<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 March 31, 1998 Commission File No. 1-10739
------------------- --------
SENSORMATIC ELECTRONICS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 34-1024665
- -------------------------------------------------- ------------------------------------------
<S> <C>
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
</TABLE>
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 74,357,077 shares of Common Stock (par value $.01
per share) as of May 1, 1998.
<PAGE> 2
SENSORMATIC ELECTRONICS CORPORATION
INDEX
FORM 10-Q
NINE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
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......................................................................... 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................................... 18
Item 2. Changes in Securities..................................................................... 20
Item 6. Exhibits and Reports on Form 8-K.......................................................... 21
Signatures .......................................................................................... 22
</TABLE>
<PAGE> 3
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions, except par value amounts)
<TABLE>
<CAPTION>
(Unaudited)
March 31, June 30,
1998 1997
------------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 16.3 $ 21.7
Customer receivables 313.5 291.6
Inventories, net 229.4 199.6
Current portion of deferred income taxes 47.5 42.9
Other current assets 66.7 54.4
-------- --------
TOTAL CURRENT ASSETS 673.4 610.2
Customer receivables - noncurrent 142.2 138.5
Revenue equipment, net 67.9 66.8
Property, plant and equipment, net 135.0 145.5
Costs in excess of net assets acquired, net 469.8 482.7
Deferred income taxes 156.9 111.5
Patents and other assets, net 118.1 88.4
-------- --------
TOTAL ASSETS $1,763.3 $1,643.6
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 100.5 $ 21.8
Accounts payable and accrued liabilities 124.0 126.1
Other current liabilities and deferred income taxes 249.5 181.5
-------- --------
TOTAL CURRENT LIABILITIES 474.0 329.4
Long-term debt 511.4 501.5
Other noncurrent liabilities and deferred income taxes 55.6 39.8
-------- --------
TOTAL LIABILITIES 1,041.0 870.7
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10.0 shares authorized, none issued -- --
Common stock, $.01 par value, 125.0 shares authorized, 74.4 and 74.3
shares outstanding at March 31, 1998 and June 30, 1997, respectively 731.6 730.5
Retained earnings 96.0 143.7
Treasury stock at cost and other, 1.7 shares at March 31, 1998
and June 30, 1997 (12.5) (14.0)
Currency translation adjustments (92.8) (87.3)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 722.3 772.9
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,763.3 $1,643.6
======== ========
</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)
<TABLE>
<CAPTION>
Unaudited
------------------------------------------------------
Three Months Nine Months
Ended March 31, Ended March 31,
------------------------- ------------------------
1998 1997 1998 1997
--------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Sales $199.2 $205.8 $ 610.1 $ 623.0
Rentals 11.4 15.0 36.6 42.1
Installation, maintenance and other 26.4 29.3 79.4 87.6
------ ------ ------- --------
Total revenues 237.0 250.1 726.1 752.7
------ ------ ------- --------
Cost of Sales:
Costs of sales 127.0 126.6 381.2 388.8
Depreciation on revenue equipment 4.3 5.2 14.1 15.5
------ ------ ------- --------
Total cost of sales 131.3 131.8 395.3 404.3
------ ------ ------- --------
Gross margin 105.7 118.3 330.8 348.4
Operating expenses:
Selling, general and administrative 72.8 92.0 241.8 273.1
Restructuring charges -- -- 43.0 --
Research, development and engineering 6.5 6.0 20.0 17.5
Amortization of intangible assets 5.4 5.3 16.0 14.6
------ ------ ------- --------
Total operating costs and expenses 84.7 103.3 320.8 305.2
------ ------ ------- --------
Operating income 21.0 15.0 10.0 43.2
------ ------ ------- --------
Other (expenses) income:
Interest income 3.6 4.1 10.6 12.7
Interest expense (12.7) (12.1) (38.3) (35.7)
Litigation recoveries (settlement), net 7.3 -- (45.7) --
Other, net (1.8) 1.1 (4.9) (0.7)
------ ------ ------- --------
Total other (expenses) income (3.6) (6.9) (78.3) (23.7)
------ ------ ------- --------
Income (Loss) before income taxes 17.4 8.1 (68.3) 19.5
Provision (Benefit) for income taxes 4.4 2.3 (20.8) 5.5
------ ------ ------- --------
Net income (loss) $ 13.0 $ 5.8 $ (47.5) $ 14.0
====== ====== ======= ========
Basic and Diluted earnings (loss)
per common share $ 0.17 $ 0.08 $ (0.64) $ 0.19
====== ====== ======= ========
Cash dividends per common share $ -- $0.055 $ -- $ 0.165
====== ====== ======= ========
Number of shares used in computation
of Basic earnings (loss) per share 74.2 74.0 74.2 73.9
====== ====== ======= ========
Number of shares used in computation
of Diluted earnings (loss) per share 74.8 74.2 74.5 74.1
====== ====== ======= ========
</TABLE>
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)
Nine Months
Ended March 31,
---------------------------
1998 1997
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(47.5) $ 14.0
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization 49.2 49.3
Restructuring charges, net 31.1 (6.2)
Litigation settlement charges and (recoveries/payouts), net 35.7 --
Net changes in operating assets and liabilities,
net of effects of acquisitions:
(Increase)/decrease in receivables and sales-type leases (27.1) 2.2
Increase in inventory (36.1) (40.4)
Increase in current and deferred income taxes relating to
restructuring, special and litigation settlement charges (27.0) --
Other operating assets and liabilities, net (39.2) (24.1)
------ ------
Net cash used in operating activities (60.9) (5.2)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (18.5) (31.7)
Net proceeds from sale of business 8.2 --
Increase in revenue equipment, net (17.5) (23.9)
Cash paid for acquisitions, net of cash acquired -- (14.8)
Additional investment in acquisitions (15.2) (13.1)
Other, net 7.8 0.7
------ ------
Net cash used in investing activities (35.2) (82.8)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank borrowings and other debt net of repayments 89.3 44.6
Proceeds from issuance of common stock under employee
benefit plans -- 4.5
Dividends paid -- (12.5)
Other, net 1.4 (1.7)
------ ------
Net cash provided by financing activities 90.7 34.9
------ ------
Net decrease in cash (5.4) (53.1)
Cash and cash equivalents at beginning of the year 21.7 113.7
------ ------
Cash and cash equivalents at end of the period $ 16.3 $ 60.6
====== ======
</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 all of 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 and nine month period ended
March 31, 1998 are not necessarily indicative of the results that may
be expected for the year ending June 30, 1998. 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, 1997.
b) Restructuring and Special Charges
During the fourth quarter of fiscal 1997, the Company announced
additional restructuring activities principally pertaining to workforce
in the Company's European operations and the divestiture of non-core
businesses which included the U.S. commercial/industrial direct sales
and service business sold in September 1997. As a result of these
activities, the Company recorded restructuring and special charges
totaling $48.9 pretax in the fourth quarter of fiscal 1997 and
restructuring charges of $43.0 pretax in the first quarter of fiscal
1998.
