10% or more thereof or (B) while disclosing
the acquisition of less than 10% of such voting securities, indicates an
intention to effect any of the transactions listed in Item 4 of Schedule 13D or
otherwise to effect a Change in Control, (ii) upon the public announcement
(including, without limitation, the filing with the SEC of a Statement on
Schedule 14D-1) by any Person of an intention to make a tender offer or
otherwise to effect a Change in Control, (iii) in the event of any solicitation
of proxies for the election of directors of Sensormatic pursuant to Rule 14a-11
of the Rules and Regulations under the Exchange Act or the filing of a Statement
on Schedule 14B in anticipation thereof, (iv) the receipt by Sensormatic from
any Person of any other communication proposing, or indicating an intention, to
effect a Change in Control by the acquisition of voting securities of
Sensormatic, the solicitation of proxies for the election of directors or
otherwise or (v) if the Board of Directors of Sensormatic or an authorized
committee thereof otherwise determines that an Attempted Change in Control is
pending. The termination of the pendency of an Attempted Change in Control shall
be determined by the Board of Directors of Sensormatic (or an authorized
committee thereof); PROVIDED, that any Attempted Change in Control shall in any
event be deemed to have terminated upon the occurrence of a Change in Control.
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<PAGE> 6
(c) A Change in Control shall be deemed, for purposes of this
Agreement, to be: (i) "non-approved" if (A) in connection with the consideration
thereof by the Board of Directors of Sensormatic, a majority of the Previous
Members of the Board of Directors (as defined below), either before or after
such Change in Control, (x) votes to disapprove of such Change in Control, (y)
votes to approve of such Change in Control, but as a consequence of the
existence of a competing proposal for a Change in Control, or (z) otherwise
expressly declares that such Change in Control is "non-approved", or (B) a
majority of the Previous Members of the Board of Directors neither expressly
approves nor disapproves of such Change in Control, or (ii) "approved" if in
connection with the consideration thereof by the Board of Directors of
Sensormatic, a majority of the Previous Members of the Board of Directors,
either before or after such Change in Control, (x) approves of such Change in
Control (other than as a consequence of the existence of a competing proposal
for a Change of Control) or (y) otherwise expressly declares that such Change in
Control is "approved", notwithstanding clause (A)(y) of this Section 5(c). The
majority of the Previous Members of the Board of Directors shall indicate its
approval or disapproval of a Change in Control by a statement or statements in
writing to such effect. For purposes of this Agreement, Previous Members of the
Board of Directors shall mean members of the Board of Directors of Sensormatic
as of the date of a Change in Control (the first Change in Control, if there are
more than one) who had been in office for a period of at least two years
immediately prior to such Change in Control (other than directors who prior to
such Change in Control were appointed or elected as directors as a consequence
of their association or affiliation with any Person effecting such Change in
Control).
In addition, notwithstanding any previous determination that a
Change in Control was "approved", such Change in Control may subsequently be
determined, in good faith, to be "non-approved" by a majority of the Previous
Members of the Board of Directors who are then still in office with Sensormatic
or a corporate successor of Sensormatic (or if fewer than two such Previous
Members of the Board of Directors are still in office, then by a majority of the
Previous Members of the Board of Directors, whether or not still in office)
within the 36-month period immediately following such Change in Control, if
during such period there occur (1) events of the types referred to in Section 10
hereof with respect to individuals who were officers of Sensormatic at the time
of the Change in Control, (2) defaults by Sensormatic under this Agreement or
any similar agreement, (3) the involuntary termination (other than for cause or
in the event of death or permanent disability) of the employment of a number of
the officers of Sensormatic who were officers immediately prior to such Change
in Control exceeding 40% of the total number of such officers, or (4) the
transfer (by sale, merger or otherwise) of all or substantially all the equity
securities of Sensormatic acquired by the Person effecting such Change in
Control, of all or substantially all the assets of Sensormatic, or of all or
substantially all the equity securities of Sensormatic's successor corporation,
directly or indirectly, to a third party (other than a majority owned affiliate
of such Person). In the event of such a subsequent determination, Executive
shall be entitled to all benefits arising under this Agreement out of a
"non-approved" Change in Control as if such Change in Control had been deemed
"non-approved" initially. Any additional benefits arising out of such
"non-approved" Change in Control which Executive is entitled to receive through
the date of such determination shall be paid or satisfied promptly by
Sensormatic. For purposes of this Section 5(c), the term "officers"
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shall not include individuals whose only office with Sensormatic is Assistant
Secretary or Assistant Treasurer.
(d) For the purposes of this Section 5, references to
provisions of the Exchange Act and rules, regulations and schedules thereunder
shall be to such provisions as they are in effect and interpreted as of the date
of this Agreement.
6. BENEFITS EFFECTIVE UPON A CHANGE IN CONTROL. In the event a
Change in Control occurs, Executive shall be entitled to the following benefits:
(a) All stock options issued by Sensormatic to Executive,
whether or not then exercisable, shall remain fully exercisable or shall become
fully exercisable immediately (or, notwithstanding the foregoing, in the event
of an Attempted Change in Control involving a proposed Reorganization Event (as
such term is defined in Section 6(b) hereof)), such options shall become fully
exercisable thirty days before the date of such Reorganization Event, and such
options shall remain outstanding and fully exercisable for the stated term
thereof or until the later of (i) nine months following the voluntary or
involuntary termination of Executive's employment with Sensormatic (or, at the
option of Executive, in the case of an incentive stock option, three months
following such termination) or (ii) the end of the respective post-termination
exercisability periods provided for in such options (including if applicable,
such periods in the event of death or disability); PROVIDED, that in no event
shall the term of such options be extended beyond their respective original
terms. In addition, any deferred vesting or forfeiture provisions applicable to
any shares of Sensormatic stock awarded to or otherwise held by Executive shall
be without further force or effect, and Executive shall have the unrestricted
right to such shares.
(b) In the event that (i) such Change in Control is effected
through (A) a tender or exchange offer (a "Tender Offer") or (B) any means, in
one or more transactions, with the result in either case that any Person becomes
the Beneficial Owner, directly or indirectly, of securities of Sensormatic
representing 50% or more of the combined voting power of Sensormatic's then
outstanding voting securities (any such Change in Control referred to in this
clause (i), including pursuant to a Tender Offer, being hereinafter referred to
as a "Majority Acquisition"), (ii) in connection with, as a result of or within
24 months immediately following a Change in Control, Sensormatic's Board of
Directors shall have approved a merger, consolidation, reclassification,
reorganization, dissolution, sale of all or substantially all of the assets of
Sensormatic or similar event (a "Reorganization Event") as a result of which
Sensormatic's Common Stock would cease to be outstanding or (iii) in connection
with, as a result of or within 24 months immediately following a Change in
Control, Sensormatic's Common Stock ceases to be listed for trading on a
national securities exchange or quoted through NASDAQ or a comparable securities
quotation system, Executive shall have the right, exercisable by written notice
given at any time during the 13-month period immediately following the date of
such Change in Control (and, if later, the date of any such Majority
Acquisition, Reorganization Event or cessation of listing or quotation), to
require Sensormatic to purchase:
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(1) any or all of such stock options issued by Sensormatic to
Executive, whether or not then exercisable, and/or any stock options
issued upon conversion of or in exchange for any such Sensormatic stock
options pursuant to any such Reorganization Event ("Conversion
Options"), at a purchase price equal to the excess of the aggregate
Fair Market Value (as defined below) of the shares of Sensormatic
Common Stock subject to such Sensormatic stock options over the
aggregate exercise price of such stock options (or, in the case of any
Conversion Options, such amount calculated with respect to the
Sensormatic stock options which were converted into or exchanged for
such Conversion Options); and/or
(2) any or all shares of Sensormatic Common Stock held by
Executive at or immediately prior to the date of such Change in Control
(including any shares of Sensormatic Common Stock (restricted or
otherwise, and whether or not vested) awarded to Executive pursuant to
any compensation plan or arrangement of Sensormatic) or issued pursuant
to the exercise of any such Sensormatic stock options following the
date of such Change in Control, and/or (without duplication) any shares
or other securities issued upon conversion of or in exchange for any
such shares of Common Stock pursuant to any such Reorganization Event
("Conversion Shares"), at a purchase price equal to the aggregate Fair
Market Value of such shares (or, in the case of any Conversion Shares
issued upon conversion of or in exchange for Common Stock, the Fair
Market Value of the shares of Common Stock which were converted into or
exchanged for such Conversion Shares); provided, that Sensormatic may
offset against the amount so payable for Common Stock or Conversion
Shares all amounts outstanding on any loans made to Executive for the
purchase of, or payment of taxes relating to, such shares of Common
Stock or Conversion Shares, as contemplated by Section 6(c) hereof or
otherwise.
Payment for any such options or shares shall be made by Sensormatic within 10
days after Executive's surrender of any such options, and/or within 10 days
after Executive's surrender of the certificates representing any such shares of
Common Stock or Conversion Shares (or, if such certificates are in Sensormatic's
possession, within 10 days after Executive's notice of exercise under this
Section 6(b)).
For purposes of this Section 6(b), the "Fair Market Value" of
a share of Sensormatic Common Stock means the highest fair market value per
share of Sensormatic Common Stock of the consideration paid in any transaction
by any Person who effects such Change in Control, in connection therewith,
whether through open market purchases, Tender Offers, Reorganization Events,
private transactions or otherwise.
(c) Upon Executive's request, Sensormatic shall lend to
Executive, interest free, up to an amount equal to the aggregate exercise price
of the options referred to in Section 6(a) hereof, should Executive elect to
exercise such options. If requested by Executive, Sensormatic shall also lend to
Executive, interest free (or, at Executive's option, provide a guaranty to
enable Executive to borrow), up to an amount equal to the percentage specified
in Section 6(d)(i) times the Share Income (as such term is defined in such
Section) resulting from
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such exercise and/or vesting. Such loan or loans shall be due and payable to
Sensormatic upon the earliest of (i) the fifth anniversary date of such loan or
loans, (ii) in the event that Executive's employment with Sensormatic
terminates, other than termination by Sensormatic for Cause (as defined in
Section 9 hereof, "Cause"), upon the expiration of 30 months following such
termi nation, or in the event that Executive's employment is terminated by
Sensormatic for Cause, upon the expiration of 30 days after such termination, or
(iii) promptly (but in any event within five (5) business days) after receipt of
the proceeds of sale from the sale of such shares, to the extent of the loan or
loans applicable to such sold shares. Executive shall deposit such shares with
Sensormatic as security for any such loan, if Sensormatic shall so request.
Notwithstanding anything to the contrary contained in this Section 6(c),
Sensormatic's Stock Purchase Loan Plan or any promissory note or security
agreement executed by Executive pursuant to such Plan, no additional collateral
shall be required by Sensormatic in connection with any such loan to Executive,
and, if necessary to be in compliance with applicable margin regulations under
federal laws, such loans shall be unsecured; and if, because of Internal Revenue
Service rules or other rules, Sensormatic is unable to lend such funds to
Executive interest free and without any imputation of interest, Sensormatic
shall pay Executive a dollar amount of additional compensation which shall equal
the amount of interest required to be charged in order to avoid such imputation
in such instances and Executive shall then pay Sensormatic the rate of interest
on such loan required by law to avoid imputation.
(d) (i) If a Majority Acquisition shall have occurred or if,
in connection with, as a result of or within 24 months immediately
following a Change in Control, either a Reor ganization Event shall
have occurred or Sensormatic's Common Stock ceases to be listed for
trading on a national securities exchange or quoted through NASDAQ or a
comparable securities quotation system, then Executive shall have the
right, exercisable during the period and in the manner described in
Section 6(d)(ii) hereof, to require Sensormatic to purchase any or all
of Executive's Option Acquired Shares and Award Shares (as defined
below), and/or any or all Conversion Shares issued with respect to any
Option Acquired Shares or Award Shares. The price at which Executive
shall be entitled to sell any Option Acquired Share to Sensormatic
under this Section 6(d)(i) shall equal the sum of (A) the option
exercise price paid (including payments made by promissory notes issued
under Sensormatic's Stock Purchase Loan Plan or otherwise) by Executive
in acquiring such share, plus (B) an amount equal to a percentage,
determined as provided below in this clause (i), of the difference
between such option exercise price and the Market Value of a share of
Sensormatic Common Stock on the date the share was acquired. The price
at which Executive shall be entitled to sell any Award Share under this
Section 6(d)(i) shall be equal to the Market Value (as defined below)
of such share on the date Executive's right to such share vested,
multiplied by the percentage determined as provided below in this
clause (i). The price at which Executive shall be entitled to sell any
Conversion Shares pursuant to this Section 6(d)(i) shall be calculated
as set forth above with respect to Option Acquired Shares or Award
Shares, as applicable, based upon the purchase price, date of purchase
and Market Value of any Option Acquired Shares, and the vesting date
and Market Value of any Award Shares, which were converted into or
exchanged for any such Conversion Shares sold. The percentage
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referred to in this Section 6(d)(i) shall be equal to the sum of (1)
the highest marginal net rate of income tax (federal, state and local)
applicable to an individual residing where the Executive resided at the
time the Executive reported income ("Share Income") with respect to the
Option Acquired Shares or Award Shares, as the case may be plus (2) the
Medicare employee tax rate, plus (3) a percentage equal to (x) that
part, if any, of the Share Income that was actually subject to employee
Social Security tax, multiplied by (y) the social security employee tax
rate, divided by (z) the total Share Income (in each case as applicable
at the time such share was purchased by Executive, in the case of any
Option Acquired Shares, or at the time Executive's right to such share
vested, in the case of any Award Shares). The purchase price payable by
Sensormatic shall in all events be equitably adjusted to reflect any
stock dividends, stock splits, extraordinary dividends or similar
events since the date of acquisition by Executive of any such shares.
For purposes of this Section 6(d), the term "Option Acquired
Shares" shall mean shares of Sensormatic Common Stock acquired by
Executive upon exercise of options granted to Executive, the term
"Award Shares" shall mean shares of Sensormatic Common Stock awarded to
Executive pursuant to Sensormatic's Stock Incentive Plan or any other
compensation plan or arrangement of Sensormatic, other than pursuant to
the exercise of options, and the term "Market Value" shall mean the
average of the high and low sales prices of a share of such Common
Stock on the applicable date (or most recent date on which one or more
sales occurred) as reported through NASDAQ or the principal exchange on
which such Common Stock was listed for trading.
(ii) Executive may exercise his right to sell Option
Acquired Shares, Award Shares and/or Conversion Shares under this
Section 6(d) at any time within 13 months following any of the events
specified in the first sentence of Section 6(d)(i) hereof by giving
written notice of such exercise to Sensormatic, which notice shall set
forth the Option Acquired Shares, Award Shares and/or Conversion Shares
to be sold, the exercise price paid by Executive in acquiring any such
Option Acquired Shares or Conversion Shares, the highest marginal tax
rates applicable for purposes of the respective calculations specified
in Section 6(d)(i) hereof and the Market Value of the Common Stock or
Conversion Shares, as applicable, on each date that any applicable
Option Acquired Shares or Conversion Shares to be sold were purchased
by Executive or Executive's right to any applicable Award Shares
vested, as the case may be. The information set forth in such notice
shall be presumed to be correct.
(iii) In addition to the purchase price for the
Option Acquired Shares, Award Shares or Conversion Shares being sold to
Sensormatic under this Section 6(d), Sensormatic shall pay to Executive
an amount (the "Tax Payment") equal to a percentage (determined
pursuant to the following sentence) of the excess, if any, of (A) the
product of the number of such Option Acquired Shares, Award Shares
and/or Conversion Shares being sold multiplied by the Market Value of a
share of Sensormatic Common Stock or Conversion Shares, as applicable,
on the Purchase Date, as such term is defined in Section 6(d)(iv)
hereof, or such other value of a share of Sensormatic Common Stock or
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Conversion Shares as may be required to be used to determine the
amount, if any, recognizable as ordinary income arising out of the sale
of such shares to Sensormatic, over (B) the aggregate purchase price
for all such Option Acquired Shares, Award Shares and/or Conversion
Shares being sold by Executive. The percentage referred to in the
preceding sentence shall be determined in accordance with Section
6(d)(i) hereof as applicable on the Purchase Date.
(iv) Within 10 days after Executive's surrender of
the certificates representing any such Option Acquired Shares, Award
Shares and/or Conversion Shares or, if such certificates are in
Sensormatic's possession, within 10 days after Executive's notice of
exercise under this Section 6(d) (the "Purchase Date"), Sensormatic
shall purchase the Option Acquired Shares, Award Shares and/or
Conversion Shares referred to in such notice by paying to Executive
(subject to offset as provided in the following sentence) the full
purchase price thereof, as calculated under Section 6(d)(i) hereof,
plus the Tax Payment applicable thereto. Sensormatic may offset against
payment of any or all of such purchase price and the related Tax
Payment all or a portion of any indebtedness of Executive then
outstanding under Sensormatic's Stock Purchase Loan Plan attributable
to any Option Acquired Shares and/or Conversion Shares sold to
Sensormatic hereunder.
(v) Executive's rights under this Section 6(d) are
independent of and not limited by, and do not constitute any limitation
of, Executive's rights under Section 6(b) hereof. Executive may
exercise any rights under either Section 6(b) hereof or this Section
6(d), in whole or in part (but without duplication), in Executive's
sole discretion.
(e) (i) Subject to Section 4 hereof, if either a Majority
Acquisition occurs or, in connection with, as a result of or within 24
months following a Change in Control, a Reorganization Event occurs,
then Sensormatic shall pay to Executive (irrespective of whether he is
then employed by Sensormatic or its successor; PROVIDED, HOWEVER, that
in the event that Executive voluntarily terminates his employment with
Sensormatic (other than by resignation contemplated by Section 10
hereof) prior to the occurrence of the event giving rise to the right
to receive the cash bonus payment provided for in this Section 6(e),
Executive shall have no right to receive such bonus payment), within
thirty days after the effective date of such Majority Acquisition or
Reorganization Event, as the case may be, a cash bonus payment equal to
a percentage (determined pursuant to Sections 6(e)(ii) and 6(e)(iii)
hereof) of Executive's Special Bonus Base (as defined below).
Executive's Special Bonus Base shall equal four times the greater of
(A) the sum of Executive's annual base salary in effect at the end of
the last full month preceding the first public announcement relating to
the proposed Majority Acquisition or Reorganization Event, as the case
may be, plus the bonus paid to Executive by Sensormatic with respect to
the most recently completed fiscal year of Sensormatic prior to such
month, or (B) the sum of Executive's annual base salary and target
bonus as specified in Section 2 hereof.
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(ii) The percentage of the Special Bonus Base which
Executive shall be entitled to receive under this Section 6(e) shall be
calculated on the basis of the Premium (as defined below) paid or
offered to holders of Sensormatic's Common Stock in connection with a
Majority Acquisition or Reorganization Event. Premium shall mean the
percentage which results from dividing (A) the amount by which the
Event Value (as defined below) exceeds the Pre-Event Share Price (as
defined below), by (B) the Pre-Event Share Price. The Pre-Event Share
Price shall be equal to the average of the closing sales prices (or if
there is no sales price, the last bid price) for a share of
Sensormatic's Common Stock, as such prices are reported through NASDAQ
or the principal exchange on which such shares are listed for trading,
on the last business day of each week during the twenty-six weeks
immediately preceding the first to occur of (x) the first public
announcement relating to any proposed Change in Control or
Reorganization Event, or (y) any event resulting in the pendency of an
Attempted Change in Control which culminates, directly or indirectly,
in the Change in Control giving rise to Executive's rights under this
Section 6(e). In the case of any Reorganization Event or Tender Offer,
or combination or series of Reorganization Events and/or Tender Offers,
"Event Value" shall mean the fair market value of the consideration
paid per share of Sensormatic Common Stock pursuant to such
Reorganization Event or Tender Offer determined as of the effective
date of the Reorganization Event or of the consummation of the Tender
Offer, as the case may be, provided that in the event that different
prices are paid per share of Sensormatic Common Stock pursuant to such
Reorganization Event, Tender Offer or any combination or series
thereof, the Event Value shall be equal to the fair market value of the
aggregate consideration paid pursuant to all such Tender Offers and/or
Reorganization Events (determined as of the dates set forth above)
divided by the number of shares of Sensormatic Common Stock purchased
pursuant to all such Tender Offers and/or Reorganization Events. In
case of any other transaction or series of transactions giving rise to
the right of Executive to receive the bonus provided for in this
Section 6(e), "Event Value" shall mean the highest fair market value of
the consideration paid per share of Sensormatic Common Stock pursuant
to any such transaction, determined as of the date of payment
thereunder. The determination of Event Value shall be conclusively made
by an investment banking firm selected by the Previous Members of the
Board of Directors who are not entitled to receive bonuses under this
Section 6(e) or analogous provisions of other agreements; PROVIDED,
that in the event that the Previous Members of the Board of Directors
fail to make such selection within 45 days after consummation of the
transaction giving rise to the right to rights under this Section 6(e),
or the selected investment banking firm fails to make such a
determination within an additional 90 days, Event Value shall be
determined by arbitration under Section 17. Sensormatic shall pay all
fees and expenses of any such investment banker.
(iii) The percentage of the Special Bonus Base which
Executive shall be entitled to receive as a bonus under this Section
6(e) shall be 20% if the Premium is at least 20% and shall increase by
3.2% for each one percent (and by a fraction of 3.2% for each fraction
of one percent) by which the Premium exceeds 20%. For example, if the
Premium were 30%, Executive would be entitled to a bonus of 52% of the
Special Bonus
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Base; if the Premium were 40.5%, Executive would be entitled to a bonus
of 85.6% of the Special Bonus Base; and if the Premium were 50%,
Executive would be entitled to a bonus of 116% of the Special Bonus
Base. The maximum bonus which Executive shall be entitled to receive is
167% of the Special Bonus Base. No bonus shall be payable pursuant to
this Section 6(e) if the Premium is less than 20%.
7. BENEFITS ON TERMINATION.
(a) TERMINATION AT ANY TIME AFTER CHANGE IN CONTROL. In the
event of any termination, other than termination by Sensormatic for Cause, of
Executive's employment with Sensormatic at any time following a Change in
Control, Executive shall be entitled to the following benefits:
(i) Subject to Section 4 hereof, Sensormatic shall,
as soon as practicable, pay to Executive a lump sum payment equal to
the amount of any then unvested interest which Executive may have had
on the date of such Change in Control (less any amount of such interest
subsequently vested), and as supplemented thereafter through the date
of such termination, in Sensormatic's profit sharing, ESOP or other
retirement plans (other than the Senior Executive Plan); and
(ii) Unless a trust or other arrangement previously
determined in writing to be satisfactory by a majority of the Previous
Members of the Board of Directors (as defined below) then in office
assuring payment of benefits to or for the benefit of Executive under
Sensormatic's Senior Executive Plan in the event of a Change in Control
has been previously established and is then in effect, Sensormatic
shall take such steps as are necessary, within 30 days after such
termination, to fully fund all of Executive's benefits under such Plan
(after giving effect to the change in control provisions of such Plan)
through paid-up insurance, annuity contracts and/or other similar
means, so that the ultimate payment of benefits (at a rate not less
than the greater of the rates in effect under such Plan at the date of
such termination or immediately after such Change in Control) upon
Executive's attaining retirement age under such Plan or upon his
earlier death or disability (as defined in such Plan) (despite
Executive's no longer being employed by Sensormatic) shall be assured
beyond any reasonable doubt; PROVIDED, HOWEVER, that either such manner
of funding shall be structured so as not to constitute "constructive
receipt" by Executive of the benefits in question for income tax
purposes, or the benefits in question shall be paid out in a lump sum,
discounted to present value in the manner provided in Section 8(a). In
addition, following any such termination which is involuntary, any
noncompetition provisions included in such Plan shall have no force or
effect.
(b) INVOLUNTARY TERMINATION WITHIN 36 MONTHS AFTER CHANGE IN
CONTROL. In the event of the involuntary termination (other than for Cause) of
Executive's employment with Sensormatic within the 36-month period immediately
following a Change in Control:
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(i) Executive shall be entitled to receive, for
each of the 36 months immediately following the effective date of such
termination and irrespective of whether Executive commences new
employment within such period, the greatest of (A) 1/12 of the amount
of Executive's most recent rate of annual base salary, plus 1/12 of
Executive's most recent annual bonus, (B) 1/12 of Executive's annual
base salary and target bonus in effect immediately prior to the date of
such Change in Control or (C) 1/12 of Executive's annual base salary
and target bonus as specified in Section 2 hereof;
(ii) During that portion of the period set forth in
Section 7(b)(i) hereof during which Executive has not commenced new
regular, full time employment,
(x) Sensormatic shall continue to provide to
Executive the fringe benefits enumerated in Sections 3(a),
(b), (c), (e) and (f) hereof on at least the same basis as in
effect immediately prior to the Change in Control, and shall,
if requested by Executive, provide Executive with office space
appropriate for his level and in close proximity to the office
he occupied at the time of the Change in Control, secretarial
help and local and long distance telephone service; and
(y) Sensormatic shall provide Executive with
appropriate out-placement services, including counseling and
traveling expenses to such out-placement services, when
necessary, as well as to potential job interviews when not
paid by the potential employer, all without charge to
Executive;
(iii) Within 30 days after such termination,
Sensormatic shall pay to Executive an amount equal to his PRO RATA
annual bonus for the year in which termination occurs, based on the
target bonus for such year; and
(iv) On the date of such termination, ownership of
the car which Sensormatic was providing to Executive shall immediately
be transferred to Executive free and clear of any liens or other
obligations, if such car is then owned by Sensormatic. If such car is
then leased, rather than owned, by Sensormatic, Executive shall
continue to have the use of such car and Sensormatic shall continue to
pay all lease payments and insurance premiums with respect thereto
until the end of the then existing term, at which time Sensormatic
shall purchase such car and shall transfer title to such car to
Executive.
(c) VOLUNTARY TERMINATION WITHIN 24 MONTHS AFTER CHANGE IN
CONTROL. Subject to Section 4 hereof, in the event of Executive's voluntary
termination of employment with Sensormatic (other than by resignation
contemplated in Section 10 hereof) within the 24-month period immediately
following a Change in Control:
(i) Executive shall be entitled to receive, for
each of the 24 months immediately following the effective date of such
termination and irrespective of whether Executive commences new
employment within such period, the greatest of (A) 1/12 of the amount
of Executive's most recent rate of annual base salary, plus 1/12 of
Executive's
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most recent annual bonus, (B) 1/12 of Executive's annual base salary
and target bonus in effect immediately prior to the date of such Change
in Control or (C) 1/12 of Executive's annual base salary and target
bonus as specified in Section 2 hereof; and
(ii) During that portion of the period set forth in
Section 7(c)(i) hereof during which Executive has not commenced new
regular, full time employment, Executive shall be entitled to the
benefits set forth in Section 7(b)(ii) hereof; and
(iii) Within 30 days after such termination,
Sensormatic shall pay to Executive an amount equal to his PRO RATA
annual bonus for the year in which termination occurs, based on the
target bonus for such year; and
(iv) Executive shall be entitled to the benefits set
forth in Section 7(b)(iv) hereof.
(d) CONSULTING SERVICES. For a period of one year following
Executive's voluntary termination (other than by resignation contemplated in
Section 10 hereof or in Section 4(c) of the Employment Agreement (or the
corresponding provision of any successor agreement)), following an "approved"
Change in Control, of his employment with Sensormatic in which Executive
receives payments under Section 7(c)(i) hereof, or, if shorter, the period
beginning on the date of such termination and ending six months after the
appointment of a new chief executive officer (other than an interim or acting
chief executive officer) (the "Payment Period"), Executive agrees to make
himself available at the executive offices of Sensormatic in Palm Beach County
or Broward County, Florida to advise and consult with Sensormatic with respect
to matters specified by the chief executive officer or Board of Directors of
Sensormatic and appropriate for a former chief executive officer or chief
operating officer. Executive shall perform such services at such times as are
(i) reasonably requested by the chief executive officer or Board of Directors of
Sensormatic, (ii) reasonably acceptable to Executive and (iii) consistent with
Executive's duties and obligations in the course of his then occupation or
employment, if any. Executive shall use reasonable efforts to comply with such
requests to perform up to 250 hours of such services during the Payment Period.
(e) In the event of any termination of Executive's employment
to which this Section 7 is applicable, Executive shall be under no obligation to
seek other employment and there shall be no offset against amounts due Executive
under this Agreement on account of any remuneration attributable to any
subsequent employment that he may obtain, except as expressly set forth in this
Section 7.
8. BENEFITS ON DEATH OR DISABILITY.
(a) In the event of Executive's death at any time within 36
months after a Change in Control and prior to any termination of Executive's
employment, or in the event that Executive had died prior to a Change in Control
and that as of the date of such Change in Control there remain outstanding
amounts payable under Sensormatic's Senior Executive Plan for
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Executive, unless in either case a trust or other arrangement previously
determined in writing to be satisfactory by a majority of the Previous Members
of the Board of Directors then in office assuring payment of benefits to or for
the benefit of the Executive under such Plan in the event of a Change in Control
has been previously established and is then in effect, Sensormatic shall
promptly pay to Executive's designated beneficiary or Executive's heirs,
executors, administrators or personal representatives (collectively,
"Successors") all of the remaining benefits under such Plan to which Executive's
Successors are then entitled, in the form of a lump sum payment equal to the
amount of such benefits discounted to present value using an interest rate equal
to the rate published by Pension Benefit Guaranty Corporation for the purpose of
discounting pension benefits to present value in the event of a lump sum
prepayment thereof, as then in effect, but such discount rate shall in no event
be greater than ten percent (10%) PER ANNUM.
(b) In the event of Executive's death or permanent and total
disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code
of 1986, as amended and in effect and interpreted as of the date of this
Agreement) at any time within the 24-month period immediately following a
Change in Control and prior to any termination of Executive's employment,
Executive or Executive's Successors shall be entitled to all of the benefits of
Executive provided under this Agreement as if Executive had voluntarily
terminated his employment with Sensormatic (but without giving effect to Section
4 hereof or to the loss of benefits upon voluntary termination under Section
6(e)(i) hereof), including, without limitation, those set forth in Section 6(c)
hereof.
(c) In the event of Executive's death or disability after
termination of Executive's employment with Sensormatic, Executive or Executive's
Successors shall be entitled to receive all remaining benefits to which
Executive is entitled under this Agreement.
9. TERMINATION FOR CAUSE. In the event that Executive's
employment with Sensormatic is terminated for Cause at any time after any Change
in Control, Executive shall not be entitled to any of the benefits set forth in
Sections 6, 7 or 8 of this Agreement not yet received by him, except to the
extent that Executive exercised rights prior to such termination with respect to
options, Award Shares or Conversion Shares as provided under Sections 6(a), 6(b)
and 6(d) hereof. The foregoing shall not affect any rights of Executive accrued
other than by virtue of this Agreement. For purposes of this Agreement,
Sensormatic shall be deemed to have terminated Executive's employment with
Sensormatic for Cause only if such termination is effected for any of the
following reasons:
(a) willful misconduct by Executive in the performance of
Executive's duties resulting in material economic harm to Sensormatic;
or
(b) the conviction of Executive for a felony involving moral
turpitude under federal or state law;
PROVIDED, HOWEVER, that the determination of the existence of the grounds
referred to in subparagraph (a) of this Section 9 shall be made, in good faith,
only by a majority of the Previous
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Members of the Board of Directors who are then in office with Sensormatic or a
corporate successor of Sensormatic, provided that such majority shall consist of
not less than two persons; and PROVIDED, FURTHER, that Executive shall be given
prior written notice by the Board of Directors of the intention to terminate him
for Cause and the specific grounds for such termination, as determined in
accordance with this Section 9, and shall be entitled to a hearing before such
Previous Members of the Board of Directors before such termination becomes
effective.
10. INVOLUNTARY TERMINATION EVENTS. By way of illustration,
and not of limitation, each of the following events shall constitute involuntary
termination of Executive's employment with Sensormatic, PROVIDED that Executive
resigns from such employment within six months following such event, but in no
case later than 36 months immediately following a Change in Control, and
PROVIDED, FURTHER, that Executive shall not have consented to such event in
writing:
(a) Executive is assigned any duties or responsibilities that
are materially inconsistent with Executive's position, office, duties,
responsibilities or status immediately prior to the date of such Change in
Control, or which materially impair Executive's ability to function as President
or Chief Executive Officer of Sensormatic, or a material change is made in
Executive's reporting responsibilities, titles or offices from those in effect
immediately prior to such Change in Control, or Executive is removed from, or is
not re-elected to, any such position or office, or as a director of Sensormatic,
following such Change in Control, unless in connection with the termination of
Executive's employment with Sensormatic for Cause or by reason of his death or
disability;
(b)(i) Executive's annual rate of salary or target bonus is
reduced below the greater of the amounts (x) paid therefor immediately preceding
the date of such Change in Control or (y) expressly set forth in Section 2
hereof, (ii) the formula for the calculation of Executive's bonus is changed in
a manner that could reasonably be anticipated to decrease the amount payable
thereunder or (iii) any other change is made with respect to Executive's salary
or bonus that would violate Section 2;
(c) a material reduction is made in the benefits set forth in
paragraphs (a) through (i) of Section 3 hereof or to any additional benefits or
perquisites which may have been granted to Executive subsequent to the date of
this Agreement (other than changes made in benefit plans required by law or
applicable regulations thereunder), as they may be in effect immediately prior
to the date of such Change in Control, or if any increase is made in the cost to
Executive for such benefits; or
(d) Executive is transferred or required to transfer to a
location outside of a 25-mile radius of Sensormatic's then-current headquarters
in Palm Beach County or Broward County, Florida, or the principal place of
business of Sensormatic in which Executive's major duties have been carried out
is transferred to a location outside of a 25-mile radius of Sensormatic's
then-current headquarters in Palm Beach County or Broward County, Florida.
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(e) Sensormatic fails to obtain the assumption in writing of
its obligation to perform this Agreement by any successor to all or
substantially all of the assets and/or business of Sensormatic within 15 days
after a Reorganization Event or any other transaction occurring in connection
with, as a result of or within 24 months following a Change in Control pursuant
to which Sensormatic is not the surviving corporation.
11. PAYMENTS. All monthly payments that Executive (or his
Successors) is entitled to receive under Sections 6 or 7 of this Agreement shall
be paid by or on behalf of Sensormatic on or before the 10th day of each month
in which payable, except that any payments required to be made under the plans
referred to in Section 7(a) hereof shall be made in accordance with the terms of
such plans. Any lump sum payable to Executive under Sections 6, 7, 8(a) or 12 of
this Agreement shall be paid by or on behalf of Sensormatic within 10 days after
Executive's right to such payment accrues, except as otherwise expressly set
forth any provision of such Sections.
12. EXCISE TAXES. In the event that the aggregate of all
payments or benefits made or provided to Executive in connection with a Change
in Control under this Agreement and under all other plans and programs of
Sensormatic (the "Aggregate Payment") is determined to constitute a Parachute
Payment, as such term is defined in Section 280G(b)(2) of the Internal Revenue
Code, as amended, or any successor provision, Sensormatic shall pay to
Executive, prior to the time any excise tax imposed by Section 4999 of the
Internal Revenue Code, as amended, or any successor provision ("Excise Tax"), is
payable with respect to such Aggregate Payment, an additional amount which,
after the imposition of all income and excise taxes thereon, is equal to the
Excise Tax on the Aggregate Payment. The determination of whether the Aggregate
Payment constitutes a Parachute Payment and, if so, the amount to be paid to
Executive and the time of payment pursuant to this Section 12 shall be made by
an independent auditor (the "Auditor") jointly selected by Sensormatic and
Executive and paid by Sensormatic. The Auditor shall be a nationally recognized
United States public accounting firm which has not, during the two years
preceding the date of its selection, acted in any way on behalf of Sensormatic
or any affiliate thereof. If Executive and Sensormatic cannot agree on the firm
to serve as the Auditor, then Executive and Sensormatic shall each select one
nationally recognized United States accounting firm and those two firms shall
jointly select the accounting firm to serve as the Auditor. Notwithstanding the
foregoing, in the event that the amount of Executive's Excise Tax liability is
subsequently determined to be greater than the Excise Tax liability with respect
to which an initial payment to Executive under this Section 12 has been made,
Sensormatic shall pay to Executive an additional amount with respect to such
additional Excise Tax (and any interest and penalties thereon) at the time that
the amount of the actual Excise Tax liability is finally determined, such
additional amount to be calculated in the same manner as such initial payment.
Executive and Sensormatic shall cooperate with each other in connection with any
action, arbitration, suit, investigation or proceeding (collectively,
"Proceeding") relating to the existence or amount of liability for Excise Tax,
and all expenses relating to any such Proceeding (including all reasonable
attorney's fees and other expenses incurred by Executive in connection
therewith) shall be paid by Sensormatic promptly upon notice of demand from
Executive.
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13. COSTS OF COLLECTION. Sensormatic agrees upon demand to pay
all costs and expenses of Executive (including, without limitation, reasonable
counsel fees and expenses) in connection with the enforcement, whether through
negotiations, arbitration or legal proceedings or otherwise, of this Agreement
and the collection of any benefits due to Executive hereunder.
14. NO EFFECT ON EMPLOYMENT. This Agreement is not, and
nothing hereby shall be deemed to create, a contract of employment between
Sensormatic and Executive. The right of Sensormatic to terminate Executive's
employment with Sensormatic or any subsidiary thereof, at any time at will or as
otherwise provided in the Employment Agreement or any other agreement between
Sensormatic and Executive, shall not be affected or limited by this Agreement
and is specifically reserved. Further, this Agreement shall not be deemed to
require Sensormatic to continue, or to continue unmodified, any benefit plan or
policy, whether or not referred to in Section 3 hereof, provided that no Change
in Control shall have occurred and no Attempted Change in Control shall have
occurred and then be pending.
15. CONFLICTS WITH OTHER AGREEMENTS. Nothing contained in or
arising out of this Agreement shall be deemed to discharge, release or modify
the obligations of Sensormatic to Executive under the provisions of the
Employment Agreement or any other agreement between them or of any plan or
program of Sensormatic, regardless of whether the subject matter of any
provision thereof is the same or similar to that of any provision of this
Agreement, the rights and remedies of Executive under this Agreement and any
other such agreement, plan or program being cumulative and not in substitution
of each other; provided, however, that nothing in this Agreement shall entitle
Executive to receive duplicative payments of salary, bonus or other benefits.
Further, nothing in this Agreement shall diminish or otherwise adversely affect
Executive's rights or benefits accruing as a consequence of his death or
disability, at any time after a Change in Control, under the terms and
conditions of the plans or programs of Sensormatic in which Executive is a
participant immediately prior to any Change in Control and any additional plan
or program of Sensormatic in which Executive is a participant at the time of
Executive's death or disability.
16. MAINTENANCE OF PLANS. Sensormatic agrees that, for not
less than 36 months after a Change in Control (whether "approved" or
"non-approved"), it shall maintain in effect the plans and programs in which
Executive is a participant immediately prior to such Change in Control (or
comparable plans and programs) to the extent necessary to assure that the rights
and benefits of Executive thereunder shall be no less favorable after such
Change in Control than immediately prior thereto, provided, that Sensormatic
shall in no event make any change in the event of or at any time after a Change
in Control in the Senior Executive Plan resulting in a reduction of Executive's
benefits thereunder.
17. ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement shall be settled by arbitration before the American
Arbitration Association in Miami, Florida, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. Any costs, including, without limitation, attorneys' fees
and
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disbursements, incurred by Executive in such arbitration or in connection with
any appeal therefrom or any action brought to enforce or collect any such award
or judgment thereon, shall be reimbursed by Sensormatic, provided, that
Sensormatic shall not be required to reimburse Executive hereunder in the event
that the arbitral panel or appeals court finds that Executive's claims and/or
defenses are substantially without reasonable basis.
18. SURVIVAL. This Agreement shall be binding on, enforceable
against and inure to the benefit of Executive and his heirs, executors,
administrators, personal representatives, successors and assigns and Sensormatic
and its successors and assigns, including, without limitation, any corporation
with or into which Sensormatic is merged or consolidated, or any entity which
acquires all or substantially all of the business and assets of Sensormatic, in
connection with any Change in Control. In connection with any sale, merger or
consolidation described in the preceding sentence, Sensormatic shall take all
actions permissible under applicable law in order to cause such other
corporation to expressly assume Sensormatic's liabilities, obligations and
duties hereunder.
19. NOTICES. Any notice given to a party pursuant to or in
connection with this Agreement shall be in writing and shall be deemed to have
been given when delivered personally or sent by Federal Express or a similar
overnight courier service or by certified or registered mail, postage prepaid,
return receipt requested, duly addressed to the party concerned at the address
indicated at the beginning of this Agreement or to such changed address as such
party may subsequently give such notice of.
20. SEVERABILITY. If any provision of this Agreement is found
to be invalid or unenforceable by a court of competent jurisdiction or an
arbitral panel under Section 17 hereof, this Agreement shall be interpreted and
enforceable as if such provision were severed or limited, but only to the extent
necessary to render such provision and this Agreement enforceable.
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21. GOVERNING LAW. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of Florida
applicable to agreements made and fully to be performed in such state, without
giving effect to conflicts of law principles.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first set forth above.
SENSORMATIC ELECTRONICS
CORPORATION
By:/s/ Garrett E. Pierce
-----------------------------------
Garrett E. Pierce
Senior Vice President
and Chief Financial Officer
/s/ Robert A. Vanourek
-----------------------------------
Robert A. Vanourek
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<PAGE> 1
EXHIBIT 10(m)
AGREEMENT
AGREEMENT, dated as of September 1, 1998, by and between
SENSORMATIC ELECTRONICS CORPORATION, a Delaware corporation having its principal
place of business at 951 Yamato Road, Boca Raton, Florida 33431 ("Sensormatic"),
and GARRETT E. PIERCE ("Executive"), residing at 3972 N.W. 65th Lane, Boca
Raton, Florida 33496.
W I T N E S S E T H:
WHEREAS, as of December 21, 1995, Executive became the Senior
Vice President and Chief Financial Officer of Sensormatic, and has made and is
expected to make a significant contribution to the performance and growth of
Sensormatic;
WHEREAS, the Board of Directors of Sensormatic recognizes
that, as is the case with many publicly-held corporations, the possibility of a
Change in Control (as defined below) exists and that such possibility, and the
uncertainty which it may raise among Sensormatic's management, may result in the
distraction or departure of management personnel to the detriment of Sensormatic
and its stockholders, particularly at a time when Sensormatic is placing heavy
demands on its management in connection with its efforts to expand its product
lines and markets, restructure its operations and reduce its expenses;
WHEREAS, the Board of Directors of Sensormatic has determined
that it is in the best interest of Sensormatic and its stockholders to provide
to Executive certain rights as to termination compensation in the event of a
Change in Control; and
WHEREAS, the Board of Directors of Sensormatic believes that
the grant of such rights to Executive will help assure Executive's continuing
dedication to his duties to Sensormatic, notwithstanding the occurrence of any
Change in Control, and, in particular, will enable Executive to objectively and
impartially assess, and advise the Board of Directors with respect to, any
proposal received by Sensormatic regarding a Change in Control and to take such
action regarding any such proposal as the Board of Directors may deem to be
appropriate;
WHEREAS, this Agreement was contemplated by the Executive's
Employment Agreement with Sensormatic dated as of December 21, 1995 (the
"Employment Agreement");
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the parties hereto agree as follows:
1. TERM.
(a) The term of this Agreement shall commence on the date
hereof (which for all purposes of this Agreement shall mean the date first above
written) and shall continue after a
<PAGE> 2
Change in Control for so long as Sensormatic has or may have any obligations
under Sections 6, 7, 8, 12, 13 or 16 hereof.
(b) Notwithstanding the provisions of Section 1(a) hereof,
this Agreement shall terminate automatically in the event of the voluntary or
involuntary termination of Executive's employment with Sensormatic prior to the
occurrence of a Change in Control, so long as, at the time of such termination
of employment, no Attempted Change in Control shall have occurred and then be
pending. Notwithstanding anything contained in this Agreement to the contrary,
if Executive's employment is terminated by Sensormatic prior to a Change in
Control, which Change in Control occurs, and Executive reasonably demonstrates
that such termination was at the request of a third party who effectuates such
Change in Control or that such termination was directly related to or in
anticipation of such Change in Control, then for all purposes of this Agreement,
Executive shall be entitled to the payments and other benefits provided under
this Agreement, offset by any amounts previously paid pursuant to the Employment
Agreement.
2. SALARY AND BONUS. Executive's present base salary is
$350,002 per year and Executive's target bonus is deemed to be $175,000 per
year. After the date of this Agreement, Executive's annual base salary and
target bonus (subject to Section 3(b) of the Employment Agreement) may be
increased or decreased, to the extent permitted under the Employment Agreement,
as determined by Sensormatic's Board of Directors or any compensation committee
thereof, provided, however, that none of the following shall be effective during
the pendency of an Attempted Change in Control or in the event of a Change in
Control or at any time within 36 months after a Change in Control has occurred:
(i) any decrease in Executive's annual base salary or target bonus from the
amounts set forth above (or any greater amounts subsequently so determined and
approved), (ii) any decrease in the actual amount paid to Executive as a bonus
from the amount of the bonus actually paid for the most recently concluded
fiscal year (except to the extent that such actual amount paid in the
then-current fiscal year exceeds 150% of the greater of the target bonus then in
effect or $175,000), or (iii) any change in the formula then in effect for
calculation of Executive's bonus that could be reasonably anticipated to result
in a decrease in the amount payable thereunder.
3. FRINGE BENEFITS. Sensormatic currently provides to
Executive the fringe benefits listed below, without cost to Executive, and,
while nothing in this Agreement shall be deemed to require Sensormatic to
continue any such benefits or to prohibit Sensormatic from modifying any such
benefits in any respect (subject to the express terms of the Employment
Agreement, as applicable), except that there shall be no material reduction in
any such currently provided benefits (and there shall be no material reduction
in any additional benefits subsequently approved by Sensormatic's Board of
Directors or any committee thereof) during the pendency of an Attempted Change
in Control or in the event of a Change in Control or at any time within 36
months after a Change in Control has occurred (and, in addition, there shall
not, at any time following a Change in Control, be any change in Sensormatic's
Senior Executive Defined Contribution Retirement Plan or any similar or
successor plan (the "Senior Executive
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<PAGE> 3
Plan", which shall include, for all purposes of this Agreement, any Senior
Executive Defined Contribution Retirement Agreement between Sensormatic and
Executive under such Plan) resulting in a reduction of Executive's benefits
thereunder), it is anticipated that such benefits (together with any such
additional benefits) shall continue to be provided to Executive on the same or a
substantially similar basis in the future in accordance with the terms of the
applicable benefit plans and policies:
(a) group medical and group dental plans in which Executive
and his eligible dependents are participants;
(b) life insurance on Executive's life and accidental death
and dismemberment insurance, each equal to two times Executive's annual
base salary (but not to exceed $800,000 or such greater amount as may
be established by Sensormatic for such purposes from time to time);
(c) participation in Sensormatic's retirement and/or profit
sharing plans (including the Senior Executive Plan) and in
Sensormatic's annual contributions, if any, thereto, provided that such
participation is contingent on Executive's continued qualification
prior to any such Change in Control or Attempted Change in Control as
an eligible participant under the provisions of such plans as then in
effect and on Executive's election to continue his participation in
such plans;
(d) the use of a Sensormatic owned or leased automobile and
comprehensive insurance protection on such vehicle;
(e) disability income protection in an amount equal to not
less than 60% of his annual base salary and target bonus;
(f) payment of such social (i.e., non-golfing) country club or
beach club fees and airline club room fees as are necessary or
advisable, in the opinion of Executive and the President of
Sensormatic, for Executive's professional activities, including the
entertainment of business associates/clients, and commensurate with
those provided to him under his Employment Agreement as of the date
this Agreement;
(g) reimbursement of Executive for reasonable travel and
entertainment expenses incurred by Executive in connection with the
business of Sensormatic; and
(h) the provision to Executive of office space befitting
Executive's position, secretarial help, and access to telephone
service, including WATS lines.
