<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
( X ) QUARTERLY REPORT ( ) TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly
Period Ended September 30, 1998 Commission File No. 1-10739
----------------------- ----------------------------
SENSORMATIC ELECTRONICS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 34-1024665
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
951 YAMATO ROAD, BOCA RATON, FLORIDA 33431-0700
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(561) 989-7000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
SAME
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 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 Registrant had outstanding 74,912,307 shares of Common Stock (par value $.01
per share) as of November 1, 1998.
<PAGE> 2
SENSORMATIC ELECTRONICS CORPORATION
INDEX
FORM 10-Q
THREE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Consolidated Condensed Balance Sheets................................................. 2
Consolidated Condensed Statements of Operations....................................... 3
Consolidated Condensed Statements of Cash Flows....................................... 4
Notes to Consolidated Condensed Financial Statements.................................. 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................... 10
Item 3. Quantitative and Qualitative Disclosures
about Market Risk....................................................................14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................................................... 15
Signatures .......................................................................................... 16
</TABLE>
<PAGE> 3
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions, except par value amounts)
<TABLE>
<CAPTION>
(Unaudited)
September 30, June 30,
1998 1998
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 105.4 $ 127.0
Customer receivables 331.7 326.2
Inventories, net 203.8 203.6
Current portion of deferred income taxes 37.1 36.2
Other current assets 43.0 43.7
---------- ----------
TOTAL CURRENT ASSETS 721.0 736.7
Customer receivables - noncurrent 125.6 132.5
Revenue equipment, net 73.2 69.2
Property, plant and equipment, net 137.1 137.2
Costs in excess of net assets acquired, net 471.0 465.5
Deferred income taxes 153.2 152.3
Patents and other assets, net 116.1 109.0
---------- ----------
TOTAL ASSETS $ 1,797.2 $ 1,802.4
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 28.9 $ 33.5
Accounts payable and accrued liabilities 123.7 118.5
Other current liabilities and deferred income taxes 180.7 192.1
---------- ----------
TOTAL CURRENT LIABILITIES 333.3 344.1
Long-term debt 508.2 515.2
Other noncurrent liabilities and deferred income taxes 47.6 45.5
---------- ----------
TOTAL LIABILITIES 889.1 904.8
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10.0 shares authorized -- --
6 1/2% Convertible Preferred Stock, 0.7 shares outstanding 166.7 166.7
Common stock, $.01 par value, 125.0 shares authorized, 74.6 and 74.4
shares outstanding at September 30, 1998 and June 30, 1998, respectively 736.3 733.7
Retained earnings 99.6 103.9
Treasury stock at cost and other, 1.7 shares at September 30, 1998
and June 30, 1998 (11.3) (11.7)
Accumulated other comprehensive income (83.2) (95.0)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 908.1 897.6
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,797.2 $ 1,802.4
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 4
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
--------------------------------
Three Months Ended September 30,
1998 1997
------------ ---------------
Revenues:
Sales $ 187.9 $ 204.5
Rentals 11.0 12.6
Installation, maintenance and other 28.3 28.3
--------- ---------
Total revenues 227.2 245.4
--------- ---------
Operating costs and expenses:
Costs of sales 126.5 131.8
Depreciation on revenue equipment 5.2 4.9
--------- ---------
Total cost of sales 131.7 136.7
--------- ---------
Gross margin 95.5 108.7
Operating expenses:
Selling, general and administrative 72.1 92.9
Provision for doubtful accounts 4.7 5.0
Restructuring charges -- 29.2
Research, development and engineering 7.2 6.5
Amortization of intangible assets 5.3 5.2
--------- ---------
Total operating costs and expenses 89.3 138.8
--------- ---------
Operating income (loss) 6.2 (30.1)
--------- ---------
Other (expenses) income:
Interest income 4.0 3.6
Interest expense (10.9) (12.3)
Litigation settlement -- (53.0)
Other, net (1.1) (1.9)
--------- ---------
Total other (expenses) income (8.0) (63.6)
--------- ---------
Loss before income taxes (1.8) (93.7)
Benefit for income taxes 0.3 27.8
--------- ---------
Net loss $ (1.5) $ (65.9)
========= =========
Basic and Diluted loss per common share $ (0.02) $ (0.89)
========= =========
Number of shares used in computation
of Basic loss per common share 74.8 74.1
========= =========
Number of shares used in computation
of Diluted loss per common share 74.8 74.3
========= =========
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
(Unaudited)
Three Months
Ended September 30,
--------------------
1998 1997
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1.5) $ (65.9)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 16.5 17.0
Restructuring charges, net (1.6) 26.2
Litigation settlement charge -- 53.0
Net changes in operating assets and liabilities,
net of effects of acquisitions and divestitures:
Decrease/(increase) in receivables and sales-type leases 4.5 (27.9)
Decrease/(increase) in inventories 0.7 (7.4)
Increase in current and deferred income taxes