The following table sets forth the details and the activity of the
Company's restructuring charge reserves from June 30, 1997 through
March 31, 1998:
<TABLE>
<CAPTION>
Reserve Reserve
Balance at Balance at
June 30, 1998 March 31,
1997 Additions Cash Non-cash 1998
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Product rationalization, related
equipment charges and other $ 4.4 $ 3.0 $ -- $ (2.5) $ 4.9
Closure of facilities and related costs 12.2 10.6 0.8 (5.4) 18.2
Employee termination and related costs 3.8 29.4 (10.8) -- 22.4
Non-core business divestments, net 16.9 -- 7.8 (6.4) 18.3
----------------------------------------------------------------------------------------------------------
Total $37.3 $43.0 $(2.2) $(14.3) $ 63.8
----------------------------------------------------------------------------------------------------------
</TABLE>
The Company's restructuring plans are expected to be substantially
completed prior to the end of calendar 1998 and the Company believes
the provisions recorded are adequate to cover the costs associated with
these plans.
5
<PAGE> 7
c) Customer Receivables
Amounts due to the Company in the form of accounts receivable (which
are generally due within 90 days), deferred receivables (which are
generally due within one year), installment receivables (which
generally have periodic payments over a term of five years) and net
investment in sales-type leases (which principally have periodic
payments over lease terms of five to six years) at March 31, 1998 and
June 30, 1997 are summarized as follows:
<TABLE>
<CAPTION>
March 31 June 30
-------- -------
<S> <C> <C>
Accounts receivable $ 308.3 $ 291.2
Allowance for doubtful accounts (49.3) (51.6)
------- -------
Total accounts receivable, net $ 259.0 $ 239.6
Less: Amounts due in 1 year, net (259.0) (239.6)
------- -------
Total noncurrent accounts receivables, net $ -- $ --
======= =======
Deferred receivables $ 4.7 $ 7.3
Installment receivables 42.5 46.0
Allowance for doubtful accounts (7.3) (7.8)
Unearned interest and maintenance (16.4) (18.0)
------- -------
Total deferred and installment receivables, net 23.5 27.5
Less: Amounts due in 1 year, net (18.4) (17.6)
------- -------
Total noncurrent deferred and
installment receivables, net $ 5.1 $ 9.9
======= =======
Sales-type leases-minimum lease payments receivable $ 227.6 $ 215.5
Allowance for uncollectible minimum lease payments (18.6) (16.4)
Unearned interest and maintenance (35.8) (36.1)
------- -------
Total sales-type leases, net 173.2 163.0
Less: Amounts due in 1 year, net (36.1) (34.4)
------- -------
Total noncurrent sales-type leases, net $ 137.1 $ 128.6
======= =======
Total customer receivables $ 455.7 $ 430.1
Less: Amounts due in 1 year, net 313.5 291.6
------- -------
Total noncurrent customer receivables $ 142.2 $ 138.5
======= =======
</TABLE>
d) 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 1997 Annual Report on Form 10-K
for additional discussion on the Company's various receivable financing
programs.
6
<PAGE> 8
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 $143.9 at March 31,
1998. Loss reserves have been provided for receivables and sales-type
lease receivables sold, as deemed necessary, and are included in
accrued liabilities.
e) Earnings Per Share
In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share". SFAS No. 128 supersedes Accounting
Principles Board Opinion ("APB") No. 15, "Earnings Per Share" and
various other authoritative pronouncements regarding earnings per share
("EPS"). SFAS No. 128 became effective for periods ending after
December 15, 1997. Accordingly, the Company adopted SFAS No. 128
effective December 31, 1997.
Under SFAS No. 128, primary earnings per share in accordance with APB
No. 15 is replaced with a simpler calculation called "basic earnings
per share", which excludes the dilutive effect of options, warrants and
convertible securities. Diluted earnings per share under SFAS No. 128
has not changed significantly as compared to fully diluted earnings per
share under APB No. 15, but has been renamed "diluted earnings per
share".
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 Nine Months ended
March 31, March 31,
--------- ---------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NUMERATOR:
Net Income $13.0 $ 5.8 $(47.5) $14.0
===== ===== ====== =====
DENOMINATOR:
Basic EPS - weighted average shares 74.2 74.0 74.2 73.9
Dilutive effect: Stock options 0.6 0.2 0.3 0.2
----- ----- ------ -----
Diluted EPS - weighted average shares 74.8 74.2 74.5 74.1
===== ===== ====== =====
Basic earnings per share $0.17 $0.08 $(0.64) $ .19
===== ===== ====== =====
Diluted earnings per share $0.17 $0.08 -- (a) $ .19
===== ===== ====== =====
(a) Excluded as result is anti-dilutive
</TABLE>
7
<PAGE> 9
f) Inventory
Inventories are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1998 June 30, 1997
-------------- -------------
<S> <C> <C>
Finished goods $185.6 $145.0
Raw materials and parts 54.8 58.8
Work-in-process 19.2 24.9
------ ------
259.6 228.7
Less allowance for inventory losses (30.2) (29.1)
------ ------
Total inventories, net $229.4 $199.6
====== ======
</TABLE>
g) Divestitures
In September 1997, the Company sold its U.S. Commercial/Industrial
systems integration business. The Company also agreed, in such
transaction, to sell its monitoring business, the sale of which was
consummated in October 1997. The Company received total proceeds of
approximately $10.5 from the sale of these operations. In addition,
the Company retained ownership of all of the net accounts receivable
related to these operations totaling approximately $30.7 at such time.
The revenues of these operations prior to the divestiture date and
included in the Company's Consolidated Condensed Statement of
Operations for the nine months ended March 31, 1998 and 1997 were $11.4
and $60.9, respectively.
h) Financial Instruments
Interest rate agreements
The Company enters into interest rate agreements, principally to manage
interest rate exposure associated with its sale of certain U.S.
receivables. See Note 14 of Notes to Consolidated Financial Statements
in the Company's 1997 Annual Report on Form 10-K for additional
discussion.
8
<PAGE> 10
At March 31, 1998, the Company was a party to the following significant interest
rate agreements:
<TABLE>
<CAPTION>
(1) FLOATING TO FIXED SWAP AGREEMENTS
Notional Expiration Fixed Rate Floating Rate
Amount Date to be Paid to be Received
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$4.0 May 1999 7.75% 1 Month LIBOR
3.0 September 1999 5.84% 1 Month LIBOR
4.5 May 2000 6.16% 1 Month LIBOR
1.3 April 2000 6.58% 1 Month LIBOR
0.6 April 1999 4.60% 1 Month LIBOR
0.3 August 1998 4.80% 1 Month LIBOR
0.2 May 1998 4.94% 1 Month LIBOR
0.2 March 1999 4.65% 1 Month LIBOR
30.0 March 2001 5.70% 1 Month LIBOR
30.0 March 2000 5.92% 1 Month LIBOR
30.0 March 2003 6.05% 1 Month LIBOR
30.0 March 2002 6.00% 1 Month LIBOR
- -------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average interest rates paid and received under all such Floating to
Fixed Swap Agreements at March 31, 1998 were 5.7% and 6.0%, respectively.
In fiscal 1997, the Company entered into an interest rate swap agreement with a
party to its U.K. receivable financing program. The effect of the interest rate
swap agreement is to revert from the financing party to the Company the
differential between the fixed rate imputed on the receivables sold under this
program and the floating rate to be paid to the investors in the receivables. As
of March 31, 1998, the notional amount of this interest rate swap agreement was
L.60.3 million. The interest rate agreement will expire when the underlying
receivables are paid down. At March 31, 1998, the floating rate to be paid by
the Company is the one month Fed AA CP Composite rate and the fixed rate to be
received is approximately 10.0%.