Further, Sensormatic expects that, during the term of this Agreement, and so
long as Executive continues to be employed by Sensormatic, Executive's position
shall continue to be located in
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Palm Beach County or Broward County, Florida, and that the duties and
responsibilities of Executive's position shall not be significantly diminished.
4. EMPLOYMENT COMMITMENT. As partial consideration for the
benefits available to Executive under this Agreement, Executive hereby agrees to
remain as an officer and employee of Sensormatic during any Attempted Change in
Control and for a period of six months immediately after a Change in Control
first occurs (the "Commitment Period"), and during the Commitment Period to
devote substantially all his business time and efforts to the business and
affairs of Sensormatic, provided that Executive shall be entitled to terminate
his employment by Sensormatic during an Attempted Change in Control or at any
time following a Change in Control in circumstances which constitute an
involuntary termination pursuant to Section 10 hereof. Neither Executive's
participation in other businesses, as a director or otherwise, with the approval
of Sensormatic's Board of Directors (which approval shall be deemed to include
the Board of Directors not objecting to such participation following disclosure
thereof to the Board of Directors by Executive, and which approval may not be
withdrawn following such Change in Control), nor Executive's engaging in
charitable activities and community affairs or managing his personal investments
and affairs, shall be deemed to contravene the foregoing provision. In the event
that Executive voluntarily terminates his employment with Sensormatic (other
than by resignation contemplated in Section 10 hereof) at any time during the
Commitment Period, Executive shall not be entitled to any of the benefits
provided for in this Agreement, other than those provided under Sections 6(a),
6(b), 6(c), 6(d), 7(a)(ii), 12, 13 and 16 hereof, and shall promptly repay to
Sensormatic, on an after-tax basis, any benefits previously received by him
pursuant to any provisions of Sections 6 or 7 of this Agreement not referred to
in this sentence, but Sensormatic shall have no other remedy for Executive's
failure to remain an employee and officer as required by this Section 4. Any
amounts or benefits received by Executive pursuant to the Employment Agreement
or any other compensation plan or arrangement of Sensormatic, even if similar or
identical to those to which he would be entitled under this Agreement, shall not
be deemed received pursuant to this Agreement or be repayable to Sensormatic for
purposes of the preceding sentence.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, the term "Change in
Control" shall mean a change in control of Sensormatic of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
provided, that, without limitation, such a change in control shall be deemed to
have occurred if (i) any person (as such term is used in Sections 13(d) and
14(d) of the Exchange Act, "Person") is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act, "Beneficial Owner"), directly or
indirectly, of securities of Sensormatic representing 30% or more of the
combined voting power of Sensormatic's then outstanding voting securities, (ii)
Sensormatic consummates a merger, consolidation, share exchange, division or
other reorganization of Sensormatic with any other corporation or entity, unless
the shareholders of Sensormatic immediately prior to such transaction
beneficially own, directly or
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indirectly, (A) if Sensormatic is the surviving corporation in such transaction,
60% or more of the combined voting power of Sensormatic's outstanding voting
securities as well as 60% or more of the total market value of Sensormatic's
outstanding equity securities, (B) if Sensormatic is not the surviving
corporation, 80% or more of the combined voting power of the surviving entity's
outstanding voting securities as well as 80% or more of the total market value
of such entity's outstanding equity securities, or (C) in the case of a
division, 80% or more of the combined voting power of the outstanding voting
securities of each entity resulting from the division as well as 80% or more of
the total market value of each such entity's outstanding equity securities, in
each case in substantially the same proportion as such shareholders owned shares
of Sensormatic prior to such transaction; (iii) Sensormatic adopts a plan of
complete liquidation or winding-up of Sensormatic; (iv) the shareholders of
Sensormatic approve an agreement for the sale or disposition (in one transaction
or a series of transactions) of all or substantially all of Sensormatic's
assets; or (v) during any period of 24 consecutive months, individuals (y) who
at the beginning of such period constitute the Board of Directors of Sensormatic
or (z) whose election, appointment or nomination for election was approved prior
to such election or appointment by a vote of at least two-thirds of the
directors in office immediately prior to such election or appointment who were
directors at the beginning of such two-year period (other than any directors who
prior to the Change in Control were associated or affiliated with any Person
involved with any Change in Control or Attempted Change in Control), cease for
any reason to constitute at least three-fourths of the Board of Directors of
Sensormatic.
(b) For purposes of this Agreement, an "Attempted Change in
Control" shall be deemed to have occurred (i) if any Person files (or fails to
file when required to do so) with the Securities and Exchange Commission (the
"SEC") a Statement on Schedule 13D relating to voting securities of Sensormatic
(A) disclosing the acquisition of 10% or more thereof or (B) while disclosing
the acquisition of less than 10% of such voting securities, indicates an
intention to effect any of the transactions listed in Item 4 of Schedule 13D or
otherwise to effect a Change in Control, (ii) upon the public announcement
(including, without limitation, the filing with the SEC of a Statement on
Schedule 14D-1) by any Person of an intention to make a tender offer or
otherwise to effect a Change in Control, (iii) in the event of any solicitation
of proxies for the election of directors of Sensormatic pursuant to Rule 14a-11
of the Rules and Regulations under the Exchange Act or the filing of a Statement
on Schedule 14B in anticipation thereof, (iv) the receipt by Sensormatic from
any Person of any other communication proposing, or indicating an intention, to
effect a Change in Control by the acquisition of voting securities of
Sensormatic, the solicitation of proxies for the election of directors or
otherwise or (v) if the Board of Directors of Sensormatic or an authorized
committee thereof otherwise determines that an Attempted Change in Control is
pending. The termination of the pendency of an Attempted Change in Control shall
be determined by the Board of Directors of Sensormatic (or an authorized
committee thereof); PROVIDED, that any Attempted Change in Control shall in any
event be deemed to have terminated upon the occurrence of a Change in Control.
(c) A Change in Control shall be deemed, for purposes of this
Agreement, to be: (i) "non-approved" if (A) in connection with the consideration
thereof by the Board of
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Directors of Sensormatic, a majority of the Previous Members of the Board of
Directors (as defined below), either before or after such Change in Control, (x)
votes to disapprove of such Change in Control, (y) votes to approve of such
Change in Control, but as a consequence of the existence of a competing proposal
for a Change in Control, or (z) otherwise expressly declares that such Change in
Control is "non-approved", or (B) a majority of the Previous Members of the
Board of Directors neither expressly approves nor disapproves of such Change in
Control, or (ii) "approved" if in connection with the consideration thereof by
the Board of Directors of Sensormatic, a majority of the Previous Members of the
Board of Directors, either before or after such Change in Control, (x) approves
of such Change in Control (other than as a consequence of the existence of a
competing proposal for a Change of Control) or (y) otherwise expressly declares
that such Change in Control is "approved", notwithstanding clause (A)(y) of this
Section 5(c). The majority of the Previous Members of the Board of Directors
shall indicate its approval or disapproval of a Change in Control by a statement
or statements in writing to such effect. For purposes of this Agreement,
Previous Members of the Board of Directors shall mean members of the Board of
Directors of Sensormatic as of the date of a Change in Control (the first Change
in Control, if there are more than one) who had been in office for a period of
at least two years immediately prior to such Change in Control (other than
directors who prior to such Change in Control were appointed or elected as
directors as a consequence of their association or affiliation with any Person
effecting such Change in Control).
In addition, notwithstanding any previous determination that a
Change in Control was "approved", such Change in Control may subsequently be
determined, in good faith, to be "non-approved" by a majority of the Previous
Members of the Board of Directors who are then still in office with Sensormatic
or a corporate successor of Sensormatic (or if fewer than two such Previous
Members of the Board of Directors are still in office, then by a majority of the
Previous Members of the Board of Directors, whether or not still in office)
within the 36-month period immediately following such Change in Control, if
during such period there occur (1) events of the types referred to in Section 10
hereof with respect to individuals who were officers of Sensormatic at the time
of the Change in Control, (2) defaults by Sensormatic under this Agreement or
any similar agreement, (3) the involuntary termination (other than for cause or
in the event of death or permanent disability) of the employment of a number of
the officers of Sensormatic who were officers immediately prior to such Change
in Control exceeding 40% of the total number of such officers, or (4) the
transfer (by sale, merger or otherwise) of all or substantially all the equity
securities of Sensormatic acquired by the Person effecting such Change in
Control, of all or substantially all the assets of Sensormatic, or of all or
substantially all the equity securities of Sensormatic's successor corporation,
directly or indirectly, to a third party (other than a majority owned affiliate
of such Person). In the event of such a subsequent determination, Executive
shall be entitled to all benefits arising under this Agreement out of a
"non-approved" Change in Control as if such Change in Control had been deemed
"non-approved" initially. Any additional benefits arising out of such
"non-approved" Change in Control which Executive is entitled to receive through
the date of such determination shall be paid or satisfied promptly by
Sensormatic. For purposes of this Section 5(c), the term "officers"
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<PAGE> 7
shall not include individuals whose only office with Sensormatic is Assistant
Secretary or Assistant Treasurer.
(d) For the purposes of this Section 5, references to
provisions of the Exchange Act and rules, regulations and schedules thereunder
shall be to such provisions as they are in effect and interpreted as of the date
of this Agreement.
6. BENEFITS ON "NON-APPROVED" CHANGE IN CONTROL.
(a) BENEFITS EFFECTIVE UPON A CHANGE IN CONTROL. In the event
a "non-approved" Change in Control occurs, Executive shall be entitled to the
following benefits:
(i) All stock options issued by Sensormatic to Executive,
whether or not then exercisable, shall remain fully exercisable or shall become
fully exercisable immediately (or, notwithstanding the foregoing, in the event
of an Attempted Change in Control involving a proposed Reorganization Event (as
such term is defined in Section 6(a)(ii) hereof)), such options shall become
fully exercisable thirty days before the date of such Reorganization Event), and
such options shall remain outstanding and fully exercisable for the stated term
thereof or until the later of (A) nine months following the voluntary or
involuntary termination of Executive's employment with Sensormatic (or, at the
option of Executive, in the case of an incentive stock option, three months
following such termination) or (B) the end of the respective post-termination
exercisability periods provided for in such options (including if applicable,
such periods in the event of death or disability); PROVIDED, that in no event
shall the term of such options be extended beyond their respective original
terms. In addition, any deferred vesting or forfeiture provisions applicable to
any shares of Sensormatic stock awarded to or otherwise held by Executive shall
be without further force or effect, and Executive shall have the unrestricted
right to such shares.
(ii) In the event that (A) such Change in Control is effected
through (w) a tender or exchange offer (a "Tender Offer") or (x) any means, in
one or more transactions, with the result in either case that any Person becomes
the Beneficial Owner, directly or indirectly, of securities of Sensormatic
representing 50% or more of the combined voting power of Sensormatic's then
outstanding voting securities (any such Change in Control referred to in this
clause (A), including pursuant to a Tender Offer, being hereinafter referred to
as a "Majority Acquisition"), (B) in connection with, as a result of or within
24 months immediately following a Change in Control, Sensormatic's Board of
Directors shall have approved a merger, consolidation, reclassification,
reorganization, dissolution, sale of all or substantially all of the assets of
Sensormatic or similar event (a "Reorganization Event") as a result of which
Sensormatic's Common Stock would cease to be outstanding or (C) in connection
with, as a result of or within 24 months immediately following a Change in
Control, Sensormatic's Common Stock ceases to be listed for trading on a
national securities exchange or quoted through NASDAQ or a comparable securities
quotation system, Executive shall have the right, exercisable by written notice
given at any time during the 13-month period immediately
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following the date of such Change in Control (and, if later, the date of any
such Majority Acquisition, Reorganization Event or cessation of listing or
quotation), to require Sensormatic to purchase:
(1) any or all stock options issued by Sensormatic to
Executive, whether or not then exercisable, and/or any stock options
issued upon conversion of or in exchange for any such Sensormatic stock
options pursuant to any such Reorganization Event ("Conversion
Options"), at a purchase price equal to the excess of the aggregate
Fair Market Value (as defined below) of the shares of Sensormatic
Common Stock subject to such Sensormatic stock options over the
aggregate exercise price of such stock options (or, in the case of any
Conversion Options, such amount calculated with respect to the
Sensormatic stock options which were converted into or exchanged for
such Conversion Options); and/or
(2) any or all shares of Sensormatic Common Stock held by
Executive at or immediately prior to the date of such Change in Control
(including any shares of Sensormatic Common Stock (restricted or
otherwise, and whether or not vested) awarded to Executive pursuant to
any compensation plan or arrangement of Sensormatic) or issued pursuant
to the exercise of any such Sensormatic stock options following the
date of such Change in Control, and/or (without duplication) any shares
or other securities issued upon conversion of or in exchange for any
such shares of Common Stock pursuant to any such Reorganization Event
("Conversion Shares"), at a purchase price equal to the aggregate Fair
Market Value of such shares (or, in the case of any Conversion Shares
issued upon conversion of or in exchange for Common Stock, the Fair
Market Value of the shares of Common Stock which were converted into or
exchanged for such Conversion Shares); provided, that Sensormatic may
offset against the amount so payable for Common Stock or Conversion
Shares all amounts outstanding on any loans made to Executive for the
purchase of, or payment of taxes relating to, such shares of Common
Stock or Conversion Shares, as contemplated by Section 6(a)(iii) hereof
or otherwise.
Payment for any such options or shares shall be made by Sensormatic within 10
days after Executive's surrender of any such options, and/or within 10 days
after Executive's surrender of the certificates representing any such shares of
Common Stock or Conversion Shares (or, if such certificates are in Sensormatic's
possession, within 10 days after Executive's notice of exercise under this
Section 6(a)(ii)).
For purposes of this Section 6(a)(ii), the "Fair Market Value"
of a share of Sensormatic Common Stock means the highest fair market value per
share of Sensormatic Common Stock of the consideration paid in any transaction
by any Person who effects such Change in Control, in connection therewith,
whether through open market purchases, Tender Offers, Reorganization Events,
private transactions or otherwise.
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(iii) Upon Executive's request, Sensormatic shall lend to
Executive, interest free, up to an amount equal to the aggregate exercise price
of the options referred to in Section 6(a)(i) hereof, should Executive elect to
exercise such options. If requested by Executive, Sensormatic shall also lend to
Executive, interest free (or, at Executive's option, provide a guaranty to
enable Executive to borrow), up to an amount equal to the percentage specified
in Section 6(a)(iv)(A) hereof times the Share Income (as such term is defined in
such Section) resulting from such exercise and/or vesting. Such loan or loans
shall be due and payable to Sensormatic upon the earliest of (A) the fifth
anniversary date of such loan or loans, (B) in the event that Executive's
employment with Sensormatic terminates, other than termination by Sensormatic
for Cause (as defined in Section 9 hereof, "Cause") upon the expiration of 30
months following such termination, or in the event that Executive's employment
is terminated by Sensormatic for Cause, upon the expiration of 30 days after
such termination, or (C) promptly (but in any event within five (5) business
days) after receipt of the proceeds of sale from the sale of such shares, to the
extent of the loan or loans applicable to such sold shares. Executive shall
deposit such shares with Sensormatic as security for any such loan, if
Sensormatic shall so request. Notwithstanding anything to the contrary contained
in this Section 6(a)(iii), Sensormatic's Stock Purchase Loan Plan or any
promissory note or security agreement executed by Executive pursuant to such
Plan, no additional collateral shall be required by Sensormatic in connection
with any such loan to Executive, and, if necessary to be in compliance with
applicable margin regulations under federal laws, such loans shall be unsecured;
and if, because of Internal Revenue Service rules or other rules, Sensormatic is
unable to lend such funds to Executive interest free and without any imputation
of interest, Sensormatic shall pay Executive a dollar amount of additional
compensation which shall equal the amount of interest required to be charged in
order to avoid such imputation in such instances and Executive shall then pay
Sensormatic the rate of interest on such loan required by law to avoid
imputation.
(iv)(A) If a Majority Acquisition shall have occurred or if,
in connection with, as a result of or within 24 months immediately following a
Change in Control, either a Reorganization Event shall have occurred or
Sensormatic's Common Stock ceases to be listed for trading on a national
securities exchange or quoted through NASDAQ or a comparable securities
quotation system, then Executive shall have the right, exercisable during the
period and in the manner described in Section 6(a)(iv)(B) hereof, to require
Sensormatic to purchase any or all of Executive's Option Acquired Shares and
Award Shares (as defined below), and/or any or all Conversion Shares issued with
respect to any Option Acquired Shares or Award Shares. The price at which
Executive shall be entitled to sell any Option Acquired Share to Sensormatic
under this Section 6(a)(iv) shall equal the sum of (x) the option exercise price
paid (including payments made by promissory notes issued under Sensormatic's
Stock Purchase Loan Plan or otherwise) by Executive in acquiring such share,
plus (y) an amount equal to a percentage, determined as provided below in this
clause (A), of the difference between such option exercise price and the Market
Value (as defined below) of a share of Sensormatic Common Stock on the date the
share was acquired. The price at which Executive shall be entitled to sell any
Award Share under this Section 6(a)(iv)(A) shall be equal to the Market Value of
such share on the date Executive's right to such share vested, multiplied by the
percentage determined as provided
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below in this clause (A). The price at which Executive shall be entitled to sell
any Conversion Shares pursuant to this Section 6(a)(iv)(A) shall be calculated
as set forth above with respect to Option Acquired Shares or Award Shares, as
applicable, based upon the purchase price, date of purchase and Market Value of
any Option Acquired Shares, and the vesting date and Market Value of any Award
Shares, which were converted into or exchanged for any such Conversion Shares
sold. The percentage referred to in this Section 6(a)(iv)(A) shall be equal to
the sum of (1) the highest marginal net rate of income tax (federal, state and
local) applicable to an individual residing where the Executive resided at the
time the Executive reported income ("Share Income") with respect to the Option
Acquired Shares or Award Shares, as the case may be, plus (2) the Medicare
employee tax rate, plus (3) a percentage equal to (x) that part, if any, of the
Share Income that was actually subject to employee Social Security tax,
multiplied by (y) the social security employee tax rate, divided by (z) the
total Share Income (in each case as applicable at the time such share was
purchased by Executive, in the case of any Option Acquired Shares, or at the
time Executive's right to such share vested, in the case of any Award Shares).
The purchase price payable by Sensormatic shall in all events be equitably
adjusted to reflect any stock dividends, stock splits, extraordinary dividends
or similar events since the date of acquisition by Executive of any such shares.
For purposes of this Section 6(a)(iv), the term "Option
Acquired Shares" shall mean shares of Sensormatic Common Stock acquired by
Executive upon exercise of options granted to Executive, the term "Award Shares"
shall mean shares of Sensormatic Common Stock awarded to Executive pursuant to
Sensormatic's Stock Incentive Plan or any other compensation plan or arrangement
of Sensormatic, other than pursuant to the exercise of options, and the term
"Market Value" shall mean the average of the high and low sales prices of a
share of such Common Stock on the applicable date (or most recent date on which
one or more sales occurred) as reported through NASDAQ or the principal exchange
on which such Common Stock was listed for trading.
(B) Executive may exercise his right to sell Option Acquired
Shares, Award Shares and/or Conversion Shares under this Section 6(a)(iv) at any
time within 13 months following any of the events specified in the first
sentence of Section 6(a)(iv)(A) hereof by giving written notice of such exercise
to Sensormatic, which notice shall set forth the Option Acquired Shares, Award
Shares and/or Conversion Shares to be sold, the exercise price paid by Executive
in acquiring any such Option Acquired Shares or Conversion Shares, the highest
marginal tax rates applicable for purposes of the respective calculations
specified in Section 6(a)(iv)(A) hereof and the Market Value of the Common Stock
or Conversion Shares, as applicable, on each date that any applicable Option
Acquired Shares or Conversion Shares to be sold were purchased by Executive or
Executive's right to any applicable Award Shares vested, as the case may be. The
information set forth in such notice shall be presumed to be correct.
(C) In addition to the purchase price for the Option Acquired
Shares, Award Shares or Conversion Shares being sold to Sensormatic under this
Section 6(a)(iv), Sensormatic shall pay to Executive an amount (the "Tax
Payment") equal to a percentage (determined
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pursuant to the following sentence) of the excess, if any, of (1) the product of
the number of such Option Acquired Shares, Award Shares and/or Conversion Shares
being sold multiplied by the Market Value of a share of Sensormatic Common Stock
or Conversion Shares, as applicable, on the Purchase Date (as such term is
defined in Section 6(a)(iv)(D) hereof) or such other value of a share of
Sensormatic Common Stock or Conversion Shares as may be required to be used to
determine the amount, if any, recognizable as ordinary income arising out of the
sale of such shares to Sensormatic, over (2) the aggregate purchase price for
all such Option Acquired Shares, Award Shares and/or Conversion Shares being
sold by Executive. The percentage referred to in the preceding sentence shall be
determined in accordance with Section 6(a)(iv)(A) hereof as applicable on the
Purchase Date.
(D) Within 10 days after Executive's surrender of the
certificates representing any such Option Acquired Shares, Award Shares and/or
Conversion Shares or, if such certificates are in Sensormatic's possession,
within 10 days after Executive's notice of exercise under this Section 6(a)(iv)
(the "Purchase Date"), Sensormatic shall purchase the Option Acquired Shares,
Award Shares and/or Conversion Shares referred to in such notice by paying to
Executive (subject to offset as provided in the following sentence) the full
purchase price thereof, as calculated under Section 6(a)(iv)(A) hereof, plus the
Tax Payment applicable thereto. Sensormatic may offset against payment of any or
all of such purchase price and the related Tax Payment all or a portion of any
indebtedness of Executive then outstanding under Sensormatic's Stock Purchase
Loan Plan attributable to any Option Acquired Shares and/or Conversion Shares
sold to Sensormatic hereunder.
(E) Executive's rights under this Section 6(a)(iv) are
independent of and not limited by, and do not constitute any limitation of,
Executive's rights under Section 6(a)(ii) hereof. Executive may exercise any
rights under either Section 6(a)(ii) hereof or this Section 6(a)(iv), in whole
or in part (but without duplication), in Executive's sole discretion.
(v)(A) Subject to Section 4 hereof, if either a Majority
Acquisition occurs or, in connection with, as a result of or within 24 months
following a Change in Control, a Reorganization Event occurs, then Sensormatic
shall pay to Executive (irrespective of whether he is then employed by
Sensormatic or its successor; PROVIDED, HOWEVER, that in the event that
Executive voluntarily terminates his employment with Sensormatic (other than by
resignation contemplated by Section 10 hereof) prior to the occurrence of the
event giving rise to the right to receive the cash bonus payment provided for in
this Section 6(a)(v), Executive shall have no right to receive such bonus
payment), within thirty days after the effective date of such Majority
Acquisition or Reorganization Event, as the case may be, a cash bonus payment
equal to a percentage (determined pursuant to Sections 6(a)(v)(B) and 6(a)(v)(C)
hereof) of Executive's "Special Bonus Base" (as defined below). Executive's
Special Bonus Base shall equal three times the greater of (x) the sum of
Executive's annual base salary in effect at the end of the last full month
preceding the first public announcement relating to the proposed Majority
Acquisition or Reorganization Event, as the case may be, plus the bonus paid to
Executive by Sensormatic with respect to the
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most recently completed fiscal year of Sensormatic prior to such month, or (y)
the sum of Executive's annual base salary and target bonus as specified in
Section 2 hereof.
(B) The percentage of the Special Bonus Base which Executive
shall be entitled to receive under this Section 6(a)(v) shall be calculated on
the basis of the Premium (as defined below) paid or offered to holders of
Sensormatic's Common Stock in connection with a Majority Acquisition or
Reorganization Event. "Premium" shall mean the percentage which results from
dividing (1) the amount by which the Event Value (as defined below) exceeds the
Pre-Event Share Price (as defined below), by (2) the Pre-Event Share Price. The
"Pre-Event Share Price" shall be equal to the average of the closing sales
prices (or if there is no sales price, the last bid price) for a share of
Sensormatic's Common Stock, as such prices are reported through NASDAQ or the
principal exchange on which such shares are listed for trading, on the last
business day of each week during the twenty-six weeks immediately preceding the
first to occur of (x) the first public announcement relating to any proposed
Change in Control or Reorganization Event, or (y) any event resulting in the
pendency of an Attempted Change in Control which culminates, directly or
indirectly, in the Change in Control giving rise to Executive's rights under
this Section 6(a)(v). In the case of any Reorganization Event or Tender Offer,
or combination or series of Reorganization Events and/or Tender Offers, "Event
Value" shall mean the fair market value of the consideration paid per share of
Sensormatic Common Stock pursuant to such Reorganization Event or Tender Offer
determined as of the effective date of the Reorganization Event or of the
consummation of the Tender Offer, as the case may be, provided that in the event
that different prices are paid per share of Sensormatic Common Stock pursuant to
such Reorganization Event, Tender Offer or any combination or series thereof,
the "Event Value" shall be equal to the fair market value of the aggregate
consideration paid pursuant to all such Tender Offers and/or Reorganization
Events (determined as of the dates set forth above) divided by the number of
shares of Sensormatic Common Stock purchased pursuant to all such Tender Offers
and/or Reorganization Events. In case of any other transaction or series of
transactions giving rise to the right of Executive to receive the bonus provided
for in this Section 6(a)(v), "Event Value" shall mean the highest fair market
value of the consideration paid per share of Sensormatic Common Stock pursuant
to any such transaction, determined as of the date of payment thereunder. The
determination of Event Value shall be conclusively made by an investment banking
firm selected by the Previous Members of the Board of Directors who are not
entitled to receive bonuses under this Section 6(a)(v) or analogous provisions
of other agreements; PROVIDED, that in the event that the Previous Members of
the Board of Directors fail to make such selection within 45 days after
consummation of the transaction giving rise to the right to rights under this
Section 6(a)(v), or the selected investment banking firm fails to make such a
determination within an additional 90 days, Event Value shall be determined by
arbitration under Section 16. Sensormatic shall PAY all fees and expenses of any
such investment banker.
(C) The percentage of the Special Bonus Base which Executive
shall be entitled to receive as a bonus under this Section 6(a)(v) shall be 20%
if the Premium is at least 20% and shall increase by 3.2% for each one percent
(and by a fraction of 3.2% for each fraction
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of one percent) by which the Premium exceeds 20%. For example, if the Premium
were 30%, Executive would be entitled to a bonus of 52% of the Special Bonus
Base; if the Premium were 40.5%, Executive would be entitled to a bonus of 85.6%
of the Special Bonus Base; and if the Premium were 50%, Executive would be
entitled to a bonus of 116% of the Special Bonus Base. The maximum bonus which
Executive shall be entitled to receive is 167% of the Special Bonus Base. No
bonus shall be payable pursuant to this Section 6(a)(v) if the Premium is less
than 20%.
(b) BENEFITS ON TERMINATION. In the event of any termination,
other than termination by Sensormatic for Cause, of Executive's employment with
Sensormatic at any time following a "non-approved" Change in Control, Executive
shall be entitled to the following benefits:
(i) Subject to Section 4 hereof, Sensormatic shall,
as soon as practicable, pay to Executive a lump sum payment equal to
the amount of any then unvested interest which Executive may have had
on the date of such "non-approved" Change in Control (less any amount
of such interest subsequently vested), and as supplemented thereafter
through the date of such termination, in Sensormatic's profit sharing,
ESOP or other retirement plans (other than the Retirement Plan); and
(ii) Unless a trust or other arrangement previously
determined in writing to be satisfactory by a majority of the Previous
Members of the Board of Directors then in office assuring payment of
benefits to or for the benefit of Executive under Sensormatic's
Retirement Plan in the event of a Change in Control has been previously
established and is then in effect, Sensormatic shall take such steps as
are necessary, within 30 days after such termination, to fully fund all
of Executive's benefits under such Plan (after giving effect to the
change in control provisions of such Plan) through paid-up insurance,
annuity contracts and/or other similar means, so that the ultimate
payment of benefits (at a rate not less than the greater of the rates
in effect under such Plan at the date of such termination or
immediately after such Change in Control) upon Executive's attaining
retirement age under such Plan or upon his earlier death or disability
(as defined in such Plan) (despite Executive's no longer being employed
by Sensormatic) shall be assured beyond any reasonable doubt; PROVIDED,
HOWEVER, that either such manner of funding shall be structured so as
not to constitute "constructive receipt" by Executive of the benefits
in question for income tax purposes, or the benefits in question shall
be paid out in a lump sum, discounted to present value in the manner
provided in Section 8(a). In addition, following any such termination
which is involuntary, the non-competition provisions included in such
Plan shall have no force or effect.
(c) ADDITIONAL BENEFITS IN THE CASE OF A VOLUNTARY
TERMINATION. Subject to Section 4 hereof, in the event of Executive's voluntary
termination of employment with Sensormatic (other than by resignation
contemplated in Section 10 hereof) within the 24-month period immediately
following a "non-approved" Change in Control:
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(i) Executive shall be entitled to receive, for
each of the 12 months immediately following the effective date of such
termination and irrespective of whether Executive commences new
employment within such period, the greatest of (A) 1/12 of the amount
of Executive's most recent rate of annual base salary, plus 1/12 of
Executive's most recent annual bonus, (B) 1/12 of Executive's annual
base salary and target bonus in effect immediately prior to the date of
such Change in Control or (C) 1/12 of Executive's annual base salary
and target bonus as specified in Section 2 hereof;
(ii) If Executive has not commenced new regular,
full time employ ment during the first 12 months following the
effective date of such termination, Executive shall receive for each of
the 13th through 24th months following such effective date of
termination in which Executive was not so employed for the entire month
the amount payable under Section 6(c)(i) hereof;
(iii) Within 30 days after the effective date of
such termination, Sensormatic shall pay to Executive an amount equal to
his pro rata annual bonus for the year in which termination occurs,
based on the target bonus for such year; and
(iv) During that portion of the periods set forth
in Sections 6(c)(i) and 6(c)(ii) hereof during which Executive has not
commenced new regular, full time employment,
(x) Sensormatic shall continue to provide to
Executive the fringe benefits enumerated in Sections 3(a),
(b), (c) and (e) hereof on at least the same basis as in
effect immediately prior to the Change in Control, and shall,
if requested by Executive, provide Executive with office space
appropriate for his level and in close proximity to the office
he occupied at the time of the Change in Control, secretarial
help and local and long distance telephone service; and
(y) Sensormatic shall provide Executive with
appropriate out-placement services, including counseling and
traveling expenses to such out-placement services, when
necessary, as well as to potential job interviews when not
paid by the potential employer, all without charge to
Executive.
(d) ADDITIONAL BENEFITS IN CASE OF AN INVOLUNTARY TERMINATION.
In the event of the involuntary termination (other than termination by
Sensormatic for Cause) of Executive's employment with Sensormatic within the
36-month period immediately following a "non-approved" Change in Control:
(i) Executive shall be entitled to receive, for each
of the 24 months immediately following the effective date of such
termination and irrespective of whether Executive commences new
employment within such period, the greatest of (A) 1/12 of the amount
of Executive's most recent rate of annual base salary, plus 1/12 of
Executive's
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most recent annual bonus, (B) 1/12 of Executive's annual base salary
and target bonus in effect immediately prior to the date of such Change
in Control or (C) 1/12 of Executive's annual base salary and target
bonus as specified in Section 2 hereof;
(ii) If Executive has not commenced new regular, full
time employment during the first 24 months following the effective
date of such termination, Executive shall receive for each of the 25th
through 30th months following such effective date of termination in
which Executive was not so employed for the entire month the amount
payable under Section 6(d)(i) hereof;
(iii) During that portion of the periods set forth in
Sections 6(d)(i) and 6(d)(ii) hereof during which Executive has not
commenced new regular, full time employment, Executive shall be
entitled to the benefits set forth in Section 6(c)(iv) hereof;
(iv) Within 30 days after the effective date of such
termination, Sensormatic shall pay to Executive an amount equal to his
pro rata annual bonus for the year in which termination occurs, based
on the target bonus for such year; and
(v) On the date of such termination, ownership of the
car which Sensormatic was providing to Executive shall immediately be
transferred to Executive free and clear of any liens or other
obligations, if such car is then owned by Sensormatic. If such car is
then leased, rather than owned, by Sensormatic, Executive shall
continue to have the use of such car and Sensormatic shall continue to
pay all lease payments and insurance premiums with respect thereto
until the end of the then existing term, at which time Sensormatic
shall purchase such car and shall transfer title to such car to
Executive. If, on the date of such termination, Sensormatic is paying a
car allowance to Executive in lieu of providing a car to Executive, for
each month in which Sensormatic is obligated to make a monthly payment
to Executive under Sections 6(d)(i) or 6(d)(ii) hereof, Executive shall
receive 1/12 of the amount of Executive's most recent rate of annual
car allowance.
7. BENEFITS ON "APPROVED" CHANGE IN CONTROL.
(a) BENEFITS EFFECTIVE UPON CHANGE IN CONTROL.
(i) Subject to Section 4 hereof, in the event an
"approved" Change in Control occurs, Executive shall be entitled to all
of the rights and compensation set forth in Section 6(a) hereof.
(ii) ADDITIONAL BENEFITS IN THE CASE OF A VOLUNTARY
TERMINATION. Subject to Section 4 hereof, in the event of Executive's
voluntary termination of employment with Sensormatic (other than by
resignation contemplated in Section 10
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hereof) within the 24-month period immediately following a
"non-approved" Change in Control:
(A) Executive shall be entitled to receive,
for each of the 12 months immediately following the effective
date of such termination and irrespective of whether Executive
commences new employment within such period, the greatest of
(x) 1/12 of the amount of Executive's most recent rate of
annual base salary, plus 1/12 of Executive's most recent
annual bonus, (y) 1/12 of Executive's annual base salary and
target bonus in effect immediately prior to the date of such
Change in Control or (z) 1/12 of Executive's annual base
salary and target bonus as specified in Section 2 hereof;
(B) If Executive has not commenced new
regular, full time employment during the first 12 months
following the effective date of such termination, Executive
shall receive for each of the 13th through 24th months
following such effective date of termination in which
Executive was not so employed for the entire month the amount
payable under Section 7(a)(ii)(A) hereof;
(C) Within 30 days after the effective date
of such termination, Sensormatic shall pay to Executive an
amount equal to his pro rata annual bonus for the year in
which termination occurs, based on the target bonus for such
year; and
(D) During that portion of the periods set
forth in Sections 7(a)(ii)(A) and 7(a)(ii)(B) hereof during
which Executive has not commenced new regular, full time
employment, Executive shall be entitled to the benefits set
forth in Section 6(c)(iv) hereof.
(b) ADDITIONAL BENEFITS UPON INVOLUNTARY TERMINATION. In the
event that Executive's employment with Sensormatic is involuntarily terminated
(other than for Cause) within the 36-month period following an "approved" Change
in Control:
(i) Executive shall be entitled to receive, for each
of the first 24 months immediately following the effective date of such
termination and irrespective of whether Executive commences new
employment within such period, the greatest of (A) 1/12 of the amount
of Executive's most recent rate of annual salary, plus 1/12 of the
amount of Executive's most recent annual bonus, (B) 1/12 of Executive's
annual base salary and target bonus in effect immediately prior to the
date of such Change in Control or (C) 1/12 of Executive's annual base
salary and target bonus as specified in Section 2 hereof;
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(ii) If Executive has not commenced new regular, full
time employment during the first 24 months following the effective
date of such termination, Executive shall receive for each of the 25th
through 30th months following such effective date of termination in
which Executive was not so employed for the entire month the amount
payable under Section 7(b)(i) hereof;
(iii) Within 30 days after the effective date of such
termination, Sensormatic shall pay to Executive an amount equal to his
pro rata annual bonus for the year in which termination occurs, based
on the target bonus for such year; and
(iv) During that portion of the period set forth in
Section 7(b)(i) hereof during which Executive has not commenced new
regular, full time employment, Executive shall be entitled to all of
the rights and compensation set forth in Section 6(c)(iv) hereof.
(c) CONSULTING SERVICES. For a period of one year following
Executive's voluntary termination (other than by resignation contemplated in
Section 10 hereof or in Section 4(c) of the Employment Agreement (or the
corresponding provision of any successor agreement)), following an "approved"
Change in Control, of his employment with Sensormatic in which Executive
receives payments under Section 7(a)(ii) hereof, or, if shorter, the period
beginning on the date of such termination and ending six months after the
appointment of a new chief financial officer (other than an interim or acting
chief financial officer) (the "Payment Period"), Executive agrees to make
himself available at the executive offices of Sensormatic in Palm Beach County
or Broward County, Florida to advise and consult with Sensormatic with respect
to matters specified by the chief executive officer, chief financial officer or
Board of Directors of Sensormatic and appropriate for a former chief financial
officer. Executive shall perform such services at such times as are (i)
reasonably requested by the chief executive officer, chief financial officer or
Board of Directors of Sensormatic, (ii) reasonably acceptable to Executive and
(iii) consistent with Executive's duties and obligations in the course of his
then occupation or employment, if any. Executive shall use reasonable efforts to
comply with such requests to perform up to 250 hours of such services during the
Payment Period.
(d) In the event of any termination of Executive's employment
to which this Section 6(c) or 6(d) or this Section 7 is applicable, Executive
shall be under no obligation to seek other employment and there shall be no
offset against amounts due Executive under this Agreement on account of any
remuneration attributable to any subsequent employment that he may obtain,
except as expressly set forth in Section 6(c) or 6(d) or this Section 7.
8. BENEFITS ON DEATH OR DISABILITY.
(a) In the event of Executive's death at any time within 36
months after a Change in Control and prior to any termination of Executive's
employment, or in the event that Executive had died prior to a Change in Control
and that as of the date of such Change in Control
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there remain outstanding amounts payable under Sensormatic's Senior Executive
Plan for Executive, unless in either case a trust or other arrangement
previously determined in writing to be satisfactory by a majority of the
Previous Members of the Board of Directors then in office assuring payment of
benefits to or for the benefit of the Executive under such Plan in the event of
a Change in Control has been previously established and is then in effect,
Sensormatic shall promptly pay to Executive's designated beneficiary or
Executive's heirs, executors, administrators or personal representatives
(collectively, "Successors") all of the remaining benefits under such Plan to
which Executive's Successors are then entitled, in the form of a lump sum
payment equal to the amount of such benefits discounted to present value using
an interest rate equal to the rate published by Pension Benefit Guaranty
Corporation for the purpose of discounting pension benefits to present value in
the event of a lump sum prepayment thereof, as then in effect, but such discount
rate shall in no event be greater than ten percent (10%) PER ANNUM.
(b) In the event of Executive's death or permanent and total
disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code
of 1986, as amended and in effect and interpreted as of the date of this
Agreement) at any time within the 24-month period immediately following a
Change in Control and prior to any termination of Executive's employment,
Executive or Executive's Successors shall be entitled to all of the benefits of
Executive provided under this Agreement as if Executive had voluntarily
terminated his employment with Sensormatic (but without giving effect to Section
4 hereof or to the loss of benefits upon voluntary termination under Section
6(e)(i) hereof), including, without limitation, those set forth in Section 6(c)
hereof.
(c) In the event of Executive's death or disability after
termination of Executive's employment with Sensormatic, Executive or Executive's
Successors shall be entitled to receive all remaining benefits to which
Executive is entitled under this Agreement.
9. TERMINATION FOR CAUSE. In the event that Executive's
employment with Sensormatic is terminated for Cause at any time after any Change
in Control, Executive shall not be entitled to any of the benefits set forth in
Sections 6, 7 or 8 of this Agreement not yet received by him, except to the
extent that Executive exercised rights prior to such termination with respect to
options, Award Shares or Conversion Shares as provided under Sections 6(a), 6(b)
and 6(d) hereof. The foregoing shall not affect any rights of Executive accrued
other than by virtue of this Agreement. For purposes of this Agreement,
Sensormatic shall be deemed to have terminated Executive's employment with
Sensormatic for Cause only if such termination is effected for any of the
following reasons:
(a) willful misconduct by Executive in the performance of
Executive's duties resulting in material economic harm to Sensormatic;
or
(b) the conviction of Executive for a felony involving moral
turpitude under federal or state law;
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<PAGE> 19
PROVIDED, HOWEVER, that the determination of the existence of the grounds
referred to in subparagraph (a) of this Section 9 shall be made, in good faith,
only (i) by a majority of the Previous Members of the Board of Directors who
are then in office with Sensormatic or a corporate successor of Sensormatic,
provided that such majority shall consist of not less than two persons; and
PROVIDED, FURTHER, that Executive shall be given prior written notice by the
Board of Directors of the intention to terminate him for Cause and the specific
grounds for such termination, as determined in accordance with this Section 9,
and shall be entitled to a hearing before such Previous Members of the Board of
Directors (or a committee thereof designated by such Previous Members) before
such termination becomes effective or (ii) if at least two Previous Members of
the Board of Directors are not then in office, by a majority of the persons who
are then, and were, for a period of two years immediately prior to such Change
in Control, officers of Sensormatic (or, if Sensormatic is then a division, such
persons who were previously such officers of Sensormatic and are then employed
in an executive or managerial capacity in the division).
10. INVOLUNTARY TERMINATION EVENTS. By way of illustration,
and not of limitation, each of the following events shall constitute involuntary
termination of Executive's employment with Sensormatic, PROVIDED that Executive
resigns from such employment within six months following such event, but in no
case later than 36 months immediately following a Change in Control, and
PROVIDED, FURTHER, that Executive shall not have consented to such event in
writing:
(a) Executive is assigned any duties or responsibilities that
are materially inconsistent with Executive's position, office, duties,
responsibilities or status immediately prior to the date of such Change in
Control, or which materially impair Executive's ability to function as President
or Chief Executive Officer of Sensormatic, or a material change is made in
Executive's reporting responsibilities, titles or offices from those in effect
immediately prior to such Change in Control, or Executive is removed from, or is
not re-elected to, any such position or office, or as a director of Sensormatic,
following such Change in Control, unless in connection with the termination of
Executive's employment with Sensormatic for Cause or by reason of his death or
disability;
(b)(i) Executive's annual rate of salary or target bonus is
reduced below the greater of the amounts (x) paid therefor immediately preceding
the date of such Change in Control or (y) expressly set forth in Section 2
hereof, (ii) the formula for the calculation of Executive's bonus is changed in
a manner that could reasonably be anticipated to decrease the amount payable
thereunder or (iii) any other change is made with respect to Executive's salary
or bonus that would violate Section 2;
(c) a material reduction is made in the benefits set forth in
paragraphs (a) through (i) of Section 3 hereof or to any additional benefits or
perquisites which may have been granted to Executive subsequent to the date of
this Agreement (other than changes made in benefit plans required by law or
applicable regulations thereunder), as they may be in effect
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immediately prior to the date of such Change in Control, or if any increase is
made in the cost to Executive for such benefits; or
(d) Executive is transferred or required to transfer to a
location outside of a 25-mile radius of Sensormatic's then-current headquarters
in Palm Beach County or Broward County, Florida, or the principal place of
business of Sensormatic in which Executive's major duties have been carried out
is transferred to a location outside of a 25-mile radius of Sensor matic's
then-current headquarters in Palm Beach County or Broward County, Florida.
(e) Sensormatic fails to obtain the assumption in writing of
its obligation to perform this Agreement by any successor to all or
substantially all of the assets and/or business of Sensormatic within 15 days
after a Reorganization Event or any other transaction occurring in connection
with, as a result of or within 24 months following a Change in Control pursuant
to which Sensormatic is not the surviving corporation.
11. PAYMENTS. All monthly payments that Executive (or his
Successors) is entitled to receive under Sections 6 or 7 of this Agreement shall
be paid by or on behalf of Sensormatic on or before the 10th day of each month
in which payable, except that any payments required to be made under the plans
referred to in Section 7(a) hereof shall be made in accordance with the terms of
such plans. Any lump sum payable to Executive under Sections 6, 7, 8(a) or 12 of
this Agreement shall be paid by or on behalf of Sensormatic within 10 days after
Executive's right to such payment accrues, except as otherwise expressly set
forth any provision of such Sections.
12. EXCISE TAXES. In the event that the aggregate of all
payments or benefits made or provided to Executive in connection with a Change
in Control under this Agreement and under all other plans and programs of
Sensormatic (the "Aggregate Payment") is determined to constitute a Parachute
Payment, as such term is defined in Section 280G(b)(2) of the Internal Revenue
Code, as amended, or any successor provision, Sensormatic shall pay to
Executive, prior to the time any excise tax imposed by Section 4999 of the
Internal Revenue Code, as amended, or any successor provision ("Excise Tax"), is
payable with respect to such Aggregate Payment, an additional amount which,
after the imposition of all income and excise taxes thereon, is equal to the
Excise Tax on the Aggregate Payment. The determination of whether the Aggregate
Payment constitutes a Parachute Payment and, if so, the amount to be paid to
Executive and the time of payment pursuant to this Section 12 shall be made by
an independent auditor (the "Auditor") jointly selected by Sensormatic and
Executive and paid by Sensormatic. The Auditor shall be a nationally recognized
United States public accounting firm which has not, during the two years
preceding the date of its selection, acted in any way on behalf of Sensormatic
or any affiliate thereof. If Executive and Sensormatic cannot agree on the firm
to serve as the Auditor, then Executive and Sensormatic shall each select one
nationally recognized United States accounting firm and those two firms shall
jointly select the accounting firm to serve as the Auditor. Notwithstanding the
foregoing, in the event that the amount of Executive's Excise Tax liability is
subsequently determined to be greater than the Excise Tax liability with
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respect to which an initial payment to Executive under this Section 12 has been
made, Sensormatic shall pay to Executive an additional amount with respect to
such additional Excise Tax (and any interest and penalties thereon) at the time
that the amount of the actual Excise Tax liability is finally determined, such
additional amount to be calculated in the same manner as such initial payment.
Executive and Sensormatic shall cooperate with each other in connection with any
action, arbitration, suit, investigation or proceeding (collectively,
"Proceeding") relating to the existence or amount of liability for Excise Tax,
and all expenses relating to any such Proceeding (including all reasonable
attorney's fees and other expenses incurred by Executive in connection
therewith) shall be paid by Sensormatic promptly upon notice of demand from
Executive.
13. COSTS OF COLLECTION. Sensormatic agrees upon demand to pay
all costs and expenses of Executive (including, without limitation, reasonable
counsel fees and expenses) in connection with the enforcement, whether through
negotiations, arbitration or legal proceedings or otherwise, of this Agreement
and the collection of any benefits due to Executive hereunder.
14. NO EFFECT ON EMPLOYMENT. This Agreement is not, and
nothing hereby shall be deemed to create, a contract of employment between
Sensormatic and Executive. The right of Sensormatic to terminate Executive's
employment with Sensormatic or any subsidiary thereof, at any time at will or as
otherwise provided in the Employment Agreement or any other agreement between
Sensormatic and Executive, shall not be affected or limited by this Agreement
and is specifically reserved. Further, this Agreement shall not be deemed to
require Sensormatic to continue, or to continue unmodified, any benefit plan or
policy, whether or not referred to in Section 3 hereof, provided that no Change
in Control shall have occurred and no Attempted Change in Control shall have
occurred and then be pending.
15. CONFLICTS WITH OTHER AGREEMENTS. Nothing contained in or
arising out of this Agreement shall be deemed to discharge, release or modify
the obligations of Sensormatic to Executive under the provisions of the
Employment Agreement or any other agreement between them or of any plan or
program of Sensormatic, regardless of whether the subject matter of any
provision thereof is the same or similar to that of any provision of this
Agreement, the rights and remedies of Executive under this Agreement and any
other such agreement, plan or program being cumulative and not in substitution
of each other; provided, however, that nothing in this Agreement shall entitle
Executive to receive duplicative payments of salary, bonus or other benefits.