relating to restructuring and litigation charges -- (24.7)
Other operating assets and liabilities, net (9.2) (0.9)
-------- -------
Net cash provided by (used in) operating activities 9.4 (30.6)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5.1) (6.5)
Proceeds from sale of business, net -- 4.5
Increase in revenue equipment, net of deletions (8.3) (8.5)
Additional investment in acquisitions (6.8) (4.5)
Other, net 0.4 1.9
-------- -------
Net cash used in investing activities (19.8) (13.1)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank borrowings (payments) and other debt (13.1) 46.9
Other, net 1.9 0.2
-------- -------
Net cash (used in) provided by financing activities (11.2) 47.1
-------- -------
Net (decrease) increase in cash (21.6) 3.4
Cash and cash equivalents at beginning of the year 127.0 21.7
-------- -------
Cash and cash equivalents at end of the period $ 105.4 $ 25.1
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions)
a) BASIS OF PRESENTATION
The consolidated condensed financial statements include the accounts of
Sensormatic Electronics Corporation and its subsidiaries (the
"Company"). The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended September
30, 1998 are not necessarily indicative of the results that may be
expected for the year ending June 30, 1999. For further information,
refer to the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
June 30, 1998.
b) RECLASSIFICATIONS
Certain amounts in the prior period's consolidated condensed financial
statements have been reclassified to conform to the fiscal 1998
year-end presentation.
c) RESTRUCTURING
The following table sets forth the details and the activity of the
restructuring charge reserves as of September 30, 1998:
<TABLE>
<CAPTION>
Accrual Accrual
Balance Balance at
at June 30, Utilization September 30,
1998 ---------------- 1998
Cash Non-cash
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Product rationalization, related
equipment charges and other $ 1.7 $ -- $(1.1) $ 0.6
Closure of facilities and related costs 15.1 (0.7) -- 14.4
Employee termination and related costs 10.5 (0.7) -- 9.8
Non-core business divestitures 18.8 (0.2) (0.1) 18.5
-------------------------------------------------------------------------------------------------
Total $ 46.1 $ (1.6) $(1.2) $ 43.3
-------------------------------------------------------------------------------------------------
</TABLE>
The total aggregate cash outlay related to the fiscal 1996, 1997 and
1998 restructuring charges, net of expected proceeds from the
divestiture of non-core businesses, was estimated to be approximately
$63.3. As of September 30, 1998, $36.0 had been disbursed and partially
offset by the net proceeds received from the non-core business
divestitures.
5
<PAGE> 7
d) 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 have
periodic payments over a term of five years, generally) and net
investment in sales-type leases (which have periodic payments over
lease terms of five to six years, principally) at September 30, and
June 30, 1998 are summarized as follows :
<TABLE>
<CAPTION>
September 30 June 30
------------ -----------
<S> <C> <C>
Trade accounts receivable due in 1 year $ 311.1 $ 303.9
Allowance for doubtful accounts (35.6) (33.2)
-------- ---------
Total trade accounts receivable, net $ 275.5 $ 270.7
======== =========
Deferred receivables $ 6.1 $ 4.9
Installment receivables 35.3 38.8
Allowance for doubtful accounts (5.4) (5.6)
Unearned interest and maintenance (13.3) (14.5)
-------- ---------
Total deferred and installment receivables, net 22.7 23.6
Less: Amounts due in 1 year, net (18.2) (19.0)
-------- ---------
Total noncurrent deferred and
installment receivables, net $ 4.5 $ 4.6
======== =========
Sales-type leases-minimum lease payments receivable $ 217.7 $ 225.1
Allowance for uncollectible minimum lease payments (19.8) (20.3)
Unearned interest and maintenance (38.8) (40.4)
-------- ---------
Total sales-type leases, net 159.1 164.4
Less: Amounts due in 1 year, net (38.0) (36.5)
-------- ---------
Total noncurrent sales-type leases, net $ 121.1 $ 127.9
======== =========
Total customer receivables $ 457.3 $ 458.7
Less: Amounts due in 1 year, net 331.7 326.2
-------- ---------
Total noncurrent customer receivables $ 125.6 $ 132.5
======== =========
</TABLE>
6
<PAGE> 8
e) INVENTORY
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1998 June 30, 1998
------------------ -------------
<S> <C> <C>
Finished goods $ 161.6 $ 165.4
Parts 56.0 56.3
Work-in-process 15.6 14.7
-------- ------
233.2 236.4
Less allowance for excess and
obsolete inventory (29.4) (32.8)
-------- ------
Total inventories, net $ 203.8 $ 203.6
======== ======
</TABLE>
f) PENSION PLANS
On June 11, 1998 the Company's Board of Directors approved a
Supplemental Employee Retirement Plan ("SERP") for vice president level
employees and officers. Selected vice presidents and officers who
participated in the other Sensormatic retirement plans (Senior
Executive Defined Contribution Retirement Plan, Key Executive
Supplemental Retirement Plan and Salary Continuation Plan) and who
elect to participate in the new SERP will be paid a benefit equal to
the higher of what they would receive under the formula set forth in
the SERP or under the former plan. The new SERP for vice presidents and
officers is effective July 15, 1998. As of September 30, 1998, the
Company did not have a liability under this new plan. Additionally, on
August 20, 1998 the Company's Board of Directors approved a
Supplemental Employee Retirement Plan for director level employees.