(2) INTEREST RATE CAP AGREEMENT
In fiscal 1995, the Company entered into an interest rate cap agreement expiring
in September 1999, with a notional amount at March 31, 1998 of $2.0. Under the
agreement the Company will be paid an amount equal to the excess, if any, of the
1 month LIBOR over 7.0% multiplied by the notional amount. At March 31, 1998
there was no such excess.
In the third quarter of fiscal 1998, the Company entered into four interest rate
swap agreements with notional amounts totaling $120.0. As a result of these
recent interest rate swap agreements combined with existing swap agreements and
the terms of various finance agreements, approximately 70.0% of the Company's
interest rate exposure is fixed and 30.0% is variable.
9
<PAGE> 11
Foreign currency contracts
The Company conducts business in a wide variety of currencies and
consequently enters into foreign exchange forward and option contracts to
manage exposure to fluctuations in foreign currency exchange rates. These
contracts generally involve the exchange of one currency for another at a
future date and are used to hedge substantially all of the Company's
anticipatory intercompany commitments.
At March 31, 1998, the Company owned forward contracts and options which
allow it to sell or (buy) currencies for the indicated U.S. dollar amounts,
in fiscal year 1998 and 1999, as follows:
<TABLE>
<CAPTION>
1998 1999
- ---------------------------------------------------------------------------------------
<S> <C> <C>
German Marks $ 41.4 $ 66.4
Italian Lire 32.3 24.3
French Francs 14.8 66.7
Swedish Krona 9.1 10.3
British Pounds 8.1 25.9
Spanish Pesetas -- 27.4
Irish Punts (4.4) (9.5)
Other 5.9 (0.7)
- ---------------------------------------------------------------------------------------
Total $107.2 $210.8
- ---------------------------------------------------------------------------------------
</TABLE>
i) 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
alleges, 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 consolidated
complaint and other litigation matters, including three derivative actions
filed in September 1995 and actions brought by the Company's two excess
directors and officers liability insurers in May and July 1997, are
discussed more fully in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997 and Quarterly Report on Form 10-Q for the
fiscal quarters ended September 30, 1997, December 31, 1997 and March 31,
1998.
The Company has settled the above-referenced class action. The settlement
agreement requiring payment by the Company of approximately $53.5, was
approved by the Court and has been fully
10
<PAGE> 12
performed by the Company. The Company has recovered a portion of the
settlement amount and related expenses from its primary directors and
officers liability insurance policy, which has a policy limit of $10.0,
and has also been paid an amount equal to the policy limit of $10.0 by
one of its two excess directors and officers liability insurers
pursuant to a settlement of one of the actions referred to in the
preceding paragraph. In addition, the Company is seeking payment from
its other excess insurance carrier having a policy limit of $10.0. As
noted above, the Company is currently in litigation with such excess
carrier. 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 second 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).
The Company intends to vigorously defend against the derivative actions
and the remaining insurance carrier action referred to above, and to
vigorously pursue the recovery of insurance proceeds from such
remaining excess directors and officers insurance carrier.
j) Convertible Preferred Stock
In April 1998, the Company issued 6,900,000 Depositary Shares for gross
proceeds of $172.5, or $166.6 net of commissions, discounts and other
expenses. Each Depositary Share represents a one-tenth interest in a
share of 61/2% Convertible Preferred Stock with a liquidation
preference of $250.00 per share. Dividends on the preferred stock will
accrue at a rate per annum equal to 6 1/2% of the liquidation
preference per share of preferred stock and will be payable quarterly
on January 1, April 1, July 1 and October 1 of each year, commencing
July 1, 1998. Dividends will be payable in cash or, at the option of
the Company, in shares of common stock of the Company or a combination
thereof. The Company's ability to pay cash dividends, purchase or
redeem shares or make other payments or distributions is restricted by
various covenants and conditions contained in certain of its financial
agreements, and it is likely that the Company would not be able to pay
cash dividends on the preferred stock until after the preparation of
its audited financial statements for fiscal 1999 at the earliest. The
Depositary Shares will be convertible, subject to prior redemption, at
any time after July 13, 1998, at the option of the holder thereof into
shares of common stock at a conversion price of $19.52 per share,
subject to certain adjustments. The preferred stock is redeemable, at
the option of the Company, in whole or in part, at any time on or after
April 4, 2001, at prices commencing with 103.71% of liquidation
preference, declining to 100% of liquidation preference on April 4,
2005. The preferred stock ranks junior in right of payment to all
indebtedness and other liabilities of the Company.
11
<PAGE> 13
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 1997 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 AND NINE MONTHS ENDED MARCH 31,
1998 COMPARED TO THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1997
The following discussion of operating results excludes the effects of
restructuring, net litigation charges and net estimated insurance
recoveries recorded in fiscal 1998, which are discussed in the section
"Restructuring and Special Charges" below and the "Litigation and other
matters" footnote included in the Notes to Consolidated Condensed
Financial Statements included herein.
Revenues
Revenues of $237.0 for the third quarter of fiscal 1998 decreased 5.2%,
as compared to revenues of $250.1 for the same period in fiscal 1997.
Revenues of $726.1 for the nine months ended March 31, 1998 decreased
3.5 %, as compared to revenues of $752.7 for the nine months ended
March 31, 1997. Fiscal 1998 results were negatively affected by the
strengthening of the U.S. dollar against currencies in Europe and Asia
and the related impact of foreign currency translation, resulting in a
reduction in revenues of approximately $9.4 for the third quarter and
$32.3 for the first nine months. Fiscal 1998 revenues also reflect the
decline in revenues of certain non-core businesses, principally the
U.S. commercial/industrial direct sales and service business which was
sold in September 1997. Excluding the effects of the strengthening of
the U.S. dollar against currencies in Europe and Asia and the
divestiture of non-core businesses, fiscal 1998 revenues increased
approximately 7.4% for the third quarter and 8.7% for the first nine
months, as compared with the same periods in fiscal 1997.
Revenues by Product Line
Consolidated Electronic Article Surveillance ("EAS") system revenues
remained relatively unchanged from the third quarter and the first nine
months of fiscal 1997. However, Ultra*Max revenues increased for the
first nine months of fiscal 1998 over the comparable period in the
prior year by 23.6%. This increase was partially offset by a decrease
of 16.2%, when compared to the prior year period, in revenues from the
Company's SensorStrip Checkout technology, which is sold principally in
Europe.
Combined CCTV, Access Control and Intelligent Tagging and Tracking
system revenues decreased 5.0% and 7.8% for the third quarter and the
first nine months of fiscal 1998, respectively, as compared with the
same periods of fiscal 1997. These decreases were principally due to a
decline in revenues as a result of divested non-core businesses.
Revenues by Business Unit
Revenues generated by the Commercial/Industrial Worldwide Operations
("C/I Worldwide") decreased 27.1% and 21.2% in the third quarter and
first nine months of fiscal 1998,
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<PAGE> 14
respectively, as compared to fiscal 1997. The decrease in revenues is
principally due to the divestiture in September 1997 of the U.S.
commercial/industrial direct sales and systems integration business,
referred to in the following paragraph. Excluding the effect on
revenues of non-core businesses and foreign exchange, C/I Worldwide
indirect revenues remained relatively flat for the third quarter of
fiscal 1998 and increased 9.0% in the first nine months of fiscal 1998,
as compared with the same periods of fiscal 1997.
In September 1997, the Company sold its U.S. commercial/industrial
systems integration business, which had fiscal year 1997 sales of
approximately $80.0, to Securities Technologies Group, Inc. ("STG").