Further, nothing in this Agreement shall diminish or otherwise adversely affect
Exec utive's rights or benefits accruing as a consequence of his death or
disability, at any time after a Change in Control, under the terms and
conditions of the plans or programs of Sensormatic in which Executive is a
participant immediately prior to any Change in Control and any additional plan
or program of Sensormatic in which Executive is a participant at the time of
Executive's death or disability.
16. MAINTENANCE OF PLANS. Sensormatic agrees that, for not
less than 36 months after a Change in Control (whether "approved" or
"non-approved"), it shall maintain in
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effect the plans and programs in which Executive is a participant immediately
prior to such Change in Control (or comparable plans and programs) to the extent
necessary to assure that the rights and benefits of Executive thereunder shall
be no less favorable after such Change in Con trol than immediately prior
thereto, provided, that Sensormatic shall in no event make any change in the
event of or at any time after a Change in Control in the Senior Executive Plan
resulting in a reduction of Executive's benefits thereunder.
17. ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement shall be settled by arbitration before the American
Arbitration Association in Miami, Florida, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. Any costs, including, without limitation, attorneys' fees
and disbursements, incurred by Executive in such arbitration or in connection
with any appeal therefrom or any action brought to enforce or collect any such
award or judgment thereon, shall be reimbursed by Sensormatic, provided, that
Sensormatic shall not be required to reimburse Executive hereunder in the event
that the arbitral panel or appeals court finds that Executive's claims and/or
defenses are substantially without reasonable basis.
18. SURVIVAL. This Agreement shall be binding on, enforceable
against and inure to the benefit of Executive and his heirs, executors,
administrators, personal representatives, successors and assigns and Sensormatic
and its successors and assigns, including, without limitation, any corporation
with or into which Sensormatic is merged or consolidated, or any entity which
acquires all or substantially all of the business and assets of Sensormatic, in
connection with any Change in Control. In connection with any sale, merger or
consolidation described in the preceding sentence, Sensormatic shall take all
actions permissible under applicable law in order to cause such other
corporation to expressly assume Sensormatic's liabilities, obligations and
duties hereunder.
19. NOTICES. Any notice given to a party pursuant to or in
connection with this Agreement shall be in writing and shall be deemed to have
been given when delivered personally or sent by Federal Express or a similar
overnight courier service or by certified or registered mail, postage prepaid,
return receipt requested, duly addressed to the party concerned at the address
indicated at the beginning of this Agreement or to such changed address as such
party may subsequently give such notice of.
20. SEVERABILITY. If any provision of this Agreement is found
to be invalid or unenforceable by a court of competent jurisdiction or an
arbitral panel under Section 17 hereof, this Agreement shall be interpreted and
enforceable as if such provision were severed or limited, but only to the extent
necessary to render such provision and this Agreement enforceable.
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21. GOVERNING LAW. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of Florida
applicable to agreements made and fully to be performed in such state, without
giving effect to conflicts of law principles.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first set forth above.
SENSORMATIC ELECTRONICS
CORPORATION
By: /s/ Robert A. Vanourek
-----------------------------------
Robert A. Vanourek
President and Chief Executive
Officer
/s/ Garrett E. Pierce
-----------------------------------
Garrett E. Pierce
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<PAGE> 1
EXHIBIT 10(n)
AGREEMENT
AGREEMENT, dated as of September 1, 1998, by and between
SENSORMATIC ELECTRONICS CORPORATION, a Delaware corporation having its principal
place of business at 951 Yamato Road, Boca Raton, Florida 33431 ("Sensormatic"),
and RONALD G. ASSAF ("Assaf"), residing at 21095 Hamlin Drive, Boca Raton,
Florida 33433.
W I T N E S S E T H:
WHEREAS, Assaf is a party to the Consulting Agreement dated as
of August 9, 1996 with Sensormatic (the "Consulting Agreement") and is currently
serving as the Chairman of the Board of Directors of Sensormatic, and has made
and is expected to make a significant contribution to the performance and growth
of Sensormatic;
WHEREAS, the Board of Directors of Sensormatic recognizes
that, as is the case with many publicly-held corporations, the possibility of a
Change in Control (as defined below) exists and that such possibility, and the
uncertainty which it may raise among Sensormatic's management, may result in the
distraction or departure of management personnel to the detriment of Sensormatic
and its stockholders, particularly at a time when Sensormatic is placing heavy
demands on its management in connection with its efforts to expand its product
lines and markets, restructure its operations and reduce its expenses;
WHEREAS, the Board of Directors of Sensormatic has determined
that it is in the best interest of Sensormatic and its stockholders to provide
to Assaf certain rights as to termination compensation in the event of a Change
in Control;
WHEREAS, the Board of Directors of Sensormatic believes that
the grant of such rights to Assaf will help assure Assaf's continuing dedication
to his duties to Sensormatic, notwithstanding the occurrence of any Change in
Control, and, in particular, will enable Assaf to objectively and impartially
assess, and advise the Board of Directors with respect to, any proposal received
by Sensormatic regarding a Change in Control and to take such action regarding
any such proposal as the Board of Directors may deem to be appropriate;
WHEREAS, with similar purposes and intents, Sensormatic
entered into an Agreement dated December 23, 1988 with Assaf relating to a
possible Change in Control (the "Prior Agreement"), and Sensormatic and Assaf
wish to amend and restate the Prior Agreement as hereinafter set forth in order,
among other things, to clarify and update certain provisions thereof; and
WHEREAS, entering into this amended and restated Agreement
relating to a possible Change in Control carries out the intent of the
Consulting Agreement relating to the same;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the parties hereto agree as follows:
1. Term.
(a) The term of this Agreement shall commence on the date
hereof (which for all purposes of this Agreement shall mean the date first above
written) and shall continue after a Change in Control for so long as Sensormatic
has or may have any obligations under Sections 3, 4, 5, 8, 9 or 11 hereof.
(b) Notwithstanding the provisions of Section 1(a) hereof,
this Agreement shall terminate automatically provided and in the event that (i)
the Term of the Consulting Agreement shall have terminated in accordance with
the terms thereof and (ii) prior to the occurrence of a Change in Control and so
long as no Attempted Change in Control shall have occurred and then be pending,
Assaf resigns or is removed from his directorship with Sensormatic or the term
of such office expires without his being reelected thereto. Notwithstanding
anything contained in this Agreement to the contrary, if Assaf is removed from
his directorship with Sensormatic or the term of such office expires without his
being re-elected thereto prior to a Change in Control, which Change in Control
occurs, and Assaf reasonably demonstrates that such removal of or failure to
re-elect Assaf was at the request of a third party who effectuates such Change
in Control or that such removal of or failure to re-elect Assaf was directly
related to or in anticipation of such Change in Control, then for all purposes
of this Agreement, Assaf shall be entitled to the payments and other benefits
provided under this Agreement as if such removal or failure to re-elect had
occurred following such Change in Control.
2. Change in Control.
(a) For purposes of this Agreement, the term "Change in
Control" shall mean a change in control of Sensormatic of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
provided, that, without limitation, such a change in control shall be deemed to
have occurred if (i) any person (as such term is used in Sections 13(d) and
14(d) of the Exchange Act, "Person") is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act, "Beneficial Owner"), directly or
indirectly, of securities of Sensormatic representing 30% or more of the
combined voting power of Sensormatic's then outstanding voting securities, (ii)
Sensormatic consummates a merger, consolidation, share exchange, division or
other reorganization of Sensormatic with any other corporation or entity, unless
the shareholders of Sensormatic immediately prior to such transaction
beneficially own, directly or indirectly, (A) if Sensormatic is the surviving
corporation in such transaction, 60% or more of the combined voting power of
Sensormatic's outstanding voting securities as well as 60% or more of the total
market value of Sensormatic's outstanding equity securities, (B) if Sensormatic
is not the surviving corporation, 80% or more of the combined voting power of
the surviving
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<PAGE> 3
entity's outstanding voting securities as well as 80% or more of the total
market value of such entity's outstanding equity securities, or (C) in the case
of a division, 80% or more of the combined voting power of the outstanding
voting securities of each entity resulting from the division as well as 80% or
more of the total market value of each such entity's outstanding equity
securities, in each case in substantially the same proportion as such
shareholders owned shares of Sensormatic prior to such transaction; (iii)
Sensormatic adopts a plan of complete liquidation or winding-up of Sensormatic;
(iv) the shareholders of Sensormatic approve an agreement for the sale or
disposition (in one transaction or a series of transactions) of all or
substantially all of Sensormatic's assets; or (v) during any period of 24
consecutive months, individuals (y) who at the beginning of such period
constitute the Board of Directors of Sensormatic or (z) whose election,
appointment or nomination for election was approved prior to such election or
appointment by a vote of at least two-thirds of the directors in office
immediately prior to such election or appointment who were directors at the
beginning of such two-year period (other than any directors who prior to the
Change in Control were associated or affiliated with any Person involved with
any Change in Control or Attempted Change in Control), cease for any reason to
constitute at least three-fourths of the Board of Directors of Sensormatic.
(b) For purposes of this Agreement, an "Attempted Change in
Control" shall be deemed to have occurred (i) if any Person files (or fails to
file when required to do so) with the Securities and Exchange Commission (the
"SEC") a Statement on Schedule 13D relating to voting securities of Sensormatic
(A) disclosing the acquisition of 10% or more thereof or (B) while disclosing
the acquisition of less than 10% of such voting securities, indicates an
intention to effect any of the transactions listed in Item 4 of Schedule 13D or
otherwise to effect a Change in Control, (ii) upon the public announcement
(including, without limitation, the filing with the SEC of a Statement on
Schedule 14D-1) by any Person of an intention to make a tender offer or
otherwise to effect a Change in Control, (iii) in the event of any solicitation
of proxies for the election of directors of Sensormatic pursuant to Rule 14a-11
of the Rules and Regulations under the Exchange Act or the filing of a Statement
on Schedule 14B in anticipation thereof, (iv) the receipt by Sensormatic from
any Person of any other communication proposing, or indicating an intention, to
effect a Change in Control by the acquisition of voting securities of
Sensormatic, the solicitation of proxies for the election of directors or
otherwise or (v) if the Board of Directors of Sensormatic or an authorized
committee thereof otherwise determines that an Attempted Change in Control is
pending. The termination of the pendency of an Attempted Change in Control shall
be determined by the Board of Directors of Sensormatic (or an authorized
committee thereof); provided, that any Attempted Change in Control shall in any
event be deemed to have terminated upon the occurrence of a Change in Control.
(c) For the purposes of this Section 2, references to
provisions of the Exchange Act and rules, regulations and schedules thereunder
shall be to such provisions as they are in effect and interpreted as of the date
of this Agreement.
3. Benefits Effective Upon a Change in Control. In the event
a Change in Control occurs, Assaf shall be entitled to the following benefits:
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(a) All stock options issued by Sensormatic to Assaf, whether
or not then exercisable, shall remain fully exercisable or shall become fully
exercisable immediately (or, notwithstanding the foregoing, in the event of an
Attempted Change in Control involving a proposed Reorganization Event (as such
term is defined in Section 3(b) hereof)), such options shall become fully
exercisable thirty days before the date of such Reorganization Event, and such
options shall remain outstanding and fully exercisable for the stated term
thereof or until the later of (i) nine months following the later of (x)
termination of the Consulting Agreement for any reason or (y) the resignation or
removal of Assaf from his directorship with Sensormatic or the expiration of the
term of such office without his being re-elected thereto (or, at the option of
Assaf, in the case of an incentive stock option, three months following such
termination or ceasing to be a director) or (ii) the end of the respective
post-termination exercisability periods provided for in such options (including
if applicable, such periods in the event of death or disability); provided, that
in no event shall the term of such options be extended beyond their respective
original terms. In addition, any deferred vesting or forfeiture provisions
applicable to any shares of Sensormatic stock awarded to or otherwise held by
Assaf shall be without further force or effect, and Assaf shall have the
unrestricted right to such shares.
(b) In the event that (i) such Change in Control is effected
through (A) a tender or exchange offer (a "Tender Offer") or (B) any means, in
one or more transactions, with the result in either case that any Person becomes
the Beneficial Owner, directly or indirectly, of securities of Sensormatic
representing 50% or more of the combined voting power of Sensormatic's then
outstanding voting securities (any such Change in Control referred to in this
clause (i), including pursuant to a Tender Offer, being hereinafter referred to
as a "Majority Acquisition"), (ii) in connection with, as a result of or within
24 months immediately following a Change in Control, Sensormatic's Board of
Directors shall have approved a merger, consolidation, reclassification,
reorganization, dissolution, sale of all or substantially all of the assets of
Sensormatic or similar event (a "Reorganization Event") as a result of which
Sensormatic's Common Stock would cease to be outstanding or (iii) in connection
with, as a result of or within 24 months immediately following a Change in
Control, Sensormatic's Common Stock ceases to be listed for trading on a
national securities exchange or quoted through NASDAQ or a comparable securities
quotation system, Assaf shall have the right, exercisable by written notice
given at any time during the 13-month period immediately following the date of
such Change in Control (and, if later, the date of any such Majority
Acquisition, Reorganization Event or cessation of listing or quotation), to
require Sensormatic to purchase:
(1) any or all of such stock options issued by Sensormatic to
Assaf, whether or not then exercisable, and/or any stock options issued
upon conversion of or in exchange for any such Sensormatic stock
options pursuant to any such Reorganization Event ("Conversion
Options"), at a purchase price equal to the excess of the aggregate
Fair Market Value (as defined below) of the shares of Sensormatic
Common Stock subject to such Sensormatic stock options over the
aggregate exercise price of such stock options (or, in the case of any
Conversion Options, such amount calculated with respect
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to the Sensormatic stock options which were converted into or exchanged
for such Conversion Options); and/or
(2) any or all shares of Sensormatic Common Stock held by
Assaf at or immediately prior to the date of such Change in Control
(including any shares of Sensormatic Common Stock (restricted or
otherwise, and whether or not vested) awarded to Assaf pursuant to any
compensation plan or arrangement of Sensormatic) or issued pursuant to
the exercise of any such Sensormatic stock options following the date
of such Change in Control, and/or (without duplication) any shares or
other securities issued upon conversion of or in exchange for any such
shares of Common Stock pursuant to any such Reorganization Event
("Conversion Shares"), at a purchase price equal to the aggregate Fair
Market Value of such shares (or, in the case of any Conversion Shares
issued upon conversion of or in exchange for Common Stock, the Fair
Market Value of the shares of Common Stock which were converted into or
exchanged for such Conversion Shares); provided, that Sensormatic may
offset against the amount so payable for Common Stock or Conversion
Shares all amounts outstanding on any loans made to Assaf for the
purchase of, or payment of taxes relating to, such shares of Common
Stock or Conversion Shares, as contemplated by Section 3(c) hereof or
otherwise.
Payment for any such options or shares shall be made by Sensormatic within 10
days after Assaf's surrender of any such options, and/or within 10 days after
Assaf's surrender of the certificates representing any such shares of Common
Stock or Conversion Shares (or, if such certificates are in Sensormatic's
possession, within 10 days after Assaf's notice of exercise under this Section
3(b)).
For purposes of this Section 3(b), the "Fair Market Value" of
a share of Sensormatic Common Stock means the highest fair market value per
share of Sensormatic Common Stock of the consideration paid in any transaction
by any Person who effects such Change in Control, in connection therewith,
whether through open market purchases, Tender Offers, Reorganization Events,
private transactions or otherwise.
(c) Upon Assaf's request, Sensormatic shall lend to Assaf,
interest free, up to an amount equal to the aggregate exercise price of the
options referred to in Section 3(a) hereof, should Assaf elect to exercise such
options. If requested by Assaf, Sensormatic shall also lend to Assaf, interest
free (or, at Assaf's option, provide a guaranty to enable Assaf to borrow), up
to an amount equal to the percentage specified in Section 3(d)(i) times the
Share Income (as such term is defined in such Section) resulting from such
exercise and/or vesting. Such loan or loans shall be due and payable to
Sensormatic upon the earliest of (i) the fifth anniversary date of such loan or
loans, (ii) in the event that the Term of the Consulting Agreement terminates,
other than upon termination by Sensormatic pursuant to Section 4(a) thereof, or
in the event of the resignation or removal, other than for Cause (as defined in
Section 4 hereof, "Cause"), of Assaf from his directorship with Sensormatic or
the expiration of the term of such office without his being re-elected thereto,
upon the expiration of 30 months following such termination or ceasing to be a
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director, whichever is later, or in the event that the Consulting Agreement is
terminated by Sensormatic pursuant to Section 4(a) thereof or that Assaf is
removed as a director for Cause, upon the expiration of 30 days after the later
of such termination or removal, or (iii) promptly (but in any event within five
(5) business days) after receipt of the proceeds of sale from the sale of such
shares, to the extent of the loan or loans applicable to such sold shares. Assaf
shall deposit such shares with Sensormatic as security for any such loan, if
Sensormatic shall so request. Notwithstanding anything to the contrary contained
in this Section 3(c), Sensormatic's Stock Purchase Loan Plan or any promissory
note or security agreement executed by Assaf pursuant to such Plan, no
additional collateral shall be required by Sensormatic in connection with any
such loan to Assaf, and, if necessary to be in compliance with applicable margin
regulations under federal laws, such loans shall be unsecured; and if, because
of Internal Revenue Service rules or other rules, Sensormatic is unable to lend
such funds to Assaf interest free and without any imputation of interest,
Sensormatic shall pay Assaf a dollar amount of additional compensation which
shall equal the amount of interest required to be charged in order to avoid such
imputation in such instances and Assaf shall then pay Sensormatic the rate of
interest on such loan required by law to avoid imputation.
(d) (i) If a Majority Acquisition shall have occurred or if,
in connection with, as a result of or within 24 months immediately
following a Change in Control, either a Reor ganization Event shall
have occurred or Sensormatic's Common Stock ceases to be listed for
trading on a national securities exchange or quoted through NASDAQ or a
comparable securities quotation system, then Assaf shall have the
right, exercisable during the period and in the manner described in
Section 3(d)(ii) hereof, to require Sensormatic to purchase any or all
of Assaf's Option Acquired Shares and Award Shares (as defined below),
and/or any or all Conversion Shares issued with respect to any Option
Acquired Shares or Award Shares. The price at which Assaf shall be
entitled to sell any Option Acquired Share to Sensormatic under this
Section 3(d)(i) shall equal the sum of (A) the option exercise price
paid (including payments made by promissory notes issued under
Sensormatic's Stock Purchase Loan Plan or otherwise) by Assaf in
acquiring such share, plus (B) an amount equal to a percentage,
determined as provided below in this clause (i), of the difference
between such option exercise price and the Market Value of a share of
Sensormatic Common Stock on the date the share was acquired. The price
at which Assaf shall be entitled to sell any Award Share under this
Section 3(d)(i) shall be equal to the Market Value (as defined below)
of such share on the date Assaf's right to such share vested,
multiplied by the percentage determined as provided below in this
clause (i). The price at which Assaf shall be entitled to sell any
Conversion Shares pursuant to this Section 3(d)(i) shall be calculated
as set forth above with respect to Option Acquired Shares or Award
Shares, as applicable, based upon the purchase price, date of purchase
and Market Value of any Option Acquired Shares, and the vesting date
and Market Value of any Award Shares, which were converted into or
exchanged for any such Conversion Shares sold. The percentage referred
to in this Section 3(d)(i) shall be equal to the sum of (1) the highest
marginal net rate of income tax (federal, state and local) applicable
to an individual residing where the Assaf resided at the time the Assaf
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<PAGE> 7
reported income ("Share Income") with respect to the Option Acquired
Shares or Award Shares, as the case may be plus (2) the Medicare
employee tax rate, plus (3) a percentage equal to (x) that part, if
any, of the Share Income that was actually subject to employee Social
Security tax, multiplied by (y) the social security employee tax rate,
divided by (z) the total Share Income (in each case as applicable at
the time such share was purchased by Assaf, in the case of any Option
Acquired Shares, or at the time Assaf's right to such share vested, in
the case of any Award Shares). The purchase price payable by
Sensormatic shall in all events be equitably adjusted to reflect any
stock dividends, stock splits, extraordinary dividends or similar
events since the date of acquisition by Assaf of any such shares.
For purposes of this Section 3(d), the term "Option Acquired
Shares" shall mean shares of Sensormatic Common Stock acquired by Assaf
upon exercise of options granted to Assaf, the term "Award Shares"
shall mean shares of Sensormatic Common Stock awarded to Assaf pursuant
to Sensormatic's Stock Incentive Plan or any other compensation plan or
arrangement of Sensormatic, other than pursuant to the exercise of
options, and the term "Market Value" shall mean the average of the high
and low sales prices of a share of such Common Stock on the applicable
date (or most recent date on which one or more sales occurred) as
reported through NASDAQ or the principal exchange on which such Common
Stock was listed for trading.
(ii) Assaf may exercise his right to sell Option
Acquired Shares, Award Shares and/or Conversion Shares under this
Section 3(d) at any time within 13 months following any of the events
specified in the first sentence of Section 3(d)(i) hereof by giving
written notice of such exercise to Sensormatic, which notice shall set
forth the Option Acquired Shares, Award Shares and/or Conversion Shares
to be sold, the exercise price paid by Assaf in acquiring any such
Option Acquired Shares or Conversion Shares, the highest marginal tax
rates applicable for purposes of the respective calculations specified
in Section 3(d)(i) hereof and the Market Value of the Common Stock or
Conversion Shares, as applicable, on each date that any applicable
Option Acquired Shares or Conversion Shares to be sold were purchased
by Assaf or Assaf's right to any applicable Award Shares vested, as the
case may be. The information set forth in such notice shall be presumed
to be correct.
(iii) In addition to the purchase price for the
Option Acquired Shares, Award Shares or Conversion Shares being sold to
Sensormatic under this Section 3(d), Sensormatic shall pay to Assaf an
amount (the "Tax Payment") equal to a percentage (determined pursuant
to the following sentence) of the excess, if any, of (A) the product of
the number of such Option Acquired Shares, Award Shares and/or
Conversion Shares being sold multiplied by the Market Value of a share
of Sensormatic Common Stock or Conversion Shares, as applicable, on the
Purchase Date, as such term is defined in Section 3(d)(iv) hereof, or
such other value of a share of Sensormatic Common Stock or Conversion
Shares as may be required to be used to determine the amount, if any,
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<PAGE> 8
recognizable as ordinary income arising out of the sale of such shares
to Sensormatic, over (B) the aggregate purchase price for all such
Option Acquired Shares, Award Shares and/or Conversion Shares being
sold by Assaf. The percentage referred to in the preceding sentence
shall be determined in accordance with Section 3(d)(i) hereof as
applicable on the Purchase Date.
(iv) Within 10 days after Assaf's surrender of the
certificates representing any such Option Acquired Shares, Award Shares
and/or Conversion Shares or, if such certificates are in Sensormatic's
possession, within 10 days after Assaf's notice of exercise under this
Section 3(d) (the "Purchase Date"), Sensormatic shall purchase the
Option Acquired Shares, Award Shares and/or Conversion Shares referred
to in such notice by paying to Assaf (subject to offset as provided in
the following sentence) the full purchase price thereof, as calculated
under Section 3(d)(i) hereof, plus the Tax Payment applicable thereto.
Sensormatic may offset against payment of any or all of such purchase
price and the related Tax Payment all or a portion of any indebtedness
of Assaf then outstanding under Sensormatic's Stock Purchase Loan Plan
attributable to any Option Acquired Shares and/or Conversion Shares
sold to Sensormatic hereunder.
(v) Assaf's rights under this Section 3(d) are
independent of and not limited by, and do not constitute any limitation
of, Assaf's rights under Section 3(b) hereof. Assaf may exercise any
rights under either Section 3(b) hereof or this Section 3(d), in whole
or in part (but without duplication), in Assaf's sole discretion.
(e) (i) If either a Majority Acquisition occurs or, in
connection with, as a result of or within 24 months following a Change
in Control, a Reorganization Event occurs, then Sensormatic shall pay
to Assaf (irrespective of whether he is then retained by or a director
of Sensormatic or its successor), within thirty days after the
effective date of such Majority Acquisition or Reorganization Event, as
the case may be, a cash bonus payment equal to a percentage (determined
pursuant to Sections 3(e)(ii) and 3(e)(iii) hereof) of Assaf's Special
Bonus Base (as defined below). Assaf's Special Bonus Base shall equal
four times Assaf's annual compensation under Section 3(a) of the
Consulting Agreement as of the date hereof (i.e., $455,000).
(ii) The percentage of the Special Bonus Base which
Assaf shall be entitled to receive under this Section 3(e) shall be
calculated on the basis of the Premium (as defined below) paid or
offered to holders of Sensormatic's Common Stock in connection with a
Majority Acquisition or Reorganization Event. Premium shall mean the
percentage which results from dividing (A) the amount by which the
Event Value (as defined below) exceeds the Pre-Event Share Price (as
defined below), by (B) the Pre- Event Share Price. The Pre-Event Share
Price shall be equal to the average of the closing sales prices (or if
there is no sales price, the last bid price) for a share of
Sensormatic's Common Stock, as such prices are reported through NASDAQ
or the principal exchange on which such shares are listed for trading,
on the last business day of each week during
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<PAGE> 9
the twenty-six weeks immediately preceding the first to occur of (x)
the first public announcement relating to any proposed Change in
Control or Reorganization Event, or (y) any event resulting in the
pendency of an Attempted Change in Control which culminates, directly
or indirectly, in the Change in Control giving rise to Assaf's rights
under this Section 3(e). In the case of any Reorganization Event or
Tender Offer, or combination or series of Reorganization Events and/or
Tender Offers, "Event Value" shall mean the fair market value of the
consideration paid per share of Sensormatic Common Stock pursuant to
such Reorganization Event or Tender Offer determined as of the
effective date of the Reorganization Event or of the consummation of
the Tender Offer, as the case may be, provided that in the event that
different prices are paid per share of Sensormatic Common Stock
pursuant to such Reorganization Event, Tender Offer or any combination
or series thereof, the Event Value shall be equal to the fair market
value of the aggregate consideration paid pursuant to all such Tender
Offers and/or Reorganization Events (determined as of the dates set
forth above) divided by the number of shares of Sensormatic Common
Stock purchased pursuant to all such Tender Offers and/or
Reorganization Events. In case of any other transaction or series of
transactions giving rise to the right of Assaf to receive the bonus
provided for in this Section 3(e), "Event Value" shall mean the highest
fair market value of the consideration paid per share of Sensormatic
Common Stock pursuant to any such transaction, determined as of the
date of payment thereunder. The determination of Event Value shall be
conclusively made by an investment banking firm selected by the
Previous Members of the Board of Directors who are not entitled to
receive bonuses under this Section 3(e) or analogous provisions of
other agreements; provided, that in the event that the Previous Members
of the Board of Directors fail to make such selection within 45 days
after consummation of the transaction giving rise to the right to
rights under this Section 3(e), or the selected investment banking firm
fails to make such a determination within an additional 90 days, Event
Value shall be determined by arbitration under Section 12 hereof.
Sensormatic shall pay all fees and expenses of any such investment
banker.
(iii) The percentage of the Special Bonus Base which
Assaf shall be entitled to receive as a bonus under this Section 3(e)
shall be 20% if the Premium is at least 20% and shall increase by 3.2%
for each one percent (and by a fraction of 3.2% for each fraction of
one percent) by which the Premium exceeds 20%. For example, if the
Premium were 30%, Assaf would be entitled to a bonus of 52% of the
Special Bonus Base; if the Premium were 40.5%, Assaf would be entitled
to a bonus of 85.6% of the Special Bonus Base; and if the Premium were
50%, Assaf would be entitled to a bonus of 116% of the Special Bonus
Base. The maximum bonus which Assaf shall be entitled to receive is
167% of the Special Bonus Base. No bonus shall be payable pursuant to
this Section 3(e) if the Premium is less than 20%.
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<PAGE> 10
4. Benefits on Termination. In the event of (x) any
termination of the Term of the Consulting Agreement, other than termination of
the Consulting Agreement by Sensormatic pursuant to Section 4(a) thereof, or (y)
the removal, other than for Cause, or resignation of Assaf from his directorship
with Sensormatic or the expiration of the term of such office without his being
re-elected thereto, or (z) Assaf's death, at any time following a Change in
Control, Assaf (or Successor, as hereinafter defined) shall be entitled to the
following benefits:
(i) Sensormatic shall, as soon as practicable, pay
to Assaf a lump sum payment equal to the amount of any then unvested
interest which Assaf may have had on the date of such Change in Control
(less any amount of such interest subsequently vested), and as
supplemented thereafter through the date of such termination, in
Sensormatic's profit sharing, ESOP or other retirement plans (other
than the Salary Continuation Plan); and
(ii) Unless a trust or other arrangement previously
determined in writing to be satisfactory by a majority of the Previous
Members of the Board of Directors (as defined below) then in office
assuring payment of benefits to or for the benefit of Assaf under
Sensormatic's Salary Continuation Plan in the event of a Change in
Control has been previously established and is then in effect,
Sensormatic shall take such steps as are necessary, within 30 days
after such termination, to fully fund all of Assaf's benefits under
such Plan (after giving effect to the change in control provisions of
such Plan) through paid-up insurance, annuity contracts and/or other
similar means, so that the ulti mate payment of benefits (at a rate not
less than the greater of the rates in effect under such Plan at the
date of such termination or immediately after such Change in Control)
shall be assured beyond any reasonable doubt; provided, however, that
either such manner of funding shall be structured so as not to
constitute "constructive receipt" by Assaf of the benefits in question
for income tax purposes, or the benefits in question shall be paid out
in a lump sum, discounted to present value in the manner provided in
Section 5(a) hereof. In addition, in the event of (i) the removal,
other than for Cause, of Assaf from his directorship with Sensormatic
or the expiration of the term of such office without his being
re-elected thereto other than pursuant to the generally applicable term
limits and/or retirement policies of the Corporation (without giving
effect to any changes therein that reduce the retirement age or the
permitted term of office which were implemented following such Change
of Control or the commencement of an Attempted Change of Control which
culminated in such Change of Control), or (ii) a default by the
Corporation in its obligations under the Consulting Agreement of the
type contemplated by Section 3(i)(i) thereof, in either case at any
time following a Change in Control, any noncompetition provisions
included in such Plan shall have no force or effect.
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<PAGE> 11
5. Benefits on Death or Disability.
(a) In the event of Assaf's death at any time within 36 months
after a Change in Control and prior to Assaf's ceasing to be a director of
Sensormatic, or in the event that Assaf had died (or otherwise become entitled
to receive benefits) prior to a Change in Control and that as of the date of
such Change in Control there remain outstanding amounts payable under
Sensormatic's Salary Continuation Plan for Assaf, unless in either case a trust
or other arrangement previously determined in writing to be satisfactory by a
majority of the Previous Members of the Board of Directors then in office
assuring payment of benefits to or for the benefit of the Assaf under such Plan
in the event of a Change in Control has been previously established and is then
in effect, Sensormatic shall promptly pay to Assaf's designated beneficiary or
Assaf's heirs, executors, administrators or personal representatives
(collectively, "Successors") all of the remaining benefits under such Plan to
which Assaf's Successors are then entitled, in the form of a lump sum payment
equal to the amount of such benefits discounted to present value using an
interest rate equal to the rate published by Pension Benefit Guaranty
Corporation for the purpose of discounting pension benefits to present value in
the event of a lump sum prepayment thereof, as then in effect, but such discount
rate shall in no event be greater than ten percent (10%) per annum.
(b) In the event of Assaf's death or permanent and total
disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code
of 1986, as amended and in effect and interpreted as of the date of this
Agreement) at any time within the 24-month period immediately following a Change
in Control and prior to Assaf's ceasing to be a director, Assaf or Assaf's
Successors shall be entitled to all of the benefits of Assaf provided under this
Agreement as if Assaf had voluntarily resigned as a director (but without giving
effect to any loss of benefits upon voluntary termination or resignation) under
Section 3(e)(i) hereof), including, without limitation, those set forth in
Section 3(c) hereof.
(c) In the event of Assaf's death or disability after
Assaf becomes entitled to any benefits under Section 3 hereof, Assaf or Assaf's
Successors shall be entitled to receive all remaining benefits to which Assaf is
entitled under this Agreement.
6. Termination for Cause. In the event that, at any time
after any Change in Control, the Consulting Agreement is terminated pursuant to
any of clauses (ii) through (iv) of Section 4(a) thereof or Assaf is removed
from his directorship for Cause, Assaf shall not be entitled to any of the
benefits set forth in Sections 3, 4 or 5 of this Agreement not yet received by
him, except to the extent that Assaf exercised rights prior to such termination
with respect to options, Award Shares or Conversion Shares as provided under
Sections 3(a), 3(b) and 3(d) hereof. The foregoing shall not affect any rights
of Assaf accrued other than by virtue of this Agreement. For purposes of this
Agreement, Assaf shall be deemed to have been removed as a director for Cause
only if such removal is effected for any of the reasons referred to in clauses
(ii) through (iv) of Section 4(a) of the Consulting Agreement; provided,
however, that the determination of the existence of the grounds referred to in
of this Section 6 shall be made, in
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good faith, only by a majority of the Previous Members of the Board of Directors
who are then in office with Sensormatic or a corporate successor of Sensormatic,
provided that such majority shall consist of not less than two persons; and
provided, further, that Assaf shall be given prior written notice by the Board
of Directors of the intention to terminate him for Cause and the specific
grounds for such termination, as determined in accordance with this Section 6,
and shall be entitled to a hearing before such Previous Members of the Board of
Directors before such termination becomes effective.
7. Payments. All monthly payments that Assaf (or his
Successors) is entitled to receive under Sections 3 or 4 of this Agreement shall
be paid by or on behalf of Sensormatic on or before the 10th day of each month
in which payable, except that any regular payments required to be made under the
plans referred to in Section 4(a) hereof shall be made in accordance with the
terms of such plans. Any lump sum payable to Assaf under Sections 3, 4, 5(a) or
8 of this Agreement shall be paid by or on behalf of Sensormatic within 10 days
after Assaf's right to such payment accrues, except as otherwise expressly set
forth any provision of such Sections.
8. Excise Taxes. In the event that the aggregate of all
payments or benefits made or provided to Assaf in connection with a Change in
Control under this Agreement and under all other plans and programs of
Sensormatic (the "Aggregate Payment") is determined to constitute a Parachute
Payment, as such term is defined in Section 280G(b)(2) of the Internal Revenue
Code, as amended, or any successor provision, Sensormatic shall pay to Assaf,
prior to the time any excise tax imposed by Section 4999 of the Internal Revenue
Code, as amended, or any successor provision ("Excise Tax"), is payable with
respect to such Aggregate Payment, an additional amount which, after the
imposition of all income and excise taxes thereon, is equal to the Excise Tax on
the Aggregate Payment. The determination of whether the Aggregate Payment
constitutes a Parachute Payment and, if so, the amount to be paid to Assaf and
the time of payment pursuant to this Section 8 shall be made by an independent
auditor (the "Auditor") jointly selected by Sensormatic and Assaf and paid by
Sensormatic. The Auditor shall be a nationally recognized United States public
accounting firm which has not, during the two years preceding the date of its
selection, acted in any way on behalf of Sensormatic or any affiliate thereof.
If Assaf and Sensormatic cannot agree on the firm to serve as the Auditor, then
Assaf and Sensormatic shall each select one nationally recognized United States
accounting firm and those two firms shall jointly select the accounting firm to
serve as the Auditor. Notwithstanding the foregoing, in the event that the
amount of Assaf's Excise Tax liability is subsequently determined to be greater
than the Excise Tax liability with respect to which an initial payment to Assaf
under this Section 8 has been made, Sensormatic shall pay to Assaf an additional
amount with respect to such additional Excise Tax (and any interest and
penalties thereon) at the time that the amount of the actual Excise Tax
liability is finally determined, such additional amount to be calculated in the
same manner as such initial payment. Assaf and Sensormatic shall cooperate with
each other in connection with any action, arbitration, suit, investigation or
proceeding (collectively, "Proceeding") relating to the existence or amount of
liability for Excise Tax, and all expenses relating to any such Proceeding
(including all reasonable attorney's fees and other
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<PAGE> 13
expenses incurred by Assaf in connection therewith) shall be paid by Sensormatic
promptly upon notice of demand from Assaf.
9. Costs of Collection. Sensormatic agrees upon demand to pay
all costs and expenses of Assaf (including, without limitation, reasonable
counsel fees and expenses) in connection with the enforcement, whether through
negotiations, arbitration or legal proceedings or otherwise, of this Agreement
and the collection of any benefits due to Assaf hereunder.
10. Conflicts with Other Agreements. Nothing contained in or
arising out of this Agreement shall be deemed to discharge, release or modify
the obligations of Sensormatic to Assaf under the provisions of the Consulting
Agreement or any other agreement between them or of any plan or program of
Sensormatic, regardless of whether the subject matter of any provision thereof
is the same or similar to that of any provision of this Agreement, the rights
and remedies of Assaf under this Agreement and any other such agreement, plan or
program being cumulative and not in substitution of each other; provided,
however, that this Agreement amends, restates and supersedes the Prior
Agreement, including any amendments thereto in its entirety and nothing in this
Agreement shall entitle Assaf to receive duplicative payments of salary, bonus
or other benefits. Further, nothing in this Agreement shall diminish or
otherwise adversely affect Assaf's rights or benefits accruing as a consequence
of his death or disability, at any time after a Change in Control, under the
terms and conditions of the plans or programs of Sensormatic in which Assaf is a
participant immediately prior to any Change in Control and any additional plan
or program of Sensormatic in which Assaf is a participant at the time of Assaf's
death or disability.
11. Maintenance of Plans. Sensormatic agrees that, for not
less than 36 months after a Change in Control, it shall maintain in effect the
plans and programs in which Assaf is a participant immediately prior to such
Change in Control (or comparable plans and programs) to the extent necessary to
assure that the rights and benefits of Assaf thereunder shall be no less
favorable after such Change in Control than immediately prior thereto, provided,
that Sensormatic shall in no event make any change in the event of or at any
time after a Change in Control in the Salary Continuation Plan resulting in a
reduction of Assaf's benefits thereunder.
12. Arbitration. Any controversy or claim arising out of or
relating to this Agreement shall be settled by arbitration before the American
Arbitration Association in Miami, Florida, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. Any costs, including, without limitation, attorneys' fees
and disbursements, incurred by Assaf in such arbitration or in connection with
any appeal therefrom or any action brought to enforce or collect any such award
or judgment thereon, shall be reimbursed by Sensormatic, provided, that
Sensormatic shall not be required to reimburse Assaf hereunder in the event that
the arbitral panel or appeals court finds that Assaf's claims and/or defenses
are substantially without reasonable basis.
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13. Survival. This Agreement shall be binding on, enforceable
against and inure to the benefit of Assaf and his heirs, executors,
administrators, personal representatives, successors and assigns and Sensormatic
and its successors and assigns, including, without limitation, any corporation
with or into which Sensormatic is merged or consolidated, or any entity which
acquires all or substantially all of the business and assets of Sensormatic, in
connection with any Change in Control. In connection with any sale, merger or
consolidation described in the preceding sentence, Sensormatic shall take all
actions permissible under applicable law in order to cause such other
corporation to expressly assume Sensormatic's liabilities, obligations and
duties hereunder.
14. Notices. Any notice given to a party pursuant to or in
connection with this Agreement shall be in writing and shall be deemed to have
been given when delivered personally or sent by Federal Express or a similar
overnight courier service or by certified or registered mail, postage prepaid,
return receipt requested, duly addressed to the party concerned at the address
indicated at the beginning of this Agreement or to such changed address as such
party may subsequently give such notice of.
15. Severability. If any provision of this Agreement is found
to be invalid or unenforceable by a court of competent jurisdiction or an
arbitral panel under Section 12 hereof, this Agreement shall be interpreted and
enforceable as if such provision were severed or limited, but only to the extent
necessary to render such provision and this Agreement enforceable.
16. Governing Law. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of Florida
applicable to agreements made and fully to be performed in such state, without
giving effect to conflicts of law principles.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first set forth above.
SENSORMATIC ELECTRONICS
CORPORATION
By: /s/ Robert A. Vanourek
-------------------------------------
Robert A. Vanourek
President and Chief
Executive Officer
/s/ Ronald G. Assaf
----------------------------------------
Ronald G. Assaf
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<PAGE> 1
EXHIBIT 10(o)
AMENDMENT
Amendment dated as of September 1, 1998 to the Consulting
Agreement (the "Consulting Agreement") dated as of August 9, 1996 between
Sensormatic Electronics Corporation, a Delaware corporation (the "Corporation"),
and Ronald G. Assaf ("Assaf").
W I T N E S S E T H:
WHEREAS, the Consulting Agreement effected certain changes to
the Agreement dated as of December 23, 1988 between Assaf and the Corporation
(the "Change in Control Agreement"); and
WHEREAS, the Corporation recently updated its change in
control agreements generally and Assaf's Change in Control Agreement in
particular; and
WHEREAS, the parties hereto wish to make conforming changes to
the Consulting Agreement;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained, the parties hereto hereby amend the
Consulting Agreement as follows:
Effective as of the date hereof (the "Amendment Date"), the
provisions of Section 8(a) of the Consulting Agreement (as originally
set forth in the Consulting Agreement, the "Consulting Agreement Change
of Control Provisions") have been given effect in the amended and
restated Change of Control Agreement. Accordingly, the Consulting
Agreement Change of Control Provisions shall be without further force
or effect, except that it is still the understanding of the parties
that the provisions of Section 3 of the Consulting Agreement shall be
applicable in the event of a Change in Control, that the Change in
Control Agreement may be amended by mutual agreement of Assaf and the
Corporation, and that any such amendments shall be given effect for all
purposes of the Consulting Agreement.
References in the Consulting Agreement to the Change in
Control Agreement (other than in the Consulting Agreement Change of
Control Provisions) shall be deemed to refer to the Change in Control
Agreement as amended and restated as of the Amendment Date, as the same
may be further amended in accordance with the preceding paragraph.
Subject to the amendments set forth above, the Consulting Agreement shall remain
in full force and effect.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment on the date first set forth above.
SENSORMATIC ELECTRONICS
CORPORATION
By: /s/ Robert A. Vanourek
----------------------------------------
Robert A. Vanourek
President and Chief Executive Officer
/s/ Ronald G. Assaf
--------------------------------------------
Ronald G. Assaf
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EXHIBIT 10(p)
AGREEMENT
AGREEMENT, dated as of September 1, 1998, by and between
SENSORMATIC ELECTRONICS CORPORATION, a Delaware corporation having its principal
place of business at 951 Yamato Road, Boca Raton, Florida 33431 ("Sensormatic"),
and JAMES E. LINEBERGER ("Lineberger"), residing at 523 Smith Ridge Road, New
Canaan, Connecticut 06840.
W I T N E S S E T H:
WHEREAS, Lineberger is a member of the Board of Directors of
Sensormatic, and has made, and is expected to continue to make, a significant
contribution to the direction of Sensormatic's business and affairs and the
formulation of its policies;
WHEREAS, the Board of Directors of Sensormatic recognizes
that, as is the case with many publicly-held corporations, the possibility of a
Change in Control (as defined below) exists and that such possibility, and the
uncertainties which it may raise, may result in the distraction of directors to
the detriment of Sensormatic and its stockholders, particularly at a time when
Sensormatic is making significant efforts to expand its product lines and
markets, restructure its operations and reduce its expenses;
WHEREAS, the Board of Directors of Sensormatic believes that
the protection of certain rights of Lineberger, in the event of a Change in
Control, will help assure Lineberger's continuing dedication to his duties to
Sensormatic, notwithstanding the possibility of a Change in Control, and,
moreover, will enable Lineberger to objectively and impartially assess, and
advise the Board of Directors with respect to, any proposal received by
Sensormatic regarding a Change in Control and to take such action regarding any
such proposal as the Board of Directors may deem to be appropriate;
WHEREAS, with similar purposes and intents, Sensormatic
entered into an Agreement dated as of December 23, 1988, as amended as of
January 27, 1989, with Lineberger relating to a possible Change in Control (the
"Prior Agreement"), and on January 10, 1997 the Board of Directors and the
Compensation Committee thereof adopted certain resolutions expressly affirming
the Prior Agreement (subject to certain modifications as set forth therein), and
Sensormatic and Lineberger wish to amend and restate the Prior Agreement as
hereinafter set forth in order, among other things, to clarify and update
certain provisions thereof and to conform certain provisions thereof to such
resolutions;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the parties hereto agree as follows:
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1. Term.
(a) The term of this Agreement, originally commenced on
December 23, 1998 under the Prior Agreement, and continuing pursuant to this
amended and restated Agreement as of the date hereof (which for all purposes of
this Agreement shall mean the date first above written), shall continue after a
Change in Control shall occur and for so long thereafter as Sensormatic has or
may have any obligations under Sections 5, 6, 7, 10, 11 or 13 hereof.
(b) Notwithstanding the provisions of Section 1(a) hereof,
this Agreement shall terminate automatically in the event that, prior to the
occurrence of a Change in Control and so long as no Attempted Change in Control
shall have occurred and then be pending, Lineberger resigns or is removed from
his directorship with Sensormatic or the term of such office expires without his
being reelected thereto. Notwithstanding anything contained in this Agreement to
the contrary, if Lineberger is removed from his directorship with Sensormatic or
the term of such office expires without his being re-elected thereto prior to a
Change in Control, which Change in Control occurs, and Lineberger reasonably
demonstrates that such removal of or failure to re-elect Lineberger was at the
request of a third party who effectuates such Change in Control or that such
removal of or failure to re-elect Lineberger was directly related to or in
anticipation of such Change in Control, then for all purposes of this Agreement,
Lineberger shall be entitled to the payments and other benefits provided under
this Agreement as if such removal or failure to re-elect had occurred following
such Change in Control.
2. Fringe Benefits. Sensormatic currently provides to
Lineberger the fringe benefits listed below, without cost to Lineberger, and,
while nothing herein shall be deemed to require Sensormatic to continue any such
benefits or to prohibit Sensormatic from modifying any such benefits in any
respect, except that there shall be no material reduction in any such currently
provided benefits (and there shall be no material reduction in any additional
benefits subsequently approved by Sensormatic's Board of Directors or the
Compensation Committee thereof) during the pendency of an Attempted Change in
Control or in the event of a Change in Control or at any time within 36 months
after a Change in Control has occurred (and, in addition, there shall not, at
any time following a Change in Control, be any change in Sensormatic's Salary
Continuation Plan or Board of Directors Retirement Plan (which shall include,
for all purposes of this Agreement, any Salary Continuation Agreement or
Director Retirement Agreement between Sensormatic and Lineberger under such
Plans) resulting in a reduction of Lineberger's benefits thereunder), it is
anticipated that such benefits (together with any such additional benefits)
shall continue to be provided to Lineberger on the same or a substantially
similar basis in the future in accordance with the terms of the applicable
benefit plans and policies:
(a) group medical and group dental Plans in which Lineberger
and his eligible dependents are participants;
(b) participation in Sensormatic's retirement and/or profit
sharing plans (including the Salary Continuation Plan and Board of Directors
Retirement Plan) and in
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Sensormatic's annual contributions, if any, thereto, provided that such
participation in the Board of Directors Retirement Plan is contingent on
Lineberger's continued qualification prior to any such Change in Control or
Attempted Change in Control as an eligible participant under the provisions of
such plans as then in effect; and
(c) reimbursement of Lineberger for reasonable travel and
entertainment expenses incurred by Lineberger in connection with the business of
Sensormatic.