Selected director level employees who participated in the Company's Key
Executive Supplemental Retirement Plan and who elect to participate in
the new SERP for director level employees will be paid a benefit equal
to the higher of what they would receive under the formula set forth in
the SERP or the former Plan. The SERP for director level employees is
to be effective January 1, 1999. The Company does not anticipate a
material impact on the financial statements as a result of the adoption
of these plans.
g) 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 recognized as sales. All other transfers of receivables are treated
as financing transactions. See Note 4 of Notes to Consolidated
Financial Statements in the Company's 1998 Annual Report on Form 10-K
for additional discussion on the Company's accounts receivable
financing program.
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 $116.3 at September
30, 1998. Loss reserves have been provided for receivables and
sales-type lease receivables sold and are included in accrued
liabilities.
7
<PAGE> 9
h) EARNINGS PER SHARE
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>
Three Months ended
September 30,
----------------------
1998 1997
---- ----
<S> <C> <C>
NUMERATOR:
Net Loss $(1.5) $(65.9)
======= ========
DENOMINATOR:
Basic EPS - weighted average shares 74.8 74.1
Dilutive effect: Stock options 0.0 0.2
------- --------
Diluted EPS - weighted average shares 74.8 74.3
======= ========
Basic loss per share $ (0.02) $ (0.89)
======= ========
Diluted loss per share $ -- (a) $ -- (a)
======= ========
</TABLE>
- -----------------
(a) Excluded as result is anti-dilutive.
i) COMPREHENSIVE INCOME
As of July 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". The adoption of this Statement had no impact on
the Company's net income or stockholders' equity. SFAS No. 130
establishes new rules for the reporting and display of comprehensive
income and its components. SFAS No. 130 requires foreign currency
translation adjustments to be included in other comprehensive income.
Prior to the adoption of SFAS No. 130, the Company reported such
adjustments in a separate component of stockholders' equity. For the
three months ended September 30, 1998 and September 30, 1997,
comprehensive income was $10.3 and $(75.0), respectively. At September
30, 1998 and June 30, 1998, accumulated other comprehensive income
was $(83.2) and $(95.0), respectively.
8
<PAGE> 10
j) DIVESTITURES
In September 1997, the Company sold its U.S. commercial/industrial
direct sales and service business. The Company also agreed in such
transaction to sell its monitoring business, which sale was consummated
in October 1997. The revenues of these operations prior to the
divestiture date and included in the Company's Consolidated Condensed
Statement of Operations for the three months ended September 30, 1997
was $11.4.
k) LITIGATION AND OTHER MATTERS
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 had a policy limit of $10.0,
and has also been paid $10.0 by one of its two excess directors and
officers liability insurers. 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 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). 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).
9
<PAGE> 11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's consolidated condensed financial statements present a
consolidation of its worldwide operations. This discussion supplements
the detailed information presented in the Consolidated Condensed
Financial Statements and Notes thereto (which should be read in
conjunction with the financial statements and related notes contained
in the Company's 1998 Annual Report on Form 10-K) and is intended to
assist the reader in understanding the financial results and condition
of the Company.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED
TO THREE MONTHS ENDED SEPTEMBER 30, 1997
The following discussion of operating results excludes the effects of
restructuring and litigation charges recorded in fiscal 1998, which are
discussed in Note 2 and Item 7, respectively, in the Company's 1998
Annual Report on Form 10-K.
REVENUES
Revenues of $227.2 for the first quarter of fiscal 1999 decreased 7.4%,
or $18.2, compared to revenues of $245.4 for the same period in fiscal
1998. Results for the first quarter of fiscal 1999 were adversely
affected by production and shipment delays at the Company's Puerto Rico
manufacturing operations caused by hurricane Georges, resulting in a
reduction in revenues of approximately $10.0. The first quarter of
fiscal 1998 included revenues of $15.6 from businesses subsequently
divested, the largest of which was the U.S. commercial/industrial
direct sales and service business which was sold in September 1997.