The Company also agreed in such transaction to sell to STG the
Company's monitoring business, the sale of which was consummated in
October 1997.
For the third quarter and first nine months of fiscal 1998, North
America Retail revenues increased 15.0% and 10.2%, respectively, as
compared to the same periods for fiscal 1997. EAS market penetration
increased in the following market segments: music, discounters, mass
merchants, automotive, office supply, home centers, video and shoes.
Excluding the effect on revenues of non-core businesses, North America
Retail revenues increased 18.7% and 13.4% in the third quarter and
first nine months of fiscal 1998, respectively, as compared with the
same periods from fiscal 1997. In addition, source tagging unit label
volume increased 65% for the first nine months of fiscal 1998 as
compared to the same periods of fiscal 1997.
Europe Retail revenues decreased 10.5% for both the third quarter and
first nine months of fiscal 1998 as compared to the same periods for
fiscal 1997. Excluding the effect of exchange due to foreign currency
translation, Europe Retail revenues for fiscal 1998 remained relatively
flat for the quarter and nine months ending March 31, 1998, as compared
to the same periods for fiscal 1997. The Company expects Europe Retail
revenues to remain flat through fiscal 1999. The Company believes that
Europe Retail's results during fiscal 1998 were negatively impacted by
the restructuring activities announced in August 1997.
International Retail revenues, which includes Latin America, Asia
Pacific and the Middle East, increased 10.7% and 20.6% for the third
quarter and first nine months of fiscal 1998, respectively, as compared
to the same periods of fiscal 1997. The increase in International
Retail was largely due to Latin America revenues which increased by
21.8% and 37.0% in the third quarter and first nine months of fiscal
1998, respectively, as compared to the same periods of fiscal 1997.
Beginning in the second quarter of fiscal 1998, Asia Pacific revenue
growth was negatively impacted by the Asian currency volatility. The
Company expects this trend to continue into fiscal 1999. Excluding the
effect of acquisitions and currency effects, International Retail
revenues for the third quarter and first nine months of fiscal 1998
increased 21.6% and 28.0%, respectively, as compared to the same
periods in fiscal 1997.
Gross Margins, Operating Expenses and Operating Income
Gross margins on revenues were 44.6% and 45.6% for the three and nine
month periods ended March 31, 1998, respectively, compared with 47.3%
and 46.3% for the comparable periods of the prior year. The decrease in
gross margins reflects lower volumes as well as pricing pressures in
the market for retail article protection equipment.
Selling, general and administrative expenses, as a percentage of total
revenues, was 30.7% and 33.3% for the third quarter and first nine
months of fiscal 1998, respectively, as compared to 36.8% and 36.3% for
the comparable periods in fiscal 1997. The decrease in expenses as a
percentage of revenues for the third quarter of fiscal 1998 reflects
the benefit from cost
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<PAGE> 15
reduction efforts implemented as a result of the restructuring actions
previously announced. The remaining decrease in expenses as a
percentage of revenues for the first nine months of fiscal 1998
reflects 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.
Research, development and engineering expenses increased to 2.7% and
2.8% of revenue in the three and nine months ended March 31, 1998,
respectively, as compared to 2.4% and 2.3% for the same periods in
fiscal 1997. Research, development and engineering spending has
increased as a percentage of revenues as compared to the prior year due
to the Company's increased focus on new product development in all
product categories. New product development continues to be a high
priority of the Company, and the Company expects fiscal 1998 spending
levels for research, development and engineering to be approximately
20% higher than fiscal 1997 levels.
Operating income for the three and nine months ended March 31, 1998
increased to $21.0, or 8.9% of revenues, and to $53.0, or 7.3% of
revenues, respectively, versus $15.0, or 6.0% of revenues and $43.2, or
5.7% of revenues, respectively, for the comparable period of fiscal
1997.
Interest Expense, Other Income and Taxes
Net interest and other expenses of $10.9 and $32.6 for the third
quarter and first nine months of fiscal 1998, respectively, reflected
an increase of $4.0 and $8.9, respectively, over the comparable periods
of fiscal 1997. This increase is primarily due to increased debt levels
outstanding during the period.
The benefit for income taxes for the first nine months of fiscal 1998,
including the restructuring and net litigation charge, is based on an
estimated effective annual consolidated tax benefit rate of 32.0%
compared to an estimated effective annual consolidated tax provision
rate of 29.0% utilized for the first nine months of fiscal 1997. The
tax benefit for the current year related primarily to the restructuring
and net litigation charges recorded during fiscal 1998.
The Company reported net income of $7.5, or $0.10 per share, and $14.1,
or $0.19 per share, for the third quarter and first nine months of
fiscal 1998, respectively, as compared to net income of $5.8, or $0.08
per share, and $14.0, or $0.19 per share, respectively, for the same
periods of fiscal 1997, as a result of the factors discussed above.
Including the restructuring, litigation charges and net estimated
insurance recoveries, the Company reported a net loss of $47.5, or
$0.64 per share, for the first nine months of fiscal 1998.
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<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
For the nine month period ended March 31, 1998, cash flow used in
operating activities was $60.9 compared with cash used in operations
for the nine month period ended March 31, 1997 of $5.2. The use of cash
in the nine month period ended March 31, 1998 was primarily a result of
cash payments related to the Company's restructuring programs and
litigation settlement, along with increases in inventory, customer
receivables and sales-type leases.
The Company's investing activities used $35.2 of cash in the nine month
period ended March 31, 1998, compared to $82.8 of cash used in the nine
month period ended March 31, 1997. The investing activity in fiscal
1998 was principally due to capital expenditures of $18.5, increases in
the Company's investment in revenue equipment of $17.5 and additional
investments in acquisitions of $15.2; offset by the proceeds received
from the sale of the U.S. commercial/industrial direct sales and
service business. The capital expenditures principally include
investments in manufacturing operations for new production equipment
and the addition of an enterprise-wide management information system
software.
For the nine month period ended March 31, 1998, financing activities
generated $90.8 of cash as compared to $34.9 in the nine month period
ended March 31, 1997. Cash flows from financing activities were
principally due to additional borrowings of approximately $89.3,
primarily from the Company's unsecured revolving credit facility. The
Company's percentage of total debt to total capital was 45.9% at March
31, 1998 as compared to 40.4% at June 30, 1997.
The Company uses the U.S. dollar as the 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 statements do not indicate any
underlying changes in the financial position of the international
subsidiaries but merely adjust the carrying value of the net assets of
these subsidiaries at the current U.S. dollar exchange rate. Because of
the long-term nature of the Company's investment in these subsidiaries,
the translation adjustments resulting from these exchange rate
fluctuations are excluded from results of operations and recorded in a
separate component of consolidated stockholders' equity. The $5.5
increase in the cumulative translation adjustment for the nine months
ended March 31, 1998 resulted primarily from the translation of the
balance sheets denominated in French Francs, German Marks and Spanish
Pesetas, reflecting the strengthening of the U.S. dollar relative to
such currencies at March 31, 1998. The Company monitors its currency
exposures but has decided not to 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.
At March 31, 1998, the Company's primary source of liquidity consisted
of cash and a committed line of credit totaling approximately $250.0,
of which approximately $59.0 was utilized, and receivable financing
agreements totaling approximately $270.0, of which approximately $159.7
was utilized. Use of the balances under such facilities is subject to
compliance with certain covenants and, in the case of such receivable
financing agreements, subject to the terms within such agreements.