3. Continued Availability. As partial consideration for the
benefits available to Lineberger under this Agreement, Lineberger hereby agrees
to continue to make available a reasonable amount of his business time and
efforts, as director, to the business and affairs of Sensormatic, during any
Attempted Change in Control and for a period of six months after a Change in
Control (the "Availability Period"), on substantially the same basis as for
recent preceding periods. Lineberger's substantial participation in other
businesses, as a partner, director, officer or otherwise, shall not be deemed in
any way to contravene the foregoing provision. In the event that Lineberger
voluntarily resigns from his directorship with Sensormatic at any time during
the Availability Period, Lineberger shall not be entitled to any of the benefits
provided for in this Agreement, other than those provided under Sections 5(a),
5(b), 5(c), 5(d), 7, 9 and 10 hereof, and shall promptly repay in full to
Sensormatic any benefits previously received by him under any provisions of
Section 5 of this Agreement not referred to in this sentence, but Sensormatic
shall have no other remedy for Lineberger's failure to remain a director as
required by this Section 3. Any amounts or benefits received by Lineberger
pursuant to any other compensation plan or arrangement of Sensormatic, even if
similar or identical to those to which he would be entitled under this
Agreement, shall not be deemed received pursuant to this Agreement or be
repayable to Sensormatic for purposes of the preceding sentence.
4. Change in Control.
(a) For purposes of this Agreement, the term "Change in
Control" shall mean a change in control of Sensormatic of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
provided, that, without limitation, such a change in control shall be deemed to
have occurred if (i) any person (as such term is used in Sections 13(d) and
14(d) of the Exchange Act, "Person") is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act, "Beneficial Owner"), directly or
indirectly, of securities of Sensormatic representing 30% or more of the
combined voting power of Sensormatic's then outstanding voting securities, (ii)
Sensormatic consummates a merger, consolidation, share exchange, division or
other reorganization of Sensormatic with any other corporation or entity, unless
the shareholders of Sensormatic immediately prior to such transaction
beneficially own, directly or indirectly, (A) if Sensormatic is the surviving
corporation in such transaction, 60% or more of the combined voting power of
Sensormatic's outstanding voting securities as well as 60% or more of the total
market value of Sensormatic's outstanding equity securities, (B) if Sensormatic
is not the surviving corporation, 80% or more of the combined voting power of
the surviving
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entity's outstanding voting securities as well as 80% or more of the total
market value of such entity's outstanding equity securities, or (C) in the case
of a division, 80% or more of the combined voting power of the outstanding
voting securities of each entity resulting from the division as well as 80% or
more of the total market value of each such entity's outstanding equity
securities, in each case in substantially the same proportion as such
shareholders owned shares of Sensormatic prior to such transaction; (iii)
Sensormatic adopts a plan of complete liquidation or winding-up of Sensormatic;
(iv) the shareholders of Sensormatic approve an agreement for the sale or
disposition (in one transaction or a series of transactions) of all or
substantially all of Sensormatic's assets; or (v) during any period of 24
consecutive months, individuals (y) who at the beginning of such period
constitute the Board of Directors of Sensormatic or (z) whose election,
appointment or nomination for election was approved prior to such election or
appointment by a vote of at least two-thirds of the directors in office
immediately prior to such election or appointment who were directors at the
beginning of such two-year period (other than any directors who prior to the
Change in Control were associated or affiliated with any Person involved with
any Change in Control or Attempted Change in Control), cease for any reason to
constitute at least three-fourths of the Board of Directors of Sensormatic.
(b) For purposes of this Agreement, an "Attempted Change in
Control" shall be deemed to have occurred (i) if any Person files (or fails to
file when required to do so) with the Securities and Exchange Commission (the
"SEC") a Statement on Schedule 13D relating to voting securities of Sensormatic
(A) disclosing the acquisition of 10% or more thereof or (B) while disclosing
the acquisition of less than 10% of such voting securities, indicates an
intention to effect any of the transactions listed in Item 4 of Schedule 13D or
otherwise to effect a Change in Control, (ii) upon the public announcement
(including, without limitation, the filing with the SEC of a Statement on
Schedule 14D-1) by any Person of an intention to make a tender offer or
otherwise to effect a Change in Control, (iii) in the event of any solicitation
of proxies for the election of directors of Sensormatic pursuant to Rule 14a-11
of the Rules and Regulations under the Exchange Act or the filing of a Statement
on Schedule 14B in anticipation thereof, (iv) the receipt by Sensormatic from
any Person of any other communication proposing, or indicating an intention, to
effect a Change in Control by the acquisition of voting securities of
Sensormatic, the solicitation of proxies for the election of directors or
otherwise or (v) if the Board of Directors of Sensormatic or an authorized
committee thereof otherwise determines that an Attempted Change in Control is
pending. The termination of the pendency of an Attempted Change in Control shall
be determined by the Board of Directors of Sensormatic (or an authorized
committee thereof); provided, that any Attempted Change in Control shall in any
event be deemed to have terminated upon the occurrence of a Change in Control.
(c) A Change in Control shall be deemed, for purposes of this
Agreement, to be: (i) "non-approved" if (A) in connection with the consideration
thereof by the Board of Directors of Sensormatic, a majority of the Previous
Members of the Board of Directors (as defined below), either before or after
such Change in Control, (x) votes to disapprove of such Change in Control, (y)
votes to approve of such Change in Control, but as a consequence of the
existence of a competing proposal for a Change in Control, or (z) otherwise
expressly declares
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that such Change in Control is "non-approved", or (B) a majority of the Previous
Members of the Board of Directors neither expressly approves nor disapproves of
such Change in Control, or (ii) "approved" if in connection with the
consideration thereof by the Board of Directors of Sensormatic, a majority of
the Previous Members of the Board of Directors, either before or after such
Change in Control, (x) approves of such Change in Control (other than as a
consequence of the existence of a competing proposal for a Change of Control) or
(y) otherwise expressly declares that such Change in Control is "approved",
notwithstanding clause (A)(y) of this Section 5(c). The majority of the Previous
Members of the Board of Directors shall indicate its approval or disapproval of
a Change in Control by a statement or statements in writing to such effect. For
purposes of this Agreement, Previous Members of the Board of Directors shall
mean members of the Board of Directors of Sensormatic as of the date of a Change
in Control (the first Change in Control, if there are more than one) who had
been in office for a period of at least two years immediately prior to such
Change in Control (other than directors who prior to such Change in Control were
appointed or elected as directors as a consequence of their association or
affiliation with any Person effecting such Change in Control).
In addition, notwithstanding any previous determination that
a Change in Control was "approved", such Change in Control may subsequently be
determined, in good faith, to be "non-approved" by a majority of the Previous
Members of the Board of Directors who are then still in office with Sensormatic
or a corporate successor of Sensormatic (or if fewer than two such Previous
Members of the Board of Directors are still in office, then by a majority of the
Previous Members of the Board of Directors, whether or not still in office)
within the 36-month period immediately following such Change in Control, if
during such period there occur (1) events with respect to individuals who were
officers of Sensormatic at the time of the Change in Control that would
constitute involuntary termination under their Change in Control agreements, (2)
defaults by Sensormatic under this Agreement or any similar agreement, (3) the
involuntary termination (other than for cause or in the event of death or
permanent disability) of the employment of a number of the officers of
Sensormatic who were officers immediately prior to such Change in Control
exceeding 40% of the total number of such officers, or (4) the transfer (by
sale, merger or otherwise) of all or substantially all the equity securities of
Sensormatic acquired by the Person effecting such Change in Control, of all or
substantially all the assets of Sensormatic, or of all or substantially all the
equity securities of Sensormatic's successor corporation, directly or
indirectly, to a third party (other than a majority owned affiliate of such
Person). In the event of such a subsequent determination, Lineberger shall be
entitled to all benefits arising under this Agreement out of a "non-approved"
Change in Control as if such Change in Control had been deemed "non-approved"
initially. Any additional benefits arising out of such "non-approved" Change in
Control which Lineberger is entitled to receive through the date of such
determination shall be paid or satisfied promptly by Sensormatic. For purposes
of this Section 5(c), the term "officers" shall not include individuals whose
only office with Sensormatic is Assistant Secretary or Assistant Treasurer.
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(d) For the purposes of this Section 4, references to
provisions of the Exchange Act and rules, regulations and schedules thereunder
shall be to such provisions as they are in effect and interpreted as of the date
of this Agreement.
5. Benefits Effective Upon a Change in Control. In the event
a Change in Control occurs, Lineberger shall be entitled to the following
benefits:
(a) All stock options issued by Sensormatic to Lineberger,
whether or not then exercisable, shall remain fully exercisable or shall become
fully exercisable immediately (or, notwithstanding the foregoing, in the event
of an Attempted Change in Control involving a proposed Reorganization Event (as
such term is defined in Section 5(b) hereof)), such options shall become fully
exercisable thirty days before the date of such Reorganization Event, and such
options shall remain outstanding and fully exercisable for the stated term
thereof or until the later of (i) nine months following the resignation or
removal of Lineberger from his directorship with Sensormatic or the expiration
of the term of such office without his being re-elected thereto (or, at the
option of Lineberger, in the case of an incentive stock option, three months
following such termination or ceasing to be a director) or (ii) the end of the
respective post-termination exercisability periods provided for in such options
(including if applicable, such periods in the event of death or disability);
provided, that in no event shall the term of such options be extended beyond
their respective original terms. In addition, any deferred vesting or forfeiture
provisions applicable to any shares of Sensormatic stock awarded to or otherwise
held by Lineberger shall be without further force or effect, and Lineberger
shall have the unrestricted right to such shares.
(b) In the event that (i) such Change in Control is effected
through (A) a tender or exchange offer (a "Tender Offer") or (B) any means, in
one or more transactions, with the result in either case that any Person becomes
the Beneficial Owner, directly or indirectly, of securities of Sensormatic
representing 50% or more of the combined voting power of Sensormatic's then
outstanding voting securities (any such Change in Control referred to in this
clause (i), including pursuant to a Tender Offer, being hereinafter referred to
as a "Majority Acquisition"), (ii) in connection with, as a result of or within
24 months immediately following a Change in Control, Sensormatic's Board of
Directors shall have approved a merger, consolidation, reclassification,
reorganization, dissolution, sale of all or substantially all of the assets of
Sensormatic or similar event (a "Reorganization Event") as a result of which
Sensormatic's Common Stock would cease to be outstanding or (iii) in connection
with, as a result of or within 24 months immediately following a Change in
Control, Sensormatic's Common Stock ceases to be listed for trading on a
national securities exchange or quoted through NASDAQ or a comparable securities
quotation system, Lineberger shall have the right, exercisable by written notice
given at any time during the 13-month period immediately following the date of
such Change in Control (and, if later, the date of any such Majority
Acquisition, Reorganization Event or cessation of listing or quotation), to
require Sensormatic to purchase:
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(1) any or all of such stock options issued by Sensormatic to
Lineberger, whether or not then exercisable, and/or any stock options
issued upon conversion of or in exchange for any such Sensormatic stock
options pursuant to any such Reorganization Event ("Conversion
Options"), at a purchase price equal to the excess of the aggregate
Fair Market Value (as defined below) of the shares of Sensormatic
Common Stock subject to such Sensormatic stock options over the
aggregate exercise price of such stock options (or, in the case of any
Conversion Options, such amount calculated with respect to the
Sensormatic stock options which were converted into or exchanged for
such Conversion Options); and/or
(2) any or all shares of Sensormatic Common Stock held by
Lineberger at or immediately prior to the date of such Change in
Control (including any shares of Sensormatic Common Stock (restricted
or otherwise, and whether or not vested) awarded to Lineberger pursuant
to any compensation plan or arrangement of Sensormatic) or issued
pursuant to the exercise of any such Sensormatic stock options
following the date of such Change in Control, and/or (without
duplication) any shares or other securities issued upon conversion of
or in exchange for any such shares of Common Stock pursuant to any such
Reorganization Event ("Conversion Shares"), at a purchase price equal
to the aggregate Fair Market Value of such shares (or, in the case of
any Conversion Shares issued upon conversion of or in exchange for
Common Stock, the Fair Market Value of the shares of Common Stock which
were converted into or exchanged for such Conversion Shares); provided,
that Sensormatic may offset against the amount so payable for Common
Stock or Conversion Shares all amounts outstanding on any loans made to
Lineberger for the purchase of, or payment of taxes relating to, such
shares of Common Stock or Conversion Shares, as contemplated by Section
5(c) hereof or otherwise.
Payment for any such options or shares shall be made by Sensormatic within 10
days after Lineberger's surrender of any such options, and/or within 10 days
after Lineberger's surrender of the certificates representing any such shares of
Common Stock or Conversion Shares (or, if such certificates are in Sensormatic's
possession, within 10 days after Lineberger's notice of exercise under this
Section 5(b)).
For purposes of this Section 5(b), the "Fair Market Value" of
a share of Sensormatic Common Stock means the highest fair market value per
share of Sensormatic Common Stock of the consideration paid in any transaction
by any Person who effects such Change in Control, in connection therewith,
whether through open market purchases, Tender Offers, Reorganization Events,
private transactions or otherwise.
(c) Upon Lineberger's request, Sensormatic shall lend to
Lineberger, interest free, up to an amount equal to the aggregate exercise price
of the options referred to in Section 5(a) hereof, should Lineberger elect to
exercise such options. If requested by Lineberger, Sensormatic shall also lend
to Lineberger, interest free (or, at Lineberger's option, provide a guaranty to
enable Lineberger to borrow), up to an amount equal to the percentage specified
in
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Section 5(d)(i) times the Share Income (as such term is defined in such Section)
resulting from such exercise and/or vesting. Such loan or loans shall be due and
payable to Sensormatic upon the earliest of (i) the fifth anniversary date of
such loan or loans, (ii) in the event of the resignation or removal, other than
for Cause (as defined in Section 5 hereof, "Cause"), of Lineberger from his
directorship with Sensormatic or the expiration of the term of such office
without his being re-elected thereto, upon the expiration of 30 months following
such resignation or removal, or in the event that Lineberger is removed as a
director for Cause, upon the expiration of 30 days after the later of such
removal, or (iii) promptly (but in any event within five (5) business days)
after receipt of the proceeds of sale from the sale of such shares, to the
extent of the loan or loans applicable to such sold shares. Lineberger shall
deposit such shares with Sensormatic as security for any such loan, if
Sensormatic shall so request. Notwithstanding anything to the contrary contained
in this Section 5(c), Sensormatic's Stock Purchase Loan Plan or any promissory
note or security agreement executed by Lineberger pursuant to such Plan, no
additional collateral shall be required by Sensormatic in connection with any
such loan to Lineberger, and, if necessary to be in compliance with applicable
margin regulations under federal laws, such loans shall be unsecured; and if,
because of Internal Revenue Service rules or other rules, Sensormatic is unable
to lend such funds to Lineberger interest free and without any imputation of
interest, Sensormatic shall pay Lineberger a dollar amount of additional
compensation which shall equal the amount of interest required to be charged in
order to avoid such imputation in such instances and Lineberger shall then pay
Sensormatic the rate of interest on such loan required by law to avoid
imputation.
(d) (i) If a Majority Acquisition shall have occurred or if,
in connection with, as a result of or within 24 months immediately
following a Change in Control, either a Reor ganization Event shall
have occurred or Sensormatic's Common Stock ceases to be listed for
trading on a national securities exchange or quoted through NASDAQ or a
comparable securities quotation system, then Lineberger shall have the
right, exercisable during the period and in the manner described in
Section 5(d)(ii) hereof, to require Sensormatic to purchase any or all
of Lineberger's Option Acquired Shares and Award Shares (as defined
below), and/or any or all Conversion Shares issued with respect to any
Option Acquired Shares or Award Shares. The price at which Lineberger
shall be entitled to sell any Option Acquired Share to Sensormatic
under this Section 5(d)(i) shall equal the sum of (A) the option
exercise price paid (including payments made by promissory notes issued
under Sensormatic's Stock Purchase Loan Plan or otherwise) by
Lineberger in acquiring such share, plus (B) an amount equal to a
percentage, determined as provided below in this clause (i), of the
difference between such option exercise price and the Market Value of a
share of Sensormatic Common Stock on the date the share was acquir ed.
The price at which Lineberger shall be entitled to sell any Award Share
under this Section 5(d)(i) shall be equal to the Market Value (as
defined below) of such share on the date Lineberger's right to such
share vested, multiplied by the percentage determined as provided below
in this clause (i). The price at which Lineberger shall be entitled to
sell any Conversion Shares pursuant to this Section 5(d)(i) shall be
calculated as set forth above with respect to Option Acquired Shares or
Award Shares, as applicable, based
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upon the purchase price, date of purchase and Market Value of any
Option Acquired Shares, and the vesting date and Market Value of any
Award Shares, which were converted into or exchanged for any such
Conversion Shares sold. The percentage referred to in this Section
5(d)(i) shall be equal to the sum of (1) the highest marginal net rate
of income tax (federal, state and local) applicable to an individual
residing where the Lineberger resided at the time the Lineberger
reported income ("Share Income") with respect to the Option Acquired
Shares or Award Shares, as the case may be plus (2) the Medicare
employee tax rate, plus (3) a percentage equal to (x) that part, if
any, of the Share Income that was actually subject to employee Social
Security tax, multiplied by (y) the social security employee tax rate,
divided by (z) the total Share Income (in each case as applicable at
the time such share was purchased by Lineberger, in the case of any
Option Acquired Shares, or at the time Lineberger's right to such share
vested, in the case of any Award Shares). The purchase price payable by
Sensormatic shall in all events be equitably adjusted to reflect any
stock dividends, stock splits, extraordinary dividends or similar
events since the date of acquisition by Lineberger of any such shares.
For purposes of this Section 5(d), the term "Option Acquired
Shares" shall mean shares of Sensormatic Common Stock acquired by
Lineberger upon exercise of options granted to Lineberger, the term
"Award Shares" shall mean shares of Sensormatic Common Stock awarded to
Lineberger pursuant to Sensormatic's Stock Incentive Plan or any other
compensation plan or arrangement of Sensormatic, other than pursuant to
the exercise of options, and the term "Market Value" shall mean the
average of the high and low sales prices of a share of such Common
Stock on the applicable date (or most recent date on which one or more
sales occurred) as reported through NASDAQ or the principal exchange on
which such Common Stock was listed for trading.
(ii) Lineberger may exercise his right to sell
Option Acquired Shares, Award Shares and/or Conversion Shares under
this Section 5(d) at any time within 13 months following any of the
events specified in the first sentence of Section 5(d)(i) hereof by
giving written notice of such exercise to Sensormatic, which notice
shall set forth the Option Acquired Shares, Award Shares and/or
Conversion Shares to be sold, the exercise price paid by Lineberger in
acquiring any such Option Acquired Shares or Conversion Shares, the
highest marginal tax rates applicable for purposes of the respective
calculations specified in Section 5(d)(i) hereof and the Market Value
of the Common Stock or Conversion Shares, as applicable, on each date
that any applicable Option Acquired Shares or Conversion Shares to be
sold were purchased by Lineberger or Lineberger's right to any
applicable Award Shares vested, as the case may be. The information set
forth in such notice shall be presumed to be correct.
(iii) In addition to the purchase price for the
Option Acquired Shares, Award Shares or Conversion Shares being sold to
Sensormatic under this Section 5(d), Sensormatic shall pay to
Lineberger an amount (the "Tax Payment") equal to a percentage
(determined pursuant to the following sentence) of the excess, if any,
of (A)
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the product of the number of such Option Acquired Shares, Award Shares
and/or Conversion Shares being sold multiplied by the Market Value of a
share of Sensormatic Common Stock or Conversion Shares, as applicable,
on the Purchase Date, as such term is defined in Section 5(d)(iv)
hereof, or such other value of a share of Sensormatic Common Stock or
Conversion Shares as may be required to be used to determine the
amount, if any, recognizable as ordinary income arising out of the sale
of such shares to Sensormatic, over (B) the aggregate purchase price
for all such Option Acquired Shares, Award Shares and/or Conversion
Shares being sold by Lineberger. The percentage referred to in the
preceding sentence shall be determined in accordance with Section
5(d)(i) hereof as applicable on the Purchase Date.
(iv) Within 10 days after Lineberger's surrender of
the certificates representing any such Option Acquired Shares, Award
Shares and/or Conversion Shares or, if such certificates are in
Sensormatic's possession, within 10 days after Lineberger's notice of
exercise under this Section 5(d) (the "Purchase Date"), Sensormatic
shall purchase the Option Acquired Shares, Award Shares and/or
Conversion Shares referred to in such notice by paying to Lineberger
(subject to offset as provided in the following sentence) the full
purchase price thereof, as calculated under Section 5(d)(i) hereof,
plus the Tax Payment applicable thereto. Sensormatic may offset against
payment of any or all of such purchase price and the related Tax
Payment all or a portion of any indebtedness of Lineberger then
outstanding under Sensormatic's Stock Purchase Loan Plan attributable
to any Option Acquired Shares and/or Conversion Shares sold to
Sensormatic hereunder.
(v) Lineberger's rights under this Section 5(d) are
independent of and not limited by, and do not constitute any limitation
of, Lineberger's rights under Section 5(b) hereof. Lineberger may
exercise any rights under either Section 5(b) hereof or this Section
5(d), in whole or in part (but without duplication), in Lineberger's
sole discretion.
(e) (i) If either a Majority Acquisition occurs or, in
connection with, as a result of or within 24 months following a Change
in Control, a Reorganization Event occurs, then Sensormatic shall pay
to Lineberger (irrespective of whether he is then a director of
Sensormatic or its successor), within thirty days after the effective
date of such Majority Acquisition or Reorganization Event, as the case
may be, a cash bonus payment equal to a percentage (determined pursuant
to Sections 5(e)(ii) and 5(e)(iii) hereof) of Lineberger's Special
Bonus Base (as defined below). Lineberger's Special Bonus Base shall
equal four times the amount of Lineberger's highest annual compensation
while Chairman of the Executive Committee of Sensormatic (i.e.,
$155,000).
(ii) The percentage of the Special Bonus Base which
Lineberger shall be entitled to receive under this Section 5(e) shall
be calculated on the basis of the Premium (as defined below) paid or
offered to holders of Sensormatic's Common Stock in connection with a
Majority Acquisition or Reorganization Event. Premium shall mean
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<PAGE> 11
the percentage which results from dividing (A) the amount by which the
Event Value (as defined below) exceeds the Pre-Event Share Price (as
defined below), by (B) the Pre- Event Share Price. The Pre-Event Share
Price shall be equal to the average of the closing sales prices (or if
there is no sales price, the last bid price) for a share of
Sensormatic's Common Stock, as such prices are reported through NASDAQ
or the principal exchange on which such shares are listed for trading,
on the last business day of each week during the twenty-six weeks
immediately preceding the first to occur of (x) the first public
announcement relating to any proposed Change in Control or
Reorganization Event, or (y) any event resulting in the pendency of an
Attempted Change in Control which culminates, directly or indirectly,
in the Change in Control giving rise to Lineberger's rights under this
Section 5(e). In the case of any Reorganization Event or Tender Offer,
or combination or series of Reorganization Events and/or Tender Offers,
"Event Value" shall mean the fair market value of the consideration
paid per share of Sensormatic Common Stock pursuant to such
Reorganization Event or Tender Offer determined as of the effective
date of the Reorganization Event or of the consummation of the Tender
Offer, as the case may be, provided that in the event that different
prices are paid per share of Sensormatic Common Stock pursuant to such
Reorganization Event, Tender Offer or any combination or series
thereof, the Event Value shall be equal to the fair market value of the
aggregate consideration paid pursuant to all such Tender Offers and/or
Reorganization Events (determined as of the dates set forth above)
divided by the number of shares of Sensormatic Common Stock purchased
pursuant to all such Tender Offers and/or Reorganization Events. In
case of any other transaction or series of transactions giving rise to
the right of Lineberger to receive the bonus provided for in this
Section 5(e), "Event Value" shall mean the highest fair market value of
the consideration paid per share of Sensormatic Common Stock pursuant
to any such transaction, determined as of the date of payment
thereunder. The determination of Event Value shall be conclusively made
by an investment banking firm selected by the Previous Members of the
Board of Directors who are not entitled to receive bonuses under this
Section 5(e) or analogous provisions of other agreements; provided,
that in the event that the Previous Members of the Board of Directors
fail to make such selection within 45 days after consummation of the
transaction giving rise to the right to rights under this Section 5(e),
or the selected investment banking firm fails to make such a
determination within an additional 90 days, Event Value shall be
determined by arbitration under Section 14 hereof. Sensormatic shall
pay all fees and expenses of any such investment banker.
(iii) The percentage of the Special Bonus Base which
Lineberger shall be entitled to receive as a bonus under this Section
5(e) shall be 20% if the Premium is at least 20% and shall increase by
3.2% for each one percent (and by a fraction of 3.2% for each fraction
of one percent) by which the Premium exceeds 20%. For example, if the
Premium were 30%, Lineberger would be entitled to a bonus of 52% of the
Special Bonus Base; if the Premium were 40.5%, Lineberger would be
entitled to a bonus of 85.6% of the Special Bonus Base; and if the
Premium were 50%, Lineberger would be entitled to a bonus of 116% of
the Special Bonus Base. The maximum bonus which
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<PAGE> 12
Lineberger shall be entitled to receive is 167% of the Special Bonus
Base. No bonus shall be payable pursuant to this Section 5(e) if the
Premium is less than 20%.
6. Benefits on Termination.
(a) Severance Benefits. In the event of the removal, other
than for Cause, of Lineberger from his directorship with Sensormatic or the
expiration of the term of such office without his being reelected thereto within
36 months immediately following a Change in Control, or the death of Lineberger
or (subject to Section 3 hereof) the resignation of Lineberger from his
directorship with Sensormatic within 24 months immediately following a Change in
Control, Lineberger shall be entitled to receive, for each of the 36 months
immediately following the date of such death, resignation, removal or
expiration, $12,916.67, payable on or before the 10th day of each month in which
payable.
(b) Protection of Certain Benefits. In the event of the
removal, other than for Cause, or (subject to Section 3 hereof) resignation of
Lineberger from his directorship with Sensormatic or the expiration of the term
of such office without his being re-elected thereto, or Lineberger's death, at
any time following a Change in Control, Lineberger (or his Successor, as
hereinafter defined) shall be entitled to the following benefits:
(i) Sensormatic shall, as soon as practicable, pay
to Lineberger a lump sum payment equal to the amount of any then
unvested interest which Lineberger may have had on the date of such
Change in Control (less any amount of such interest subsequently
vested), and as supplemented thereafter through the date of such
termination, in Sensormatic's profit sharing, ESOP or other retirement
plans (other than the Salary Continuation Plan or Board of Director
Retirement Plan); and
(ii) Unless a trust or other arrangement previously
determined in writing to be satisfactory by a majority of the Previous
Members of the Board of Directors (as defined below) then in office
assuring payment of benefits to or for the benefit of Lineberger under
Sensormatic's Salary Continuation Plan and/or Board of Directors
Retirement Plan in the event of a Change in Control has been previously
established and is then in effect, Sensormatic shall take such steps as
are necessary, within 30 days after such termination, to fully fund all
of Lineberger's benefits under such Plans (after giving effect to the
change in control provisions of such Plans) through paid-up insurance,
annuity contracts and/or other similar means, so that the ultimate
payment of benefits (at a rate not less than the greater of the rates
in effect under such Plans at the date of such termination or
immediately after such Change in Control) upon Lineberger's becoming
entitled to receive payment thereunder (as if he had remained a
director of Sensormatic) shall be assured beyond any reasonable doubt;
provided, however, that either such manner of funding shall be
structured so as not to constitute "constructive receipt" by Lineberger
of the benefits in question for income tax purposes, or the benefits in
question shall be paid out in a lump sum, discounted to present value
in the manner provided in
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<PAGE> 13
Section 7(a) hereof. In addition, in the event of the removal, other
than for Cause, of Lineberger from his directorship with Sensormatic or
the expiration of the term of such office without his being re-elected
thereto other than pursuant to the generally applicable term limits
and/or retirement policies of the Corporation (without giving effect to
any changes therein that reduce the retirement age or the permitted
term of office which were implemented following such Change of Control
or the commencement of an Attempted Change of Control which culminated
in such Change of Control), at any time following a Change in Control,
any noncompetition provisions included in such Plans shall have no
force or effect.
(c) Consulting Services. For a period of one year following
Lineberger's resignation from the Board of Directors following an "approved"
Change in Control in which Lineberger receives payments under Section 6(a)
hereof (the "Payment Period"), Lineberger agrees to make himself available at
the executive offices of Sensormatic in Palm Beach County or Broward County,
Florida to advise and consult with Sensormatic with respect to matters speci
fied by the chief executive officer or Board of Directors of Sensormatic and
appropriate to Lineberger's former capacities with Sensormatic. Lineberger shall
perform such services at such times as (i) are reasonably requested by the chief
executive officer or Board of Directors of Sensormatic, (ii) are reasonably
acceptable to Lineberger and (iii) are consistent with Lineberger's duties and
obligations in the course of his then occupation or employment, if any.
Lineberger shall use reasonable efforts to comply with such requests to perform
up to 250 hours of such services during the Payment Period.
7. Benefits on Death or Disability.
(a) In the event of Lineberger's death at any time within 36
months after a Change in Control and prior to Lineberger's ceasing to be a
director of Sensormatic, or in the event that Lineberger had died (or otherwise
become entitled to receive benefits) prior to a Change in Control and that as of
the date of such Change in Control there remain outstanding amounts payable
under Sensormatic's Salary Continuation Plan or Board of Directors Retirement
Plan for Lineberger, unless in either case a trust or other arrangement
previously determined in writing to be satisfactory by a majority of the
Previous Members of the Board of Directors then in office assuring payment of
benefits to or for the benefit of the Lineberger under such Plans in the event
of a Change in Control has been previously established and is then in effect,
Sensormatic shall promptly pay to Lineberger's designated beneficiary or
Lineberger's heirs, executors, administrators or personal representatives
(collectively, "Successors") all of the remaining benefits under such Plans to
which Lineberger's Successors are then entitled, in the form of a lump sum
payment equal to the amount of such benefits discounted to present value using
an interest rate equal to the rate published by Pension Benefit Guaranty
Corporation for the purpose of discounting pension benefits to present value in
the event of a lump sum prepayment thereof, as then in effect, but such discount
rate shall in no event be greater than ten percent (10%) per annum.
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<PAGE> 14
(b) In the event of Lineberger's death or permanent and total
disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code
of 1986, as amended and in effect and interpreted as of the date of this
Agreement) at any time within the 24-month period immediately following a
Change in Control and prior to Lineberger's ceasing to be a director, Lineberger
or Lineberger's Successors shall be entitled to all of the benefits of
Lineberger provided under this Agreement as if Lineberger had voluntarily
terminated his employment with Sensormatic (but without giving effect to Section
3 hereof), including, without limitation, those set forth in Section 5(c)
hereof.
(c) In the event of Lineberger's death or disability after
Lineberger becomes entitled to any benefits under Sections 6 or 7 of this
Agreement, Lineberger or Lineberger's Successors shall be entitled to receive
all remaining benefits to which Lineberger is entitled under this Agreement.
8. Termination for Cause. In the event that, at any time
after any Change in Control, Lineberger is removed from his directorship for
Cause, Lineberger shall not be entitled to any of the benefits set forth in
Sections 5, 6 or 7 of this Agreement not yet received by him, except to the
extent that Lineberger exercised rights prior to such termination with respect
to options, Award Shares or Conversion Shares as provided under Sections 5(a),
5(b) and 5(d) hereof. The foregoing shall not affect any rights of Lineberger
accrued other than by virtue of this Agreement. For purposes of this Agreement,
Lineberger shall be deemed to have been removed as a director for Cause only if
such removal is effected for any of the following reasons:
(i) gross neglect or willful misconduct by Lineberger in the
performance of Lineberger's duties resulting in material economic harm
to Sensormatic; or
(ii) the conviction of Lineberger for a felony involving moral
turpitude under federal or state law;
provided, however, that the determination of the existence of the grounds
referred to in of this Section 8 shall be made, in good faith, only by a
majority of the Previous Members of the Board of Directors who are then in
office with Sensormatic or a corporate successor of Sensormatic, provided that
such majority shall consist of not less than two persons; and provided, further,
that Lineberger shall be given prior written notice by the Board of Directors of
the intention to terminate him for Cause and the specific grounds for such
termination, as determined in accordance with this Section 8, and shall be
entitled to a hearing before such Previous Members of the Board of Directors
before such termination becomes effective.
9. Payments. All monthly payments that Lineberger (or his
Successors) is entitled to receive under Section 6 of this Agreement shall be
paid by or on behalf of Sensormatic on or before the 10th day of each month in
which payable, except that any regular payments required to be made under the
plans referred to in Section 6(b) hereof shall be made in accordance with the
terms of such plans. Any lump sum payable to Lineberger under Sections 5,
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<PAGE> 15
6, 7(a) or 10 of this Agreement shall be paid by or on behalf of Sensormatic
within 10 days after Lineberger's right to such payment accrues, except as
otherwise expressly set forth any provision of such Sections.
10. Excise Taxes. In the event that the aggregate of all
payments or benefits made or provided to Lineberger in connection with a Change
in Control under this Agreement and under all other plans and programs of
Sensormatic (the "Aggregate Payment") is determined to constitute a Parachute
Payment, as such term is defined in Section 280G(b)(2) of the Internal Revenue
Code, as amended, or any successor provision, Sensormatic shall pay to
Lineberger, prior to the time any excise tax imposed by Section 4999 of the
Internal Revenue Code, as amended, or any successor provision ("Excise Tax"), is
payable with respect to such Aggregate Payment, an additional amount which,
after the imposition of all income and excise taxes thereon, is equal to the
Excise Tax on the Aggregate Payment. The determination of whether the Aggregate
Payment constitutes a Parachute Payment and, if so, the amount to be paid to
Lineberger and the time of payment pursuant to this Section 10 shall be made by
an independent auditor (the "Auditor") jointly selected by Sensormatic and
Lineberger and paid by Sensormatic. The Auditor shall be a nationally recognized
United States public accounting firm which has not, during the two years
preceding the date of its selection, acted in any way on behalf of Sensormatic
or any affiliate thereof. If Lineberger and Sensormatic cannot agree on the firm
to serve as the Auditor, then Lineberger and Sensormatic shall each select one
nationally recognized United States accounting firm and those two firms shall
jointly select the accounting firm to serve as the Auditor. Notwithstanding the
foregoing, in the event that the amount of Lineberger's Excise Tax liability is
subsequently determined to be greater than the Excise Tax liability with respect
to which an initial payment to Lineberger under this Section 10 has been made,
Sensormatic shall pay to Lineberger an additional amount with respect to such
additional Excise Tax (and any interest and penalties thereon) at the time that
the amount of the actual Excise Tax liability is finally determined, such
additional amount to be calculated in the same manner as such initial payment.
Lineberger and Sensormatic shall cooperate with each other in connection with
any action, arbitration, suit, investigation or proceeding (collectively,
"Proceeding") relating to the existence or amount of liability for Excise Tax,
and all expenses relating to any such Proceeding (including all reasonable
attorney's fees and other expenses incurred by Lineberger in connection
therewith) shall be paid by Sensormatic promptly upon notice of demand from
Lineberger.
11. Costs of Collection. Sensormatic agrees upon demand to pay
all costs and expenses of Lineberger (including, without limitation, reasonable
counsel fees and expenses) in connection with the enforcement, whether through
negotiations, arbitration or legal proceedings or otherwise, of this Agreement
and the collection of any benefits due to Lineberger hereunder.
12. Conflicts with Other Agreements. Nothing contained in or
arising out of this Agreement shall be deemed to discharge, release or modify
the obligations of Sensormatic to Lineberger under the provisions of any
other agreement between them or of any plan or program of Sensormatic or
resolutions of the Board of Directors,
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<PAGE> 16
regardless of whether the subject matter of any provision thereof is the same or
similar to that of any provision of this Agreement, the rights and remedies of
Lineberger under this Agreement and any other such agreement, plan, program or
resolutions being cumulative and not in substitution of each other; provided,
however, that this Agreement amends, restates and supersedes the Prior
Agreement, including any amendments thereto in its entirety and nothing in this
Agreement shall entitle Lineberger to receive duplicative payments of salary,
bonus or other benefits. Further, nothing in this Agreement shall diminish or
otherwise adversely affect Lineberger's rights or benefits accruing as a
consequence of his death or disability, at any time after a Change in Control,
under the terms and conditions of the plans or programs of Sensormatic in which
Lineberger is a participant immediately prior to any Change in Control and any
additional plan or program of Sensormatic in which Lineberger is a participant
at the time of Lineberger's death or disability.
13. Maintenance of Plans. Sensormatic agrees that, for not
less than 36 months after a Change in Control, it shall maintain in effect the
plans and programs in which Lineberger is a participant immediately prior to
such Change in Control (or comparable plans and programs) to the extent
necessary to assure that the rights and benefits of Lineberger there under shall
be no less favorable after such Change in Control than immediately prior
thereto, provided, that Sensormatic shall in no event make any change in the
event of or at any time after a Change in Control in the Salary Continuation
Plan or Board of Directors Retirement Plan resulting in a reduction of
Lineberger's benefits thereunder.
14. Arbitration. Any controversy or claim arising out of or
relating to this Agreement shall be settled by arbitration before the American
Arbitration Association in Miami, Florida, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. Any costs, including, without limitation, attorneys' fees
and disbursements, incurred by Lineberger in such arbitration or in connection
with any appeal therefrom or any action brought to enforce or collect any such
award or judgment thereon, shall be reimbursed by Sensormatic, provided, that
Sensormatic shall not be required to reimburse Lineberger hereunder in the event
that the arbitral panel or appeals court finds that Lineberger's claims and/or
defenses are substantially without reasonable basis.
15. Survival. This Agreement shall be binding on, enforceable
against and inure to the benefit of Lineberger and his heirs, executors,
administrators, personal representatives, successors and assigns and Sensormatic
and its successors and assigns, including, without limitation, any corporation
with or into which Sensormatic is merged or consolidated, or any entity which
acquires all or substantially all of the business and assets of Sensormatic, in
connection with any Change in Control. In connection with any sale, merger or
consolidation described in the preceding sentence, Sensormatic shall take all
actions permissible under applicable law in order to cause such other
corporation to expressly assume Sensormatic's liabilities, obligations and
duties hereunder.
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<PAGE> 17
16. Notices. Any notice given to a party pursuant to or in
connection with this Agreement shall be in writing and shall be deemed to have
been given when delivered personally or sent by Federal Express or a similar
overnight courier service or by certified or registered mail, postage prepaid,
return receipt requested, duly addressed to the party concerned at the address
indicated at the beginning of this Agreement or to such changed address as such
party may subsequently give such notice of.
17. Severability. If any provision of this Agreement is found
to be invalid or unenforceable by a court of competent jurisdiction or an
arbitral panel under Section 13 hereof, this Agreement shall be interpreted and
enforceable as if such provision were severed or limited, but only to the extent
necessary to render such provision and this Agreement enforceable.
18. Governing Law. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of Florida
applicable to agreements made and fully to be performed in such state, without
giving effect to conflicts of law principles.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first set forth above.
SENSORMATIC ELECTRONICS
CORPORATION
By: /s/ Robert A. Vanourek
-------------------------------------
Robert A. Vanourek
President and Chief Executive
Officer
/s/ James E. Lineberger
----------------------------------------
James E. Lineberger
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<PAGE> 1
EXHIBIT 10(q)
[Director Form -- Prior Agreement]
AGREEMENT
AGREEMENT, dated as of September 1, 1998, by and between
SENSORMATIC ELECTRONICS CORPORATION, a Delaware corporation ("Sensormatic"), and
________________ ("Director").
W I T N E S S E T H:
WHEREAS, Director is a member of the Board of Directors of
Sensormatic, and has made, and is expected to continue to make, a significant
contribution to the direction of Sensormatic's business and affairs and the
formulation of its policies;
WHEREAS, the Board of Directors of Sensormatic recognizes
that, as is the case with many publicly-held corporations, the possibility of a
Change in Control (as defined below) exists and that such possibility, and the
uncertainties which it may raise, may result in the distraction of directors to
the detriment of Sensormatic and its stockholders, particularly at a time when
Sensormatic is making significant efforts to expand its product lines and
markets, restructure its operations and reduce its expenses;
WHEREAS, the Board of Directors of Sensormatic believes that
the protection of certain rights of Director, in the event of a Change in
Control, will help assure Director's continuing dedication to his duties to
Sensormatic, notwithstanding the possibility of a Change in Control, and,
moreover, will enable Director to objectively and impartially assess, and advise
the Board of Directors with respect to, any proposal received by Sensormatic
regarding a Change in Control and to take such action regarding any such
proposal as the Board of Directors may deem to be appropriate;
WHEREAS, with similar purposes and intents, Sensormatic
entered into an Agreement dated February 12, 1996 with Director relating to a
possible Change in Control (the "Prior Agreement"), and Sensormatic and Director
wish to amend and restate the Prior Agreement as hereinafter set forth in order,
among other things, to clarify and update certain provisions thereof;
NOW, THEREFORE, in consideration of the premises, and for
other good and valuable consideration, the parties hereby agree as follows,
amending and restating the Prior Agreement:
1. TERM.
(a) The term of this Agreement, originally commenced on
February 12, 1996 under the Prior Agreement, and continuing pursuant to this
amended and restated Agreement as of the date hereof (which for all purposes of
this Agreement shall mean the date first above
<PAGE> 2
written), shall continue after a Change in Control shall occur and for so long
thereafter as Sensormatic has or may have any obligations under Sections 3, 5 or
7 hereof.
(c) Notwithstanding the provisions of Section 1(a) hereof,
this Agreement shall terminate automatically in the event that, prior to the
occurrence of a Change in Control and so long as no Attempted Change in Control
shall have occurred and then be pending, Director resigns or is removed from his
directorship with Sensormatic or the term of such office expires without his
being reelected thereto. Notwithstanding anything contained in this Agreement to
the contrary, if the Director is removed from his directorship with Sensormatic
or the term of such office expires without his being re-elected thereto prior to
a Change in Control, which Change in Control occurs, and Director reasonably
demonstrates that such removal of or failure to re-elect Director was at the
request of a third party who effectuates such Change in Control or that such
removal of or failure to re-elect Director was directly related to or in
anticipation of such Change in Control, then for all purposes of this Agreement,
Director shall be entitled to the payments and other benefits provided under
this Agreement as if such removal or failure to re-elect had occurred following
such Change in Control.
2. CHANGE IN CONTROL.
(a) For purposes of this Agreement, the term "Change in
Control" shall mean a change in control of Sensormatic of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
provided, that, without limitation, such a change in control shall be deemed to
have occurred if (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act, "Person") is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act, "Beneficial Owner"), directly or
indirectly, of securities of Sensormatic representing 30% or more of the
combined voting power of Sensormatic's then outstanding voting securities; (ii)
Sensormatic consummates a merger, consolidation, share exchange, division or
other reorganization of Sensormatic with any other corporation or entity, unless
the shareholders of Sensormatic immediately prior to such transaction
beneficially own, directly or indirectly, (A) if Sensormatic is the surviving
corporation in such transaction, 60% or more of the combined voting power of
Sensormatic's outstanding voting securities as well as 60% or more of the total
market value of Sensormatic's outstanding equity securities, (B) if Sensormatic
is not the surviving corporation, 80% or more of the combined voting power of
the surviving
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<PAGE> 3
entity's outstanding voting securities as well as 80% or more of the total
market value of such entity's outstanding equity securities, or (C) in the case
of a division, 80% or more of the combined voting power of the outstanding
voting securities of each entity resulting from the division as well as 80% or
more of the total market value of each such entity's outstanding equity
securities, in each case in substantially the same proportion as such
shareholders owned shares of Sensormatic prior to such transaction; (iii)
Sensormatic adopts a plan of complete liquidation or winding-up of Sensormatic;
(iv) the shareholders of Sensormatic approve an agreement for the sale or
disposition (in one transaction or a series of transactions) of all or
substantially all of Sensormatic's assets; or (v) during any period of 24
consecutive months, individuals (y) who at the beginning of such period
constitute the Board of Directors of Sensormatic or (z) whose election,
appointment or nomination for election was approved prior to such election or
appointment by a vote of at least two-thirds of the directors in office
immediately prior to such election or appointment who were directors at the
beginning of such two-year period (other than any directors who prior to the
Change in Control were associated or affiliated with any Person involved with
any Change in Control or Attempted Change in Control), cease for any reason to
constitute at least three-fourths of the Board of Directors of Sensormatic.
(b) For purposes of this Agreement, an "Attempted Change in
Control" shall be deemed to have occurred (i) if any Person files (or fails to
file when required to do so) with the Securities and Exchange Commission (the
"SEC") a Statement on Schedule 13D relating to voting securities of Sensormatic
(A) disclosing the acquisition of 10% or more thereof or (B) while disclosing
the acquisition of less than 10% of such voting securities, indicates an
intention to effect any of the transactions listed in Item 4 of Schedule 13D or
otherwise to effect a Change in Control, (ii) upon the public announcement
(including, without limitation, the filing with the SEC of a Statement on
Schedule 14D-1) by any Person of an intention to make a tender offer or
otherwise to effect a Change in Control, (iii) in the event of any solicitation
of proxies for the election of directors of Sensormatic pursuant to Rule 14a-11
of the Rules and Regulations under the Exchange Act or the filing of a Statement
on Schedule 14B in anticipation thereof, (iv) the receipt by Sensormatic from
any Person of any other communication proposing, or indicating an intention, to
effect a Change in Control by the acquisition of voting securities of
Sensormatic, the solicitation of proxies for the election of directors or
otherwise or (v) if the Board of Directors of Sensormatic or an authorized
committee thereof otherwise determines that an Attempted Change in Control is
pending. The termination of the pendency of an Attempted Change in Control shall
be determined by the Board of Directors of Sensormatic (or an authorized
committee thereof); PROVIDED, that any Attempted Change in Control shall in any
event be deemed to have terminated upon the occurrence of a Change in Control.
(c) For the purposes of this Section 2, references to
provisions of the Exchange Act and rules, regulations and schedules thereunder
shall be to such provisions as they are in effect and interpreted as of the date
hereof.
3. BENEFITS RESULTING FROM A CHANGE IN CONTROL. In the event a
Change in Control occurs, Director shall be entitled to the following benefits:
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<PAGE> 4
(a) All stock options issued by Sensormatic to Director,
whether or not then exercisable, shall remain fully exercisable or
shall become fully exercisable immediately (or, notwithstanding the
foregoing, in the event of an Attempted Change in Control involving a
proposed Reorganization Event (as such term is defined in Section 3(b)
hereof), such options shall become fully exercisable thirty days before
the date of such Reorganization Event), and such options shall remain
outstanding and fully exercisable for the stated term thereof or until
the later of (i) nine months following the resignation or removal of
Director from his directorship with Sensormatic or the expiration of
the term of such office without his being re-elected thereto or (ii)
the end of the respective post- termination exercisability periods
provided for in such options (including if applicable, such periods in
the event of death or disability); PROVIDED, that in no event shall the
term of such options be extended beyond their respective original
terms. In addition, any deferred vesting or forfeiture provisions
applicable to any shares of Sensormatic stock awarded to or otherwise
held by Director shall be without further force or effect, and Director
shall have the unrestricted right to such shares.