Excluding the effects of these non-core businesses, first quarter
fiscal 1999 revenues were essentially flat in comparison with the first
quarter of fiscal 1998.
For the first quarter of fiscal 1999, North America Retail revenues
increased 16.5% as compared to the same period for fiscal 1998. The
increase in revenues was attributable to large shipments of electronic
article surveillance equipment to major retail chains.
Europe Retail revenues decreased 10.8% for the first quarter of fiscal
1999 as compared to the same period for fiscal 1998. The decrease in
Europe retail revenues was due to an emphasis on more outright sales
rather than sales-type leases, swaps and renewals and continued price
competition.
International Retail revenues, which include Latin America and Asia
Pacific, decreased 17.4% for the first quarter of fiscal 1999 as
compared to the same period of fiscal 1998. The decrease in
International Retail was largely due to Latin America revenues which
decreased 21.7% in the first quarter of fiscal 1999. The overall
decrease in International revenues reflects the weakening currencies
and unfavorable economic conditions which exist in the Asian and Latin
American countries.
Revenues generated by C/I Worldwide decreased 30.7% in the first
quarter of fiscal 1999 as compared to the same period of fiscal 1998.
The decrease in revenues is principally due to the divestiture in
September 1997 of the U.S. commercial/industrial direct sales and
service business. Excluding the effect on revenues of divested non-core
businesses, C/I Worldwide
10
<PAGE> 12
indirect revenues decreased 7.8% in the first quarter of fiscal 1999 as
compared with the same period of fiscal 1998 principally due to
declines in Asia and Latin America resulting from the currency and
economic conditions existing in those areas. Subsequent to September
30, 1998, certain steps were taken by the Company to reposition the
Commercial/Industrial unit in light of the lack of revenue growth.
GROSS MARGINS, OPERATING EXPENSES AND OPERATING INCOME
Gross margins on revenues were 42.0% for the three month period ended
September 30, 1998 compared with 44.3% for the comparable period of the
prior year. Included in cost of sales for the three month period ended
September 30, 1997 is $3.0 of incremental charges (margin impact of
1.2%) related to the Company's extensive review of its balance sheet.
The decrease in margins was partially due to volume discounts on major
orders in North America Retail and continued price competition in
Europe Retail. The Company anticipates a continued impact on margin
levels in upcoming quarters as a result of further high-volume sales to
individual retail customers. This impact is expected to be more than
offset by additional expense reductions in the second half of the
fiscal year.
Selling, general and administrative expenses, as a percentage of total
revenues, was 31.7% for the first quarter of fiscal 1999 as compared to
37.9% for the comparable period in fiscal 1998. The decrease in
expenses as a percentage of revenues for the first quarter of fiscal
1999 reflects the Company's continued effort to implement the headcount
and facilities reductions associated with its previously announced
restructuring plans, the divestiture of the U.S. commercial/industrial
direct sales and service business, which typically had a higher
operating expense level in relation to revenues, and the effect of the
cost reductions resulting from an extensive review performed by the
Company, beginning in fiscal year 1996, to realign its business.
Ongoing cost containment and rationalization efforts are expected to
generate significant additional declines in operating expenses before
the end of the fiscal year. Included in selling, general and
administrative expenses for the first quarter of fiscal 1998 are
incremental charges of $10.8, or 4.4% of revenues, for certain employee
separation and contract resolution costs.
Provision for doubtful accounts, as a percentage of total revenues, was
2.1% and 2.0% in the first quarter of fiscal 1999 and 1998,
respectively.
Research, development and engineering expenses increased to 3.2% of
revenue in the three months ended September 30, 1998 as compared to
2.6% for the same period in fiscal 1998. 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 developments in all product categories. Research, development
and engineering expenses will be substantially unchanged for fiscal
1999 as a result of the Company's continued effort to reduce corporate
overhead expenses.
Before restructuring, operating income increased from $(0.9) in the
first quarter of fiscal 1998 to $6.2 in the first quarter of fiscal
1999. The impact of the incremental charges discussed under selling,
general and administrative expenses above and under gross margins
above, was to reduce operating income by $13.8 million in fiscal 1998.
11
<PAGE> 13
OTHER (EXPENSES) INCOME AND TAXES
Net interest and other expenses of $8.0 for the first quarter of fiscal
1999 reflected a decrease of $2.6 over the comparable period of fiscal
1998, excluding litigation settlement charges in the first quarter of
fiscal 1998. This decrease is primarily due to the decrease in interest
expense as a result of lower debt levels due to cash raised in the
Company's recent preferred stock offering.