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<PAGE> 17
In early April 1998, the Company completed the issuance of $172.5 in
liquidation preference of a new series of convertible preferred stock
in a private placement transaction. The net proceeds of $166.6 from the
issuance were applied to the balance outstanding under the Company's
revolving credit line as well as to the remaining payable on the
shareholder litigation settlement. As a result of the proceeds provided
by the above mentioned issuance, the Company's entire $250.0 unsecured
revolving credit facility is available as a future source of funds.
The Company believes that the liquidity provided by future operations,
existing cash and the financing arrangements described above are
sufficient to meet the Company's future capital requirements.
RESTRUCTURING AND SPECIAL CHARGES
During fiscal 1996, the Company initiated a restructuring plan with the
following objectives: (i) expense reduction and asset control; (ii)
improved processes and systems; and (iii) quality growth. The initial
phase of this plan included an extensive and systematic review of the
Company's operations, cost structure and balance sheet aimed at
reducing its operating expenses and manufacturing costs while
increasing efficiencies. In addition, during fiscal 1997, the Company
announced further restructuring actions which included the divestiture
of non-core operations and additional cost-reduction plans, which
mainly include staff reductions within its European operations, as well
as additional special charges principally for increases to the
valuation allowances for accounts receivable and receivables financed
with third parties. During the fourth quarter of fiscal 1997, the
Company recognized $48.9 of this charge with plans to record the
remaining portion in the first quarter of fiscal 1998. As a result, the
Company recorded $43.0 in restructuring charges during the first
quarter of fiscal 1998, primarily for product rationalization and
related equipment impairment charges, facility closures and severance
costs.
Related to the fiscal 1996 restructuring plan, the Company planned for
the reduction of 875 people and the sale, disposal or termination of
lease arrangements of approximately 30 locations, principally in the
U.K. and U.S. As of March 31, 1998, all of these planned staff
reductions are complete and approximately one-half of the locations
have been eliminated, sub-leased or disposed of. Approximately $33.3 of
these restructuring costs will result in cash outlays, of which $22.4
has been disbursed and partially offset by the proceeds from the sale
of one such property.
In fiscal 1997, the Company continued to reexamine its organization to
improve market focus and customer service as well as reduce costs.
Accordingly, the Company announced additional restructuring activities
in fiscal 1997 which include the divestiture of non-core operations and
workforce reductions, principally in its European operations. The
principal non-core operation divested by the Company was its U.S.
commercial/industrial direct sales and installation operation which was
sold in September 1997. The Company elected to exit this operation due
to market conflicts with its indirect sales channels and the need to
focus on products related to the Company's strategy of total systems
integration. In connection with its 1997 restructuring
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<PAGE> 18
plan, the Company has planned for the reduction in workforce of
approximately 1,200 positions, 600 of which relate to the divestiture
of non-core operations and the remaining positions principally
represent the termination of administrative personnel, primarily in
Europe. As of March 31, 1998, approximately 700 positions have been
eliminated. The total cash outlay related to this restructuring plan,
net of proceeds from the divestiture of non-core operations, is
estimated to be $30.0, of which $9.2 has been disbursed and partially
offset by the proceeds received from the non-core operation
divestitures, as of March 31, 1998.
During the first nine months of fiscal 1998, the total restructuring
reserve was reduced by approximately $16.5 as a result of cash and
non-cash charges.
All of the Company's restructuring activities are expected to be
substantially complete prior to the end of calendar 1998, and the
Company believes the provisions identified as required are adequate to
cover the costs associated with these plans.
YEAR 2000 ISSUE
Until recently, many computer programs were written using two digits
rather than four to define the applicable year in the twentieth
century. Such software may recognize a date using "00" as the year 1900
rather than the year 2000 (the "Year 2000 Issue"). The Company has
addressed its date-sensitive software issues in connection with the
implementation of its enterprise-wide management information system,
which is Year 2000 compliant and, accordingly, is expected to eliminate
any material Year 2000 Issues. The Company plans to complete the
installation of its enterprise-wide management information system no
later than December 31, 1999. The cost to the Company of making its
software Year 2000 compliant has not been separately estimated as it
was originally incorporated in the new software implementation project
prior to the widespread recognition of the Year 2000 Issue. It is not
anticipated that such conversion will have a material impact on the
Company's financial statements. However, the ability of third parties
with whom the Company transacts business to adequately address their
Year 2000 issues is outside of the Company's control, and there can be
no assurance that the failure of the Company or such third parties to
adequately address their respective Year 2000 issues will not have a
material adverse effect on the Company's business, financial condition,
cash flows and results of operations.
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 risks 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> 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company entered into an agreement to settle the consolidated
shareholder class actions filed during calendar 1995 and pending
against the Company and certain of its current and former officers and
directors in the United States District Court for the Southern District
of Florida. These actions, which challenged the Company's prior revenue
recognition and other accounting practices in fiscal year 1995 and
earlier, are described in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1997 ("Form 10-K"). The settlement,
which has been fully performed by the Company, provides, among other
things, for the payment by the Company of $53.5 million. The settlement
agreement was approved by the Court on February 27, 1998. The deadline
for filing claims with the claims administrator was March 26, 1998.
The Company has recovered a portion of the settlement amount and
related expenses from its primary directors and officers liability
insurance policy, which has a policy limit of $10.0 million and from
one of its two excess insurance carriers, Reliance Insurance Company
("Reliance"), under a policy with a limit of $10.0 million. Pursuant to
the Company's agreement with certain of its current and former
directors and officers, certain of such insurance proceeds will be held
in escrow for the benefit of such directors and officers to satisfy
certain additional claims they may have under the policies, with any
balance in such escrow account thereafter being paid over to the
Company. The Company continues to be in litigation with the other such
excess insurance carrier, Federal Insurance Company ("Federal"), with
respect to a policy with a limit of $10.0 million. That litigation,
which commenced by Federal in the United States District Court for the
Southern District of Florida, seeking to avoid coverage under its
policy, is also described in the Form 10-K and below.
In the Gilford action described in the Form 10-K and referred to in the
Company's Quarterly Report on Form 10-Q for the quarter ended December
31, 1997, previous settlement negotiations failed to resolve the matter
and the plaintiff has moved for leave to amend the complaint again to
add allegations relating to plaintiff's transactions in options on the
Company's securities. The defendants have not yet responded to that
motion but intend to vigorously defend against the claims made by the
plaintiff.
In the three derivative actions described in the Form 10-K, the Court
has granted plaintiffs' motion which requested authority to serve and
file an amended complaint in this action, and deemed the amended
complaint served and filed. The amended complaint asserts, among other
things, derivative claims for breach of fiduciary duty,
misappropriation of confidential information, contribution, and
indemnification, and incorporates developments since the earlier
complaint was filed, including the settlement of the securities class
action described above, as well as the investigation by the Securities
and Exchange Commission (the "SEC") referred to below. The Company
intends to defend vigorously against this action.
The Company has entered into an agreement with the SEC resolving the
investigation described in the Form 10-K. Without admitting or denying
any wrongdoing, the Company agreed to an order of the SEC that it will
not in the future violate Federal securities law provisions, among
other things, governing the maintenance of books and records, governing
periodic reporting and prohibiting fraud.