(b) In the event that (i) such Change in Control is effected
through (A) a tender or exchange offer (a "Tender Offer") or (B) any
means, in one or more transactions, with the result in either case that
any Person becomes the Beneficial Owner, directly or indirectly, of
securities of Sensormatic representing 50% or more of the combined
voting power of Sensormatic's then outstanding voting securities (any
such Change in Control referred to in this clause (i), including
pursuant to a Tender Offer, being hereinafter referred to as a
"Majority Acquisition"), (ii) in connection with, as a result of or
within 24 months immediately following a Change in Control,
Sensormatic's Board of Directors shall have approved a merger,
consolidation, reclassification, reorganization, dissolution, sale of
all or substantially all of the assets of Sensormatic or similar event
(a "Reorganization Event") as a result of which Sensormatic's Common
Stock would cease to be outstanding or (iii) in connection with, as a
result of or within 24 months immediately following a Change in
Control, Sensormatic's Common Stock ceases to be listed for trading on
a national securities exchange or quoted through NASDAQ or a comparable
securities quotation system, Director shall have the right, exercisable
by written notice given at any time during the 13-month period
immediately following the date of such Change in Control (and, if
later, the date of any such Majority Acquisition, Reorganization Event
or cessation of listing or quotation), to require Sensormatic to
purchase:
(1) any or all stock options issued by Sensormatic to
Director, whether or not then exercisable, and/or any stock
options issued upon conversion of or in exchange for any such
Sensormatic stock options pursuant to any such Reorganization
Event ("Conversion Options"), at a purchase price equal to the
excess of the aggregate Fair Market Value (as defined below)
of the shares of Sensormatic Common Stock subject to such
Sensormatic stock options over the aggregate exercise price of
such stock options (or, in the case of any Conversion
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Options, such amount calculated with respect to the
Sensormatic stock options which were converted into or
exchanged for such Conversion Options); and/or
(2) any or all shares of Sensormatic Common Stock
held by Director at or immediately prior to the date of such
Change in Control (including any shares of Sensormatic Common
Stock (restricted or otherwise, and whether or not vested)
awarded to Director pursuant to any compensation plan or
arrangement of Sensormatic) or issued pursuant to the exercise
of any such Sensormatic stock options following the date of
such Change in Control, and/or (without duplication) any
shares or other securities issued upon conversion of or in
exchange for any such shares of Common Stock pursuant to any
such Reorganization Event ("Conversion Shares"), at a purchase
price equal to the aggregate Fair Market Value of such shares
(or, in the case of any Conversion Shares issued upon
conversion of or in exchange for Common Stock, the Fair Market
Value of the shares of Common Stock which were converted into
or exchanged for such Conversion Shares); provided, that
Sensormatic may offset against the amount so payable for
Common Stock or Conversion Shares all amounts outstanding on
any loans made to Director for the purchase of, or payment of
taxes relating to, such shares of Common Stock or Conversion
Shares, as contemplated by Section 3(c) hereof or otherwise.
Payment for any such options or shares shall be made by Sensormatic
within 10 days after Director's surrender of any such options, and/or
within 10 days after Director's surrender of the certificates
representing any such shares of Common Stock or Conversion Shares (or,
if such certificates are in Sensormatic's possession, within 10 days
after Director's notice of exercise under this Section 3(b)).
For purposes of this Section 3(b), the "Fair Market Value" of
a share of Sensormatic Common Stock means the highest fair market value
per share of Sensormatic Common Stock of the consideration paid in any
transaction by any Person who effects such Change in Control, in
connection therewith, whether through open market purchases, Tender
Offers, Reorganization Events, private transactions or otherwise.
(c) Upon Director's request, Sensormatic shall lend to
Director, interest free, up to an amount equal to the aggregate
exercise price of the options referred to in Section 3(a) hereof,
should Director elect to exercise such options. If requested by
Director, Sensormatic shall also lend to Director, interest free (or,
at Director's option, provide a guaranty to enable Director to borrow),
up to an amount equal to the percentage specified below times the Share
Income (as such term is defined below) resulting from such exercise
and/or vesting. Such loan or loans shall be due and payable to
Sensormatic upon the earliest of (i) the fifth anniversary date of such
loan or loans, (ii) in the event of the resignation or removal, other
than for Cause (as defined in Section 4 hereof, "Cause"), of
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Director from his directorship with Sensormatic or the expiration of
the term of such office without his being re-elected thereto, upon the
expiration of 30 months following such resignation, removal or
expiration, or in the event of the removal of Director from his
directorship with Sensormatic for Cause, upon the expiration of 30 days
after such removal, and (iii) promptly (but in any event within five
(5) business days) after receipt of the proceeds of sale from the sale
of such shares, to the extent of the loan or loans applicable to such
sold shares. Director shall deposit such shares with Sensormatic as
security for any such loan, if Sensormatic shall so request.
Notwithstanding anything to the contrary contained in this Section
3(c), Sensormatic's Stock Purchase Loan Plan or any promissory note or
security agreement executed by Director pursuant to such Plan, no
additional collateral shall be required by Sensormatic in connection
with any such loan to Director, and, if necessary to be in compliance
with applicable margin regulations under federal laws, such loans shall
be unsecured; and if, because of Internal Revenue Service rules or
other rules, Sensormatic is unable to lend such funds to Director
interest free and without any imputation of interest, Sensormatic shall
pay Director a dollar amount of additional compensation which shall
equal the amount of interest required to be charged in order to avoid
such imputation in such instances and Director shall then pay
Sensormatic the rate of interest on such loan required by law to avoid
imputation. The percentage referred to in this Section 3(c) shall be
equal to the sum of (1) the highest marginal net rate of income tax
(federal, state and local) applicable to an individual residing where
the Director resided at the time the Director reported income ("Share
Income") with respect to the Option Acquired Shares or Award Shares, as
the case may be, plus (2) the Medicare employee tax rate, plus (3) a
percentage equal to (x) that part, if any, of the Share Income that was
actually subject to employee Social Security tax, multiplied by (y) the
social security employee tax rate, divided by (z) the total Share
Income (in each case as applicable at the time such share was purchased
by Director, in the case of any Option Acquired Shares, or at the time
Director's right to such share vested, in the case of any Award
Shares).
For purposes of this Section 3(c), the term "Option Acquired
Shares" shall mean shares of Sensormatic Common Stock acquired by
Director upon exercise of options granted to Director and the term
"Award Shares" shall mean shares of Sensormatic Common Stock awarded to
Director pursuant to Sensormatic's Stock Incentive Plan or any other
compensation plan or arrangement of Sensormatic, other than pursuant to
the exercise of options.
(d) In the event of the removal, other than for Cause, or
resignation of Director from his directorship with Sensormatic or the
expiration of the term of such office without his being re-elected
thereto, or the death of Director, at any time following a Change in
Control (unless a trust or other arrangement previously determined in
writing to be satisfactory by a majority of the Previous Members of the
Board of Directors then in office assuring payment of benefits, in the
event of a Change in Control, to or for the benefit of Director under
Sensormatic's Board of Directors Retirement Plan (which shall
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include for all purposes of this Agreement Director's Board of
Directors Retirement Agreement thereunder) has been previously
established and is then in effect), Sensormatic shall take such steps
as are necessary, within 30 days after such termination of service as a
director, to fully fund all of Director's benefits under such Plan
(after giving effect to the change in control provisions of such plan)
through paid-up insurance, annuity contracts and/or other similar
means, so that the ultimate payment of benefits (at a rate not less
than the greater of the rates in effect under such Plan at the date of
such termination or immediately after such Change in Control) shall be
assured beyond any reasonable doubt; PROVIDED, HOWEVER, that either
such manner of funding shall be structured so as not to constitute
"constructive receipt" by Director of the benefits in question for
income tax purposes, or the benefits in question shall be paid out in a
lump sum, discounted to present value using an interest rate equal to
the rate published by Pension Benefit Guaranty Corporation for the
purpose of discounting pension benefits to present value in the event
of a lump sum prepayment thereof, as then in effect, but such discount
rate shall in no event be greater than ten percent (10%) PER ANNUM. In
addition, in the event of the removal, other than for Cause, of
Director from his directorship with Sensormatic or the expiration of
the term of such office without his being re-elected thereto at any
time following a Change in Control, other than pursuant to the
generally applicable term limits and/or retirement policies of the
Corporation (without giving effect to any changes therein that reduce
the retirement age or the permitted term of office which were
implemented following such Change of Control or the commencement of an
Attempted Change of Control which culminated in such Change of
Control), any non-competition provisions included in such Plan shall
have no further force or effect.
4. REMOVAL FOR CAUSE. In the event that Director is removed
for Cause at any time after a Change in Control, Director shall not be entitled
to any of the benefits set forth in Section 3 of this Agreement not yet received
by him, except to the extent that Director exercised rights prior to such
removal with respect to options as provided under Sections 3(a) and 3(b) hereof.
The foregoing shall not affect any rights of Director accrued other than by
virtue of this Agreement. For purposes of this Agreement, Director shall be
deemed to have been removed for cause only if such removal is effected for any
of the following reasons:
(a) gross neglect or willful misconduct by Director in the
performance of Director's duties resulting in material economic harm to
Sensormatic; or
(b) the conviction of Director for a felony involving moral
turpitude under federal or state law;
PROVIDED, HOWEVER, that the determination of the existence of the grounds
referred to in subparagraph (a) of this Section 4 shall be made, in good faith,
solely by a majority of the members of Sensormatic's (or its corporate
successor's) Board of Directors who were members of Sensormatic's Board of
Directors for a period of at least two years immediately prior to the Change in
Control (other than directors who prior to such Change in Control were appointed
or
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<PAGE> 8
elected as directors as a consequence of their association or affiliation with
any Person effecting such Change in Control) ("Previous Members of the Board of
Directors") who are then in office with Sensormatic or its corporate successor
(provided that such majority shall consist of not less than two persons); and
PROVIDED, FURTHER, that Director shall be given prior written notice by the
Board of Directors of the intention to terminate him for Cause and the specific
grounds for such termination, as determined in accordance with this Section 4,
and shall be entitled to a hearing before such Previous Members of the Board of
Directors before such termination becomes effective.
5. COSTS OF COLLECTION. Sensormatic agrees upon demand to pay
all costs and expenses of Director (including, without limitation, reasonable
counsel fees and expenses) in connection with the enforcement, whether through
negotiations, arbitration or legal proceedings or otherwise, of this Agreement
and the collection of any benefits due to Director hereunder.
6. CONFLICTS WITH OTHER AGREEMENTS. Nothing contained in or
arising out of this Agreement shall be deemed to discharge, release or modify
the obligations of Sensormatic to Director under the provisions of any other
agreement between them or of any plan or program of Sensormatic, regardless of
whether the subject matter of any provision thereof is the same or similar to
that of any provision of this Agreement, the rights and remedies of Director
under this Agreement and any other such agreement, plan or program being
cumulative and not in substitution of each other; PROVIDED, HOWEVER, that this
Agreement amends, restates and supersedes the Prior Agreement, including any
amendments thereto, in its entirety and nothing in this Agreement shall entitle
Director to receive duplicative payments of salary, director fees or other
benefits. Further, nothing in this Agreement shall diminish or otherwise
adversely affect Director's rights or benefits accruing as a consequence of his
death or permanent and total disability, at any time after a Change in Control,
under the terms and conditions of the plans or programs of Sensormatic in which
Director is a participant immediately prior to any Change in Control and any
additional plan or program of Sensormatic in which Director is a participant at
the time of Director's death or disability.
7. MAINTENANCE OF PLANS. Sensormatic agrees that, for not less
than 36 months after a Change in Control, it shall maintain in effect the plans
and programs in which Director is a participant immediately prior to such Change
in Control (or comparable plans and programs) to the extent necessary to assure
that the rights and benefits of Director thereunder shall be no less favorable
after such Change in Control than immediately prior thereto, provided, that
Sensormatic shall in no event make any change in the event of or at any time
after a Change in Control in the Board of Directors Retirement Plan resulting in
a reduction of Director's benefits thereunder.
8. ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement shall be settled by arbitration before the American
Arbitration Association in Miami, Florida, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Judgment upon the
award rendered by the arbitrators may be entered in any court
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having jurisdiction thereof. Any costs, including, without limitation,
attorneys' fees and disbursements, incurred by Director in such arbitration or
in connection with any appeal therefrom or any action brought to enforce or
collect any such award or judgment thereon, shall be reimbursed by Sensormatic,
provided, that Sensormatic shall not be required to reimburse Director hereunder
in the event that the arbitral panel or appeals court finds that Director's
claims and/or defenses are substantially without reasonable basis.
9. SURVIVAL. This Agreement (including, without limitation,
the benefits provided under Section 3 hereof) shall be binding on, enforceable
against and inure to the benefit of, Director and his heirs, executors,
administrators, personal representatives, successors and assigns and Sensormatic
and its successors and assigns, including, without limitation, any corporation
with or into which Sensormatic is merged or consolidated, or any entity which
acquires all or substantially all of the business and assets of Sensormatic, in
connection with any Change in Control. In connection with any sale, merger or
consolidation described in the preceding sentence, Sensormatic shall take all
actions permissible under applicable law in order to cause such other
corporation to expressly assume Sensormatic's liabilities, obligations and
duties hereunder.
10. NOTICES. Any notice given to a party pursuant to or in
connection with this Agreement shall be in writing and shall be deemed to have
been given when delivered personally or sent by Federal Express or a similar
overnight courier service or by certified or registered mail, postage prepaid,
return receipt requested, duly addressed to the party concerned at the address
indicated at the beginning of this Agreement or to such changed address as such
party may subsequently give such notice of.
11. SEVERABILITY. If any provision of this Agreement is found
to be invalid or unenforceable by a court of competent jurisdiction or an
arbitral panel under Section 8 hereof, this Agreement shall be interpreted and
enforceable as if such provision were severed or limited, but only to the extent
necessary to render such provision and this Agreement enforceable.
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12. GOVERNING LAW. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of Florida
applicable to agreements made and fully to be performed in such state, without
giving effect to conflicts of law principles.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first set forth above.
SENSORMATIC ELECTRONICS
CORPORATION
By:
-------------------------------
Title:
----------------------------
----------------------------------
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<PAGE> 1
EXHIBIT 10(r)
[Director Form -- No Prior Agreement]
AGREEMENT
AGREEMENT, dated as of September 1, 1998, by and between
SENSORMATIC ELECTRONICS CORPORATION, a Delaware corporation ("Sensormatic"), and
________________ ("Director").
W I T N E S S E T H:
WHEREAS, Director is a member of the Board of Directors of
Sensormatic, and has made, and is expected to continue to make, a significant
contribution to the direction of Sensormatic's business and affairs and the
formulation of its policies;
WHEREAS, the Board of Directors of Sensormatic recognizes
that, as is the case with many publicly-held corporations, the possibility of a
Change in Control (as defined below) exists and that such possibility, and the
uncertainties which it may raise, may result in the distraction of directors to
the detriment of Sensormatic and its stockholders, particularly at a time when
Sensormatic is making significant efforts to expand its product lines and
markets, restructure its operations and reduce its expenses;
WHEREAS, the Board of Directors of Sensormatic believes that
the protection of certain rights of Director, in the event of a Change in
Control, will help assure Director's continuing dedication to his duties to
Sensormatic, notwithstanding the possibility of a Change in Control, and,
moreover, will enable Director to objectively and impartially assess, and advise
the Board of Directors with respect to, any proposal received by Sensormatic
regarding a Change in Control and to take such action regarding any such
proposal as the Board of Directors may deem to be appropriate;
NOW, THEREFORE, in consideration of the premises, and for
other good and valuable consideration, the parties hereby agree as follows:
1. TERM.
(a) The term of this Agreement shall commence on the date
hereof (which for all purposes of this Agreement shall mean the date first above
written) and shall continue after a Change in Control shall occur and for so
long thereafter as Sensormatic has or may have any obligations under Sections 3,
5 or 7 hereof.
<PAGE> 2
(b) Notwithstanding the provisions of Section 1(a) hereof,
this Agreement shall terminate automatically in the event that, prior to the
occurrence of a Change in Control and so long as no Attempted Change in Control
shall have occurred and then be pending, Director resigns or is removed from his
directorship with Sensormatic or the term of such office expires without his
being reelected thereto. Notwithstanding anything contained in this Agreement to
the contrary, if the Director is removed from his directorship with Sensormatic
or the term of such office expires without his being re-elected thereto prior to
a Change in Control, which Change in Control occurs, and Director reasonably
demonstrates that such removal of or failure to re-elect Director was at the
request of a third party who effectuates such Change in Control or that such
removal of or failure to re-elect Director was directly related to or in
anticipation of such Change in Control, then for all purposes of this Agreement,
Director shall be entitled to the payments and other benefits provided under
this Agreement as if such removal or failure to re-elect had occurred following
such Change in Control.
2. CHANGE IN CONTROL.
(a) For purposes of this Agreement, the term "Change in
Control" shall mean a change in control of Sensormatic of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
provided, that, without limitation, such a change in control shall be deemed to
have occurred if (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act, "Person") is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act, "Beneficial Owner"), directly or
indirectly, of securities of Sensormatic representing 30% or more of the
combined voting power of Sensormatic's then outstanding voting securities; (ii)
Sensormatic consummates a merger, consolidation, share exchange, division or
other reorganization of Sensormatic with any other corporation or entity, unless
the shareholders of Sensormatic immediately prior to such transaction
beneficially own, directly or indirectly, (A) if Sensormatic is the surviving
corporation in such transaction, 60% or more of the combined voting power of
Sensormatic's outstanding voting securities as well as 60% or more of the total
market value of Sensormatic's outstanding equity securities, (B) if Sensormatic
is not the surviving corporation, 80% or more of the combined voting power of
the surviving entity's outstanding voting securities as well as 80% or more of
the total market value of such entity's outstanding equity securities, or (C) in
the case of a division, 80% or more of the combined voting power of the
outstanding voting securities of each entity resulting from the division as well
as 80% or more of the total market value of each such entity's outstanding
equity securities, in each case in substantially the same proportion as such
shareholders owned shares of Sensormatic prior to such transaction; (iii)
Sensormatic adopts a plan of complete liquidation or winding-up of Sensormatic;
(iv) the shareholders of Sensormatic approve an agreement for the sale or
disposition (in one transaction or a series of transactions) of all or
substantially all of Sensormatic's assets; or (v) during any period of 24
consecutive months, individuals (y) who at
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the beginning of such period constitute the Board of Directors of Sensormatic or
(z) whose election, appointment or nomination for election was approved prior to
such election or appointment by a vote of at least two-thirds of the directors
in office immediately prior to such election or appointment who were directors
at the beginning of such two-year period (other than any directors who prior to
the Change in Control were associated or affiliated with any Person involved
with any Change in Control or Attempted Change in Control), cease for any reason
to constitute at least three-fourths of the Board of Directors of Sensormatic.
(b) For purposes of this Agreement, an "Attempted Change in
Control" shall be deemed to have occurred (i) if any Person files (or fails to
file when required to do so) with the Securities and Exchange Commission (the
"SEC") a Statement on Schedule 13D relating to voting securities of Sensormatic
(A) disclosing the acquisition of 10% or more thereof or (B) while disclosing
the acquisition of less than 10% of such voting securities, indicates an
intention to effect any of the transactions listed in Item 4 of Schedule 13D or
otherwise to effect a Change in Control, (ii) upon the public announcement
(including, without limitation, the filing with the SEC of a Statement on
Schedule 14D-1) by any Person of an intention to make a tender offer or
otherwise to effect a Change in Control, (iii) in the event of any solicitation
of proxies for the election of directors of Sensormatic pursuant to Rule 14a-11
of the Rules and Regulations under the Exchange Act or the filing of a Statement
on Schedule 14B in anticipation thereof, (iv) the receipt by Sensormatic from
any Person of any other communication proposing, or indicating an intention, to
effect a Change in Control by the acquisition of voting securities of
Sensormatic, the solicitation of proxies for the election of directors or
otherwise or (v) if the Board of Directors of Sensormatic or an authorized
committee thereof otherwise determines that an Attempted Change in Control is
pending. The termination of the pendency of an Attempted Change in Control shall
be determined by the Board of Directors of Sensormatic (or an authorized
committee thereof); PROVIDED, that any Attempted Change in Control shall in any
event be deemed to have terminated upon the occurrence of a Change in Control.
(c) For the purposes of this Section 2, references to
provisions of the Exchange Act and rules, regulations and schedules thereunder
shall be to such provisions as they are in effect and interpreted as of the date
hereof.
3. BENEFITS RESULTING FROM A CHANGE IN CONTROL. In the event a
Change in Control occurs, Director shall be entitled to the following benefits:
(a) All stock options issued by Sensormatic to Director,
whether or not then exercisable, shall remain fully exercisable or
shall become fully exercisable immediately (or, notwithstanding the
foregoing, in the event of an Attempted Change in Control involving a
proposed Reorganization Event (as such term is defined in Section 3(b)
hereof), such options shall become fully exercisable thirty days before
the date of such Reorganization Event), and such options shall remain
outstanding and fully exercisable for the stated term thereof or until
the later of (i) nine months following the resignation or removal of
Director from his directorship with Sensormatic or the expiration of
the term
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of such office without his being re-elected thereto or (ii) the end of
the respective post-termination exercisability periods provided for in
such options (including if applicable, such periods in the event of
death or disability); PROVIDED, that in no event shall the term of such
options be extended beyond their respective original terms. In
addition, any deferred vesting or forfeiture provisions applicable to
any shares of Sensormatic stock awarded to or otherwise held by
Director shall be without further force or effect, and Director shall
have the unrestricted right to such shares.
(b) In the event that (i) such Change in Control is effected
through (A) a tender or exchange offer (a "Tender Offer") or (B) any
means, in one or more transactions, with the result in either case that
any Person becomes the Beneficial Owner, directly or indirectly, of
securities of Sensormatic representing 50% or more of the combined
voting power of Sensormatic's then outstanding voting securities (any
such Change in Control referred to in this clause (i), including
pursuant to a Tender Offer, being hereinafter referred to as a
"Majority Acquisition"), (ii) in connection with, as a result of or
within 24 months immediately following a Change in Control,
Sensormatic's Board of Directors shall have approved a merger,
consolidation, reclassification, reorganization, dissolution, sale of
all or substantially all of the assets of Sensormatic or similar event
(a "Reorganization Event") as a result of which Sensormatic's Common
Stock would cease to be outstanding or (iii) in connection with, as a
result of or within 24 months immediately following a Change in
Control, Sensormatic's Common Stock ceases to be listed for trading on
a national securities exchange or quoted through NASDAQ or a comparable
securities quotation system, Director shall have the right, exercisable
by written notice given at any time during the 13-month period
immediately following the date of such Change in Control (and, if
later, the date of any such Majority Acquisition, Reorganization Event
or cessation of listing or quotation), to require Sensormatic to
purchase:
(1) any or all stock options issued by Sensormatic to
Director, whether or not then exercisable, and/or any stock
options issued upon conversion of or in exchange for any such
Sensormatic stock options pursuant to any such Reorganization
Event ("Conversion Options"), at a purchase price equal to the
excess of the aggregate Fair Market Value (as defined below)
of the shares of Sensormatic Common Stock subject to such
Sensormatic stock options over the aggregate exercise price of
such stock options (or, in the case of any Conversion Options,
such amount calculated with respect to the Sensormatic stock
options which were converted into or exchanged for such
Conversion Options); and/or
(2) any or all shares of Sensormatic Common Stock
held by Director at or immediately prior to the date of such
Change in Control (including any shares of Sensormatic Common
Stock (restricted or otherwise, and whether or not vested)
awarded to Director pursuant to any compensation plan or
arrangement of Sensormatic) or issued pursuant to the exercise
of any such Sensormatic stock
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<PAGE> 5
options following the date of such Change in Control, and/or
(without duplication) any shares or other securities issued
upon conversion of or in exchange for any such shares of
Common Stock pursuant to any such Reorganization Event
("Conversion Shares"), at a purchase price equal to the
aggregate Fair Market Value of such shares (or, in the case of
any Conversion Shares issued upon conversion of or in exchange
for Common Stock, the Fair Market Value of the shares of
Common Stock which were converted into or exchanged for such
Conversion Shares); provided, that Sensormatic may offset
against the amount so payable for Common Stock or Conversion
Shares all amounts outstanding on any loans made to Director
for the purchase of, or payment of taxes relating to, such
shares of Common Stock or Conversion Shares, as contemplated
by Section 3(c) hereof or otherwise.
Payment for any such options or shares shall be made by Sensormatic
within 10 days after Director's surrender of any such options, and/or
within 10 days after Director's surrender of the certificates
representing any such shares of Common Stock or Conversion Shares (or,
if such certificates are in Sensormatic's possession, within 10 days
after Director's notice of exercise under this Section 3(b)).
For purposes of this Section 3(b), the "Fair Market Value" of
a share of Sensormatic Common Stock means the highest fair market value
per share of Sensormatic Common Stock of the consideration paid in any
transaction by any Person who effects such Change in Control, in
connection therewith, whether through open market purchases, Tender
Offers, Reorganization Events, private transactions or otherwise.
(c) Upon Director's request, Sensormatic shall lend to
Director, interest free, up to an amount equal to the aggregate
exercise price of the options referred to in Section 3(a) hereof,
should Director elect to exercise such options. If requested by
Director, Sensormatic shall also lend to Director, interest free (or,
at Director's option, provide a guaranty to enable Director to borrow),
up to an amount equal to the percentage specified below times the Share
Income (as such term is defined below) resulting from such exercise
and/or vesting. Such loan or loans shall be due and payable to
Sensormatic upon the earliest of (i) the fifth anniversary date of such
loan or loans, (ii) in the event of the resignation or removal, other
than for Cause (as defined in Section 4 hereof, "Cause"), of Director
from his directorship with Sensormatic or the expiration of the term of
such office without his being re-elected thereto, upon the expiration
of 30 months following such resignation, removal or expiration, or in
the event of the removal of Director from his directorship with
Sensormatic for Cause, upon the expiration of 30 days after such
removal, and (iii) promptly (but in any event within five (5) business
days) after receipt of the proceeds of sale from the sale of such
shares, to the extent of the loan or loans applicable to such sold
shares. Director shall deposit such shares with Sensormatic as security
for any such loan, if Sensormatic shall so request. Notwithstanding
anything to
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the contrary contained in this Section 3(c), Sensormatic's Stock
Purchase Loan Plan or any promissory note or security agreement
executed by Director pursuant to such Plan, no additional collateral
shall be required by Sensormatic in connection with any such loan to
Director, and, if necessary to be in compliance with applicable margin
regulations under federal laws, such loans shall be unsecured; and if,
because of Internal Revenue Service rules or other rules, Sensormatic
is unable to lend such funds to Director interest free and without any
imputation of interest, Sensormatic shall pay Director a dollar amount
of additional compensation which shall equal the amount of interest
required to be charged in order to avoid such imputation in such
instances and Director shall then pay Sensormatic the rate of interest
on such loan required by law to avoid imputation. The percentage
referred to in this Section 3(c) shall be equal to the sum of (1) the
highest marginal net rate of income tax (federal, state and local)
applicable to an individual residing where the Director resided at the
time the Director reported income ("Share Income") with respect to the
Option Acquired Shares or Award Shares, as the case may be, plus (2)
the Medicare employee tax rate, plus (3) a percentage equal to (x) that
part, if any, of the Share Income that was actually subject to employee
Social Security tax, multiplied by (y) the social security employee tax
rate, divided by (z) the total Share Income (in each case as applicable
at the time such share was purchased by Director, in the case of any
Option Acquired Shares, or at the time Director's right to such share
vested, in the case of any Award Shares).
For purposes of this Section 3(c), the term "Option Acquired
Shares" shall mean shares of Sensormatic Common Stock acquired by
Director upon exercise of options granted to Director and the term
"Award Shares" shall mean shares of Sensormatic Common Stock awarded to
Director pursuant to Sensormatic's Stock Incentive Plan or any other
compensation plan or arrangement of Sensormatic, other than pursuant to
the exercise of options.
4. REMOVAL FOR CAUSE. In the event that Director is removed
for Cause at any time after a Change in Control, Director shall not be entitled
to any of the benefits set forth in Section 3 of this Agreement not yet received
by him, except to the extent that Director exercised rights prior to such
removal with respect to options as provided under Sections 3(a) and 3(b) hereof.
The foregoing shall not affect any rights of Director accrued other than by
virtue of this Agreement. For purposes of this Agreement, Director shall be
deemed to have been removed for cause only if such removal is effected for any
of the following reasons:
(a) gross neglect or willful misconduct by Director in the
performance of Director's duties resulting in material economic harm to
Sensormatic; or
(b) the conviction of Director for a felony involving moral
turpitude under federal or state law;
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<PAGE> 7
PROVIDED, HOWEVER, that the determination of the existence of the grounds
referred to in subparagraph (a) of this Section 4 shall be made, in good faith,
solely by a majority of the members of Sensormatic's (or its corporate
successor's) Board of Directors who were members of Sensormatic's Board of
Directors for a period of at least two years immediately prior to the Change in
Control (other than directors who prior to such Change in Control were appointed
or elected as directors as a consequence of their association or affiliation
with any Person effecting such Change in Control) ("Previous Members of the
Board of Directors") who are then in office with Sensormatic or its corporate
successor (provided that such majority shall consist of not less than two
persons); and PROVIDED, FURTHER, that Director shall be given prior written
notice by the Board of Directors of the intention to terminate him for Cause and
the specific grounds for such termination, as determined in accordance with this
Section 4, and shall be entitled to a hearing before such Previous Members of
the Board of Directors before such termination becomes effective.
5. COSTS OF COLLECTION. Sensormatic agrees upon demand to pay
all costs and expenses of Director (including, without limitation, reasonable
counsel fees and expenses) in connection with the enforcement, whether through
negotiations, arbitration or legal proceedings or otherwise, of this Agreement
and the collection of any benefits due to Director hereunder.
6. CONFLICTS WITH OTHER AGREEMENTS. Nothing contained in or
arising out of this Agreement shall be deemed to discharge, release or modify
the obligations of Sensormatic to Director under the provisions of any other
agreement between them or of any plan or program of Sensormatic, regardless of
whether the subject matter of any provision thereof is the same or similar to
that of any provision of this Agreement, the rights and remedies of Director
under this Agreement and any other such agreement, plan or program being
cumulative and not in substitution of each other; PROVIDED, HOWEVER, that
nothing in this Agreement shall entitle Director to receive duplicative payments
of salary, director fees or other benefits. Further, nothing in this Agreement
shall diminish or otherwise adversely affect Director's rights or benefits
accruing as a consequence of his death or permanent and total disability, at any
time after a Change in Control, under the terms and conditions of the plans or
programs of Sensormatic in which Director is a participant immediately prior to
any Change in Control and any additional plan or program of Sensormatic in which
Director is a participant at the time of Director's death or disability.
7. MAINTENANCE OF PLANS. Sensormatic agrees that, for not less
than 36 months after a Change in Control, it shall maintain in effect the plans
and programs in which Director is a participant immediately prior to such Change
in Control (or comparable plans and programs) to the extent necessary to assure
that the rights and benefits of Director thereunder shall be no less favorable
after such Change in Control than immediately prior thereto.
8. ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement shall be settled by arbitration before the American
Arbitration Association in Miami, Florida, in accordance with the Commercial
Arbitration Rules of the American Arbitration
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<PAGE> 8
Association. Judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof. Any costs, including, without
limitation, attorneys' fees and disbursements, incurred by Director in such
arbitration or in connection with any appeal therefrom or any action brought to
enforce or collect any such award or judgment thereon, shall be reimbursed by
Sensormatic, provided, that Sensormatic shall not be required to reimburse
Director hereunder in the event that the arbitral panel or appeals court finds
that Director's claims and/or defenses are substantially without reasonable
basis.
9. SURVIVAL. This Agreement (including, without limitation,
the benefits provided under Section 3 hereof) shall be binding on, enforceable
against and inure to the benefit of, Director and his heirs, executors,
administrators, personal representatives, successors and assigns and Sensormatic
and its successors and assigns, including, without limitation, any corporation
with or into which Sensormatic is merged or consolidated, or any entity which
acquires all or substantially all of the business and assets of Sensormatic, in
connection with any Change in Control. In connection with any sale, merger or
consolidation described in the preceding sentence, Sensormatic shall take all
actions permissible under applicable law in order to cause such other
corporation to expressly assume Sensormatic's liabilities, obligations and
duties hereunder.
10. NOTICES. Any notice given to a party pursuant to or in
connection with this Agreement shall be in writing and shall be deemed to have
been given when delivered personally or sent by Federal Express or a similar
overnight courier service or by certified or registered mail, postage prepaid,
return receipt requested, duly addressed to the party concerned at the address
indicated at the beginning of this Agreement or to such changed address as such
party may subsequently give such notice of.
11. SEVERABILITY. If any provision of this Agreement is found
to be invalid or unenforceable by a court of competent jurisdiction or an
arbitral panel under Section 8 hereof, this Agreement shall be interpreted and
enforceable as if such provision were severed or limited, but only to the extent
necessary to render such provision and this Agreement enforceable.
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<PAGE> 9
12. GOVERNING LAW. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of Florida
applicable to agreements made and fully to be performed in such state, without
giving effect to conflicts of law principles.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first set forth above.
SENSORMATIC ELECTRONICS
CORPORATION
By:
----------------------------------
Title:
-------------------------------
-------------------------------
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<PAGE> 1
EXHIBIT 10(s)
AGREEMENT
AGREEMENT, made as of the 31st day of August, 1997, by and between
SENSORMATIC ELECTRONICS CORPORATION, a Delaware corporation having its principal
place of business at 951 Yamato Road, Boca Raton, Florida 33431-0700
(hereinafter referred to as the "Corporation"), and JERRY T. KENDALL, residing
at 520 Brightwaters Blvd., St. Petersburg, Florida 33704 (hereinafter referred
to as the "Employee");
W I T N E S S E T H:
WHEREAS, the Employee is an executive officer and employee of the
Corporation, and has made, and is expected to continue to make, a significant
contribution to the performance and growth of the Corporation; and
WHEREAS, in order to best dedicate himself to his duties with the
Corporation, and to avoid the distractions and market pressures which may arise
as a result of an employment-at-will relationship, the Employee wishes to be
assured of receiving, or continuing to receive for a certain period, certain
compensation and benefits in the event of the termination of his employment
without cause by the Corporation; and
WHEREAS, the Corporation has determined that the continued services of the
Employee to the Corporation are in the best interest of the Corporation and its
stockholders, and desires to assure such continued services by agreeing to
provide the Employee certain rights as to termination compensation, subject to
certain reasonable limitations on the Employee's future employment necessary to
protect the legitimate interests of the Corporation in fair competition, and
subject to such other conditions as are set forth hereunder;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. EMPLOYMENT AT WILL. The Employee shall continue to serve the Corporation
as Vice President - North America Retail Operations and shall serve in such
other executive capacity as may be reasonably determined by the President and
the Board of Directors and is reasonably acceptable to him. The parties
acknowledge and agree that the Employee's employment with the Corporation is not
contracted for any fixed term, but shall continue until terminated by either
party, with or without cause, by giving written notice to the other party
pursuant to Section 3 hereunder. The provisions of this Agreement which are
intended to apply and be effective subsequent to such termination of employment
shall survive and continue to be enforceable.
2. COMPENSATION.
(a) The Employee's present base salary is $200,000 per year and the
Employee's present targeted bonus is $100,000 per year. In addition, the
Employee presently participates in or benefits from the Corporation's group
medical, dental and life insurance plans, Executive Medical Reimbursement Plan,
SensorSave and ESOP pension plans, Key Executive Supplemental Retirement Plan,
Employee Stock Purchase Plan, Stock Incentive Plan, and certain other fringe
benefit plans or policies as the Corporation makes available to or has in effect
for its executive personnel from time to time. After the date of this Agreement,
such compensation and benefits may be increased or decreased, discontinued or
modified, as determined by the
<PAGE> 2
Corporation's Board of Directors or the Compensation Committee thereof, subject
to the provisions of Section 3(c)(i) below.
(b) Except as hereinafter provided, the Corporation shall pay the
Employee, for any period that this Agreement is in effect during which he is
unable fully to perform his duties because of physical or mental disability or
incapacity, an amount equal to the base salary due him for such period based on
his rate of base salary just prior to the disability, less the aggregate amount
of all income disability benefits which for such period he may receive or to
which he may be entitled under or by reason of (i) any group health insurance
plan; (ii) any applicable compulsory state disability law; (iii) the Federal
Social Security Act; (iv) any applicable workmen's compensation law or similar
law; and (v) any plan towards which the Corporation or any parent, subsidiary or
affiliate of the Corporation has contributed or for which it has made payroll
deductions, such as group accident or health policies or the Key Executive
Supplemental Retirement Plan.
3. COMPENSATION UPON TERMINATION.
(a) The Employee may terminate his employment with the Corporation at
any time by giving written notice to the Corporation. Except as provided in
Section 3(c) below, the Corporation's sole obligation to the Employee in such
event is (i) to pay the Employee's base salary to the date of termination, (ii)
to pay any non-discretionary incentive compensation which had been earned but
not yet paid for any evaluation period completed prior to the date of notice of
termination, and (iii) to complete any obligations required to be discharged
under the terms of group benefit plans. No further compensation (including,
without limitation, payment of severance compensation, discretionary bonus
compensation for any period, or incentive compensation for the current
evaluation period as of the date of notice, whether through discretionary or
targeted plans) shall be paid to the Employee, pro-rata or otherwise, and all
other benefits and perquisites (including, without limitation, stock options,
executive medical reimbursement, corporate country club privileges and auto
allowances) shall be canceled as of the date of termination.
(b) The Corporation may terminate the Employee's employment with the
Corporation at any time by giving written notice to the Employee. In the event
of such termination (except for cause pursuant to Section 4 hereunder, and
subject to the Employee's continued compliance with the provisions of Sections
5, 6 and 7 below), the Employee shall be entitled to:
(i) base salary through the date of termination of his
employment;
(ii) non-discretionary incentive compensation which had been
earned but not yet paid for any evaluation period completed prior to the date of
termination;
(iii) base salary, at the annualized rate in effect on the date
of termination of employment (or in the event a reduction in base salary is the
basis for a termination pursuant to Section 3(c) below, then the base salary in
effect immediately prior to such reduction), for a period of 18 months following
such termination (the "Continuation Period"), payable at the same regular
intervals as in effect prior to the termination, PROVIDED, HOWEVER, that in the
event the Employee procures full time employment at any time during the
Continuation Period, base salary payable hereunder shall continue to be paid
only for a period equal to one-half of the remainder of the Continuation Period;
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<PAGE> 3
(iv) a thirty (30) day period following termination in which the
Employee may exercise any vested stock options (all unvested options, as well as
shares of restricted stock issued under the Corporation's long-term incentive
plan/Success Sharing Program, or any subsequently adopted similar plan, shall
automatically terminate and be canceled upon the Employee's termination of
employment);
(v) participation until the end of the Continuation Period,
through Corporation-paid COBRA premiums, in medical and dental insurance
coverage equivalent to that in which he was participating on the date of the
termination of his employment; (including spouse or family coverage, if
applicable); provided that the Corporation's obligations under this clause shall
be reduced to the extent that the Employee is eligible for similar coverage and
benefits under the plans and programs of a subsequent employer; and
(vi) other or additional benefits in accordance with applicable
group plans and programs of the Corporation.
Except as provided above, no further compensation (including,
without limitation, payment of discretionary bonus compensation for any period
or incentive compensation for the current evaluation period as of the date of
termination, whether through discretionary or targeted plans) shall be paid to
the Employee pro-rata or otherwise, and all other benefits and perquisites
(including, without limitation, stock options, executive medical reimbursement,
corporate country club privileges and auto allowances) shall be canceled as of
the date of termination.
(c) In the event that any of the following events occur, the Employee
may terminate his employment with the Corporation by giving written notice to
the Corporation, and shall thereupon be entitled to the payments, entitlements
and benefits provided in Section 3(b) above as if the Corporation had terminated
the Employee's employment with the Corporation pursuant to Section 3(b) above.
(i) a reduction in the Employee's then current base salary, or a
reduction in the Employee's targeted bonus under a non-discretionary incentive
compensation plan not offset by a corresponding increase in base salary, or the
termination or material reduction of any employee benefit or perquisite enjoyed
by him without his permission or agreement (in each case, other than as part of
an across-the-board reduction of such compensation, benefit or perquisite
applicable to all executive officers of the Corporation);
(ii) a material diminution in the Employee's duties, or the
assignment to the Employee of duties, such that the remaining duties are
materially inconsistent with the duties of a senior officer of the Corporation;
or
(iii) the failure of the Corporation to obtain the assumption in
writing of its obligation to perform this Agreement by any successor to all or
substantially all of the assets of the Corporation within 15 days after a
merger, consolidation, sale or similar transaction.
(d) In the event that the aggregate of all payments or benefits made
or provided to the Employee following a change in control of the Corporation
under this Agreement and under all other plans and programs of the Corporation
(the "Aggregate Payment") is determined to include an excess parachute payment,
as such term is defined in Section 280G(b)(1) of the Internal Revenue Code, the
Corporation shall pay
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<PAGE> 4
to the Employee, prior to the time any excise tax imposed by Section 4999 of the
Internal Revenue Code ("Excise Tax") is payable with respect to such excess
parachute payment, an additional amount which, after the imposition of all
income and excise taxes thereon, is equal to the Excise Tax on the excess
parachute payment. The determination of whether the Aggregate Payment includes
an excess parachute payment and, if so, the amount to be paid to the Employee
and the time of payment pursuant to this Section 3(d) shall be made by an
independent auditor (the "Auditor") jointly selected by the Corporation and the
Employee and paid by the Corporation. The Auditor shall be a nationally
recognized United States public accounting firm which has not, during the two
years preceding the date of its selection, acted in any way on behalf of the
Corporation or any affiliate thereof. If the Employee and the Corporation cannot
agree on the firm to serve as the Auditor, then the Employee and the Corporation
shall each select one accounting firm and those two firms shall jointly select
the accounting firm to serve as the Auditor.
4. TERMINATION FOR CERTAIN CAUSES. Notwithstanding anything to the contrary
set forth elsewhere herein, in the event of the willful misconduct of the
Employee in the performance of his duties hereunder resulting in significant
economic harm to the Corporation or the conviction of the Employee for a felony
under federal or state law relating to the assets, business or affairs of the
Corporation or involving moral turpitude, the Employee's employment with the
Corporation may be terminated by the Corporation by written notice to the
Employee, provided that the Employee shall be given prior written notice by the
Board of Directors of the intention to terminate him for cause and the specific
grounds for such termination. The Employee shall be entitled to a hearing before
the Board before such termination becomes effective.
5. DISCLOSURE AND ASSIGNMENT OF DISCOVERIES. The Employee shall (without
any additional compensation) promptly disclose in writing to the Board of
Directors of the Corporation all ideas, formulae, programs, systems, devices,
processes, business concepts, discoveries and inventions (hereinafter referred
to collectively as "discoveries") whether or not patentable, which the Employee,
while employed by the Corporation, conceives, makes, develops, acquires or
reduces to practice, whether alone or with others and whether during or after
usual working hours, and which are related to the Corporation's business or
interests, or are used or usable by the Corporation; and the Employee hereby
transfers and assigns to the Corporation all right, title and interest in and to
said discoveries, including any and all domestic and foreign patent rights
therein and any renewals thereof. On request of the Corporation, the Employee
shall (without any additional compensation), from time to time during or after
the expiration or termination of his employment, execute such further
instruments (including, without limitation, applications for letters patent and
assignments thereof) and do all such other acts and things as may be deemed
necessary or desirable by the Corporation to protect and/or enforce its rights
in respect of said discoveries. All expenses of filing or prosecuting any patent
applications shall be borne by the Corporation, but the Employee shall cooperate
in filing and/or prosecuting any such applications.
6. CONFIDENTIALITY. The Employee agrees that all patent rights, inventions,
technical information and know-how and trade secrets relating to the
Corporation's electronic security systems and any other products in development
or marketed by the Corporation, any information relating thereto, and any other
information relating to the business or interests of the Corporation which he
knows or should know, is regarded as confidential and valuable by the
Corporation (whether or not any of the foregoing information is actually novel
or unique or is actually known to others), made available to the Employee by the
Corporation or acquired by the Employee from
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<PAGE> 5
the Corporation, other than that which legally and legitimately is or becomes of
general public knowledge or passes into the public domain from authorized
sources other than the Employee, will be held in confidence and will not be
divulged (or caused or permitted to be divulged) by the Employee, without the
prior written consent of the Corporation, to any person or entity, except to
responsible officers and employees of the Corporation and other responsible
persons who are in a contractual or fiduciary relationship with the Corporation
or who have a need for such information for purposes in the interest of the
Corporation or otherwise in the course of carrying out his duties hereunder and
except when required to disclose such information by a court of law, by any
governmental agency having supervisory authority over the business of the
Company or by any administrative or legislative body (including a committee
thereof) with the apparent jurisdiction to order him to divulge, disclose or
make accessible such information. The Employee further agrees that his
obligations of secrecy and confidentiality under this Section 6 shall survive
any termination of this Agreement unless specifically waived in writing by the
Corporation and, in the event of any such termination, the Employee shall never
use or market, nor disclose to others nor assist others in using or marketing,
any of the information or property rights of the Corporation referred to in this
Section 6, other than that which legally and legitimately is or becomes of
general public knowledge or passes into the public domain from authorized
sources other than the Employee.
7. NON-COMPETITION. In order to protect the legitimate business interests
of the Corporation, such as, without limitation, in its trade secrets,
confidential and professional information, substantial relationships with
existing and prospective customers, and investments in extraordinary and
specialized training, the Employee shall not, directly or indirectly:
(a) engage in the business of manufacturing, leasing, selling,
maintaining, or servicing, anywhere in the world, anti-shoplifting, theft
detection, inventory/asset control, closed circuit television, access control,
article surveillance devices or other products which are similar to or purport
to accomplish results similar to the Corporation's electronic article
surveillance, closed circuit television and access control systems and other
products being developed or marketed by the Corporation during the Employee's
employment with the Corporation;
(b) render any services as an officer, director, employee, partner,
consultant or otherwise to, or have any interest as a stockholder, partner,
lender or otherwise in, any entity which is so engaged;
(c) solicit or attempt to solicit business of any customers of the
Corporation for products or services the same or similar to those offered, sold,
produced or under development by the Corporation during the Employee's
employment with the Corporation;
(d) solicit or attempt to solicit for any business endeavor any
employee of the Corporation;
(e) accept any orders for products or services or any other business
from any customers of the Corporation for products or services the same or
similar to those offered, sold, produced or under development by the Corporation
during the Employee's employment with the Corporation; or
(f) hire or retain as a consultant - or render any services as an
officer, director, employee, partner, consultant or otherwise to, or have any
interest as a stockholder,
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<PAGE> 6
partner, lender or otherwise in, any entity which hires or retains as a
consultant - any person which, within six (6) months prior to the date of such
hiring or retention, had been employed by the Corporation in a sales, marketing,
managerial or professional (e.g. accounting, engineering, legal) capacity;
during the term of the Employee's employment with the Corporation and for a
period of eighteen (18) months from and after the date of termination of such
employment, or for such lesser area or lesser period as may be determined by a
court of law or equity to be a reasonable limitation on the competitive activity
of the Employee, it being understood and agreed by the parties hereto that this
provision is reasonably necessary to protect the patent rights, inventions,
technical information and know-how, trademarks and the good will and reputation
of the Corporation. For the purpose of this Section 7, the term "Corporation"
shall include any and all affiliates of the Corporation in existence from time
to time. Notwithstanding anything to the contrary contained in this Section 7,
the provisions hereof shall not prevent the Employee from purchasing or owning
up to two (2%) percent of the voting securities of any corporation, the stock of
which is publicly traded.
8. TERMINATION OF BENEFITS AND INJUNCTIVE RELIEF. In the event of a breach
or threatened breach by the Employee of any of the provisions of Sections 5, 6
and 7, the Corporation shall be entitled, if it shall so elect, to (a) terminate
any remaining benefits (including any unpaid severance payments or unexercised
options) otherwise due or outstanding pursuant to Section 3, and/or (b) except
in the case of a breach or threatened breach of Section 7(e) or (f), institute
legal proceedings to obtain damages or to enforce the specific performance of
such provisions by the Employee and to enjoin the Employee from any further
violation of such provisions and to exercise such remedies cumulatively or in
conjunction with all other rights and remedies provided by law. The Employee
acknowledges, however, that the remedies at law for any breach or threatened
breach by him of such provisions may be inadequate and that the Corporation
shall be entitled to injunctive relief against him in the event of any breach or
threatened breach.
9. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements and
understandings between the parties pertaining to the subject matter hereof
(other than the plans and policies referred to in Sections 2 hereof and any
other agreements or understandings pertaining thereto) including, without
limitation, the Employment Agreement dated January 12, 1992, between Security
Tag Systems Inc. and Jerry T. Kendall, and may not be changed or terminated
orally, and no change, termination or attempted waiver of any of the provisions
hereof shall be binding unless in writing and signed by the party against whom
the same is sought to be enforced; provided, however, that the Employee's
compensation and/or benefits may be increased at any time by the Corporation
without in any way affecting any of the other terms and conditions of this
Agreement, which in all other respects shall remain in full force and effect.
10. SUCCESSORS AND ASSIGNS. Neither party shall have the right to assign
this personal Agreement, or any rights or obligations hereunder, without the
consent of the other party, provided, however, that upon the sale of all or
substantially all of the assets, business and goodwill of the Corporation to
another corporation, or upon the merger or consolidation of the Corporation with
another corporation, this Agreement shall inure to the benefit of, and be
binding upon, both the Employee and the corporation purchasing such assets,
business and goodwill, or surviving such merger or consolidation, as the case
may be, in the same manner and to the same extent as though such other
corporation were the Corporation. In the event of a sale, merger
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<PAGE> 7
or consolidation described in the preceding sentence, the Corporation shall take
whatever action it legally can in order to cause such other corporation to
expressly assume the liabilities, obligations and duties of the Corporation
hereunder. Subject to the foregoing, this Agreement shall inure to the benefit
of, and bind, the parties hereto and their legal representatives, heirs,
successors and assigns.
11. GOVERNING LAW. This Agreement is made and executed and shall be
governed by the laws of the State of Florida, without giving effect to choice of
law principles.
12. INDEMNIFICATION.
(a) The Corporation agrees that if the Employee is made a party, or
is threatened to be made a party, to any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "Proceeding"), by reason of
the fact that he is or was a director, officer, or employee of the Corporation
or is or was serving at the request of the Corporation as a director, officer,
member, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether or not the basis of such Proceeding is the Employee's alleged
action in an official capacity while serving as a director, officer, member,
employee or agent, the Employee shall be indemnified and held harmless by the
Corporation to the fullest extent legally permitted or authorized by the
Corporation's certificate of incorporation or bylaws or resolutions of the
Company's Board of Directors or, if greater, by the laws of the State of
Delaware against all cost, expense, liability and loss (including, without
limitation, attorney's fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
the Employee in connection therewith, and such indemnification shall continue as
to the Employee even if he has ceased to be a director, officer, member,
employee or agent of the Corporation or other entity and shall inure to the
benefit of the Employee's heirs, executors and administrators. The Corporation
shall advance to the Employee all reasonable costs and expenses incurred by him
in connection with a Proceeding within 20 days after receipt by the Corporation
of a written request for such advance. Such request shall include an undertaking
by the Employee to repay the amount of such advance if it shall ultimately be
determined that he is not entitled to be indemnified against such costs and
expenses.
(b) Neither the failure of the Corporation (including its board of
directors, independent legal counsel or stockholders) to have made a
determination prior to the commencement of any Proceeding concerning payment of
amounts claimed by the Employee under Section 12(a) above that indemnification
of the Employee is proper because he has met the applicable standard of conduct,
nor a determination by the Corporation (including its board of directors,
independent legal counsel or stockholders) that the Employee has not met such
applicable standard of conduct, shall create a presumption that the Employee has
not met the applicable standard of conduct.
(c) The Corporation agrees to continue and maintain a directors and
officers' liability insurance policy covering the Employee to the extent the
Corporation provides such coverage for its other executive officers.
13. REPRESENTATION. The Corporation represents and warrants that it is
fully authorized and empowered by action of the Board of Directors to enter into
this Agreement and that the performance of its obligations under this Agreement
will not violate any agreement between it and any other person, firm or
organization.
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14. SEVERABILITY. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
15. SURVIVORSHIP. The respective rights and obligations of the parties
hereunder shall survive any termination of the Employee's employment to the
extent necessary to the intended preservation of such rights and obligations.
16. BENEFICIARIES/REFERENCES. The Employee shall be entitled, to the extent
permitted under the applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
the Employee's death by giving the Company written notice thereof. In the event
of the Employee's death or a judicial determination of his incompetence,
reference in this Agreement to the Employee shall be deemed, where appropriate,
to refer to his beneficiary, estate or other legal representative.
17. RESOLUTION OF DISPUTES. Except for disputes which are subject to the
provisions of Section 8, any disputes arising under or in connection with this
Agreement shall, at the election of the Employee or the Company, be resolved by
binding arbitration, to be held in Ft. Lauderdale, Florida in accordance with
the rules and procedures of the American Arbitration Association. Judgment upon
the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. Any judgment or order entered in such action shall contain
a specific provision providing for the prevailing party's recovery of its
attorneys' fees and costs in bringing the action and enforcing the judgment from
the losing party. "Prevailing Party" shall mean the party which has been granted
the relief or remedy sought, or which has obtained judgment for damages of at
least 50 percent of the amount claimed.
18. NOTICES. Any notice given to a party shall be in writing and shall be
deemed to have been given when delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, duly addressed to
the party concerned at the address indicated at the beginning of this Agreement
or to such changed address as such party may have specified by written notice
hereunder.
19. HEADINGS. The headings of the sections contained in this Agreement are
for convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
SENSORMATIC ELECTRONICS CORPORATION JERRY T. KENDALL
By: /s/ Robert A. Vanourek By: /s/ Jerry T. Kendall
----------------------------------------- -------------------------
Robert A. Vanourek
President and Chief Executive Officer
8
<PAGE> 1
EXHIBIT 10(t)
AGREEMENT
AGREEMENT, dated as of September 1, 1998, by and between
SENSORMATIC ELECTRONICS CORPORATION, a Delaware corporation having its principal
place of business at 951 Yamato Road, Boca Raton, Florida 33431 ("Sensormatic"),
and JERRY T. KENDALL, an individual whose address is 520 Brightwaters Blvd., St.
Petersburg, Florida 33704 ("Executive").
W I T N E S S E T H:
WHEREAS, Executive is an employee of Sensormatic, with the
title of Sr. Vice President and President - North America Retail Operations, and
has made, and is expected to continue to make, a significant contribution to the
performance and growth of Sensormatic;
WHEREAS, the Board of Directors of Sensormatic recognizes
that, as is the case with many publicly-held corporations, the possibility of a
Change in Control (as defined below) exists and that such possibility, and the
uncertainty which it may raise among Sensormatic's management, may result in the
distraction or departure of management personnel to the detriment of Sensormatic
and its stockholders, particularly at a time when Sensormatic is placing heavy
demands on its management in connection with its efforts to expand its product
lines and markets, restructure its operations and reduce its expenses;
WHEREAS, the Board of Directors of Sensormatic has determined
that the continued services of Executive to Sensormatic are in the best interest
of Sensormatic and its stockholders and desires to assure such continued
services by agreeing to provide to Executive certain rights as to termination
compensation in the event of a Change in Control;
WHEREAS, the Board of Directors of Sensormatic believes that
the grant of such rights to Executive will help assure Executive's continuing
dedication to his duties to Sensormatic, notwithstanding the occurrence of any
Change in Control, and, in particular, will enable Executive to objectively and
impartially assess, and advise the Board of Directors with respect to, any
proposal received by Sensormatic regarding a Change in Control and to take such
action regarding any such proposal as the Board of Directors may deem to be
appropriate; and
WHEREAS, Sensormatic and Executive are parties to an Agreement
dated August 31, 1997 (the "Officer Agreement");
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the parties hereby agree as follows:
1. TERM.
(a) The term of this Agreement shall commence on the date
hereof (which for all purposes of this Agreement shall mean the date first above
written) and shall continue until a Change in Control shall occur and for so
long thereafter as Sensormatic has or may have any obligations under Sections 6,
7, 8, 12, 13 or 15 hereof.
(b) Notwithstanding the provisions of Section l(a) hereof,
Sensormatic shall have the right to terminate this Agreement, effective on any
anniversary of the date of this Agreement, provided that no Change in Control
shall have occurred and no Attempted Change in Control (as defined below) shall
have occurred and then be pending. In the event that any Attempted Change in
<PAGE> 2
Control is not followed by a Change in Control and is no longer pending,
Sensormatic shall again be entitled to terminate this Agreement as provided in
the first sentence of this Section 1(b). Sensormatic may effect a termination of
this Agreement hereunder solely by notifying Executive thereof at least 30 days
prior to the relevant anniversary date hereof.
(c) Notwithstanding the provisions of Sections 1(a) and l(b)
hereof, this Agreement shall terminate automatically in the event of the
voluntary or involuntary termination of Executive's employment with Sensormatic
prior to the occurrence of a Change in Control, so long as, at the time of such
termination of employment, no Attempted Change in Control shall have occurred
and then be pending. Notwithstanding anything contained in this Agreement to the
contrary, if Executive's employment is terminated by Sensormatic prior to a
Change in Control, which Change in Control occurs, and Executive reasonably
demonstrates that such termination was at the request of a third party who
effectuates such Change in Control or that such termination was directly related
to such Change in Control, then for all purposes of this Agreement, Executive
shall be entitled to the payments and other benefits provided under this
Agreement as if such termination had occurred following such Change in Control.
2. SALARY AND BONUS. Executive's present base salary is
$225,002 per year and Executive's target bonus is deemed to be $115,000 per
year. After the date of this Agreement, Executive's annual base salary and
target bonus may be increased or decreased as determined by the chief executive
officer of Sensormatic and approved by Sensormatic's Board of Directors or any
compensation committee thereof, except as otherwise provided by the Officer
Agreement, provided, however, that none of the following shall be effective
during the pendency of an Attempted Change in Control or in the event of a
Change in Control or at any time within 36 months after a Change in Control has
occurred: (i) any decrease in Executive's annual base salary or target bonus
from the amounts set forth above (or any greater amounts subsequently so
determined and approved), or (ii) any change in the formula then in effect for
calculation of Executive's bonus that could be reasonably anticipated to result
in a decrease in the amount payable thereunder.
3. FRINGE BENEFITS. Sensormatic currently provides to
Executive the fringe benefits listed below, without cost to Executive, and,
while nothing in this Agreement shall be deemed to require Sensormatic to
continue any such benefits or to prohibit Sensormatic from modifying any such
benefits in any respect, except that there shall be no material reduction in any
such currently provided benefits (and there shall be no material reduction in
any additional benefits subsequently approved by Sensormatic's Board of
Directors or any Committee thereof) during the pendency of an Attempted Change
in Control or in the event of a Change in Control or at any time within 36
months after a Change in Control has occurred (and, in addition, there shall
not, at any time following a Change in Control, be any change in the
non-qualified retirement plan or plans of the Corporation for key executives in
which Executive is a participant, as listed on Schedule I hereto, or any similar
or successor plan (the "Retirement Plan", which shall include, for all purposes
of this Agreement, any agreement between Sensormatic and Executive under any
such Plan) resulting in a reduction of Executive's benefits thereunder), it is
anticipated that such benefits (together with any such additional benefits)
shall continue to be provided to Executive on the same or a substantially
similar basis in the future in accordance with the terms of the applicable
benefit plans and policies:
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<PAGE> 3
(a) group medical and group dental plans in which Executive
and his eligible dependents are participants;
(b) life insurance on Executive's life and accidental death
and dismemberment insurance, each equal to two times Executive's annual
base salary (but not to exceed $800,000 or such greater amount as may
be established by Sensormatic for such purposes from time to time);
(c) participation in Sensormatic's retirement and/or profit
sharing plans (including the Retirement Plan) and in Sensormatic's
annual contributions, if any, thereto, provided that such participation
is contingent on Executive's continued qualification prior to any such
Change in Control or Attempted Change in Control as an eligible
participant under the provisions of such plans as then in effect and on
Executive's election to continue his participation in such plans;
(d) the use of a Sensormatic owned or leased automobile or
payment of its equivalent allowance, and comprehensive insurance
protection on such vehicle;
(e) disability income protection;
(f) reimbursement of Executive for reasonable travel and
entertainment expenses incurred by Executive in connection with the
business of Sensormatic; and
(g) the provision to Executive of office space befitting
Executive's position, secretarial help, and access to WATS lines.
Further, Sensormatic expects that, during the term of this Agreement, and so
long as Executive continues to be employed by Sensormatic, Executive's position
shall continue to be located in Palm Beach County or Broward County, Florida
(or, if Executive's position is located outside of Broward County or Palm Beach
County, Florida prior to any Attempted Change in Control or Change in Control,
such position shall continue to be located at substantially the same location),
and that the duties and responsibilities of Executive's position shall not be
significantly diminished.
4. EMPLOYMENT COMMITMENT. As partial consideration for the
benefits available to Executive under this Agreement, Executive hereby agrees to
remain as an officer and employee of Sensormatic during any Attempted Change in
Control and for a period of six months immediately after a Change in Control
first occurs (the "Commitment Period"), and during the Commitment Period to
devote substantially all his business time and efforts to the business and
affairs of Sensormatic, provided that Executive shall be entitled to terminate
his employment by Sensormatic during an Attempted Change in Control or at any
time following a Change in Control in circumstances which constitute an
involuntary termination pursuant to Section 10 hereof. Executive's participation
in other businesses, as a director or otherwise, with the approval of
Sensormatic's Board of Directors (which approval shall be deemed to include the
Board of Directors not objecting to such participation following disclosure
thereof to the Board of Directors by Executive, and which approval may not be
withdrawn following such Change in Control) shall not be deemed to contravene
the foregoing provision. In the event that Executive voluntarily terminates his
employment with Sensormatic (other than by resignation contemplated
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in Section 10 hereof) at any time during the Commitment Period, Executive shall
not be entitled to any of the benefits provided for in this Agreement, other
than those provided under Sections 6(a)(i), 6(a)(ii), 6(a)(iii), 6(a)(iv),
6(b)(ii), 12, 13 and 15 hereof, and shall promptly repay to Sensormatic, on an
after-tax basis, any benefits previously received by him pursuant to any
provisions of Sections 6 or 7 of this Agreement not referred to in this
sentence, but Sensormatic shall have no other remedy for Executive's failure to
remain an employee and officer as required by this Section 4. Any amounts or
benefits received by Executive pursuant to the Officer Agreement or any other
written employment agreement between Sensormatic and Executive or any other
compensation plan or arrangement of Sensormatic, even if similar or identical to
those to which he would be entitled under this Agreement, shall not be deemed
received pursuant to this Agreement or be repayable to Sensormatic for purposes
of the preceding sentence.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, the term "Change in
Control" shall mean a change in control of Sensormatic of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
provided, that, without limitation, such a change in control shall be deemed to
have occurred if (i) any person (as such term is used in Sections 13(d) and
14(d) of the Exchange Act, "Person") is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act, "Beneficial Owner"), directly or
indirectly, of securities of Sensormatic representing 30% or more of the
combined voting power of Sensormatic's then outstanding voting securities, (ii)
Sensormatic consummates a merger, consolidation, share exchange, division or
other reorganization of Sensormatic with any other corporation or entity, unless
the shareholders of Sensormatic immediately prior to such transaction
beneficially own, directly or indirectly, (A) if Sensormatic is the surviving
corporation in such transaction, 60% or more of the combined voting power of
Sensormatic's outstanding voting securities as well as 60% or more of the total
market value of Sensormatic's outstanding equity securities, (B) if Sensormatic
is not the surviving corporation, 80% or more of the combined voting power of
the surviving entity's outstanding voting securities as well as 80% or more of
the total market value of such entity's outstanding equity securities, or (C) in
the case of a division, 80% or more of the combined voting power of the
outstanding voting securities of each entity resulting from the division as well
as 80% or more of the total market value of each such entity's outstanding
equity securities, in each case in substantially the same proportion as such
shareholders owned shares of Sensormatic prior to such transaction; (iii)
Sensormatic adopts a plan of complete liquidation or winding-up of Sensormatic;
(iv) the shareholders of Sensormatic approve an agreement for the sale or
disposition (in one transaction or a series of transactions) of all or
substantially all of Sensormatic's assets; or (v) during any period of 24
consecutive months, individuals (y) who at the beginning of such period
constitute the Board of Directors of Sensormatic or (z) whose election,
appointment or nomination for election was approved prior to such election or
appointment by a vote of at least two-thirds of the directors in office
immediately prior to such election or appointment who were directors at the
beginning of such two-year period (other than any directors who prior to the
Change in Control were associated or affiliated with any Person involved with
any Change in Control or Attempted Change in Control), cease for any reason to
constitute at least three-fourths of the Board of Directors of Sensormatic.
(b) For purposes of this Agreement, an "Attempted Change in
Control" shall be deemed to have occurred (i) if any Person files (or fails to
file when required to do so) with
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the Securities and Exchange Commission (the "SEC") a Statement on Schedule 13D
relating to voting securities of Sensormatic (A) disclosing the acquisition of
10% or more thereof or (B) while disclosing the acquisition of less than 10% of
such voting securities, indicates an intention to effect any of the transactions
listed in Item 4 of Schedule 13D or otherwise to effect a Change in Control,
(ii) upon the public announcement (including, without limitation, the filing
with the SEC of a Statement on Schedule 14D-1) by any Person of an intention to
make a tender offer or otherwise to effect a Change in Control, (iii) in the
event of any solicitation of proxies for the election of directors of
Sensormatic pursuant to Rule l4a-11 of the Rules and Regulations under the
Exchange Act or the filing of a Statement on Schedule 14B in anticipation
thereof, (iv) the receipt by Sensormatic from any Person of any other
communication proposing, or indicating an intention, to effect a Change in
Control by the acquisition of voting securities of Sensormatic, the solicitation
of proxies for the election of directors or otherwise or (v) if the Board of
Directors of Sensormatic or an authorized committee thereof otherwise determines
that an Attempted Change in Control is pending. The termination of the pendency
of an Attempted Change in Control shall be determined by the Board of Directors
of Sensormatic (or an authorized committee thereof); PROVIDED, that any
Attempted Change in Control shall in any event be deemed to have terminated upon
the occurrence of a Change in Control.
(c) A Change in Control shall be deemed, for purposes of this
Agreement, to be: (i) "non-approved" if (A) in connection with the consideration
thereof by the Board of Directors of Sensormatic, a majority of the Previous
Members of the Board of Directors (as defined below), either before or after
such Change in Control, (x) votes to disapprove of such Change in Control, (y)
votes to approve of such Change in Control, but as a consequence of the
existence of a competing proposal for a Change in Control, or (z) otherwise
expressly declares that such Change in Control is "non-approved", or (B) a
majority of the Previous Members of the Board of Directors neither expressly
approves nor disapproves of such Change in Control, or (ii) "approved" if in
connection with the consideration thereof by the Board of Directors of
Sensormatic, a majority of the Previous Members of the Board of Directors,
either before or after such Change in Control, (x) approves of such Change in
Control (other than as a consequence of the existence of a competing proposal
for a Change of Control) or (y) otherwise expressly declares that such Change in
Control is "approved", notwithstanding clause (A) (y) of this Section 5(c). The
majority of the Previous Members of the Board of Directors shall indicate its
approval or disapproval of a Change in Control by a statement or statements in
writing to such effect. For purposes of this Agreement, Previous Members of the
Board of Directors shall mean members of the Board of Directors of Sensormatic
as of the date of a Change in Control who had been in office for a period of at
least two years immediately prior to such Change in Control (other than
directors who prior to such Change in Control were appointed or elected as
directors as a consequence of their association or affiliation with any Person
effecting such Change in Control).
In addition, notwithstanding any previous determination that a
Change in Control was "approved", such Change in Control may subsequently be
determined, in good faith, to be "non-approved" by a majority of the Previous
Members of the Board of Directors who are then still in office with Sensormatic
or a corporate successor of Sensormatic (or if fewer than two such Previous
Members of the Board of Directors are still in office, then by a majority of the
Previous Members of the Board of Directors, whether or not still in office)
within the 36-month period immediately following such Change in Control, if
during such period there occur (1) events of the types referred to in Section 10
hereof with respect to individuals who were officers
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of Sensormatic at the time of the Change in Control, (2) defaults by Sensormatic
under this Agreement or any similar agreement, (3) the involuntary termination
(other than for cause or in the event of death or permanent disability) of the
employment of a number of the officers of Sensormatic who were officers
immediately prior to such Change in Control exceeding 40% of the total number of
such officers, or (4) the transfer (by sale, merger or otherwise) of all or
substantially all the equity securities of Sensormatic acquired by the Person
effecting such Change in Control, of all or substantially all the assets of
Sensormatic, or of all or substantially all the equity securities of
Sensormatic's successor corporation, directly or indirectly, to a third party
(other than a majority owned affiliate of such Person). In the event of such a
subsequent determination, Executive shall be entitled to all benefits arising
under this Agreement out of a "non-approved" Change in Control as if such Change
in Control had been deemed "non-approved" initially. Any additional benefits
arising out of such "non-approved" Change in Control which Executive is entitled
to receive through the date of such determination shall be paid or satisfied
promptly by Sensormatic. For purposes of this Section 5(c), the term "officers"
shall not include individuals whose only office with Sensormatic is Assistant
Secretary or Assistant Treasurer.
(d) For the purposes of this Section 5, references to
provisions of the Exchange Act and rules, regulations and schedules thereunder
shall be to such provisions as they are in effect and interpreted as of the date
of this Agreement.
6. BENEFITS ON "NON-APPROVED" CHANGE IN CONTROL.
(a) BENEFITS EFFECTIVE UPON A CHANGE IN CONTROL. In the event
a "non-approved" Change in Control occurs, Executive shall be entitled to the
following benefits:
(i) All stock options issued by Sensormatic to Executive,
whether or not then exercisable, shall remain fully exercisable or shall become
fully exercisable immediately (or, notwithstanding the foregoing, in the event
of an Attempted Change in Control involving a proposed Reorganization Event (as
such term is defined in Section 6(a)(ii) hereof)), such options shall become
fully exercisable thirty days before the date of such Reorganization Event), and
such options shall remain outstanding and fully exercisable for the stated term
thereof or until the later of (A) nine months following the voluntary or
involuntary termination of Executive's employment with Sensormatic (or, at the
option of Executive, in the case of an incentive stock option, three months
following such termination) or (B) the end of the respective post-termination
exercisability periods provided for in such options (including if applicable,
such periods in the event of death or disability); PROVIDED, that in no event
shall the term of such options be extended beyond their respective original
terms. In addition, any deferred vesting or forfeiture provisions applicable to
any shares of Sensormatic stock awarded to or otherwise held by Executive shall
be without further force or effect, and Executive shall have the unrestricted
right to such shares.
(ii) In the event that (A) such Change in Control is effected
through (w) a tender or exchange offer (a "Tender Offer") or (x) any means, in
one or more transactions, with the result in either case that any Person becomes
the Beneficial Owner, directly or indirectly, of securities of Sensormatic
representing 50% or more of the combined voting power of Sensormatic's then
outstanding voting securities (any such Change in Control referred to in this
clause (A), including pursuant to a Tender Offer, being hereinafter referred to
as a "Majority
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Acquisition"), (B) in connection with, as a result of or within
24 months immediately following a Change in Control, Sensormatic's Board of
Directors shall have approved a merger, consolidation, reclassification,
reorganization, dissolution, sale of all or substantially all of the assets of
Sensormatic or similar event (a "Reorganization Event") as a result of which
Sensormatic's Common Stock would cease to be outstanding or (C) in connection
with, as a result of or within 24 months immediately following a Change in
Control, Sensormatic's Common Stock ceases to be listed for trading on a
national securities exchange or quoted through NASDAQ or a comparable securities
quotation system, Executive shall have the right, exercisable by written notice
given at any time during the 13-month period immediately following the date of
such Change in Control (and, if later, the date of any such Majority
Acquisition, Reorganization Event or cessation of listing or quotation), to
require Sensormatic to purchase:
(1) any or all stock options issued by Sensormatic to
Executive, whether or not then exercisable, and/or any stock options
issued upon conversion of or in exchange for any such Sensormatic stock
options pursuant to any such Reorganization Event ("Conversion
Options"), at a purchase price equal to the excess of the aggregate
Fair Market Value (as defined below) of the shares of Sensormatic
Common Stock subject to such Sensormatic stock options over the
aggregate exercise price of such stock options (or, in the case of any
Conversion Options, such amount calculated with respect to the
Sensormatic stock options which were converted into or exchanged for
such Conversion Options); and/or
(2) any or all shares of Sensormatic Common Stock held by
Executive at or immediately prior to the date of such Change in Control
(including any shares of Sensormatic Common Stock (restricted or
otherwise, and whether or not vested) awarded to Executive pursuant to
any compensation plan or arrangement of Sensormatic) or issued pursuant
to the exercise of any such Sensormatic stock options following the
date of such Change in Control, and/or (without duplication) any shares
or other securities issued upon conversion of or in exchange for any
such shares of Common Stock pursuant to any such Reorganization Event
("Conversion Shares"), at a purchase price equal to the aggregate Fair
Market Value of such shares (or, in the case of any Conversion Shares
issued upon conversion of or in exchange for Common Stock, the Fair
Market Value of the shares of Common Stock which were converted into or
exchanged for such Conversion Shares); provided, that Sensormatic may
offset against the amount so payable for Common Stock or Conversion
Shares all amounts outstanding on any loans made to Executive for the
purchase of, or payment of taxes relating to, such shares of Common
Stock or Conversion Shares, as contemplated by Section 6(a)(iii) hereof
or otherwise.
Payment for any such options or shares shall be made by Sensormatic within 10
days after Executive's surrender of any such options, and/or within 10 days
after Executive's surrender of the certificates representing any such shares of
Common Stock or Conversion Shares (or, if such certificates are in Sensormatic's
possession, within 10 days after Executive's notice of exercise under this
Section 6(a)(ii)).
For purposes of this Section 6(a)(ii), the "Fair Market Value"
of a share of Sensormatic Common Stock means the highest fair market value per
share of Sensormatic Common Stock of the consideration paid in any transaction
by any Person who effects such
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Change in Control, in connection therewith, whether through open market
purchases, Tender Offers, Reorganization Events, private transactions or
otherwise.
(iii) Upon Executive's request, Sensormatic shall lend to
Executive, interest free, up to an amount equal to the aggregate exercise price
of the options referred to in Section 6(a)(i) hereof, should Executive elect to
exercise such options. If requested by Executive, Sensormatic shall also lend to
Executive, interest free (or, at Executive's option, provide a guaranty to
enable Executive to borrow), up to an amount equal to the percentage specified
in Section 6(a)(iv)(A) hereof times the Share Income (as such term is defined in
such Section) resulting from such exercise and/or vesting. Such loan or loans
shall be due and payable to Sensormatic upon the earliest of (A) the fifth
anniversary date of such loan or loans, (B) in the event that Executive's
employment with Sensormatic terminates, other than termination by Sensormatic
for Cause (as defined in Section 9 hereof, "Cause") upon the expiration of 30
months following such termination, or in the event that Executive's employment
is terminated by Sensormatic for Cause, upon the expiration of 30 days after
such termination, or (C) promptly (but in any event within five (5) business
days) after receipt of the proceeds of sale from the sale of such shares, to the
extent of the loan or loans applicable to such sold shares. Executive shall
deposit such shares with Sensormatic as security for any such loan, if
Sensormatic shall so request. Notwithstanding anything to the contrary contained
in this Section 6(a)(iii), Sensormatic's Stock Purchase Loan Plan or any
promissory note or security agreement executed by Executive pursuant to such
Plan, no additional collateral shall be required by Sensormatic in connection
with any such loan to Executive, and, if necessary to be in compliance with
applicable margin regulations under federal laws, such loans shall be unsecured;
and if, because of Internal Revenue Service rules or other rules, Sensormatic is
unable to lend such funds to Executive interest free and without any imputation
of interest, Sensormatic shall pay Executive a dollar amount of additional
compensation which shall equal the amount of interest required to be charged in
order to avoid such imputation in such instances and Executive shall then pay
Sensormatic the rate of interest on such loan required by law to avoid
imputation.
(iv)(A) If a Majority Acquisition shall have occurred or if,
in connection with, as a result of or within 24 months immediately following a
Change in Control, either a Reorganization Event shall have occurred or
Sensormatic's Common Stock ceases to be listed for trading on a national
securities exchange or quoted through NASDAQ or a comparable securities
quotation system, then Executive shall have the right, exercisable during the
period and in the manner described in Section 6(a)(iv)(B) hereof, to require
Sensormatic to purchase any or all of Executive's Option Acquired Shares and
Award Shares (as defined below), and/or any or all Conversion Shares issued with
respect to any Option Acquired Shares or Award Shares. The price at which
Executive shall be entitled to sell any Option Acquired Share to Sensormatic
under this Section 6(a)(iv) shall equal the sum of (x) the option exercise price
paid (including payments made by promissory notes issued under Sensormatic's
Stock Purchase Loan Plan or otherwise) by Executive in acquiring such share,
plus (y) an amount equal to a percentage, determined as provided below in this
clause (A), of the difference between such option exercise price and the Market
Value (as defined below) of a share of Sensormatic Common Stock on the date the
share was acquired. The price at which Executive shall be entitled to sell any
Award Share under this Section 6(a)(iv)(A) shall be equal to the Market Value of
such share on the date Executive's right to such share vested, multiplied by the
percentage determined as provided below in this clause (A). The price at which
Executive shall be entitled to sell any Conversion Shares pursuant to this
Section 6(a)(iv)(A) shall be calculated as set forth above with respect to
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Option Acquired Shares or Award Shares, as applicable, based upon the purchase
price, date of purchase and Market Value of any Option Acquired Shares, and the
vesting date and Market Value of any Award Shares, which were converted into or
exchanged for any such Conversion Shares sold. The percentage referred to in
this Section 6(a)(iv)(A) shall be equal to the sum of (1) the highest marginal
net rate of income tax (federal, state and local) applicable to an individual
residing where the Executive resided at the time the Executive reported income
("Share Income") with respect to the Option Acquired Shares or Award Shares, as
the case may be, plus (2) the Medicare employee tax rate, plus (3) a percentage
equal to (x) that part, if any, of the Share Income that was actually subject to
employee Social Security tax, multiplied by (y) the social security employee tax
rate, divided by (z) the total Share Income (in each case as applicable at the
time such share was purchased by Executive, in the case of any Option Acquired
Shares, or at the time Executive's right to such share vested, in the case of
any Award Shares). The purchase price payable by Sensormatic shall in all events
be equitably adjusted to reflect any stock dividends, stock splits,
extraordinary dividends or similar events since the date of acquisition by
Executive of any such shares.
For purposes of this Section 6(a)(iv), the term "Option
Acquired Shares" shall mean shares of Sensormatic Common Stock acquired by
Executive upon exercise of options granted to Executive, the term "Award Shares"
shall mean shares of Sensormatic Common Stock awarded to Executive pursuant to
Sensormatic's Stock Incentive Plan or any other compensation plan or arrangement
of Sensormatic, other than pursuant to the exercise of options, and the term
"Market Value" shall mean the average of the high and low sales prices of a
share of such Common Stock on the applicable date (or most recent date on which
one or more sales occurred) as reported through NASDAQ or the principal exchange
on which such Common Stock was listed for trading.
(B) Executive may exercise his right to sell Option Acquired
Shares, Award Shares and/or Conversion Shares under this Section 6(a)(iv) at any
time within 13 months following any of the events specified in the first
sentence of Section 6(a)(iv)(A) hereof by giving written notice of such exercise
to Sensormatic, which notice shall set forth the Option Acquired Shares, Award
Shares and/or Conversion Shares to be sold, the exercise price paid by Executive
in acquiring any such Option Acquired Shares or Conversion Shares, the highest
marginal tax rates applicable for purposes of the respective calculations
specified in Section 6(a)(iv)(A) hereof and the Market Value of the Common Stock
or Conversion Shares, as applicable, on each date that any applicable Option
Acquired Shares or Conversion Shares to be sold were purchased by Executive or
Executive's right to any applicable Award Shares vested, as the case may be. The
information set forth in such notice shall be presumed to be correct.
(C) In addition to the purchase price for the Option Acquired
Shares, Award Shares or Conversion Shares being sold to Sensormatic under this
Section 6(a)(iv), Sensormatic shall pay to Executive an amount (the "Tax
Payment") equal to a percentage (determined pursuant to the following sentence)
of the excess, if any, of (1) the product of the number of such Option Acquired
Shares, Award Shares and/or Conversion Shares being sold multiplied by the
Market Value of a share of Sensormatic Common Stock or Conversion Shares, as
applicable, on the Purchase Date (as such term is defined in Section 6(a)(iv)(D)
hereof) or such other value of a share of Sensormatic Common Stock or Conversion
Shares as may be required to be used to determine the amount, if any,
recognizable as ordinary income arising out of the sale of such shares to
Sensormatic, over (2) the aggregate purchase price for all such Option Acquired
Shares,
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Award Shares and/or Conversion Shares being sold by Executive. The percentage
referred to in the preceding sentence shall be determined in accordance with
Section 6(a)(iv)(A) hereof as applicable on the Purchase Date.
(D) Within 10 days after Executive's surrender of the
certificates representing any such Option Acquired Shares, Award Shares and/or
Conversion Shares or, if such certificates are in Sensormatic's possession,
within 10 days after Executive's notice of exercise under this Section 6(a)(iv)
(the "Purchase Date"), Sensormatic shall purchase the Option Acquired Shares,
Award Shares and/or Conversion Shares referred to in such notice by paying to
Executive (subject to offset as provided in the following sentence) the full
purchase price thereof, as calculated under Section 6(a)(iv)(A) hereof, plus the
Tax Payment applicable thereto. Sensormatic may offset against payment of any or
all of such purchase price and the related Tax Payment all or a portion of any
indebtedness of Executive then outstanding under Sensormatic's Stock Purchase
Loan Plan attributable to any Option Acquired Shares and/or Conversion Shares
sold to Sensormatic hereunder.
(E) Executive's rights under this Section 6(a)(iv) are
independent of and not limited by, and do not constitute any limitation of,
Executive's rights under Section 6(a)(ii) hereof. Executive may exercise any
rights under either Section 6(a)(ii) hereof or this Section 6(a)(iv), in whole
or in part (but without duplication), in Executive's sole discretion.
(v)(A) Subject to Section 4 hereof, if either a Majority
Acquisition occurs or, in connection with, as a result of or within 24 months
following a Change in Control, a Reorganization Event occurs, then Sensormatic
shall pay to Executive (irrespective of whether he is then employed by
Sensormatic or its successor; PROVIDED, HOWEVER, that in the event that
Executive voluntarily terminates his employment with Sensormatic (other than by
resignation contemplated by Section 10 hereof) prior to the occurrence of the
event giving rise to the right to receive the cash bonus payment provided for in
this Section 6(a)(v), Executive shall have no right to receive such bonus
payment), within thirty days after the effective date of such Majority
Acquisition or Reorganization Event, as the case may be, a cash bonus payment
equal to a percentage (determined pursuant to Sections 6(a)(v)(B) and 6(a)(v)(C)
hereof) of Executive's "Special Bonus Base" (as defined below). Executive's
Special Bonus Base shall equal two (2) times the greater of (x) the sum of
Executive's annual base salary in effect at the end of the last full month
preceding the first public announcement relating to the proposed Majority
Acquisition or Reorganization Event, as the case may be, plus the bonus paid to
Executive by Sensormatic with respect to the most recently completed fiscal year
of Sensormatic prior to such month, or (y) the sum of Executive's annual base
salary and target bonus as specified in Section 2 hereof.
(B) The percentage of the Special Bonus Base which Executive
shall be entitled to receive under this Section 6(a)(v) shall be calculated on
the basis of the Premium (as defined below) paid or offered to holders of
Sensormatic's Common Stock in connection with a Majority Acquisition or
Reorganization Event. "Premium" shall mean the percentage which results from
dividing (1) the amount by which the Event Value (as defined below) exceeds the
Pre-Event Share Price (as defined below), by (2) the Pre-Event Share Price. The
"Pre-Event Share Price" shall be equal to the average of the closing sales
prices (or if there is no sales price, the last bid price) for a share of
Sensormatic's Common Stock, as such prices are reported through NASDAQ or the
principal exchange on which such shares are listed for trading, on the last
business day of each week during the twenty-six weeks immediately preceding the
first to
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occur of (x) the first public announcement relating to any proposed Change in
Control or Reorganization Event, or (y) any event resulting in the pendency of
an Attempted Change in Control which culminates, directly or indirectly, in the
Change in Control giving rise to Executive's rights under this Section 6(a)(v).
In the case of any Reorganization Event or Tender Offer, or combination or
series of Reorganization Events and/or Tender Offers, "Event Value" shall mean
the fair market value of the consideration paid per share of Sensormatic Common
Stock pursuant to such Reorganization Event or Tender Offer determined as of the
effective date of the Reorganization Event or of the consummation of the Tender
Offer, as the case may be, provided that in the event that different prices are
paid per share of Sensormatic Common Stock pursuant to such Reorganization
Event, Tender Offer or any combination or series thereof, the "Event Value"
shall be equal to the fair market value of the aggregate consideration paid
pursuant to all such Tender Offers and/or Reorganization Events (determined as
of the dates set forth above) divided by the number of shares of Sensormatic
Common Stock purchased pursuant to all such Tender Offers and/or Reorganization
Events. In case of any other transaction or series of transactions giving rise
to the right of Executive to receive the bonus provided for in this Section
6(a)(v), "Event Value" shall mean the highest fair market value of the
consideration paid per share of Sensormatic Common Stock pursuant to any such
transaction, determined as of the date of payment thereunder. The determination
of Event Value shall be conclusively made by an investment banking firm selected
by the Previous Members of the Board of Directors who are not entitled to
receive bonuses under this Section 6(a)(v) or analogous provisions of other
agreements; PROVIDED, that in the event that the Previous Members of the Board
of Directors fail to make such selection within 45 days after consummation of
the transaction giving rise to the right to rights under this Section 6(a)(v),
or the selected investment banking firm fails to make such a determination
within an additional 90 days, Event Value shall be determined by arbitration
under Section 16. Sensormatic shall PAY all fees and expenses of any such
investment banker.
(C) The percentage of the Special Bonus Base which Executive
shall be entitled to receive as a bonus under this Section 6(a)(v) shall be 20%
if the Premium is at least 20% and shall increase by 3.2% for each one percent
(and by a fraction of 3.2% for each fraction of one percent) by which the
Premium exceeds 20%. For example, if the Premium were 30%, Executive would be
entitled to a bonus of 52% of the Special Bonus Base; if the Premium were 40.5%,
Executive would be entitled to a bonus of 85.6% of the Special Bonus Base; and
if the Premium were 50%, Executive would be entitled to a bonus of 116% of the
Special Bonus Base. The maximum bonus which Executive shall be entitled to
receive is 167% of the Special Bonus Base. No bonus shall be payable pursuant to
this Section 6(a)(v) if the Premium is less than 20%.
(b) BENEFITS ON TERMINATION. In the event of any termination,
other than termination by Sensormatic for Cause, of Executive's employment with
Sensormatic at any time following a "non-approved" Change in Control, Executive
shall be entitled to the following benefits:
(i) Subject to Section 4 hereof, Sensormatic shall,
as soon as practicable, pay to Executive a lump sum payment equal to
the amount of any then unvested interest which Executive may have had
on the date of such "non-approved" Change in Control (less any amount
of such interest subsequently vested), and as supplemented
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thereafter through the date of such termination, in Sensormatic's
profit sharing, ESOP or other retirement plans (other than the
Retirement Plan); and
(ii) Unless a trust or other arrangement previously
determined in writing to be satisfactory by a majority of the Previous
Members of the Board of Directors then in office assuring payment of
benefits to or for the benefit of Executive under Sensormatic's
Retirement Plan in the event of a Change in Control has been previously
established and is then in effect, Sensormatic shall take such steps as
are necessary, within 30 days after such termination, to fully fund all
of Executive's benefits under such Plan (after giving effect to the
change in control provisions of such Plan) through paid-up insurance,
annuity contracts and/or other similar means, so that the ultimate
payment of benefits (at a rate not less than the greater of the rates
in effect under such Plan at the date of such termination or
immediately after such Change in Control) upon Executive's attaining
retirement age under such Plan or upon his earlier death or disability
(as defined in such Plan) (despite Executive's no longer being employed
by Sensormatic) shall be assured beyond any reasonable doubt; PROVIDED,
HOWEVER, that either such manner of funding shall be structured so as
not to constitute "constructive receipt" by Executive of the benefits
in question for income tax purposes, or the benefits in question shall
be paid out in a lump sum, discounted to present value in the manner
provided in Section 8(a). In addition, following any such termination
which is involuntary, the non-competition provisions included in any
such Plan shall have no force or effect.
(c) ADDITIONAL BENEFITS IN THE CASE OF A VOLUNTARY
TERMINATION. Subject to Section 4 hereof, in the event of Executive's voluntary
termination of employment with Sensormatic (other than by resignation
contemplated in Section 10 hereof) within the 24-month period immediately
following a "non-approved" Change in Control:
(i) Executive shall be entitled to receive, for each
of the 6 months immediately following the effective date of such
termination and irrespective of whether Executive commences new
employment within such period, the greatest of (A) 1/12 of the amount
of Executive's most recent rate of annual base salary, plus 1/12 of
Executive's most recent annual bonus, (B) 1/12 of Executive's annual
base salary and target bonus in effect immediately prior to the date of
such Change in Control or (C) 1/12 of Executive's annual base salary
and target bonus as specified in Section 2 hereof;
(ii) If Executive has not commenced new regular, full
time employment during the first 6 months following the effective date
of such termination, Executive shall receive for each of the 7th
through 12th months following such effective date of termination in
which Executive was not so employed for the entire month the amount
payable under Section 6(c)(i) hereof;
(iii) Within 30 days after the effective date of such
termination, Sensormatic shall pay to Executive an amount equal to his
pro rata annual bonus for the year in which termination occurs, based
on the target bonus for such year; PROVIDED; that if at the time of
such termination, it is probable, based upon interim period results for
the then-current fiscal year together with the current forecast for the
remainder of such year, that the conditions to payment of the full
amount of the target bonus will not be met, the amount of the bonus
payment hereunder may be reduced accordingly; and
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(iv) During that portion of the periods set forth in
Sections 6(c)(i) and 6(c)(ii) hereof during which Executive has not
commenced new regular, full time employment,
(x) Sensormatic shall continue to provide to
Executive the fringe benefits enumerated in Sections 3(a),
(b), (c) and (e) hereof on at least the same basis as in
effect immediately prior to the Change in Control, and shall,
if requested by Executive, provide Executive with office space
appropriate for his level and in close proximity to the office
he occupied at the time of the Change in Control, secretarial
help and local and long distance telephone service; and
(y) Sensormatic shall provide Executive with
appropriate out-placement services, including counseling and
traveling expenses to such outplacement services, when
necessary, as well as to potential job interviews when not
paid by the potential employer, all without charge to
Executive.
(d) ADDITIONAL BENEFITS IN CASE OF AN INVOLUNTARY TERMINATION.
In the event of the involuntary termination (other than termination by
Sensormatic for Cause) of Executive's employment with Sensormatic within the
36-month period immediately following a "non-approved" Change in Control:
(i) Executive shall be entitled to receive, for each
of the 18 months immediately following the effective date of such
termination and irrespective of whether Executive commences new
employment within such period, the greatest of (A) 1/12 of the amount
of Executive's most recent rate of annual base salary, plus 1/12 of
Executive's most recent annual bonus, (B) 1/12 of Executive's annual
base salary and target bonus in effect immediately prior to the date of
such Change in Control or (C) 1/12 of Executive's annual base salary
and target bonus as specified in Section 2 hereof;
(ii) If Executive has not commenced new regular, full
time employment during the first 18 months following the effective date
of such termination, Executive shall receive for each of the 19th
through 24th months following such effective date of termination in
which Executive was not so employed for the entire month the amount
payable under Section 6(d)(i) hereof;
(iii) During that portion of the periods set forth in
Sections 6(d)(i) and 6(d)(ii) hereof during which Executive has not
commenced new regular, full time employment, Executive shall be
entitled to the benefits set forth in Section 6(c)(iv) hereof;
(iv) Within 30 days after the effective date of such
termination, Sensormatic shall pay to Executive an amount equal to his
pro rata annual bonus for the year in which termination occurs, based
on the target bonus for such year, subject to the proviso in Section
6(c)(iii) hereof; and
(v) On the date of such termination, ownership of the
car which Sensormatic was providing to Executive shall immediately be
transferred to Executive
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free and clear of any liens or other obligations, if such car is then
owned by Sensormatic. If such car is then leased, rather than owned, by
Sensormatic, Executive shall continue to have the use of such car and
Sensormatic shall continue to pay all lease payments and insurance
premiums with respect thereto until the end of the then existing term,
at which time Sensormatic shall purchase such car and shall transfer
title to such car to Executive. If, on the date of such termination,
Sensormatic is paying a car allowance to Executive in lieu of providing
a car to Executive, for each month in which Sensormatic is obligated to
make a monthly payment to Executive under Sections 6(d)(i) or 6(d)(ii)
hereof, Executive shall receive 1/12 of the amount of Executive's most
recent rate of annual car allowance.
7. BENEFITS ON "APPROVED" CHANGE IN CONTROL.
(a) BENEFITS EFFECTIVE UPON CHANGE IN CONTROL.
(i) Subject to Section 4 hereof, in the event an
"approved" Change in Control occurs, Executive shall be entitled to all
of the rights and compensation set forth in Section 6(a) hereof.
(ii) In the event that Executive voluntarily
terminates his employment with Sensormatic (other than by resignation
contemplated in Section 10 hereof) at any time following an "approved"
Change in Control, Executive shall not be entitled to any benefits
under this Agreement other than as set forth in Section 7(a)(i) hereof.
(b) ADDITIONAL BENEFITS UPON INVOLUNTARY TERMINATION. In the
event that Executive's employment with Sensormatic is involuntarily terminated
(other than for Cause) within the 36-month period following an "approved" Change
in Control:
(i) Executive shall be entitled to receive, for each
of the first 18 months immediately following the effective date of such
termination and irrespective of whether Executive commences new
employment within such period, the greatest of (A) 1/12 of the amount
of Executive's most recent rate of annual salary, plus 1/12 of the
amount of Executive's most recent annual bonus, (B) 1/12 of Executive's
annual base salary and target bonus in effect immediately prior to the
date of such Change in Control or (C) 1/12 of Executive's annual base
salary and target bonus as specified in Section 2 hereof;
(ii) If Executive has not commenced new regular, full
time employment during the first 18 months following the effective date
of such termination, Executive shall receive for each of the 19th
through 24th months following such effective date of termination in
which Executive was not so employed for the entire month the amount
payable under Section 7(b)(i) hereof;
(iii) Within 30 days after the effective date of such
termination, Sensormatic shall pay to Executive an amount equal to his
pro rata annual bonus for the year in which termination occurs, based
on the target bonus for such year year, subject to the proviso in
Section 6(c)(iii) hereof; and
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(iv) During that portion of the period set forth in
Section 7(b)(i) hereof during which Executive has not commenced new
regular, full time employment, Executive shall be entitled to all of
the rights and compensation set forth in Section 6(c)(iv) hereof.
(c) In the event of any termination of Executive's employment
to which Section 6(c) or 6(d) or this Section 7 is applicable, Executive shall
be under no obligation to seek other employment and there shall be no offset
against amounts due Executive under this Agreement on account of any
remuneration attributable to any subsequent employment that he may obtain,
except as expressly set forth in Section 6(c) or 6(d) or this Section 7.