The benefit for income taxes for the first quarter of fiscal 1999 and
fiscal 1998 is based on an estimated effective annual consolidated tax
benefit rate of 30.0%. The tax benefit for the prior year related
primarily to the restructuring and litigation charges recorded during
the first quarter.
The Company reported a net loss of $1.5, or $0.02 per share, for the
first quarter of fiscal 1999 as compared to a net loss of $65.9, or
$0.89 per share, for the same period of fiscal 1998. Excluding
restructuring and litigation charges, the Company reported a net loss
of $8.4, or $0.11 per share, for the first quarter of fiscal 1998. The
foregoing net loss includes the effect of the incremental charges of
$10.8 discussed under selling, general and administrative expense, and
of $3.0 discussed under gross margins, which had a negative after-tax
impact of $9.7 or $0.13 per share.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of fiscal 1999, cash and cash equivalents
decreased $21.6 primarily due to expenditures related to fixed assets
and the repayment of debt. For the three month period ended September
30, 1998, cash flow provided by operating activities was $9.4 compared
with cash used in operations for the three month period ended September
30, 1997 of $30.6. The improvement in operating cash flow in the three
month period ended September 30, 1998 was primarily a result of
relatively flat levels of receivables and inventories in fiscal 1999.
In the first three months of fiscal 1999, the Company used $19.8 of
cash in investing activities, compared to $13.1 in the first three
months of fiscal 1998. The fiscal 1998 amount included $4.5 million of
net proceeds from the sale of a non-core business.
For the three month period ended September 30, 1998, $11.2 of cash was
used for financing activities as compared to cash being generated of
$47.1 as a result of financing activities during the three month period
ended September 30, 1997. The principal use of cash in financing
activities during the first quarter of fiscal 1999 was to repay
approximately $13.0 of short-term debt.
The Company's percentage of total debt to total capital was 37.1% at
September 30, 1998 as compared to 37.9% at June 30, 1998. Certain of
the Company's financial agreements currently prohibit the payment of
cash dividends, as well as the purchase of Company securities, until
certain profit levels are achieved and reflected in the Company's
annual audited financial statements. Under these provisions, 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 any dividends
declared on the Convertible Preferred Stock with shares of Common Stock
prior to the time it is able to pay such cash dividends. The Company
issued approximately 355,359 shares of common stock in payment of the
October 1, 1998 dividends on the Preferred Stock.
12
<PAGE> 14
The Company uses the U.S. dollar as its reporting currency for
financial statement purposes. The Company conducts business in numerous
countries around the world through its international subsidiaries which
use local currencies to denominate their transactions, and is,
therefore, subject to certain risks associated with fluctuating foreign
currencies. The resulting changes in the financial statements do not
indicate any underlying changes in the financial position of the
international subsidiaries but merely reflect the adjustment in the
carrying value of the net assets of these subsidiaries at the current
U.S. dollar exchange rate. Due to the long-term nature of the Company's
investment in these subsidiaries, the translation adjustments resulting
from these exchange rate fluctuations are excluded from the results of
operations and are recorded in a separate component of consolidated
stockholders' equity. The $11.8 decrease in currency translation
adjustments at September 30, 1998 compared to June 30, 1998, which is
reflected in the balance sheet caption "Accumulated other comprehensive
income", resulted primarily from the translation of the balance sheets
denominated in British pounds and French francs, reflecting the
weakening of the U.S. dollar relative to such currencies at September
30, 1998. The Company monitors its currency exposures but does not
hedge its translation exposures due to the high economic costs of such
a program and the long-term nature of its investment in its
international subsidiaries.
The Company requires significant cash flow to meet its debt service and
other continuing obligations. As of September 30, 1998, the Company had
$537.1 million of total indebtedness outstanding. The Company's
expected principal liquidity requirements are working capital,
financing of customer equipment purchases, investments in revenue
equipment and capital expenditures and interest on the Senior Notes.
At September 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 (iv) receivable securitization facilities. The Company
believes that cash flow from operations, together with borrowings under
the Revolving Credit Facility, will be sufficient to meet its liquidity
needs for the foreseeable future.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Except for historical matters, the matters discussed in this Form 10-Q
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 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.
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<PAGE> 15
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the Company's 1998 Annual Report on Form 10-K (Item 7A). There has
been no material change in this information.
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<PAGE> 16
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10a) Agreement, dated November 2, 1998, between the
Company and Olin S. Giles, Senior Vice
President and Chief Technical Officer of the
Company.
10b) Agreement, dated November 2, 1998, between the
Company and Olin S. Giles, Senior Vice
President and Chief Technical Officer of the
Company.