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<PAGE> 20
There were no fines or other penalties imposed upon the Company. In
addition, Ronald G. Assaf, the Company's non-executive Chairman of the
Board and former Chief Executive Officer, without admitting or denying
any wrongdoing, also entered into an agreement with the SEC in which he
agreed to an order that, among other things, he will not in the future
violate the Federal securities law provisions governing the maintenance
of books and records and periodic reporting. The order resolved the
matter insofar as it relates to him. Certain other former officers of
the Company, without admitting or denying any wrongdoing, also entered
into agreements with the SEC which resolved the matter as it relates to
them.
The action brought by Reliance, described in the Form 10-K, has been
settled, with Reliance having paid, pursuant to that settlement, $10.0
million as described above in connection with the settlement of the
shareholder class actions.
In the action brought by Federal referred to above and described in the
Form 10-K, the motion to dismiss made by the Company and the other
defendants has been granted in part and denied in part, and plaintiffs
have been granted leave to file an amendment complaint. The Company
intends to vigorously defend against the claims made by this carrier
and to pursue the recovery of insurance proceeds from it.
In addition, reference is made to Item 3 of Part I of the Form 10-K and
to Item 1 of Part II of each of the Company's Quarterly Reports on Form
10-Q for the fiscal quarters ended September 30 and December 31, 1997.
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Item 2. Changes in Securities
On April 13, 1998, the Company sold 6,000,000 Depositary Shares
(aggregate liquidation preference of $150,000,000) each representing a
one-tenth interest in a share of 6 1/2% Convertible Preferred Stock, in
a private placement transaction. Subsequent thereto, the over-allotment
option with respect to the Depositary Shares was exercised and the
Company sold an additional 900,000 Depositary Shares (aggregate
liquidation preference of $22,500,000). Net proceeds to the Company
amounted to approximately $166.6 million. Dividends on the 6 1/2%
Convertible Preferred Stock will accumulate at a rate per annum equal
to 6 1/2% of the liquidation preference thereof and are payable
quarterly, on January 1, April 1, July 1 and October 1 of each year,
commencing July 1, 1998, in cash or, at the option of the Company in
shares of Common Stock of the Company. The Company's ability to pay
cash dividends, purchase or redeem shares or make other payments or
distributions is restricted by various covenants and conditions
contained in certain of its financial agreements, and, it is likely
that the Company would not be able to pay cash dividends on the
Preferred Stock until after the preparation of its audited financial
statements for fiscal 1999 at the earliest. The 6 1/2% Convertible
Preferred Stock will be redeemable at the option of the Company at any
time on or after April 4, 2001 at prices commencing with 103.71% of
liquidation preference, declining to 100% of liquidation preference on
or after April 4, 2005.
The Depositary Shares will be convertible at any time on or after July
13, 1998, at the option of the holder, into Common Stock of the Company
at a conversion price of $19.52 per share of Common Stock, subject to
certain adjustments.
The Depositary Shares were issued and sold to the initial purchasers
thereof pursuant to an exemption from registration provided by Section
4 (2) of the Securities Act of 1933, as amended (the "Act"). Each of
the initial purchasers of the Depositary Shares advised the Company,
among other things, that it would be offering and reselling the
Depositary Shares only to qualified institutional buyers in reliance on
Rule 144A under the Act and to a limited number of accredited
investors, within the meaning of Rule 501 of the Act, and that no form
of general solicitation has been or will be used by it in connection
with the offer and sale of any of the Depositary Shares.
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<PAGE> 22
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
4) Certificate of Designations of Voting
Power, Designation Preferences and Relative,
Participating, Optional and Other Special
Rights and Qualifications, Limitations and
Restrictions of 61/2% Convertible Preferred
Stock of the Company, filed with the
Secretary of State of the State of Delaware
on April 9, 1998.
10) Second Amendment dated as of February 20,
1998 to the Amended and Restated
Multicurrency Revolving Credit Agreement,
dated as of March 18, 1997, between the
Company and BankBoston, N.A. and other
lending institutions.
27) Financial Data Schedule (for SEC use only).
b) Reports on Form 8-K:
There was a report on Form 8-K filed during
the three - month period ended March 31,
1998. The report was filed on April 2,
1998, and related to the Company's plan to
offer depositary shares and related
preferred stock.
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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 and
Chief Financial Officer
(Principal Financial Officer)
Date: May 15, 1998
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<PAGE> 1
Exhibit 4
CERTIFICATE OF DESIGNATIONS OF THE POWERS
PREFERENCES AND RELATIVE, PARTICIPATING
OPTIONAL AND OTHER SPECIAL RIGHTS OF
PREFERRED STOCK AND QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS THEREOF
OF
6 1/2% CONVERTIBLE PREFERRED STOCK
SENSORMATIC ELECTRONICS CORPORATION
------------------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------------------------------------------
Sensormatic Electronics Corporation (the "Company"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, does hereby certify that, pursuant to authority conferred upon the
board of directors of the Company (the "Board of Directors") by its Restated
Certificate of Incorporation (hereinafter referred to as the "Certificate of
Incorporation"), and pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, said Board of Directors, by action
duly taken on April 6, 1998, duly approved and adopted the following resolution
(the "Resolution"):
RESOLVED, that, pursuant to the authority vested in the Board
of Directors by its Certificate of Incorporation, the Board of
Directors does hereby create, authorize and provide for the issue of 6
1/2% Convertible Preferred Stock, par value $0.01 per share, with a
liquidation preference of $250.00 per share, consisting initially of
690,000 shares, having the designations, preferences, relative,
participating, optional and other special rights and the
qualifications, limitations and restrictions thereof that are set forth
in the Certificate of Incorporation and in this Resolution as follows;
(a) DESIGNATION. There is hereby created out of the authorized
and unissued shares of preferred stock of the Company a series of
preferred stock designated as the "6 1/2% Convertible Preferred Stock"
(the "6 1/2% Preferred Stock"). The number of shares constituting such
series shall be 690,000. The liquidation preference of the 6 1/2%
Preferred Stock (the "Liquidation Preference") shall be $250.00 per
share.
(b) RANK. The 6 1/2% Preferred Stock shall, with respect to
dividend distributions and distributions upon the liquidation,
winding-up and dissolution of the Company, rank (i) senior to all
classes of common stock of the Company and to each other class of
capital stock or series of preferred stock established after April 6,
1998 by the Board of Directors, the terms of which do not expressly
provide that it ranks senior to
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<PAGE> 2
or on a parity with the 6 1/2% Preferred Stock as to dividend
distributions and distributions upon the liquidation, winding-up and
dissolution of the Company (collectively referred to with the common
stock of the Company as "Junior Securities"); (ii) on a parity with any
class of capital stock or series of preferred stock established after
the 6 1/2% Preferred Stock Issue Date by the Board of Directors, the
terms of which expressly provide that such class or series will rank on
a parity with the 6 1/2% Preferred Stock as to dividend distributions
and distributions upon the liquidation, winding-up and dissolution of
the Company (collectively referred to as "Parity Securities"); and
(iii) junior to each class of capital stock or series of preferred
stock established after April 6, 1998 by the Board of Directors, the
terms of which expressly provide that such class or series will rank
senior to the 6 1/2% Preferred Stock as to dividend distributions and
distributions upon liquidation, winding-up and dissolution of the
Company (collectively referred to as "Senior Securities"). The 6 1/2%
Preferred Stock shall be subject to the issuance of series of Junior
Securities, Parity Securities and Senior Securities, PROVIDED that the
Company may not issue any class of Senior Securities or Parity
Securities without the approval of the Holders of at least 66 2/3% of
the shares of 6 1/2% Preferred Stock then outstanding, voting or
consenting, as the case may be, together as one class. The 6 1/2%
Preferred Stock shall rank junior in right of payment to all
indebtedness and other obligations of the Company.