8. BENEFITS ON DEATH OR DISABILITY.
(a) In the event of Executive's death at any time within 36
months immediately following a Change in Control (whether "approved" or
"non-approved") and prior to any termination of Executive's employment, or in
the event that Executive had died prior to a Change in Control and that as of
the date of such Change in Control there remain outstanding amounts payable
under Sensormatic's Retirement Plan for Executive, unless in either case a trust
or other arrangement previously determined in writing to be satisfactory by a
majority of the Previous Members of the Board of Directors then in office
assuring payment of benefits to or for the benefit of the Executive under such
Plan in the event of a Change in Control has been previously established and is
then in effect, Sensormatic shall promptly pay to Executive's designated
beneficiary or Executive's heirs, executors, administrators or personal
representatives (collectively, "Successors") all of the remaining benefits under
such Plan to which Executive's Successors are then entitled, in the form of a
lump sum payment equal to the amount of such benefits discounted to present
value using an interest rate equal to the rate published by Pension Benefit
Guaranty Corporation for the purpose of discounting pension benefits to present
value in the event of a lump sum prepayment thereof, as then in effect, but such
discount rate shall in no event be greater than ten percent (10%) PER ANNUM.
(b) In the event of Executive's death or permanent and total
disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code
of 1986, as amended and in effect and interpreted as of the date of this
Agreement) at any time within the 24-month period immediately following a Change
in Control and prior to any termination of Executive's employment, Executive or
Executive's Successors shall be entitled to all of the benefits of Executive
provided under this Agreement as if Executive had voluntarily terminated his
employment with Sensormatic (but without giving effect to Section 4 hereof or to
the loss of benefits upon voluntary termination under Section 6(a)(v)(A)
hereof), including, without limitation, those set forth in Section 6(a)(iii)
hereof.
(c) In the event of Executive's death or disability after
termination of Executive's employment with Sensormatic, Executive or Executive's
Successors shall be entitled to receive all remaining benefits to which
Executive is entitled under this Agreement.
9. TERMINATION FOR CAUSE. In the event that Executive's
employment with Sensormatic is terminated for Cause at any time after any Change
in Control, whether "approved" or "non-approved", Executive shall not be
entitled to any of the benefits set forth in Sections 6, 7 or 8 of this
Agreement not yet received by him, except to the extent that Executive
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exercised rights prior to such termination with respect to options, Award Shares
or Conversion Shares as provided under Sections 6(a)(i), 6(a)(ii) and, 6(a)(iv)
hereof (including by reference under Section 7(a)(i) hereof). The foregoing
shall not affect any rights of Executive accrued other than by virtue of this
Agreement. For purposes of this Agreement, Sensormatic shall be deemed to have
terminated Executive's employment with Sensormatic for Cause only if such
termination is effected for any of the following reasons:
(a) gross neglect or willful misconduct by Executive in the
performance of Executive's duties resulting in material economic harm
to Sensormatic; or
(b) the conviction of Executive for a felony involving moral
turpitude under federal or state law;
PROVIDED, HOWEVER, that the determination of the existence of the grounds
referred to in subparagraph (a) of this Section 9 shall be made, in good faith,
only (i) by a majority of the Previous Members of the Board of Directors who are
then in office with Sensormatic or a corporate successor of Sensormatic
(provided that such majority shall consist of not less than two persons); and
PROVIDED, FURTHER, that Executive shall be given prior written notice by the
Board of Directors of the intention to terminate him for Cause and the specific
grounds for such termination, as determined in accordance with this Section 9,
and shall be entitled to a hearing before such Previous Members of the Board of
Directors (or a committee thereof designated by such Previous Members) before
such termination becomes effective or (ii) if at least two Previous Members of
the Board of Directors are not then in office, by a majority of the persons who
are then, and were, for a period of two years immediately prior to such Change
in Control, officers of Sensormatic (or, if Sensormatic is then a division, such
persons who were previously such officers of Sensormatic and are then employed
in an executive or managerial capacity in the division).
10. INVOLUNTARY TERMINATION EVENTS. By way of illustration,
and not of limitation, each of the following events shall constitute involuntary
termination of Executive's employment with Sensormatic, provided that Executive
resigns from such employment within six months following such event, but in no
case later than 36 months immediately following a Change in Control, and
provided, further, that Executive shall not have consented to such event in
writing:
(a) Executive is assigned any duties or responsibilities that
are materially inconsistent with Executive's position, office, duties,
responsibilities or status immediately prior to the date of such Change in
Control, or a material change is made in Executive's reporting responsibilities,
titles or offices from those in effect immediately prior to such Change in
Control, or Executive is removed from, or is not re-elected to, any such
position or office, following such Change in Control, unless in connection with
the termination of Executive's employment with Sensormatic for Cause or by
reason of his death or disability; PROVIDED, HOWEVER, that, in the event of an
"approved" Change in Control, as a result of which Sensormatic becomes a
division and not a separate corporation, a change to offices and titles in such
division reasonably comparable to the previous offices and positions in
Sensormatic and a reasonable change in reporting responsibilities shall not be
deemed such a material change;
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(b)(i) Executive's annual rate of base salary or target bonus
is reduced below the greater of the amounts (x) paid therefor immediately
preceding the date of such Change in Control or (y) expressly set forth in
Section 2 hereof, (ii) the formula for the calculation of Executive's bonus is
changed in a manner that could reasonably be anticipated to decrease the amount
payable thereunder or (iii) any other change is made with respect to Executive's
salary or bonus that would violate Section 2;
(c) a material reduction is made in the benefits set forth in
paragraphs (a) through (g) of Section 3 hereof or to any additional benefits or
perquisites which may have been granted to Executive subsequent to the date of
this Agreement (other than changes made in benefit plans required by law or
applicable regulations thereunder), as they may be in effect immediately prior
to the date of such Change in Control, or if any increase is made in the cost to
Executive for such benefits; or
(d) Executive is transferred or required to transfer to a
location outside of a 25-mile radius of Sensormatic's then-current headquarters
in Palm Beach County or Broward County, Florida (or, if Executive's position was
located outside of Palm Beach County or Broward County, Florida prior to such
Change in Control, Executive is transferred or required to transfer to a
location located more than 25 miles therefrom), or the principal place of
business of Sensormatic in which Executive's major duties have been carried out
is transferred to a location outside of a 25-mile radius of Sensormatic's
then-current headquarters in Palm Beach County or Broward County, Florida.
(e) Sensormatic fails to obtain the assumption in writing of
its obligation to perform this Agreement by any successor to all or
substantially all of the assets and/or business of Sensormatic within 15 days
after a Reorganization Event or any other transaction occurring in connection
with, as a result of or within 24 months following a Change in Control pursuant
to which Sensormatic is not the surviving corporation.
11. PAYMENTS. All monthly payments that Executive (or his
Successors) is entitled to receive under Sections 6 or 7 of this Agreement shall
be paid by or on behalf of Sensormatic on or before the 10th day of each month
in which payable, except that any regular payments required to be made under the
plans referred to in Section 6(b) hereof shall be made in accordance with the
terms of such plans. Any lump sum payable to Executive under Sections 6 or 8(a)
of this Agreement shall be paid by or on behalf of Sensormatic within 10 days
after Executive's right to such payment accrues.
12. COSTS OF COLLECTION. Sensormatic agrees upon demand to pay
all costs and expenses of Executive (including, without limitation, reasonable
counsel fees and expenses) in connection with the enforcement, whether through
negotiations, arbitration or legal proceedings or otherwise, of this Agreement
and the collection of any benefits due to Executive hereunder.
13. NO EFFECT ON EMPLOYMENT. This Agreement is not, and
nothing hereby shall be deemed to create, a contract of employment between
Sensormatic and Executive. The right of Sensormatic to terminate Executive's
employment with Sensormatic or any subsidiary thereof, at any time at will or as
otherwise provided in the Officer Agreement or any other agreement between
Sensormatic and Executive, shall not be affected or limited by this Agreement
and is specifically reserved. Further, this Agreement shall not be deemed to
require
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Sensormatic to continue, or to continue unmodified, any benefit plan or
policy, whether or not referred to in Section 3 hereof, provided that no Change
in Control shall have occurred and no Attempted Change in Control shall have
occurred and then be pending.
14. CONFLICTS WITH OTHER AGREEMENTS. Nothing contained in or
arising out of this Agreement shall be deemed to discharge, release or modify
the obligations of Sensormatic to Executive under the provisions of the Officer
Agreement or any other agreement between them or of any plan or program of
Sensormatic, regardless of whether the subject matter of any provision thereof
is the same or similar to that of any provision of this Agreement, the rights
and remedies of Executive under this Agreement and any other such agreement,
plan or program being cumulative and not in substitution of each other;
PROVIDED, HOWEVER, that nothing in this Agreement shall entitle Executive to
receive duplicative payments of salary, bonus or other benefits. Further,
nothing in this Agreement shall diminish or otherwise adversely affect
Executive's rights or benefits accruing as a consequence of his death or
disability, at any time after a Change in Control, under the terms and
conditions of the plans or programs of Sensormatic in which Executive is a
participant immediately prior to any Change in Control and any additional plan
or program of Sensormatic in which Executive is a participant at the time of
Executive's death or disability.
15. MAINTENANCE OF PLANS. Sensormatic agrees that, for not
less than 36 months after a Change in Control, it shall maintain in effect the
plans and programs in which Executive is a participant immediately prior to such
Change in Control (or comparable plans and programs) to the extent necessary to
assure that the rights and benefits of Executive thereunder shall be no less
favorable after such Change in Control than immediately prior thereto, provided,
that Sensormatic shall in no event make any change in the event of or at any
time after a Change in Control in the Retirement Plan resulting in a reduction
of Executive's benefits thereunder.
16. ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement shall be settled by arbitration before the American
Arbitration Association in Miami, Florida, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. Any costs, including, without limitation, attorneys' fees
and disbursements, incurred by Executive in such arbitration or in connection
with any appeal therefrom or any action brought to enforce or collect any such
award or judgment thereon, shall be reimbursed by Sensormatic, provided, that
Sensormatic shall not be required to reimburse Executive hereunder in the event
that the arbitral panel or appeals court finds that Executive's claims and/or
defenses are substantially without reasonable basis.
17. SURVIVAL. This Agreement shall be binding on, enforceable
against and inure to the benefit of Executive and his heirs, executors,
administrators, personal representatives, successors and assigns and Sensormatic
and its successors and assigns, including, without limitation, any corporation
with or into which Sensormatic is merged or consolidated, or any entity which
acquires all or substantially all of the business and assets of Sensormatic, in
connection with any Change in Control. In connection with any sale, merger or
consolidation described in the preceding sentence, Sensormatic shall take all
actions permissible under applicable law in order to cause such other
corporation to expressly assume Sensormatic's liabilities, obligations and
duties hereunder.
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18. NOTICES. Any notice given to a party pursuant to or in
connection with this Agreement shall be in writing and shall be deemed to have
been given when delivered personally or sent by Federal Express or a similar
overnight courier service or by certified or registered mail, postage prepaid,
return receipt requested, duly addressed to the party concerned at the address
indicated at the beginning of this Agreement or to such changed address as such
party may subsequently give such notice of.
19. SEVERABILITY. If any provision of this Agreement is found
to be invalid or unenforceable by a court of competent jurisdiction or an
arbitral panel under Section 16 hereof, this Agreement shall be interpreted and
enforceable as if such provision were severed or limited, but only to the extent
necessary to render such provision and this Agreement enforceable.
20. GOVERNING LAW. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of Florida
applicable to agreements made and fully to be performed in such state, without
giving effect to conflicts of law principles.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first set forth above.
SENSORMATIC ELECTRONICS CORPORATION
By: /s/ Robert A. Vanourek
-----------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
Executive: /s/ Jerry T. Kendall
---------------------------------
-19-
<PAGE> 20
SCHEDULE I
Applicable Retirement Plans
1. Supplemental Executive Retirement Plan.
-20-
<PAGE> 1
EXHIBIT 10(u)
AGREEMENT
AGREEMENT, made as of the 25th day of June, 1997, by and between
SENSORMATIC ELECTRONICS CORPORATION, a Delaware corporation having its principal
place of business at 951 Yamato Road, Boca Raton, Florida 33431-0700
(hereinafter referred to as the "Corporation"), and RONALD F. PREMUROSO,
residing at 311 Eagleton Golf Drive, Palm Beach Gardens, Florida 33418
(hereinafter referred to as the "Employee");
W I T N E S S E T H:
WHEREAS, the Employee is an executive officer and employee of the
Corporation, and has made, and is expected to continue to make, a significant
contribution to the performance and growth of the Corporation; and
WHEREAS, in order to best dedicate himself to his duties with the
Corporation, and to avoid the distractions and market pressures which may arise
as a result of an employment-at-will relationship, the Employee wishes to be
assured of receiving, or continuing to receive for a certain period, certain
compensation and benefits in the event of the termination of his employment
without cause by the Corporation; and
WHEREAS, the Corporation has determined that the continued services of the
Employee to the Corporation are in the best interest of the Corporation and its
stockholders, and desires to assure such continued services by agreeing to
provide the Employee certain rights as to termination compensation, subject to
certain reasonable limitations on the Employee's future employment necessary to
protect the legitimate interests of the Corporation in fair competition, and
subject to such other conditions as are set forth hereunder;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. EMPLOYMENT AT WILL. The Employee shall continue to serve the Corporation
as Vice President - International Retail Operations and shall serve in such
other executive capacity as may be reasonably determined by the President and
the Board of Directors and is reasonably acceptable to him. The parties
acknowledge and agree that the Employee's employment with the Corporation is not
contracted for any fixed term, but shall continue until terminated by either
party, with or without cause, by giving written notice to the other party
pursuant to Section 3 hereunder. The provisions of this Agreement which are
intended to apply and be effective subsequent to such termination of employment
shall survive and continue to be enforceable.
2. COMPENSATION.
(a) The Employee's present base salary is $170,000 per year and the
Employee's present targeted bonus is $115,000 per year. In addition, the
Employee presently participates in or benefits from the Corporation's group
medical, dental and life insurance plans, Executive Medical Reimbursement Plan,
SensorSave and ESOP pension plans, Key Executive Supplemental Retirement Plan,
Employee Stock Purchase Plan, Stock Incentive Plan, and certain other fringe
benefit plans or policies as the Corporation makes available to or has in effect
for its executive personnel from time to time. After the date of this Agreement,
such compensation and benefits may
<PAGE> 2
be increased or decreased, discontinued or modified, as determined by the
Corporation's Board of Directors or the Compensation Committee thereof, subject
to the provisions of Section 3(c)(i) below.
(b) Except as hereinafter provided, the Corporation shall pay the
Employee, for any period that this Agreement is in effect during which he is
unable fully to perform his duties because of physical or mental disability or
incapacity, an amount equal to the base salary due him for such period based on
his rate of base salary just prior to the disability, less the aggregate amount
of all income disability benefits which for such period he may receive or to
which he may be entitled under or by reason of (i) any group health insurance
plan; (ii) any applicable compulsory state disability law; (iii) the Federal
Social Security Act; (iv) any applicable workmen's compensation law or similar
law; and (v) any plan towards which the Corporation or any parent, subsidiary or
affiliate of the Corporation has contributed or for which it has made payroll
deductions, such as group accident or health policies or the Key Executive
Supplemental Retirement Plan.
3. COMPENSATION UPON TERMINATION.
(a) The Employee may terminate his employment with the Corporation at
any time by giving written notice to the Corporation. Except as provided in
Section 3(c) below, the Corporation's sole obligation to the Employee in such
event is (i) to pay the Employee's base salary to the date of termination, (ii)
to pay any non-discretionary incentive compensation which had been earned but
not yet paid for any evaluation period completed prior to the date of notice of
termination, and (iii) to complete any obligations required to be discharged
under the terms of group benefit plans. No further compensation (including,
without limitation, payment of severance compensation, discretionary bonus
compensation for any period, or incentive compensation for the current
evaluation period as of the date of notice, whether through discretionary or
targeted plans) shall be paid to the Employee, pro-rata or otherwise, and all
other benefits and perquisites (including, without limitation, stock options,
executive medical reimbursement, corporate country club privileges and auto
allowances) shall be canceled as of the date of termination.
(b) The Corporation may terminate the Employee's employment with the
Corporation at any time by giving written notice to the Employee. In the event
of such termination (except for cause pursuant to Section 4 hereunder, and
subject to the Employee's continued compliance with the provisions of Sections
5, 6 and 7 below), the Employee shall be entitled to:
(i) base salary through the date of termination of his
employment;
(ii) non-discretionary incentive compensation which had been
earned but not yet paid for any evaluation period completed prior to the date of
termination;
(iii) base salary, at the annualized rate in effect on the date
of termination of employment (or in the event a reduction in base salary is the
basis for a termination pursuant to Section 3(c) below, then the base salary in
effect immediately prior to such reduction), for a period of 18 months following
such termination (the "Continuation Period"), payable at the same regular
intervals as in effect prior to the termination, PROVIDED, HOWEVER, that in the
event the Employee procures full time employment at any time during the
Continuation Period, base salary payable hereunder shall continue to be paid
only for a period equal to one-half of the remainder of the Continuation Period;
2
<PAGE> 3
(iv) a thirty (30) day period following termination in which the
Employee may exercise any vested stock options (all unvested options, as well as
shares of restricted stock issued under the Corporation's long-term incentive
plan/Success Sharing Program, or any subsequently adopted similar plan, shall
automatically terminate and be canceled upon the Employee's termination of
employment);
(v) participation until the end of the Continuation Period,
through Corporation-paid COBRA premiums, in medical and dental insurance
coverage equivalent to that in which he was participating on the date of the
termination of his employment; (including spouse or family coverage, if
applicable); provided that the Corporation's obligations under this clause shall
be reduced to the extent that the Employee is eligible for similar coverage and
benefits under the plans and programs of a subsequent employer; and
(vi) other or additional benefits in accordance with applicable
group plans and programs of the Corporation.
Except as provided above, no further compensation (including,
without limitation, payment of discretionary bonus compensation for any period
of incentive compensation for the current evaluation period as of the date of
termination, whether through discretionary or targeted plans) shall be paid to
the Employee, pro-rata or otherwise, and all other benefits and perquisites
(including, without limitation, stock options, executive medical reimbursement,
corporate country club privileges and auto allowances) shall be canceled as of
the date of termination.
(c) In the event that any of the following events occur, the Employee
may terminate his employment with the Corporation by giving written notice to
the Corporation, and shall thereupon be entitled to the payments, entitlements
and benefits provided in Section 3(b) above as if the Corporation had terminated
the Employee's employment with the Corporation pursuant to Section 3(b) above.
(i) a reduction in the Employee's then current base salary, or a
reduction in the Employee's targeted bonus under a non-discretionary incentive
compensation plan not offset by a corresponding increased in base salary, or the
termination or material reduction of any employee benefit or perquisite enjoyed
by him without his permission or agreement (in each case, other than as part of
an across-the-board reduction of such compensation, benefit or perquisite
applicable to all executive officers of the Corporation);
(ii) a material diminution in the Employee's duties, or the
assignment to the Employee of duties, such that the remaining duties are
materially inconsistent with the duties of a senior officer of the Corporation;
or
(ii) the failure of the Corporation to obtain the assumption in
writing of its obligation to perform this Agreement by any successor to all or
substantially all of the assets of the Corporation within 15 days after a
merger, consolidation, sale or similar transaction.
(d) In the event that the aggregate of all payments or benefits made
or provided to the Employee following a change in control of the Corporation
under this Agreement and under all other plans and programs of the Corporation
(the "Aggregate Payment") is determined to include an excess parachute payment,
as such term is defined in Section 280G(b)(1) of the Internal Revenue Code, the
Corporation shall pay
3
<PAGE> 4
to the Employee, prior to the time any excise tax imposed by Section 4999 of the
Internal Revenue Code ("Excise Tax") is payable with respect to such excess
parachute payment, an additional amount which, after the imposition of all
income and excise taxes thereon, is equal to the Excise Tax on the excess
parachute payment. The determination of whether the Aggregate Payment includes
an excess parachute payment and, if so, the amount to be paid to the Employee
and the time of payment pursuant to this Section 3(d) shall be made by an
independent auditor (the "Auditor") jointly selected by the Corporation and the
Employee and paid by the Corporation. The Auditor shall be a nationally
recognized United States public accounting firm which has not, during the two
years preceding the date of its selection, acted in any way on behalf of the
Corporation or any affiliate thereof. If the Employee and the Corporation cannot
agree on the firm to serve as the Auditor, then the Employee and the Corporation
shall each select one accounting firm and those two firms shall jointly select
the accounting firm to serve as the Auditor.
4. TERMINATION FOR CERTAIN CAUSES. Notwithstanding anything to the contrary
set forth elsewhere herein, in the event of the willful misconduct of the
Employee in the performance of his duties hereunder resulting in significant
economic harm to the Corporation or the conviction of the Employee for a felony
under federal or state law relating to the assets, business or affairs of the
Corporation or involving moral turpitude, the Employee's employment with the
Corporation may be terminated by the Corporation by written notice to the
Employee, provided that the Employee shall be given prior written notice by the
Board of Directors of the intention to terminate him for cause and the specific
grounds for such termination. The Employee shall be entitled to a hearing before
the Board before such termination becomes effective.
5. DISCLOSURE AND ASSIGNMENT OF DISCOVERIES. The Employee shall (without
any additional compensation) promptly disclose in writing to the Board of
Directors of the Corporation all ideas, formulae, programs, systems, devices,
processes, business concepts, discoveries and inventions (hereinafter referred
to collectively as "discoveries") whether or not patentable, which the Employee,
while employed by the Corporation, conceives, makes, develops, acquires or
reduces to practice, whether alone or with others and whether during or after
usual working hours, and which are related to the Corporation's business or
interests, or are used or usable by the Corporation; and the Employee hereby
transfers and assigns to the Corporation all right, title and interest in and to
said discoveries, including any and all domestic and foreign patent rights
therein and any renewals thereof. On request of the Corporation, the Employee
shall (without any additional compensation), from time to time during or after
the expiration or termination of his employment, execute such further
instruments (including, without limitation, applications for letters patent and
assignments thereof) and do all such other acts and things as may be deemed
necessary or desirable by the Corporation to protect and/or enforce its rights
in respect of said discoveries. All expenses of filing or prosecuting any patent
applications shall be borne by the Corporation, but the Employee shall cooperate
in filing and/or prosecuting any such applications.
6. CONFIDENTIALITY. The Employee agrees that all patent rights, inventions,
technical information and know-how and trade secrets relating to the
Corporation's electronic security systems and any other products in development
or marketed by the Corporation, any information relating thereto, and any other
information relating to the business or interests of the Corporation which he
knows or should know, is regarded as confidential and valuable by the
Corporation (whether or not any of the foregoing information is actually novel
or unique or is actually known to others), made available to the Employee by the
Corporation or acquired by the Employee from
4
<PAGE> 5
the Corporation, other than that which legally and legitimately is or becomes of
general public knowledge or passes into the public domain from authorized
sources other than the Employee, will be held in confidence and will not be
divulged (or caused or permitted to be divulged) by the Employee, without the
prior written consent of the Corporation, to any person or entity, except to
responsible officers and employees of the Corporation and other responsible
persons who are in a contractual or fiduciary relationship with the Corporation
or who have a need for such information for purposes in the interest of the
Corporation or otherwise in the course of carrying out his duties hereunder and
except when required to disclose such information by a court of law, by any
governmental agency having supervisory authority over the business of the
Company or by any administrative or legislative body (including a committee
thereof) with the apparent jurisdiction to order him to divulge, disclose or
make accessible such information. The Employee further agrees that his
obligations of secrecy and confidentiality under this Section 6 shall survive
any termination of this Agreement unless specifically waived in writing by the
Corporation and, in the event of any such termination, the Employee shall never
use or market, nor disclose to others nor assist others in using or marketing,
any of the information or property rights of the Corporation referred to in this
Section 6, other than that which legally and legitimately is or becomes of
general public knowledge or passes into the public domain from authorized
sources other than the Employee.
7. NON-COMPETITION. In order to protect the legitimate business interests
of the Corporation, such as, without limitation, in its trade secrets,
confidential and professional information, substantial relationships with
existing and prospective customers, and investments in extraordinary and
specialized training, the Employee shall not, directly or indirectly:
(a) engage in the business of manufacturing, leasing, selling,
maintaining, or servicing, anywhere in the world, anti-shoplifting, theft
detection, inventory/asset control, closed circuit television, access control,
article surveillance devices or other products which are similar to or purport
to accomplish results similar to the Corporation's electronic article
surveillance, closed circuit television and access control systems and other
products being developed or marketed by the Corporation during the Employee's
employment with the Corporation;
(b) render any services as an officer, director, employee, partner,
consultant or otherwise to, or have any interest as a stockholder, partner,
lender or otherwise in, any entity which is so engaged;
(c) solicit or attempt to solicit business of any customers of the
Corporation for products or services the same or similar to those offered, sold,
produced or under development by the Corporation during the Employee's
employment with the Corporation;
(d) solicit or attempt to solicit for any business endeavor any
employee of the Corporation;
(e) accept any orders for products or services or any other business
from any customers of the Corporation for products or services the same or
similar to those offered, sold, produced or under development by the Corporation
during the Employee's employment with the Corporation; or
(f) hire or retain as a consultant - or render any services as an
officer, director, employee, partner, consultant or otherwise to, or have any
interest as a stockholder,
5
<PAGE> 6
partner, lender or otherwise in, any entity which hires or retains as a
consultant - any person which, within six (6) months prior to the date of such
hiring or retention, had been employed by the Corporation in a sales, marketing,
managerial or professional (e.g. accounting, engineering, legal) capacity;
during the term of the Employee's employment with the Corporation and for a
period of eighteen (18) months from and after the date of termination of such
employment, or for such lesser area or lesser period as may be determined by a
court of law or equity to be a reasonable limitation on the competitive activity
of the Employee, it being understood and agreed by the parties hereto that this
provision is reasonably necessary to protect the patent rights, inventions,
technical information and know-how, trademarks and the good will and reputation
of the Corporation. For the purpose of this Section 7, the term "Corporation"
shall include any and all affiliates of the Corporation in existence from time
to time. Notwithstanding anything to the contrary contained in this Section 7,
the provisions hereof shall not prevent the Employee from purchasing or owning
up to two (2%) percent of the voting securities of any corporation, the stock of
which is publicly traded.
8. TERMINATION OF BENEFITS AND INJUNCTIVE RELIEF. In the event of a breach
or threatened breach by the Employee of any of the provisions of Sections 5, 6
and 7, the Corporation shall be entitled, if it shall so elect, to (a) terminate
any remaining benefits (including any unpaid severance payments or unexercised
options) otherwise due or outstanding pursuant to Section 3, and/or (b) except
in the case of a breach or threatened breach of Section 7(e) or (f), institute
legal proceedings to obtain damages or to enforce the specific performance of
such provisions by the Employee and to enjoin the Employee from any further
violation of such provisions and to exercise such remedies cumulatively or in
conjunction with all other rights and remedies provided by law. The Employee
acknowledges, however, that the remedies at law for any breach or threatened
breach by him of such provisions may be inadequate and that the Corporation
shall be entitled to injunctive relief against him in the event of any breach or
threatened breach.
9. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements and
understandings between the parties pertaining to the subject matter hereof
(other than the plans and policies referred to in Sections 2 hereof and any
other agreements or understandings pertaining thereto) including, without
limitation, the Contracts of Employment dated May 1, 1995, between Ronald
Premuroso and Sensormatic Electronics Corporation and Sensormatic Asia/Pacific,
Inc., respectively, and may not be changed or terminated orally, and no change,
termination or attempted waiver of any of the provisions hereof shall be binding
unless in writing and signed by the party against whom the same is sought to be
enforced; provided, however, that the Employee's compensation and/or benefits
may be increased at any time by the Corporation without in any way affecting any
of the other terms and conditions of this Agreement, which in all other respects
shall remain in full force and effect.
10. SUCCESSORS AND ASSIGNS. Neither party shall have the right to assign
this personal Agreement, or any rights or obligations hereunder, without the
consent of the other party, provided, however, that upon the sale of all or
substantially all of the assets, business and goodwill of the Corporation to
another corporation, or upon the merger or consolidation of the Corporation with
another corporation, this Agreement shall inure to the benefit of, and be
binding upon, both the Employee and the corporation purchasing such assets,
business and goodwill, or surviving such merger or consolidation, as the case
may be, in the same manner and to the same extent as though such other
corporation were the Corporation. In the event of a sale, merger
6
<PAGE> 7
or consolidation described in the preceding sentence, the Corporation shall take
whatever action it legally can in order to cause such other corporation to
expressly assume the liabilities, obligations and duties of the Corporation
hereunder. Subject to the foregoing, this Agreement shall inure to the benefit
of, and bind, the parties hereto and their legal representatives, heirs,
successors and assigns.
11. GOVERNING LAW. This Agreement is made and executed and shall be
governed by the laws of the State of Florida, without giving effect to choice of
law principles.
12. INDEMNIFICATION.
(a) The Corporation agrees that if the Employee is made a party, or
is threatened to be made a party, to any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "Proceeding"), by reason of
the fact that he is or was a director, officer, or employee of the Corporation
or is or was serving at the request of the Corporation as a director, officer,
member, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether or not the basis of such Proceeding is the Employee's alleged
action in an official capacity while serving as a director, officer, member,
employee or agent, the Employee shall be indemnified and held harmless by the
Corporation to the fullest extent legally permitted or authorized by the
Corporation's certificate of incorporation or bylaws or resolutions of the
Company's Board of Directors or, if greater, by the laws of the State of
Delaware against all cost, expense, liability and loss (including, without
limitation, attorney's fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
the Employee in connection therewith, and such indemnification shall continue as
to the Employee even if he has ceased to be a director, officer, member,
employee or agent of the Corporation or other entity and shall inure to the
benefit of the Employee's heirs, executors and administrators. The Corporation
shall advance to the Employee all reasonable costs and expenses incurred by him
in connection with a Proceeding within 20 days after receipt by the Corporation
of a written request for such advance. Such request shall include an undertaking
by the Employee to repay the amount of such advance if it shall ultimately be
determined that he is not entitled to be indemnified against such costs and
expenses.
(b) Neither the failure of the Corporation (including its board of
directors, independent legal counsel or stockholders) to have made a
determination prior to the commencement of any Proceeding concerning payment of
amounts claimed by the Employee under Section 12(a) above that indemnification
of the Employee is proper because he has met the applicable standard of conduct,
nor a determination by the Corporation (including its board of directors,
independent legal counsel or stockholders) that the Employee has not met such
applicable standard of conduct, shall create a presumption that the Employee has
not met the applicable standard of conduct.
(c) The Corporation agrees to continue and maintain a directors and
officers' liability insurance policy covering the Employee to the extent the
Corporation provides such coverage for its other executive officers.
13. REPRESENTATION. The Corporation represents and warrants that it is
fully authorized and empowered by action of the Board of Directors to enter into
this Agreement and that the performance of its obligations under this Agreement
will not violate any agreement between it and any other person, firm or
organization.
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<PAGE> 8
14. SEVERABILITY. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
15. SURVIVORSHIP. The respective rights and obligations of the parties
hereunder shall survive any termination of the Employee's employment to the
extent necessary to the intended preservation of such rights and obligations.
16. BENEFICIARIES/REFERENCES. The Employee shall be entitled, to the extent
permitted under the applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
the Employee's death by giving the Company written notice thereof. In the event
of the Employee's death or a judicial determination of his incompetence,
reference in this Agreement to the Employee shall be deemed, where appropriate,
to refer to his beneficiary, estate or other legal representative.
17. RESOLUTION OF DISPUTES. Except for disputes which are subject to the
provisions of Section 8, any disputes arising under or in connection with this
Agreement shall, at the election of the Employee or the Company, be resolved by
binding arbitration, to be held in Ft. Lauderdale, Florida in accordance with
the rules and procedures of the American Arbitration Association. Judgment upon
the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. Any judgment or order entered in such action shall contain
a specific provision providing for the prevailing party's recovery of its
attorneys' fees and costs in bringing the action and enforcing the judgment from
the losing party. "Prevailing Party" shall mean the party which has been granted
the relief or remedy sought, or which has obtained judgment for damages of at
least 50 percent of the amount claimed.
18. NOTICES. Any notice given to a party shall be in writing and shall be
deemed to have been given when delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, duly addressed to
the party concerned at the address indicated at the beginning of this Agreement
or to such changed address as such party may have specified by written notice
hereunder.
19. HEADINGS. The headings of the sections contained in this Agreement are
for convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
SENSORMATIC ELECTRONICS CORPORATION RONALD F. PREMUROSO
By: /s/ Robert A. Vanourek By: /s/ Ronald F. Premuroso
-------------------------------------- ------------------------
Robert A. Vanourek
President and Chief Executive Officer
8
<PAGE> 1
EXHIBIT 10(v)
AGREEMENT
AGREEMENT, dated as of September 1, 1998, by and between
SENSORMATIC ELECTRONICS CORPORATION, a Delaware corporation having its principal
place of business at 951 Yamato Road, Boca Raton, Florida 33431 ("Sensormatic"),
and RONALD F. PREMUROSO, an individual whose address is 311 Eagleton Golf Drive,
Palm Beach Gardens, Florida 33418 ("Executive").
W I T N E S S E T H:
WHEREAS, Executive is an employee of Sensormatic, with the
title of Sr. Vice President and President - Europe Retail Operations, and has
made, and is expected to continue to make, a significant contribution to the
performance and growth of Sensormatic;
WHEREAS, the Board of Directors of Sensormatic recognizes
that, as is the case with many publicly-held corporations, the possibility of a
Change in Control (as defined below) exists and that such possibility, and the
uncertainty which it may raise among Sensormatic's management, may result in the
distraction or departure of management personnel to the detriment of Sensormatic
and its stockholders, particularly at a time when Sensormatic is placing heavy
demands on its management in connection with its efforts to expand its product
lines and markets, restructure its operations and reduce its expenses;
WHEREAS, the Board of Directors of Sensormatic has determined
that the continued services of Executive to Sensormatic are in the best interest
of Sensormatic and its stockholders and desires to assure such continued
services by agreeing to provide to Executive certain rights as to termination
compensation in the event of a Change in Control;
WHEREAS, the Board of Directors of Sensormatic believes that
the grant of such rights to Executive will help assure Executive's continuing
dedication to his duties to Sensormatic, notwithstanding the occurrence of any
Change in Control, and, in particular, will enable Executive to objectively and
impartially assess, and advise the Board of Directors with respect to, any
proposal received by Sensormatic regarding a Change in Control and to take such
action regarding any such proposal as the Board of Directors may deem to be
appropriate; and
WHEREAS, with similar purposes and intents, Sensormatic
entered into an Agreement dated June 1, 1989 with Executive relating to a
possible Change in Control (the "Prior Agreement"), and Sensormatic and
Executive wish to amend and restate the Prior Agreement as hereinafter set forth
in order, among other things, to clarify and update certain provisions thereof;
and;
WHEREAS, Sensormatic and Executive are parties to an Agreement
dated June 25, 1997 (the "Officer Agreement");
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the parties hereby agree as follows, amending
and restating the Prior Agreement:
<PAGE> 2
1. TERM.
(a) The term of this Agreement, originally commenced on June
1, 1989 under the Prior Agreement, and continuing pursuant to this amended and
restated Agreement as of the date hereof (which for all purposes of this
Agreement shall mean the date first above written), shall continue until a
Change in Control shall occur and for so long thereafter as Sensormatic has or
may have any obligations under Sections 6, 7, 8, 12, 13 or 15 hereof.
(b) Notwithstanding the provisions of Section l(a) hereof,
Sensormatic shall have the right to terminate this Agreement, effective on any
anniversary of the date of this Agreement, provided that no Change in Control
shall have occurred and no Attempted Change in Control (as defined below) shall
have occurred and then be pending. In the event that any Attempted Change in
Control is not followed by a Change in Control and is no longer pending,
Sensormatic shall again be entitled to terminate this Agreement as provided in
the first sentence of this Section 1(b). Sensormatic may effect a termination of
this Agreement hereunder solely by notifying Executive thereof at least 30 days
prior to the relevant anniversary date hereof.
(c) Notwithstanding the provisions of Sections 1(a) and l(b)
hereof, this Agreement shall terminate automatically in the event of the
voluntary or involuntary termination of Executive's employment with Sensormatic
prior to the occurrence of a Change in Control, so long as, at the time of such
termination of employment, no Attempted Change in Control shall have occurred
and then be pending. Notwithstanding anything contained in this Agreement to the
contrary, if Executive's employment is terminated by Sensormatic prior to a
Change in Control, which Change in Control occurs, and Executive reasonably
demonstrates that such termination was at the request of a third party who
effectuates such Change in Control or that such termination was directly related
to such Change in Control, then for all purposes of this Agreement, Executive
shall be entitled to the payments and other benefits provided under this
Agreement as if such termination had occurred following such Change in Control.
2. SALARY AND BONUS. Executive's present base salary is
$224,251 per year and Executive's target bonus is deemed to be $130,000 per
year. After the date of this Agreement, Executive's annual base salary and
target bonus may be increased or decreased as determined by the chief executive
officer of Sensormatic and approved by Sensormatic's Board of Directors or any
compensation committee thereof, except as otherwise provided by the Officer
Agreement, provided, however, that none of the following shall be effective
during the pendency of an Attempted Change in Control or in the event of a
Change in Control or at any time within 36 months after a Change in Control has
occurred: (i) any decrease in Executive's annual base salary or target bonus
from the amounts set forth above (or any greater amounts subsequently so
determined and approved), or (ii) any change in the formula then in effect for
calculation of Executive's bonus that could be reasonably anticipated to result
in a decrease in the amount payable thereunder.
3. FRINGE BENEFITS. Sensormatic currently provides to
Executive the fringe benefits listed below, without cost to Executive, and,
while nothing in this Agreement shall be deemed to require Sensormatic to
continue any such benefits or to prohibit Sensormatic from modifying any such
benefits in any respect, except that there shall be no material reduction in any
such currently provided benefits (and there shall be no material reduction in
any additional benefits subsequently approved by Sensormatic's Board of
Directors or any Committee thereof)
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during the pendency of an Attempted Change in Control or in the event of a
Change in Control or at any time within 36 months after a Change in Control has
occurred (and, in addition, there shall not, at any time following a Change in
Control, be any change in the non-qualified retirement plan or plans of the
Corporation for key executives in which Executive is a participant, as listed on
Schedule I hereto, or any similar or successor plan (the "Retirement Plan",
which shall include, for all purposes of this Agreement, any agreement between
Sensormatic and Executive under any such Plan) resulting in a reduction of
Executive's benefits thereunder), it is anticipated that such benefits (together
with any such additional benefits) shall continue to be provided to Executive on
the same or a substantially similar basis in the future in accordance with the
terms of the applicable benefit plans and policies:
(a) group medical and group dental plans in which Executive
and his eligible dependents are participants;
(b) life insurance on Executive's life and accidental death
and dismemberment insurance, each equal to two times Executive's annual
base salary (but not to exceed $800,000 or such greater amount as may
be established by Sensormatic for such purposes from time to time);
(c) participation in Sensormatic's retirement and/or profit
sharing plans (including the Retirement Plan) and in Sensormatic's
annual contributions, if any, thereto, provided that such participation
is contingent on Executive's continued qualification prior to any such
Change in Control or Attempted Change in Control as an eligible
participant under the provisions of such plans as then in effect and on
Executive's election to continue his participation in such plans;
(d) the use of a Sensormatic owned or leased automobile or
payment of its equivalent allowance, and comprehensive insurance
protection on such vehicle;
(e) disability income protection;
(f) reimbursement of Executive for reasonable travel and
entertainment expenses incurred by Executive in connection with the
business of Sensormatic; and
(g) the provision to Executive of office space befitting
Executive's position, secretarial help, and access to WATS lines.
Further, Sensormatic expects that, during the term of this Agreement, and so
long as Executive continues to be employed by Sensormatic, Executive's position
shall continue to be located in Palm Beach County or Broward County, Florida
(or, if Executive's position is located outside of Broward County or Palm Beach
County, Florida prior to any Attempted Change in Control or Change in Control,
such position shall continue to be located at substantially the same location),
and that the duties and responsibilities of Executive's position shall not be
significantly diminished.
4. EMPLOYMENT COMMITMENT. As partial consideration for the
benefits available to Executive under this Agreement, Executive hereby agrees to
remain as an officer and employee of Sensormatic during any Attempted Change in
Control and for a period of six
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months immediately after a Change in Control first occurs (the "Commitment
Period"), and during the Commitment Period to devote substantially all his
business time and efforts to the business and affairs of Sensormatic, provided
that Executive shall be entitled to terminate his employment by Sensormatic
during an Attempted Change in Control or at any time following a Change in
Control in circumstances which constitute an involuntary termination pursuant to
Section 10 hereof. Executive's participation in other businesses, as a director
or otherwise, with the approval of Sensormatic's Board of Directors (which
approval shall be deemed to include the Board of Directors not objecting to such
participation following disclosure thereof to the Board of Directors by
Executive, and which approval may not be withdrawn following such Change in
Control) shall not be deemed to contravene the foregoing provision. In the event
that Executive voluntarily terminates his employment with Sensormatic (other
than by resignation contemplated in Section 10 hereof) at any time during the
Commitment Period, Executive shall not be entitled to any of the benefits
provided for in this Agreement, other than those provided under Sections
6(a)(i), 6(a)(ii), 6(a)(iii), 6(a)(iv), 6(b)(ii), 12, 13 and 15 hereof, and
shall promptly repay to Sensormatic, on an after-tax basis, any benefits
previously received by him pursuant to any provisions of Sections 6 or 7 of this
Agreement not referred to in this sentence, but Sensormatic shall have no other
remedy for Executive's failure to remain an employee and officer as required by
this Section 4. Any amounts or benefits received by Executive pursuant to the
Officer Agreement or any other written employment agreement between Sensormatic
and Executive or any other compensation plan or arrangement of Sensormatic, even
if similar or identical to those to which he would be entitled under this
Agreement, shall not be deemed received pursuant to this Agreement or be
repayable to Sensormatic for purposes of the preceding sentence.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, the term "Change in
Control" shall mean a change in control of Sensormatic of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
provided, that, without limitation, such a change in control shall be deemed to
have occurred if (i) any person (as such term is used in Sections 13(d) and
14(d) of the Exchange Act, "Person") is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act, "Beneficial Owner"), directly or
indirectly, of securities of Sensormatic representing 30% or more of the
combined voting power of Sensormatic's then outstanding voting securities, (ii)
Sensormatic consummates a merger, consolidation, share exchange, division or
other reorganization of Sensormatic with any other corporation or entity, unless
the shareholders of Sensormatic immediately prior to such transaction
beneficially own, directly or indirectly, (A) if Sensormatic is the surviving
corporation in such transaction, 60% or more of the combined voting power of
Sensormatic's outstanding voting securities as well as 60% or more of the total
market value of Sensormatic's outstanding equity securities, (B) if Sensormatic
is not the surviving corporation, 80% or more of the combined voting power of
the surviving entity's outstanding voting securities as well as 80% or more of
the total market value of such entity's outstanding equity securities, or (C) in
the case of a division, 80% or more of the combined voting power of the
outstanding voting securities of each entity resulting from the division as well
as 80% or more of the total market value of each such entity's outstanding
equity securities, in each case in substantially the same proportion as such
shareholders owned shares of Sensormatic prior to such transaction; (iii)
Sensormatic adopts a plan of complete liquidation or winding-up of Sensormatic;
(iv) the shareholders of Sensormatic approve an agreement for the sale or
disposition (in one transaction or a series of transactions) of all or
substantially all of
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Sensormatic's assets; or (v) during any period of 24 consecutive months,
individuals (y) who at the beginning of such period constitute the Board of
Directors of Sensormatic or (z) whose election, appointment or nomination for
election was approved prior to such election or appointment by a vote of at
least two-thirds of the directors in office immediately prior to such election
or appointment who were directors at the beginning of such two-year period
(other than any directors who prior to the Change in Control were associated or
affiliated with any Person involved with any Change in Control or Attempted
Change in Control), cease for any reason to constitute at least three-fourths of
the Board of Directors of Sensormatic.
(b) For purposes of this Agreement, an "Attempted Change in
Control" shall be deemed to have occurred (i) if any Person files (or fails to
file when required to do so) with the Securities and Exchange Commission (the
"SEC") a Statement on Schedule 13D relating to voting securities of Sensormatic
(A) disclosing the acquisition of 10% or more thereof or (B) while disclosing
the acquisition of less than 10% of such voting securities, indicates an
intention to effect any of the transactions listed in Item 4 of Schedule 13D or
otherwise to effect a Change in Control, (ii) upon the public announcement
(including, without limitation, the filing with the SEC of a Statement on
Schedule 14D-1) by any Person of an intention to make a tender offer or
otherwise to effect a Change in Control, (iii) in the event of any solicitation
of proxies for the election of directors of Sensormatic pursuant to Rule l4a-11
of the Rules and Regulations under the Exchange Act or the filing of a Statement
on Schedule 14B in anticipation thereof, (iv) the receipt by Sensormatic from
any Person of any other communication proposing, or indicating an intention, to
effect a Change in Control by the acquisition of voting securities of
Sensormatic, the solicitation of proxies for the election of directors or
otherwise or (v) if the Board of Directors of Sensormatic or an authorized
committee thereof otherwise determines that an Attempted Change in Control is
pending. The termination of the pendency of an Attempted Change in Control shall
be determined by the Board of Directors of Sensormatic (or an authorized
committee thereof); PROVIDED, that any Attempted Change in Control shall in any
event be deemed to have terminated upon the occurrence of a Change in Control.
(c) A Change in Control shall be deemed, for purposes of this
Agreement, to be: (i) "non-approved" if (A) in connection with the consideration
thereof by the Board of Directors of Sensormatic, a majority of the Previous
Members of the Board of Directors (as defined below), either before or after
such Change in Control, (x) votes to disapprove of such Change in Control, (y)
votes to approve of such Change in Control, but as a consequence of the
existence of a competing proposal for a Change in Control, or (z) otherwise
expressly declares that such Change in Control is "non-approved", or (B) a
majority of the Previous Members of the Board of Directors neither expressly
approves nor disapproves of such Change in Control, or (ii) "approved" if in
connection with the consideration thereof by the Board of Directors of
Sensormatic, a majority of the Previous Members of the Board of Directors,
either before or after such Change in Control, (x) approves of such Change in
Control (other than as a consequence of the existence of a competing proposal
for a Change of Control) or (y) otherwise expressly declares that such Change in
Control is "approved", notwithstanding clause (A) (y) of this Section 5(c). The
majority of the Previous Members of the Board of Directors shall indicate its
approval or disapproval of a Change in Control by a statement or statements in
writing to such effect. For purposes of this Agreement, Previous Members of the
Board of Directors shall mean members of the Board of Directors of Sensormatic
as of the date of a Change in Control who had been in office for a period of at
least two years immediately prior to such Change in Control (other than
directors who prior to such Change in Control were appointed or elected as
directors
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as a consequence of their association or affiliation with any Person effecting
such Change in Control).