27) Financial Data Schedule (for SEC use only).
b) Reports on Form 8-K:
There were no reports on Form 8-K filed during
the three - month period ended September 30,
1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
SENSORMATIC ELECTRONICS CORPORATION
By /s/ Garrett E. Pierce
-----------------------------------
Garrett E. Pierce
Senior Vice President, Chief
Administrative Officer and
Chief Financial Officer
(Principal Financial Officer)
Date: November 13, 1998
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<PAGE> 1
Exhibit 10a
AGREEMENT
AGREEMENT, made as of the 2nd day of November, 1998, 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 OLIN S. GILES, residing at
4459 Woodfield Blvd., Boca Raton, FL 33434 (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 AND DUTIES. The Employee shall continue to serve the
Corporation as Senior Vice President and Chief Technical Officer 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 $218,000 per year and the
Employee's present targeted bonus is $98,000 per year. In addition, the Employee
presently participates in or benefits from, or may later qualify to participate
in or benefit from, the Corporation's group medical, dental and life insurance
plans, Executive Personal Umbrella Liability insurance plan, Executive Medical
Reimbursement Plan, SensorSave Plan, Supplemental Executive Retirement 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
Corporation's Board of Directors or the Compensation Committee thereof, subject
to the provisions of Section 3(c)(i) below.
(b) The parties agree that, during the term of the Employee's
employment hereunder, the Employee shall continue to participate in the
Corporation's Success Sharing Program - Long Term Incentive Plan as previously
established by grants of stock options and restricted stock pursuant
<PAGE> 2
to the terms and conditions of such Plan, subject to any modifications to or
termination of such Plan as becomes effective for executive personnel generally.
(c) The parties agree that the Employee is a participant in the
Corporation's Executive Salary Continuation Plan ("ESCP") and that the Employee
is presently at least 80% vested under the ESCP and that, subject to the terms
and conditions of the ESCP, he may retire at age 60 or thereafter and receive
benefits under the ESCP for a 15-year period. The parties further agree that the
Employee is a participant in the Corporation's Senior Executive Defined
Contribution Retirement Plan (the "Senior Plan"). The Employee is presently at
least 80% vested in the Senior Plan and, subject to the terms and conditions of
the Senior Plan, he may retire at age 60 or thereafter and receive benefits
under the Senior Plan for a 15 year period. The parties agree that the total
annual benefits to be paid to the Employee pursuant to the ESCP and the Senior
Plan, in the aggregate, will be the Employee's vested percentage of an amount
equal to fifty percent (50%) of (i) Employee's base salary as of the date of his
retirement or termination from the Corporation, plus (ii) the greater of (x)
Employee's last paid annual bonus compensation for the last complete fiscal year
prior to retirement or termination, or (y) the average of the annual bonus
payments paid to the Employee for the last five complete fiscal years prior to
retirement or termination. The parties acknowledge that the information set
forth above with respect to the ESCP and the Senior Plan is intended to confirm
the level of benefits to be paid to the Employee, but the parties agree that the
language of the plans themselves will control all other issues relating to the
plans, subject to the following modification: the respective non-competition
provisions of the Employee's agreements under the ESCP and the Senior Plan are
hereby amended to conform with the scope of the non-competition provision set
forth in Section 7 hereunder.
(d) 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 thirty (30) days written notice to the Corporation. The
Corporation may waive any or all of this notice period. Except as provided in
Sections 3(c) and 3(d) below, the Corporation's sole obligation to the Employee
after the date of notice of such termination is (i) to pay the Employee's base
salary and other compensation and benefits provided for in Section 2 above 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
(i.e., fiscal year) 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. Except as provided in Sections 3(c) and 3(d) below, 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 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, airline club room 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 30 days' prior written notice to the Employee.