(c) DIVIDENDS.
(i) The Holders of the outstanding shares of 6 1/2%
Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors, out of funds legally
available therefor, cumulative dividends from the Preferred
Stock Issue Date, accruing at a rate per annum equal to 6 1/2%
of the Liquidation Preference per share of the 6 1/2%
Preferred Stock, payable quarterly on January 1, April 1, July
1 and October 1 of each year. All dividends shall be
cumulative, whether or not earned or declared, on a daily
basis from the Preferred Stock Issue Date and shall be payable
quarterly in arrears on each Dividend Payment Date, commencing
on July 1, 1998. Each distribution in the form of a dividend
shall be payable to the Holders of record as they appear on
the stock register of the Company on the record date for such
purpose fixed by the Board of Directors, which shall not be
less than 10 nor more than 60 days preceding the related
Dividend Payment Date. Dividends will be payable, at the
option of the Company, (1) in cash, (2) by delivery of shares
of Common Stock to Holders (based upon 95% of the Average
Stock Price (as defined below), or (3) through any combination
of the foregoing; provided, however, that such payment will be
made in cash unless the Company provides notice to the
Transfer Agent at least one Business Day prior to such
Dividend Payment Date. If the dividends are paid in shares of
Common Stock, the number of shares of Common Stock to be
issued on each Dividend Payment Date will be determined by
dividing the total dividend to be paid on each share of 6 1/2%
Preferred Stock by 95% of the average of the high and low
sales prices of the Common Stock as reported by the New York
Stock Exchange or any national securities exchange upon which
the Common
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<PAGE> 3
Stock is then listed, for each of the ten consecutive trading
days immediately preceding the fifth Business Day preceding
the record date (the "Average Stock Price"). The Transfer
Agent is hereby authorized and directed to aggregate any
fractional shares of Common Stock that are issued as
dividends, sell them at the best available price and
distribute the proceeds to the Holders in proportion to their
respective interests therein. The Company shall pay the
expenses of the Transfer Agent with respect to such sale,
including brokerage commissions.
(ii) All dividends paid with respect to shares of the
6 1/2% Preferred Stock pursuant to paragraph (c)(i) shall be
paid pro rata to the Holders entitled thereto.
(iii) Nothing herein contained shall in any way or
under any circumstances be construed or deemed to require the
Board of Directors to declare, or the Company to pay or set
apart for payment, any cash dividends on shares of the 6 1/2%
Preferred Stock at any time.
(iv) Dividends on account of arrears for any past
Dividend Period and dividends in connection with any optional
redemption pursuant to paragraph (f)(i) may be declared and
paid at any time, without reference to any regular Dividend
Payment Date, to Holders of record on such date, not less than
ten nor more than 45 days prior to the payment thereof, as may
be fixed by the Board of Directors.
(v) Except as set forth in the following sentence, no
dividends shall be declared by the Board of Directors or paid
or funds set apart for the payment of dividends by the Company
on any Parity Securities for any period unless full cumulative
dividends shall have been or contemporaneously are declared
and paid or declared and a sum set apart sufficient for such
payment on the 6 1/2% Preferred Stock for all Dividend Periods
terminating on or prior to the date of payment of such Parity
Securities. If full dividends are not so paid upon the shares
of 6 1/2% Preferred Stock and any other Parity Securities, all
dividends declared upon the 6 1/2% Preferred Stock and any
other Parity Securities shall be declared pro rata so that the
amount of dividends declared on each class or series of the 6
1/2% Preferred Stock and such Parity Securities shall in all
cases bear to each other the same ratio that the aggregate
accrued dividends on the 6 1/2% Preferred Stock and such
Parity Securities bear to each other.
(vi) (A) Holders of shares of the 6 1/2%
Preferred Stock shall be entitled to receive the
dividends provided for in paragraph (c)(i) hereof in
preference to and in priority over any dividends upon
any of the Junior Securities.
(B) So long as any shares of 6 1/2%
Preferred Stock are outstanding, the Company shall
not declare, pay or set apart for payment any
dividend on any Junior Securities or make any payment
on account of,
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<PAGE> 4
or set apart for payment money for a sinking or other
similar fund for, the purchase, redemption or other
retirement of, any Junior Securities or any warrants,
rights, calls or options exercisable for or
convertible into any Junior Securities, or make any
distribution in respect thereof, either directly or
indirectly, and whether in cash, obligations or
shares of the Company or other property (other than
distributions or dividends in Junior Securities to
the holders of Junior Securities), and shall not
permit any corporation or other entity directly or
indirectly controlled by the Company to purchase or
redeem any Junior Securities or other such warrants,
rights, calls or options unless full cumulative
dividends determined in accordance herewith have been
paid or deemed paid in full on the 6 1/2% Preferred
Stock for all past Dividend Periods.
(C) So long as any shares of the 6 1/2%
Preferred Stock are outstanding, the Company shall
not make any payment on account of, or set apart for
payment money for a sinking or other similar fund
for, the purchase, redemption or other retirement of,
any Parity Securities or any warrants, rights, calls
or options exercisable for or convertible into Parity
Securities, and shall not permit any corporation or
other entity directly or indirectly controlled by the
Company to purchase or redeem any Parity Securities
or any such warrants, rights, calls or options unless
the dividends determined in accordance herewith on
the 6 1/2% Preferred Stock have been paid or deemed
paid in full for all past Dividend Periods.
(vii) Dividends payable on shares of the 6 1/2%
Preferred Stock for any period of less than a year shall be
computed on the basis of a 360-day year of twelve 30-day
months and the actual number of days elapsed in any period of
less than one month. If any Dividend Payment Date occurs on a
day that is not a Business Day, any accrued dividends
otherwise payable on such Dividend Payment Date shall be paid
on the next succeeding Business Day.
(d) LIQUIDATION PREFERENCE:
(i) Upon any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, the Holders of
shares of 6 1/2% Preferred Stock then outstanding shall be
entitled to be paid, out of the assets of the Company
available for distribution, the Liquidation Preference, plus
an amount in cash equal to accumulated and unpaid dividends
and Liquidated Damages, if any, thereon on the date fixed for
liquidation, dissolution or winding-up (including an amount
equal to a prorated dividend for the period from the last
Dividend Payment Date to the date fixed for liquidation,
dissolution or winding-up), before any payment shall be made
or any assets shall be distributed to the Holders of any
Junior Securities. If, upon any voluntary or involuntary
liquidation, dissolution or winding-up of the Company, the
amounts payable with respect to the 6 1/2% Preferred Stock and
all other Parity Securities are not paid in full, then the
Holders of the 6 1/2%
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<PAGE> 5
Preferred Stock and the Parity Securities shall share equally
and ratably in any distribution of assets of the Company in
proportion to the full Liquidation Preference and accumulated
and unpaid dividends and Liquidated Damages, if any,
determined as of the date of such voluntary or involuntary
liquidation, dissolution or winding-up, to which each is
entitled. After payment of the full amount of the Liquidation
Preferences and accumulated and unpaid dividends and
Liquidated Damages, if any, to which they are entitled, the
Holders of shares of 6 1/2% Preferred Stock shall not be
entitled to any further participation in any distribution of
assets of the Company.