In addition, notwithstanding any previous
determination that a Change in Control was "approved", such Change in Control
may subsequently be determined, in good faith, to be "non-approved" by a
majority of the Previous Members of the Board of Directors who are then still in
office with Sensormatic or a corporate successor of Sensormatic (or if fewer
than two such Previous Members of the Board of Directors are still in office,
then by a majority of the Previous Members of the Board of Directors, whether or
not still in office) within the 36-month period immediately following such
Change in Control, if during such period there occur (1) events of the types
referred to in Section 10 hereof with respect to individuals who were officers
of Sensormatic at the time of the Change in Control, (2) defaults by Sensormatic
under this Agreement or any similar agreement, (3) the involuntary termination
(other than for cause or in the event of death or permanent disability) of the
employment of a number of the officers of Sensormatic who were officers
immediately prior to such Change in Control exceeding 40% of the total number of
such officers, or (4) the transfer (by sale, merger or otherwise) of all or
substantially all the equity securities of Sensormatic acquired by the Person
effecting such Change in Control, of all or substantially all the assets of
Sensormatic, or of all or substantially all the equity securities of
Sensormatic's successor corporation, directly or indirectly, to a third party
(other than a majority owned affiliate of such Person). In the event of such a
subsequent determination, Executive shall be entitled to all benefits arising
under this Agreement out of a "non-approved" Change in Control as if such Change
in Control had been deemed "non-approved" initially. Any additional benefits
arising out of such "non-approved" Change in Control which Executive is entitled
to receive through the date of such determination shall be paid or satisfied
promptly by Sensormatic. For purposes of this Section 5(c), the term "officers"
shall not include individuals whose only office with Sensormatic is Assistant
Secretary or Assistant Treasurer.
(d) For the purposes of this Section 5, references to
provisions of the Exchange Act and rules, regulations and schedules thereunder
shall be to such provisions as they are in effect and interpreted as of the date
of this Agreement.
6. BENEFITS ON "NON-APPROVED" CHANGE IN CONTROL.
(a) BENEFITS EFFECTIVE UPON A CHANGE IN CONTROL. In the event
a "non-approved" Change in Control occurs, Executive shall be entitled to the
following benefits:
(i) All stock options issued by Sensormatic to Executive,
whether or not then exercisable, shall remain fully exercisable or shall become
fully exercisable immediately (or, notwithstanding the foregoing, in the event
of an Attempted Change in Control involving a proposed Reorganization Event (as
such term is defined in Section 6(a)(ii) hereof)), such options shall become
fully exercisable thirty days before the date of such Reorganization Event), and
such options shall remain outstanding and fully exercisable for the stated term
thereof or until the later of (A) nine months following the voluntary or
involuntary termination of Executive's employment with Sensormatic (or, at the
option of Executive, in the case of an incentive stock option, three months
following such termination) or (B) the end of the respective post-termination
exercisability periods provided for in such options (including if applicable,
such periods in the event of death or disability); PROVIDED, that in no event
shall the term of such
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options be extended beyond their respective original terms. In addition, any
deferred vesting or forfeiture provisions applicable to any shares of
Sensormatic stock awarded to or otherwise held by Executive shall be without
further force or effect, and Executive shall have the unrestricted right to such
shares.
(ii) In the event that (A) such Change in Control is effected
through (w) a tender or exchange offer (a "Tender Offer") or (x) any means, in
one or more transactions, with the result in either case that any Person becomes
the Beneficial Owner, directly or indirectly, of securities of Sensormatic
representing 50% or more of the combined voting power of Sensormatic's then
outstanding voting securities (any such Change in Control referred to in this
clause (A), including pursuant to a Tender Offer, being hereinafter referred to
as a "Majority Acquisition"), (B) in connection with, as a result of or within
24 months immediately following a Change in Control, Sensormatic's Board of
Directors shall have approved a merger, consolidation, reclassification,
reorganization, dissolution, sale of all or substantially all of the assets of
Sensormatic or similar event (a "Reorganization Event") as a result of which
Sensormatic's Common Stock would cease to be outstanding or (C) in connection
with, as a result of or within 24 months immediately following a Change in
Control, Sensormatic's Common Stock ceases to be listed for trading on a
national securities exchange or quoted through NASDAQ or a comparable securities
quotation system, Executive shall have the right, exercisable by written notice
given at any time during the 13-month period immediately following the date of
such Change in Control (and, if later, the date of any such Majority
Acquisition, Reorganization Event or cessation of listing or quotation), to
require Sensormatic to purchase:
(1) any or all stock options issued by Sensormatic to
Executive, whether or not then exercisable, and/or any stock options
issued upon conversion of or in exchange for any such Sensormatic stock
options pursuant to any such Reorganization Event ("Conversion
Options"), at a purchase price equal to the excess of the aggregate
Fair Market Value (as defined below) of the shares of Sensormatic
Common Stock subject to such Sensormatic stock options over the
aggregate exercise price of such stock options (or, in the case of any
Conversion Options, such amount calculated with respect to the
Sensormatic stock options which were converted into or exchanged for
such Conversion Options); and/or
(2) any or all shares of Sensormatic Common Stock held by
Executive at or immediately prior to the date of such Change in Control
(including any shares of Sensormatic Common Stock (restricted or
otherwise, and whether or not vested) awarded to Executive pursuant to
any compensation plan or arrangement of Sensormatic) or issued pursuant
to the exercise of any such Sensormatic stock options following the
date of such Change in Control, and/or (without duplication) any shares
or other securities issued upon conversion of or in exchange for any
such shares of Common Stock pursuant to any such Reorganization Event
("Conversion Shares"), at a purchase price equal to the aggregate Fair
Market Value of such shares (or, in the case of any Conversion Shares
issued upon conversion of or in exchange for Common Stock, the Fair
Market Value of the shares of Common Stock which were converted into or
exchanged for such Conversion Shares); provided, that Sensormatic may
offset against the amount so payable for Common Stock or Conversion
Shares all amounts outstanding on any loans made to
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Executive for the purchase of, or payment of taxes relating to, such
shares of Common Stock or Conversion Shares, as contemplated by Section
6(a)(iii) hereof or otherwise.
Payment for any such options or shares shall be made by Sensormatic within 10
days after Executive's surrender of any such options, and/or within 10 days
after Executive's surrender of the certificates representing any such shares of
Common Stock or Conversion Shares (or, if such certificates are in Sensormatic's
possession, within 10 days after Executive's notice of exercise under this
Section 6(a)(ii)).
For purposes of this Section 6(a)(ii), the "Fair Market Value"
of a share of Sensormatic Common Stock means the highest fair market value per
share of Sensormatic Common Stock of the consideration paid in any transaction
by any Person who effects such Change in Control, in connection therewith,
whether through open market purchases, Tender Offers, Reorganization Events,
private transactions or otherwise.
(iii) Upon Executive's request, Sensormatic shall lend to
Executive, interest free, up to an amount equal to the aggregate exercise price
of the options referred to in Section 6(a)(i) hereof, should Executive elect to
exercise such options. If requested by Executive, Sensormatic shall also lend to
Executive, interest free (or, at Executive's option, provide a guaranty to
enable Executive to borrow), up to an amount equal to the percentage specified
in Section 6(a)(iv)(A) hereof times the Share Income (as such term is defined in
such Section) resulting from such exercise and/or vesting. Such loan or loans
shall be due and payable to Sensormatic upon the earliest of (A) the fifth
anniversary date of such loan or loans, (B) in the event that Executive's
employment with Sensormatic terminates, other than termination by Sensormatic
for Cause (as defined in Section 9 hereof, "Cause") upon the expiration of 30
months following such termination, or in the event that Executive's employment
is terminated by Sensormatic for Cause, upon the expiration of 30 days after
such termination, or (C) promptly (but in any event within five (5) business
days) after receipt of the proceeds of sale from the sale of such shares, to the
extent of the loan or loans applicable to such sold shares. Executive shall
deposit such shares with Sensormatic as security for any such loan, if
Sensormatic shall so request. Notwithstanding anything to the contrary contained
in this Section 6(a)(iii), Sensormatic's Stock Purchase Loan Plan or any
promissory note or security agreement executed by Executive pursuant to such
Plan, no additional collateral shall be required by Sensormatic in connection
with any such loan to Executive, and, if necessary to be in compliance with
applicable margin regulations under federal laws, such loans shall be unsecured;
and if, because of Internal Revenue Service rules or other rules, Sensormatic is
unable to lend such funds to Executive interest free and without any imputation
of interest, Sensormatic shall pay Executive a dollar amount of additional
compensation which shall equal the amount of interest required to be charged in
order to avoid such imputation in such instances and Executive shall then pay
Sensormatic the rate of interest on such loan required by law to avoid
imputation.
(iv)(A) If a Majority Acquisition shall have occurred or if,
in connection with, as a result of or within 24 months immediately following a
Change in Control, either a Reorganization Event shall have occurred or
Sensormatic's Common Stock ceases to be listed for trading on a national
securities exchange or quoted through NASDAQ or a comparable securities
quotation system, then Executive shall have the right, exercisable during the
period and in the manner described in Section 6(a)(iv)(B) hereof, to require
Sensormatic to purchase any or all of Executive's Option Acquired Shares and
Award Shares (as defined below), and/or any or all
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Conversion Shares issued with respect to any Option Acquired Shares or Award
Shares. The price at which Executive shall be entitled to sell any Option
Acquired Share to Sensormatic under this Section 6(a)(iv) shall equal the sum of
(x) the option exercise price paid (including payments made by promissory notes
issued under Sensormatic's Stock Purchase Loan Plan or otherwise) by Executive
in acquiring such share, plus (y) an amount equal to a percentage, determined as
provided below in this clause (A), of the difference between such option
exercise price and the Market Value (as defined below) of a share of Sensormatic
Common Stock on the date the share was acquired. The price at which Executive
shall be entitled to sell any Award Share under this Section 6(a)(iv)(A) shall
be equal to the Market Value of such share on the date Executive's right to such
share vested, multiplied by the percentage determined as provided below in this
clause (A). The price at which Executive shall be entitled to sell any
Conversion Shares pursuant to this Section 6(a)(iv)(A) shall be calculated as
set forth above with respect to Option Acquired Shares or Award Shares, as
applicable, based upon the purchase price, date of purchase and Market Value of
any Option Acquired Shares, and the vesting date and Market Value of any Award
Shares, which were converted into or exchanged for any such Conversion Shares
sold. The percentage referred to in this Section 6(a)(iv)(A) shall be equal to
the sum of (1) the highest marginal net rate of income tax (federal, state and
local) applicable to an individual residing where the Executive resided at the
time the Executive reported income ("Share Income") with respect to the Option
Acquired Shares or Award Shares, as the case may be, plus (2) the Medicare
employee tax rate, plus (3) a percentage equal to (x) that part, if any, of the
Share Income that was actually subject to employee Social Security tax,
multiplied by (y) the social security employee tax rate, divided by (z) the
total Share Income (in each case as applicable at the time such share was
purchased by Executive, in the case of any Option Acquired Shares, or at the
time Executive's right to such share vested, in the case of any Award Shares).
The purchase price payable by Sensormatic shall in all events be equitably
adjusted to reflect any stock dividends, stock splits, extraordinary dividends
or similar events since the date of acquisition by Executive of any such shares.
For purposes of this Section 6(a)(iv), the term "Option
Acquired Shares" shall mean shares of Sensormatic Common Stock acquired by
Executive upon exercise of options granted to Executive, the term "Award Shares"
shall mean shares of Sensormatic Common Stock awarded to Executive pursuant to
Sensormatic's Stock Incentive Plan or any other compensation plan or arrangement
of Sensormatic, other than pursuant to the exercise of options, and the term
"Market Value" shall mean the average of the high and low sales prices of a
share of such Common Stock on the applicable date (or most recent date on which
one or more sales occurred) as reported through NASDAQ or the principal exchange
on which such Common Stock was listed for trading.
(B) Executive may exercise his right to sell Option Acquired
Shares, Award Shares and/or Conversion Shares under this Section 6(a)(iv) at any
time within 13 months following any of the events specified in the first
sentence of Section 6(a)(iv)(A) hereof by giving written notice of such exercise
to Sensormatic, which notice shall set forth the Option Acquired Shares, Award
Shares and/or Conversion Shares to be sold, the exercise price paid by Executive
in acquiring any such Option Acquired Shares or Conversion Shares, the highest
marginal tax rates applicable for purposes of the respective calculations
specified in Section 6(a)(iv)(A) hereof and the Market Value of the Common Stock
or Conversion Shares, as applicable, on each date that any applicable Option
Acquired Shares or Conversion Shares to be sold were purchased by
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Executive or Executive's right to any applicable Award Shares vested, as the
case may be. The information set forth in such notice shall be presumed to be
correct.
(C) In addition to the purchase price for the Option Acquired
Shares, Award Shares or Conversion Shares being sold to Sensormatic under this
Section 6(a)(iv), Sensormatic shall pay to Executive an amount (the "Tax
Payment") equal to a percentage (determined pursuant to the following sentence)
of the excess, if any, of (1) the product of the number of such Option Acquired
Shares, Award Shares and/or Conversion Shares being sold multiplied by the
Market Value of a share of Sensormatic Common Stock or Conversion Shares, as
applicable, on the Purchase Date (as such term is defined in Section 6(a)(iv)(D)
hereof) or such other value of a share of Sensormatic Common Stock or Conversion
Shares as may be required to be used to determine the amount, if any,
recognizable as ordinary income arising out of the sale of such shares to
Sensormatic, over (2) the aggregate purchase price for all such Option Acquired
Shares, Award Shares and/or Conversion Shares being sold by Executive. The
percentage referred to in the preceding sentence shall be determined in
accordance with Section 6(a)(iv)(A) hereof as applicable on the Purchase Date.
(D) Within 10 days after Executive's surrender of the
certificates representing any such Option Acquired Shares, Award Shares and/or
Conversion Shares or, if such certificates are in Sensormatic's possession,
within 10 days after Executive's notice of exercise under this Section 6(a)(iv)
(the "Purchase Date"), Sensormatic shall purchase the Option Acquired Shares,
Award Shares and/or Conversion Shares referred to in such notice by paying to
Executive (subject to offset as provided in the following sentence) the full
purchase price thereof, as calculated under Section 6(a)(iv)(A) hereof, plus the
Tax Payment applicable thereto. Sensormatic may offset against payment of any or
all of such purchase price and the related Tax Payment all or a portion of any
indebtedness of Executive then outstanding under Sensormatic's Stock Purchase
Loan Plan attributable to any Option Acquired Shares and/or Conversion Shares
sold to Sensormatic hereunder.
(E) Executive's rights under this Section 6(a)(iv) are
independent of and not limited by, and do not constitute any limitation of,
Executive's rights under Section 6(a)(ii) hereof. Executive may exercise any
rights under either Section 6(a)(ii) hereof or this Section 6(a)(iv), in whole
or in part (but without duplication), in Executive's sole discretion.
(v)(A) Subject to Section 4 hereof, if either a Majority
Acquisition occurs or, in connection with, as a result of or within 24 months
following a Change in Control, a Reorganization Event occurs, then Sensormatic
shall pay to Executive (irrespective of whether he is then employed by
Sensormatic or its successor; PROVIDED, HOWEVER, that in the event that
Executive voluntarily terminates his employment with Sensormatic (other than by
resignation contemplated by Section 10 hereof) prior to the occurrence of the
event giving rise to the right to receive the cash bonus payment provided for in
this Section 6(a)(v), Executive shall have no right to receive such bonus
payment), within thirty days after the effective date of such Majority
Acquisition or Reorganization Event, as the case may be, a cash bonus payment
equal to a percentage (determined pursuant to Sections 6(a)(v)(B) and 6(a)(v)(C)
hereof) of Executive's "Special Bonus Base" (as defined below). Executive's
Special Bonus Base shall equal two (2) times the greater of (x) the sum of
Executive's annual base salary in effect at the end of the last full month
preceding the first public announcement relating to the proposed Majority
Acquisition or Reorganization Event, as the case may be, plus the bonus paid to
Executive by Sensormatic with
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respect to the most recently completed fiscal year of Sensormatic prior to such
month, or (y) the sum of Executive's annual base salary and target bonus as
specified in Section 2 hereof.
(B) The percentage of the Special Bonus Base which Executive
shall be entitled to receive under this Section 6(a)(v) shall be calculated on
the basis of the Premium (as defined below) paid or offered to holders of
Sensormatic's Common Stock in connection with a Majority Acquisition or
Reorganization Event. "Premium" shall mean the percentage which results from
dividing (1) the amount by which the Event Value (as defined below) exceeds the
Pre-Event Share Price (as defined below), by (2) the Pre-Event Share Price. The
"Pre-Event Share Price" shall be equal to the average of the closing sales
prices (or if there is no sales price, the last bid price) for a share of
Sensormatic's Common Stock, as such prices are reported through NASDAQ or the
principal exchange on which such shares are listed for trading, on the last
business day of each week during the twenty-six weeks immediately preceding the
first to occur of (x) the first public announcement relating to any proposed
Change in Control or Reorganization Event, or (y) any event resulting in the
pendency of an Attempted Change in Control which culminates, directly or
indirectly, in the Change in Control giving rise to Executive's rights under
this Section 6(a)(v). In the case of any Reorganization Event or Tender Offer,
or combination or series of Reorganization Events and/or Tender Offers, "Event
Value" shall mean the fair market value of the consideration paid per share of
Sensormatic Common Stock pursuant to such Reorganization Event or Tender Offer
determined as of the effective date of the Reorganization Event or of the
consummation of the Tender Offer, as the case may be, provided that in the event
that different prices are paid per share of Sensormatic Common Stock pursuant to
such Reorganization Event, Tender Offer or any combination or series thereof,
the "Event Value" shall be equal to the fair market value of the aggregate
consideration paid pursuant to all such Tender Offers and/or Reorganization
Events (determined as of the dates set forth above) divided by the number of
shares of Sensormatic Common Stock purchased pursuant to all such Tender Offers
and/or Reorganization Events. In case of any other transaction or series of
transactions giving rise to the right of Executive to receive the bonus provided
for in this Section 6(a)(v), "Event Value" shall mean the highest fair market
value of the consideration paid per share of Sensormatic Common Stock pursuant
to any such transaction, determined as of the date of payment thereunder. The
determination of Event Value shall be conclusively made by an investment banking
firm selected by the Previous Members of the Board of Directors who are not
entitled to receive bonuses under this Section 6(a)(v) or analogous provisions
of other agreements; PROVIDED, that in the event that the Previous Members of
the Board of Directors fail to make such selection within 45 days after
consummation of the transaction giving rise to the right to rights under this
Section 6(a)(v), or the selected investment banking firm fails to make such a
determination within an additional 90 days, Event Value shall be determined by
arbitration under Section 16. Sensormatic shall PAY all fees and expenses of any
such investment banker.
(C) The percentage of the Special Bonus Base which Executive
shall be entitled to receive as a bonus under this Section 6(a)(v) shall be 20%
if the Premium is at least 20% and shall increase by 3.2% for each one percent
(and by a fraction of 3.2% for each fraction of one percent) by which the
Premium exceeds 20%. For example, if the Premium were 30%, Executive would be
entitled to a bonus of 52% of the Special Bonus Base; if the Premium were 40.5%,
Executive would be entitled to a bonus of 85.6% of the Special Bonus Base; and
if the Premium were 50%, Executive would be entitled to a bonus of 116% of the
Special Bonus Base. The maximum bonus which Executive shall be entitled to
receive is 167% of the Special Bonus
-11-
<PAGE> 12
Base. No bonus shall be payable pursuant to this Section 6(a)(v) if the Premium
is less than 20%.
(b) BENEFITS ON TERMINATION. In the event of any termination,
other than termination by Sensormatic for Cause, of Executive's employment with
Sensormatic at any time following a "non-approved" Change in Control, Executive
shall be entitled to the following benefits:
(i) Subject to Section 4 hereof, Sensormatic shall,
as soon as practicable, pay to Executive a lump sum payment equal to
the amount of any then unvested interest which Executive may have had
on the date of such "non-approved" Change in Control (less any amount
of such interest subsequently vested), and as supplemented thereafter
through the date of such termination, in Sensormatic's profit sharing,
ESOP or other retirement plans (other than the Retirement Plan); and
(ii) Unless a trust or other arrangement previously
determined in writing to be satisfactory by a majority of the Previous
Members of the Board of Directors then in office assuring payment of
benefits to or for the benefit of Executive under Sensormatic's
Retirement Plan in the event of a Change in Control has been previously
established and is then in effect, Sensormatic shall take such steps as
are necessary, within 30 days after such termination, to fully fund all
of Executive's benefits under such Plan (after giving effect to the
change in control provisions of such Plan) through paid-up insurance,
annuity contracts and/or other similar means, so that the ultimate
payment of benefits (at a rate not less than the greater of the rates
in effect under such Plan at the date of such termination or
immediately after such Change in Control) upon Executive's attaining
retirement age under such Plan or upon his earlier death or disability
(as defined in such Plan) (despite Executive's no longer being employed
by Sensormatic) shall be assured beyond any reasonable doubt; PROVIDED,
HOWEVER, that either such manner of funding shall be structured so as
not to constitute "constructive receipt" by Executive of the benefits
in question for income tax purposes, or the benefits in question shall
be paid out in a lump sum, discounted to present value in the manner
provided in Section 8(a). In addition, following any such termination
which is involuntary, the non-competition provisions included in any
such Plan shall have no force or effect.
(c) ADDITIONAL BENEFITS IN THE CASE OF A VOLUNTARY
TERMINATION. Subject to Section 4 hereof, in the event of Executive's voluntary
termination of employment with Sensormatic (other than by resignation
contemplated in Section 10 hereof) within the 24-month period immediately
following a "non-approved" Change in Control:
(i) Executive shall be entitled to receive, for each
of the 6 months immediately following the effective date of such
termination and irrespective of whether Executive commences new
employment within such period, the greatest of (A) 1/12 of the amount
of Executive's most recent rate of annual base salary, plus 1/12 of
Executive's most recent annual bonus, (B) 1/12 of Executive's annual
base salary and target bonus in effect immediately prior to the date of
such Change in Control or (C) 1/12 of Executive's annual base salary
and target bonus as specified in Section 2 hereof;
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<PAGE> 13
(ii) If Executive has not commenced new regular, full
time employment during the first 6 months following the effective date
of such termination, Executive shall receive for each of the 7th
through 12th months following such effective date of termination in
which Executive was not so employed for the entire month the amount
payable under Section 6(c)(i) hereof;
(iii) Within 30 days after the effective date of such
termination, Sensormatic shall pay to Executive an amount equal to his
pro rata annual bonus for the year in which termination occurs, based
on the target bonus for such year; PROVIDED; that if at the time of
such termination, it is probable, based upon interim period results for
the then-current fiscal year together with the current forecast for the
remainder of such year, that the conditions to payment of the full
amount of the target bonus will not be met, the amount of the bonus
payment hereunder may be reduced accordingly; and
(iv) During that portion of the periods set forth in
Sections 6(c)(i) and 6(c)(ii) hereof during which Executive has not
commenced new regular, full time employment,
(x) Sensormatic shall continue to provide to
Executive the fringe benefits enumerated in Sections 3(a),
(b), (c) and (e) hereof on at least the same basis as in
effect immediately prior to the Change in Control, and shall,
if requested by Executive, provide Executive with office space
appropriate for his level and in close proximity to the office
he occupied at the time of the Change in Control, secretarial
help and local and long distance telephone service; and
(y) Sensormatic shall provide Executive with
appropriate out-placement services, including counseling and
traveling expenses to such outplacement services, when
necessary, as well as to potential job interviews when not
paid by the potential employer, all without charge to
Executive.
(d) ADDITIONAL BENEFITS IN CASE OF AN INVOLUNTARY TERMINATION.
In the event of the involuntary termination (other than termination by
Sensormatic for Cause) of Executive's employment with Sensormatic within the
36-month period immediately following a "non-approved" Change in Control:
(i) Executive shall be entitled to receive, for each
of the 18 months immediately following the effective date of such
termination and irrespective of whether Executive commences new
employment within such period, the greatest of (A) 1/12 of the amount
of Executive's most recent rate of annual base salary, plus 1/12 of
Executive's most recent annual bonus, (B) 1/12 of Executive's annual
base salary and target bonus in effect immediately prior to the date of
such Change in Control or (C) 1/12 of Executive's annual base salary
and target bonus as specified in Section 2 hereof;
(ii) If Executive has not commenced new regular, full
time employment during the first 18 months following the effective date
of such termination, Executive shall receive for each of the 19th
through 24th months following such effective date of termination in
which Executive was not so employed for the entire month the amount
payable under Section 6(d)(i) hereof;
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<PAGE> 14
(iii) During that portion of the periods set forth in
Sections 6(d)(i) and 6(d)(ii) hereof during which Executive has not
commenced new regular, full time employment, Executive shall be
entitled to the benefits set forth in Section 6(c)(iv) hereof;
(iv) Within 30 days after the effective date of such
termination, Sensormatic shall pay to Executive an amount equal to his
pro rata annual bonus for the year in which termination occurs, based
on the target bonus for such year, subject to the proviso in Section
6(c)(iii) hereof; and
(v) On the date of such termination, ownership of the
car which Sensormatic was providing to Executive shall immediately be
transferred to Executive free and clear of any liens or other
obligations, if such car is then owned by Sensormatic. If such car is
then leased, rather than owned, by Sensormatic, Executive shall
continue to have the use of such car and Sensormatic shall continue to
pay all lease payments and insurance premiums with respect thereto
until the end of the then existing term, at which time Sensormatic
shall purchase such car and shall transfer title to such car to
Executive. If, on the date of such termination, Sensormatic is paying a
car allowance to Executive in lieu of providing a car to Executive, for
each month in which Sensormatic is obligated to make a monthly payment
to Executive under Sections 6(d)(i) or 6(d)(ii) hereof, Executive shall
receive 1/12 of the amount of Executive's most recent rate of annual
car allowance.
7. BENEFITS ON "APPROVED" CHANGE IN CONTROL.
(a) BENEFITS EFFECTIVE UPON CHANGE IN CONTROL.
(i) Subject to Section 4 hereof, in the event an
"approved" Change in Control occurs, Executive shall be entitled to all
of the rights and compensation set forth in Section 6(a) hereof.
(ii) In the event that Executive voluntarily
terminates his employment with Sensormatic (other than by resignation
contemplated in Section 10 hereof) at any time following an "approved"
Change in Control, Executive shall not be entitled to any benefits
under this Agreement other than as set forth in Section 7(a)(i) hereof.
(b) ADDITIONAL BENEFITS UPON INVOLUNTARY TERMINATION. In the
event that Executive's employment with Sensormatic is involuntarily terminated
(other than for Cause) within the 36-month period following an "approved" Change
in Control:
(i) Executive shall be entitled to receive, for each
of the first 18 months immediately following the effective date of such
termination and irrespective of whether Executive commences new
employment within such period, the greatest of (A) 1/12 of the amount
of Executive's most recent rate of annual salary, plus 1/12 of the
amount of Executive's most recent annual bonus, (B) 1/12 of Executive's
annual base salary and target bonus in effect immediately prior to the
date of such Change in Control or (C) 1/12 of Executive's annual base
salary and target bonus as specified in Section 2 hereof;
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<PAGE> 15
(ii) If Executive has not commenced new regular, full
time employment during the first 18 months following the effective date
of such termination, Executive shall receive for each of the 19th
through 24th months following such effective date of termination in
which Executive was not so employed for the entire month the amount
payable under Section 7(b)(i) hereof;
(iii) Within 30 days after the effective date of such
termination, Sensormatic shall pay to Executive an amount equal to his
pro rata annual bonus for the year in which termination occurs, based
on the target bonus for such year year, subject to the proviso in
Section 6(c)(iii) hereof; and
(iv) During that portion of the period set forth in
Section 7(b)(i) hereof during which Executive has not commenced new
regular, full time employment, Executive shall be entitled to all of
the rights and compensation set forth in Section 6(c)(iv) hereof.
(c) In the event of any termination of Executive's employment
to which Section 6(c) or 6(d) or this Section 7 is applicable, Executive shall
be under no obligation to seek other employment and there shall be no offset
against amounts due Executive under this Agreement on account of any
remuneration attributable to any subsequent employment that he may obtain,
except as expressly set forth in Section 6(c) or 6(d) or this Section 7.
8. BENEFITS ON DEATH OR DISABILITY.
(a) In the event of Executive's death at any time within 36
months immediately following a Change in Control (whether "approved" or
"non-approved") and prior to any termination of Executive's employment, or in
the event that Executive had died prior to a Change in Control and that as of
the date of such Change in Control there remain outstanding amounts payable
under Sensormatic's Retirement Plan for Executive, unless in either case a trust
or other arrangement previously determined in writing to be satisfactory by a
majority of the Previous Members of the Board of Directors then in office
assuring payment of benefits to or for the benefit of the Executive under such
Plan in the event of a Change in Control has been previously established and is
then in effect, Sensormatic shall promptly pay to Executive's designated
beneficiary or Executive's heirs, executors, administrators or personal
representatives (collectively, "Successors") all of the remaining benefits under
such Plan to which Executive's Successors are then entitled, in the form of a
lump sum payment equal to the amount of such benefits discounted to present
value using an interest rate equal to the rate published by Pension Benefit
Guaranty Corporation for the purpose of discounting pension benefits to present
value in the event of a lump sum prepayment thereof, as then in effect, but such
discount rate shall in no event be greater than ten percent (10%) PER ANNUM.
(b) In the event of Executive's death or permanent and total
disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code
of 1986, as amended and in effect and interpreted as of the date of this
Agreement) at any time within the 24-month period immediately following a Change
in Control and prior to any termination of Executive's employment, Executive or
Executive's Successors shall be entitled to all of the benefits of Executive
provided under this Agreement as if Executive had voluntarily terminated his
employment with
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<PAGE> 16
Sensormatic (but without giving effect to Section 4 hereof or to the loss of
benefits upon voluntary termination under Section 6(a)(v)(A) hereof), including,
without limitation, those set forth in Section 6(a)(iii) hereof.
(c) In the event of Executive's death or disability after
termination of Executive's employment with Sensormatic, Executive or Executive's
Successors shall be entitled to receive all remaining benefits to which
Executive is entitled under this Agreement.
9. TERMINATION FOR CAUSE. In the event that Executive's
employment with Sensormatic is terminated for Cause at any time after any Change
in Control, whether "approved" or "non-approved", Executive shall not be
entitled to any of the benefits set forth in Sections 6, 7 or 8 of this
Agreement not yet received by him, except to the extent that Executive exercised
rights prior to such termination with respect to options, Award Shares or
Conversion Shares as provided under Sections 6(a)(i), 6(a)(ii) and, 6(a)(iv)
hereof (including by reference under Section 7(a)(i) hereof). The foregoing
shall not affect any rights of Executive accrued other than by virtue of this
Agreement. For purposes of this Agreement, Sensormatic shall be deemed to have
terminated Executive's employment with Sensormatic for Cause only if such
termination is effected for any of the following reasons:
(a) gross neglect or willful misconduct by Executive in the
performance of Executive's duties resulting in material economic harm
to Sensormatic; or
(b) the conviction of Executive for a felony involving moral
turpitude under federal or state law;
PROVIDED, HOWEVER, that the determination of the existence of the grounds
referred to in subparagraph (a) of this Section 9 shall be made, in good faith,
only (i) by a majority of the Previous Members of the Board of Directors who are
then in office with Sensormatic or a corporate successor of Sensormatic
(provided that such majority shall consist of not less than two persons); and
PROVIDED, FURTHER, that Executive shall be given prior written notice by the
Board of Directors of the intention to terminate him for Cause and the specific
grounds for such termination, as determined in accordance with this Section 9,
and shall be entitled to a hearing before such Previous Members of the Board of
Directors (or a committee thereof designated by such Previous Members) before
such termination becomes effective or (ii) if at least two Previous Members of
the Board of Directors are not then in office, by a majority of the persons who
are then, and were, for a period of two years immediately prior to such Change
in Control, officers of Sensormatic (or, if Sensormatic is then a division, such
persons who were previously such officers of Sensormatic and are then employed
in an executive or managerial capacity in the division).
10. INVOLUNTARY TERMINATION EVENTS. By way of illustration,
and not of limitation, each of the following events shall constitute involuntary
termination of Executive's employment with Sensormatic, provided that Executive
resigns from such employment within six months following such event, but in no
case later than 36 months immediately following a Change in Control, and
provided, further, that Executive shall not have consented to such event in
writing:
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<PAGE> 17
(a) Executive is assigned any duties or responsibilities that
are materially inconsistent with Executive's position, office, duties,
responsibilities or status immediately prior to the date of such Change in
Control, or a material change is made in Executive's reporting responsibilities,
titles or offices from those in effect immediately prior to such Change in
Control, or Executive is removed from, or is not re-elected to, any such
position or office, following such Change in Control, unless in connection with
the termination of Executive's employment with Sensormatic for Cause or by
reason of his death or disability; PROVIDED, HOWEVER, that, in the event of an
"approved" Change in Control, as a result of which Sensormatic becomes a
division and not a separate corporation, a change to offices and titles in such
division reasonably comparable to the previous offices and positions in
Sensormatic and a reasonable change in reporting responsibilities shall not be
deemed such a material change;
(b)(i) Executive's annual rate of base salary or target bonus
is reduced below the greater of the amounts (x) paid therefor immediately
preceding the date of such Change in Control or (y) expressly set forth in
Section 2 hereof, (ii) the formula for the calculation of Executive's bonus is
changed in a manner that could reasonably be anticipated to decrease the amount
payable thereunder or (iii) any other change is made with respect to Executive's
salary or bonus that would violate Section 2;
(c) a material reduction is made in the benefits set forth in
paragraphs (a) through (g) of Section 3 hereof or to any additional benefits or
perquisites which may have been granted to Executive subsequent to the date of
this Agreement (other than changes made in benefit plans required by law or
applicable regulations thereunder), as they may be in effect immediately prior
to the date of such Change in Control, or if any increase is made in the cost to
Executive for such benefits; or
(d) Executive is transferred or required to transfer to a
location outside of a 25-mile radius of Sensormatic's then-current headquarters
in Palm Beach County or Broward County, Florida (or, if Executive's position was
located outside of Palm Beach County or Broward County, Florida prior to such
Change in Control, Executive is transferred or required to transfer to a
location located more than 25 miles therefrom), or the principal place of
business of Sensormatic in which Executive's major duties have been carried out
is transferred to a location outside of a 25-mile radius of Sensormatic's
then-current headquarters in Palm Beach County or Broward County, Florida.
(e) Sensormatic fails to obtain the assumption in writing of
its obligation to perform this Agreement by any successor to all or
substantially all of the assets and/or business of Sensormatic within 15 days
after a Reorganization Event or any other transaction occurring in connection
with, as a result of or within 24 months following a Change in Control pursuant
to which Sensormatic is not the surviving corporation.
11. PAYMENTS. All monthly payments that Executive (or his
Successors) is entitled to receive under Sections 6 or 7 of this Agreement shall
be paid by or on behalf of Sensormatic on or before the 10th day of each month
in which payable, except that any regular payments required to be made under the
plans referred to in Section 6(b) hereof shall be made in accordance with the
terms of such plans. Any lump sum payable to Executive under Sections 6 or 8(a)
of this Agreement shall be paid by or on behalf of Sensormatic within 10 days
after Executive's right to such payment accrues.
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<PAGE> 18
12. COSTS OF COLLECTION. Sensormatic agrees upon demand to pay
all costs and expenses of Executive (including, without limitation, reasonable
counsel fees and expenses) in connection with the enforcement, whether through
negotiations, arbitration or legal proceedings or otherwise, of this Agreement
and the collection of any benefits due to Executive hereunder.
13. NO EFFECT ON EMPLOYMENT. This Agreement is not, and
nothing hereby shall be deemed to create, a contract of employment between
Sensormatic and Executive. The right of Sensormatic to terminate Executive's
employment with Sensormatic or any subsidiary thereof, at any time at will or as
otherwise provided in the Officer Agreement or any other agreement between
Sensormatic and Executive, shall not be affected or limited by this Agreement
and is specifically reserved. Further, this Agreement shall not be deemed to
require Sensormatic to continue, or to continue unmodified, any benefit plan or
policy, whether or not referred to in Section 3 hereof, provided that no Change
in Control shall have occurred and no Attempted Change in Control shall have
occurred and then be pending.
14. CONFLICTS WITH OTHER AGREEMENTS. Nothing contained in or
arising out of this Agreement shall be deemed to discharge, release or modify
the obligations of Sensormatic to Executive under the provisions of the Officer
Agreement or any other agreement between them or of any plan or program of
Sensormatic, regardless of whether the subject matter of any provision thereof
is the same or similar to that of any provision of this Agreement, the rights
and remedies of Executive under this Agreement and any other such agreement,
plan or program being cumulative and not in substitution of each other;
PROVIDED, HOWEVER, that this Agreement amends, restates and supersedes the Prior
Agreement, including any amendments thereto, in its entirety, and nothing in
this Agreement shall entitle Executive to receive duplicative payments of
salary, bonus or other benefits. Further, nothing in this Agreement shall
diminish or otherwise adversely affect Executive's rights or benefits accruing
as a consequence of his death or disability, at any time after a Change in
Control, under the terms and conditions of the plans or programs of Sensormatic
in which Executive is a participant immediately prior to any Change in Control
and any additional plan or program of Sensormatic in which Executive is a
participant at the time of Executive's death or disability.
15. MAINTENANCE OF PLANS. Sensormatic agrees that, for not
less than 36 months after a Change in Control, it shall maintain in effect the
plans and programs in which Executive is a participant immediately prior to such
Change in Control (or comparable plans and programs) to the extent necessary to
assure that the rights and benefits of Executive thereunder shall be no less
favorable after such Change in Control than immediately prior thereto, provided,
that Sensormatic shall in no event make any change in the event of or at any
time after a Change in Control in the Retirement Plan resulting in a reduction
of Executive's benefits thereunder.
16. ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement shall be settled by arbitration before the American
Arbitration Association in Miami, Florida, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. Any costs, including, without limitation, attorneys' fees
and disbursements, incurred by Executive in such arbitration or in connection
with any appeal therefrom or any action brought to enforce or collect any such
award or judgment thereon, shall be reimbursed by Sensormatic, provided, that
Sensormatic shall not be required to reimburse
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<PAGE> 19
Executive hereunder in the event that the arbitral panel or appeals court finds
that Executive's claims and/or defenses are substantially without reasonable
basis.
17. SURVIVAL. This Agreement shall be binding on, enforceable
against and inure to the benefit of Executive and his heirs, executors,
administrators, personal representatives, successors and assigns and Sensormatic
and its successors and assigns, including, without limitation, any corporation
with or into which Sensormatic is merged or consolidated, or any entity which
acquires all or substantially all of the business and assets of Sensormatic, in
connection with any Change in Control. In connection with any sale, merger or
consolidation described in the preceding sentence, Sensormatic shall take all
actions permissible under applicable law in order to cause such other
corporation to expressly assume Sensormatic's liabilities, obligations and
duties hereunder.
18. NOTICES. Any notice given to a party pursuant to or in
connection with this Agreement shall be in writing and shall be deemed to have
been given when delivered personally or sent by Federal Express or a similar
overnight courier service or by certified or registered mail, postage prepaid,
return receipt requested, duly addressed to the party concerned at the address
indicated at the beginning of this Agreement or to such changed address as such
party may subsequently give such notice of.
19. SEVERABILITY. If any provision of this Agreement is found
to be invalid or unenforceable by a court of competent jurisdiction or an
arbitral panel under Section 16 hereof, this Agreement shall be interpreted and
enforceable as if such provision were severed or limited, but only to the extent
necessary to render such provision and this Agreement enforceable.
20. GOVERNING LAW. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of Florida
applicable to agreements made and fully to be performed in such state, without
giving effect to conflicts of law principles.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first set forth above.
SENSORMATIC ELECTRONICS CORPORATION
By: /s/ Robert A. Vanourek
----------------------------------------
Title: President And Chief Executive Officer
-------------------------------------
Executive: /s/ Ronald F. Premuroso
---------------------------------
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<PAGE> 20
SCHEDULE I
Applicable Retirement Plans
1. Supplemental Executive Retirement Plan.
-20-
<PAGE> 1
EXHIBIT 12
SENSORMATIC ELECTRONICS CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions, except ratio amounts)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Income (loss) from operations before income taxes.... $ 96.0 $ 89.0 $(159.9) $(30.3) $(54.1)
Add (deduct):
Fixed charges less preferred stock dividends....... 23.7 30.8 40.5 49.8 52.4
Minority interest in consolidated subsidiaries..... 0.5 1.0 1.6 2.7 4.5
Minority interest adjustment for losses of majority
owned subsidiaries.............................. -- -- -- -- --
Net losses related to 50% or less owned
subsidiaries.................................... -- -- -- -- --
------ ------ ------- ------ ------
Adjusted Earnings.................................... $120.2 $120.8 $(117.8) $ 22.2 $ 2.8
====== ====== ======= ====== ======
Fixed Charges:
Interest........................................... $ 22.7 $ 29.0 $ 38.4 $ 47.9 $ 50.8
Amortization of debt expense and debt discounts.... -- 0.3 0.6 0.8 0.9
Portion of Rents representive of interest factor... 1.0 1.5 1.5 1.1 0.7
Preferred Stock dividends(1).......................
------ ------ ------- ------ ------
Total fixed charges........................ $ 23.7 $ 30.8 $ 40.5 $ 49.8 $ 52.4
====== ====== ======= ====== ======
Ratio of Earnings to fixed charges(2)......... 5.07 3.92 -- 0.45 0.05
====== ====== ======= ====== ======
</TABLE>
- ---------------
(1) Preferred stock dividends declared in fiscal 1998 were in the form of common
stock, thereby not effecting fixed charges or the income statement.
(2) Earnings for the year ended June 30, 1996 was not able to cover fixed
charges by $158.3.
<PAGE> 1
EXHIBIT 21
SENSORMATICS ELECTRONICS CORP
Filename:Subslist LIST OF SUBSIDIARIES
6/30/98
<TABLE>
<CAPTION>
PLACE OF INCORPORATION
OPERATING COMPANIES OR ORGANIZATION
- ------------------- ----------------------
<S> <C>
NORTH AMERICA
- -------------
Point of Sale Data Products, Inc. Delaware
Sensormatic Canada, Inc. Canada
Sensormatic Electronics Corporation (Puerto Rico) Delaware
Sensormatic, SA de CV Mexico
Sensormatic del Caribe, Inc. Puerto Rico
Sensormatic Electronics S. de R.L. de C.V. Mexico
EUROPE
- ------
All Security Systems N.V. Belgium
Sensormatic Commercial/Industrial Gmbb Germany
Sensormatic C/I S.A. Belgium
Knofo Nederland B.V. Netherlands
Sensormatic Technologies S.A. France
Sensormatic AB Sweden
Sensormatic A.G. Switzerland
Sensormatic A/S Denmark
Sensormatic AS Norway
Sensormatic B.V. Netherlands
Sensormatic CamEra Ltd. United Kingdom
Sensormatic Distribution Inc. Delaware (primary operation in Switz)
Sensormatic E.C., S.A. Spain
Sensormatic E.C., S.R.L. Italy
Sensormatic France SA France
Sensormatic Ges.m.b.h. Austria
Sensormatic G.m.b.H. Germany
Sensormatic Electronics Corporation (Ireland) Limited Ireland
Sensormatic European Distribution Ltd. (Ireland) Ireland
Sensormatic Finance Limited United Kingdom
SEC Investments of Ireland Ireland
Sensormatic Ireland Limited Ireland
Sensormatic International Ltd. United Kingdom
CCTV Comercio L.D.A. Portugal
Senzorequipe Credit Center L.D.A Portugal
Sistemas Proteccao L.D.A. Portugal
Sensormatic Proteccao Contra O Furto, L.D.A. Portugal
Sensormatic Limited United Kingdom
N.V. Sensormatic S.A. Belgium
Sensormatic OY Finland
Sensormatic Kft. Hungary
Visual Information Systems Holdings Limited United Kingdom
Sensormatic Norge A.S. Norway
Knogo Sweden A/B Sweden
Knogo RFMM Valularm A/B Sweden
Camera Security Limited United Kingdom
CCTV Limited United Kingdom
Telesurveillance Limited United Kingdom
Knogo (U.K.) Limited United Kingdom
Sensormatic Security Solutions Limited United Kingdom
</TABLE>
Page 1
<PAGE> 2
SENSORMATICS ELECTRONICS CORP
Filename:Subslist LIST OF SUBSIDIARIES
6/30/98
<TABLE>
<CAPTION>
PLACE OF INCORPORATION
OPERATING COMPANIES OR ORGANIZATION
- ------------------- ----------------------
<S> <C>
ASIA / PACIFIC
- --------------
Sensormatic Asia/Pacific, Inc. Delaware (primary operations in Sing.)
Sensormatic Australia Pty Limited Australia
Sensormatic Hong Kong Limited Hong Kong
Sensormatic New Zealand Limited New Zealand
Knogo Australia Pty. Ltd. Australia
OTHERS
- ------
Sensormatic Middle East, Inc. Delaware
Senelco Iberia, Inc. Delaware
International Financing, Inc. Delaware
Sensormatic (Barbados) Export, Inc. Barbados
Sensormatic Cayman Finance Ltd. Cayman Islands
Sensormatic del Peru Peru
Sensormatic Distribution & Holdings B.V. Netherlands
Sensormatic Electronics Corporation (Brazil) Delaware
Sensormatic Ltd. United Kingdom
Sensormatic International, Inc. Delaware
Sensormatic International Management Corporation Delaware
Sensormatic Investments Associates B.V. Netherlands
SEC Investments of Canada Ltd. Canada
Sensormatic Investments Ltd. United Kingdom
Sensormatic S.A. France
Sensormatic (U.K.) Ltd. United Kingdom
BI Merger Corp. Delaware
Kingsclare Investments Ltd. United Kingdom
Knogo Holdings S.A. Belgium
Sensormatic International Distributors, Inc. Delaware
Sensormatic do Brasil Electrnica Ltda. Brazil
Sensorcol S.A. Colombia
MINEX Ltda. Colombia
Sensormatic Argentina, SA Argentina
Senelbra, Ltda. Brazil
Rivso Comercio E Participacoes Ltd. Brazil
Alarm-Tek Industria O Comercio SA Brazil
Knogo Do Brasil Sisternas De Vigilancia Ltd. Brazil
Knogo Latin America SA Uruguay
</TABLE>
All companies listed herein are wholly-owned by the Company, directly or
indirectly, with the exception of Sensormatic do Brasil Electronica Ltda.,
Senelbra Ltda., and Sensormatic de Peru, which are all 51% owned.
Page 2
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 2-19339, 33-26786, 33-38753, 33-54626 and 33-58299) pertaining to
the Incentive and Non-Qualified Stock Option Plans and the Employee Stock
Purchase Plan of Sensormatic Electronics Corporation of our report dated August
13, 1998, with respect to the consolidated financial statements and schedule of
Sensormatic Electronics Corporation included in the Annual Report on Form 10-K
for the year ended June 30, 1998.
ERNST & YOUNG LLP
West Palm Beach, Florida
September 28, 1998
<PAGE> 1
EXHIBIT 23(b)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement (Form
S-4 No. 33-51957) of Sensormatic Electronics Corporation and in the related
Prospectus of our report dated August 13, 1998, with respect to the consolidated
financial statements of Sensormatic Electronics Corporation included in the
Annual Report on Form 10-K for the year ended June 30, 1998.
ERNST & YOUNG LLP
West Palm Beach, Florida
September 28, 1998
2
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 127
<SECURITIES> 0
<RECEIVABLES> 518
<ALLOWANCES> 59
<INVENTORY> 204
<CURRENT-ASSETS> 737
<PP&E> 246
<DEPRECIATION> 108
<TOTAL-ASSETS> 1,802
<CURRENT-LIABILITIES> 344
<BONDS> 515
0
167
<COMMON> 734
<OTHER-SE> (3)
<TOTAL-LIABILITY-AND-EQUITY> 1,802
<SALES> 832
<TOTAL-REVENUES> 987
<CGS> 526
<TOTAL-COSTS> 544
<OTHER-EXPENSES> 87
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51
<INCOME-PRETAX> (54)
<INCOME-TAX> (17)
<INCOME-CONTINUING> (37)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37)
<EPS-PRIMARY> (0.50)
<EPS-DILUTED> (0.50)
</TABLE>