In the event of such termination (except for cause pursuant to Section 4
hereunder), the Employee shall be entitled to:
(i) base salary and other compensation provided in Section 2
above through the date of termination of his employment;
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<PAGE> 3
(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) continuation in full force and effect of the following
stock options, in accordance with the terms and conditions of the related option
agreements: (A) non-qualified options to purchase 7,500 shares of Sensormatic's
common stock at an exercise price of $11.42 per share, granted February 4, 1991,
all of which are currently vested and which are scheduled to expire on February
4, 2001; (B) non-qualified options to purchase 9,000 shares of Sensormatic's
common stock at an exercise price of $17.25 per share, granted February 25,
1992, all of which are currently vested and which are scheduled to expire on
February 25, 2002; (C) non-qualified options to purchase 9,000 shares of
Sensormatic's common stock at an exercise price of $23.00 per share, granted
January 22, 1993, all of which are currently vested and which are scheduled to
expire on January 22, 2003; (D) non-qualified options to purchase 15,000 shares
of Sensormatic's common stock at an exercise price of $31.625 per share, granted
April 18, 1994, all of which vest on April 18, 1999, and which are scheduled to
expire on April 18, 2004; (E) non-qualified options to purchase 10,000 shares of
Sensormatic's common stock at an exercise price of $28.50 per share, granted
February 3, 1995, all of which are currently vested, and which are scheduled to
expire on February 3, 2005; (F) non-qualified options to purchase 25,000 shares
of Sensormatic's common stock at an exercise price of $18.1875 per share,
granted February 12, 1996, of which 16,666 are currently vested, 8,334 will vest
on February 12, 1999, and which are scheduled to expire on February 12, 2006;
(G) non-qualified options to purchase 15,000 shares of Sensormatic's common
stock at an exercise price of $13.6563 per share, granted October 3, 1997, of
which 5,000 will vest on October 3, 1998, 5,000 will vest on October 3, 1999,
5,000 will vest on October 3, 2000, and which are scheduled to expire on October
3, 2007; PROVIDED, HOWEVER, that if the Employee has breached, or has been
alleged to have breached, any of the provisions of Sections 5, 6 or 7 hereof,
any of such options which are outstanding at such time shall thereupon
automatically be suspended without any further action by the Corporation,
provided, however, that upon the Corporation's receipt of knowledge of
allegations of the Employee's breach, it shall provide the Employee (i) with
written notice of such breach and its intention to terminate the options, and
(ii) an opportunity for the Employee to respond to the allegations before the
Corporation's Board of Directors or a committee thereof prior to the termination
of the options.
(iv) a thirty (30) day period following termination in which the
Employee may exercise any vested stock options not granted as part of the
options set forth in subsection (iii) above (except for such options as are set
forth in subsection (iii) above, all unvested options, as well as all 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, and the
Employee shall at such time immediately return to the Corporation for
cancellation any restricted share certificates issued thereunder);
(v) other or additional benefits in accordance with applicable
group plans and programs of the Corporation (subject to any and all Employee
obligations or contributions required by such plans and programs, which shall
continue to be paid by the Employee) which, by their terms, survive termination;
(vi) an option, which the Employee may elect, (and the
Corporation shall be bound by any such election), by written notification to the
Corporation to be received no later than fifteen (15) days prior to the date of
termination, to enter into a 12 month Consulting Agreement with the Corporation,
commencing on the date of termination, in the form attached to this Agreement as
Exhibit A, under which his services may be retained by the Corporation; and
(vii) subject to the Employee's continued compliance with
Sections 5, 6 and 7 below, the Employee shall also be entitled to receive the
following benefits for a period of 18 months immediately following the date of
termination of employment or, if the Employee chooses the Consulting Agreement
option, under which his services may be retained by the Corporation, pursuant to
clause (iii) above, for a period of 18 months immediately following the
termination date of the
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<PAGE> 4
period of consultancy (the "Continuation Period"). Such benefits shall continue
notwithstanding any disability of the Employee suffered during the period of
consultancy or the Continuation Period, and, except for insurance policies which
are not transferable, shall be paid to the Employee's designated heirs in the
event of the Employee's death during the period of consultancy or the
Continuation Period:
(A) 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), 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 at compensation that amounts to at least 51% of that
received from the Corporation at such time, base salary payable hereunder shall
continue to be paid only for a period equal to one-half of the remainder of the
Continuation Period;
(B) participation, at the Corporation's expense (either
through Corporation-paid COBRA premiums, while eligible, or, if such eligibility
ends during the consultancy period or the Continuation Period, through the
Corporation's Executive Early Retirement Medical/Dental Plan), 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), to the extent such coverage continues to be provided
to active employees; 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;
(C) participation, at the Corporation's expense, in a
personal life insurance policy equivalent to, and converted from, the group life
insurance coverage in which he was participating on the date of the termination
of his employment, subject to approval by the life insurance company of the
amount to be converted; and
(D) payment by the Corporation of the Employee's monthly
auto lease payments until such lease term expires in July 1999 (provided that
the Employee provides all necessary paperwork and assistance to effect the
transfer of the lease from the Corporation to the Employee within sixty (60)
days of the termination of employment), followed by, for the remainder of the
Continuation Period, if any, payment to the Employee of a monthly auto allowance
of $750.00l; the Employee shall be responsible for all other costs, expenses and
liabilities regarding his use of such automobile.
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, executive medical reimbursement, and airline
club room privileges) 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 within twelve (12) months of
the occurrence of such event 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);
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<PAGE> 5
(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) Notwithstanding anything to the contrary contained in this
Agreement, in the event that the Employee terminates his employment with the
Corporation for any reason (unless such termination follows conduct by the
Employee which would constitute a terminable offense pursuant to Section 4
below) within four (4) months of the date of this Agreement, the Employee 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.
(e) 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 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(e) 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
5
<PAGE> 6
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 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 produced, 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 or produced 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, partner, lender or otherwise in, any entity which
hires or retains as a consultant - any person who, within six (6) months prior
to the date of such hiring or retention, had been employed by the Corporation in
a sales, marketing,
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<PAGE> 7
managerial or professional (e.g. accounting, engineering, legal) capacity;
during the term of the Employee's employment with the Corporation and until the
end of the Continuation Period, 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.
Notwithstanding the foregoing, the Employee shall not be deemed to
have violated this Section 7 if (a) the competitor's annual sales attributable
to the product or product lines involved equal less than 5% of the competitor's
annual total annual sales, 9b) the Employee is employed by a business of which a
unit is in competition with the Corporation but as to which unit he does not
have direct or supervisory authority over the product or product lines involved,
(c) the Employee provides consultation or services to any person (i) related to
product standards which are being developed in the public domain or (ii) on
matters involving general business or product development processes, provided
that such consultation or services does not relate to any specific products,
technology or marketing strategy, (d) the Employee provides consultation or
services to end-user customers of the Corporation on the application or use of
loss prevention or security products or technology, (e) the Employee provides
consultation or services, with the Corporation's prior written consent, to any
person with whom the Corporation has an OEM distribution arrangement, joint
venture arrangement or other like relationship or (f) the Employee provides
consultation or services with respect to RFID tags or systems to any person (i)
who is a producer for, or supplier to, the Corporation of such RFID tags or
systems or (ii) has offered to supply such RFID tags or systems to the
Corporation on terms at least as favorable as those offered by such producer or
supplier to any other customer. 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 (PROVIDED, HOWEVER,
that upon the Corporation's receipt of knowledge of the Employee's breach or
threatened breach, it shall provide the Employee with (i) written notice of such
breach or threatened beach and its intention to terminate such benefits, and
(ii) an opportunity for the Employee to respond to the allegations at a hearing
before the Corporation's Board of Directors or a committee thereof prior to the
termination of such benefits), 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 and 3 hereof and
any other agreements or understandings pertaining thereto) 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
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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 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 any of 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.
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.
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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 Corporation 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 as to which the Corporation
has instituted legal proceedings under clause (b) of Section 8, any disputes
arising under or in connection with this Agreement shall, at the election of the
Employee or the Corporation, 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. Each
party shall bear its respective costs of the arbitration or litigation,
provided, however, that in the event the Employee is the prevailing party, he
shall recover his reasonable attorneys fees and costs in bringing the action and
enforcing the judgment from the Corporation. "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% 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 OLIN S. GILES
By: /s/ Robert A. Vanourek By: /s/ Olin S. Giles
-------------------------------------- -------------------------
Robert A. Vanourek
President and Chief Executive Officer
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Exhibit 10b
AGREEMENT
AGREEMENT, dated as of November 2, 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 OLIN S. GILES, an individual whose address is 4459 Woodfield Blvd., Boca
Raton, FL 33434 ("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 Chief Technical Officer, 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 May 12, 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 November 2, 1998 (the "Officer Agreement");
<PAGE> 2
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 May
12, 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
$218,005 per year and Executive's target bonus is deemed to be $98,000 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
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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, or may later qualify as, 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.
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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 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
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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 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
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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 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.
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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 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
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(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.
(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
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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
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
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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, 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.
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(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 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
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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 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
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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
(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
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(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 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 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.
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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
(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
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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 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
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(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;
(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
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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 Sensormatic to continue, or to continue unmodified, any benefit plan or
policy, whether or not
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<PAGE> 19
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 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
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<PAGE> 20
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/ Olin S. Giles
----------------------------------
Olin S. Giles
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<PAGE> 21
SCHEDULE I
Applicable Retirement Plans
1. Supplemental Executive Retirement Plan.
-21-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 105
<SECURITIES> 0
<RECEIVABLES> 518
<ALLOWANCES> 61
<INVENTORY> 204
<CURRENT-ASSETS> 721
<PP&E> 250
<DEPRECIATION> 113
<TOTAL-ASSETS> 1,797
<CURRENT-LIABILITIES> 333
<BONDS> 537
0
167
<COMMON> 736
<OTHER-SE> 5
<TOTAL-LIABILITY-AND-EQUITY> 1,797
<SALES> 188
<TOTAL-REVENUES> 227
<CGS> 132
<TOTAL-COSTS> 221
<OTHER-EXPENSES> 8
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> (2)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