(ii) For the purposes of this paragraph (d) only,
neither the sale, lease, conveyance, exchange or transfer (for
cash, shares of stock, securities or other consideration) of
all or substantially all of the property or assets of the
Company nor the consolidation or merger of the Company with or
into one or more entities, shall be deemed to be a
liquidation, dissolution or winding-up of the Company.
(e) CONVERSION.
(i) A Holder of shares of 6 1/2% Preferred Stock may
convert such shares into Common Stock at any time on or after
July 13, 1998. For the purposes of conversion, each share of 6
1/2% Preferred Stock shall be valued at the Liquidation
Preference, which shall be divided by the Conversion Price in
effect on the Conversion Date to determine the number of
shares issuable upon conversion, except that the right to
convert shares of 6 1/2% Preferred Stock called for redemption
shall terminate at the close of business on the Business Day
preceding the Redemption Date and shall be lost if not
exercised prior to that time (unless the Company shall default
in payment of the Optional Redemption Price). Immediately
following such conversion, the rights of the Holders of
converted 6 1/2% Preferred Stock shall cease and the Persons
entitled to receive the Common Stock upon the conversion of 6
1/2% Preferred Stock shall be treated for all purposes as
having become the owners of such Common Stock.
(ii) To convert 6 1/2% Preferred Stock, a Holder must
(A) surrender the certificate or certificates evidencing the
shares of 6 1/2% Preferred Stock to be converted, duly
endorsed in a form satisfactory to the Company, at the office
of the Company or Transfer Agent for the 6 1/2% Preferred
Stock, (B) notify the Company at such office that such Holder
elects to convert 6 1/2% Preferred Stock and the number of
shares such Holder wishes to convert, (C) state in writing the
name or names in which such Holder wishes the certificate or
certificates for shares of Common Stock to be issued, and (D)
pay any transfer or similar tax if required. In the event that
a Holder fails to notify the Company of the number of shares
of 6 1/2% Preferred Stock which such Holder wishes to convert,
the Holder shall be deemed to have elected to convert all
shares represented by the certificate or certificates
surrendered for conversion. The date on which the Holder
satisfies all those requirements is the "Conversion Date." As
soon as practicable, the
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<PAGE> 6
Company shall deliver a certificate for the number of full
shares of Common Stock issuable upon the conversion, a payment
in cash for any fractional share and a new certificate
representing the unconverted portion, if any, of the shares of
6 1/2% Preferred Stock represented by the certificate or
certificates surrendered for conversion. The Person in whose
name the Common Stock certificate is registered shall be
treated as the stockholder of record on and after the
Conversion Date. No payment or adjustment will be made for
accrued and unpaid dividends on converted shares of 6 1/2%
Preferred Stock or for dividends on any Common Stock issued
upon such conversion. A share of 6 1/2% Preferred Stock
surrendered for conversion during the period from the close of
business on any record date of the payment of dividends to the
opening of business of the corresponding Dividend Payment Date
must be accompanied by a payment (in a form provided for in
paragraph (c) above) in an amount equal to the dividend
payable on such Dividend Payment Date, unless such share of 6
1/2% Preferred Stock has been called for redemption on a
redemption date occurring during the period from the close of
business on any record date for the payment of dividends to
the close of business on the Business Day immediately
following the corresponding Dividend Payment Date. The
dividend payment with respect to a share of 6 1/2% Preferred
Stock called for redemption on a date during the period from
the close of business on any record date for the payment of
dividends to the close of business on the Business Day
immediately following the corresponding Dividend Payment Date
will be payable following the corresponding Dividend Payment
Date to the record Holder of such share on such record date,
notwithstanding the conversion of such share after such record
date and prior to such Dividend Payment Date, and the Holder
converting such share of 6 1/2% Preferred Stock need not
include a payment of such dividend amount upon surrender of
such share of 6 1/2% Preferred Stock for conversion. If a
Holder of 6 1/2% Preferred Stock converts more than one share
at a time, the number of full shares of Common Stock issuable
upon conversion shall be based on the total value of all
shares of 6 1/2% Preferred Stock converted. If the last day on
which 6 1/2% Preferred Stock may be converted is not a
Business Day, 6 1/2% Preferred Stock may be surrendered for
conversion on the next succeeding Business Day.
(iii) The Company shall not issue a fractional share
of Common Stock upon conversion of 6 1/2% Preferred Stock.
Instead, the Company shall pay a cash adjustment of the
current market value of the fractional share. The current
market value of a fraction of a share shall be determined as
follows: Multiply the current market price of a full share by
the fraction. Round the result to the nearest cent. The
current market price of a share of Common Stock is the Quoted
Price of the Common Stock on the last Trading Day prior to the
Conversion Date.
(iv) If a Holder converts shares of 6 1/2% Preferred
Stock, the Company shall pay any documentary, stamp or similar
issue or transfer tax due on the issue of shares of Common
Stock upon the conversion. However, the Holder
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<PAGE> 7
shall pay any such tax that is due because the shares are
issued in a name other than the Holder's name.
(v) The Company has reserved and shall continue to
reserve out of its authorized but unissued Common Stock or its
Common Stock held in treasury, enough shares of Common Stock
to permit the conversion of the 6 1/2% Preferred Stock in
full. All shares of Common Stock that may be issued upon
conversion of 6 1/2% Preferred Stock shall be fully paid and
nonassessable. The Company shall endeavor to comply with all
securities laws regulating the offer and delivery of shares of
Common Stock upon conversion of 6 1/2% Preferred Stock and
shall endeavor to list such shares on each national securities
exchange on which the Common Stock is listed.
(vi) In case the Company shall pay or make a dividend
or other distribution on any class of capital stock of the
Company in Common Stock, other than the payment of dividends
or other distributions in Common Stock on or with respect to
the 6 1/2% Preferred Stock, the Conversion Price in effect at
the opening of business on the day following the date fixed
for the determination of stockholders entitled to receive such
dividend or other distribution shall be reduced by multiplying
such Conversion Price by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding at
the close of business on the date fixed for such determination
and the denominator of which shall be the sum of such number
of shares and the total number of shares constituting such
dividend or other distribution, such reduction to become
effective immediately after the opening of business on the day
following the date fixed for such determination of the holders
of Common Stock entitled to such dividends and distributions.
For the purposes of this paragraph (e)(vi), the number of
shares of Common Stock at any time outstanding shall not
include shares held in the treasury of the Company. The
Company will not pay any dividend or make any distribution on
shares of Common Stock held in the treasury of the Company.
(vii) In case the Company shall issue rights, options
or warrants to all holders of its Common Stock entitling them
to subscribe for, purchase or acquire shares of Common Stock
at a price per share less than the current market price per
share (determined as provided in paragraph (e)(xi) below) of
the Common Stock on the date fixed for the determination of
stockholders entitled to receive such rights, options or
warrants, the Conversion Price in effect at the opening of
business on the day following the date fixed for such
determination shall be reduced by multiplying such Conversion
Price by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding at the close of
business on the date fixed for such
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<PAGE> 8
determination plus the number of shares of Common Stock that
the aggregate of the offering price of the total number of
shares so offered for subscription, purchase or acquisition
would purchase at such current market price and the
denominator of which shall be the number of shares of Common
Stock outstanding at the close of business on the date fixed
for such determination plus the number of shares of Common
Stock so offered for subscription, purchase or acquisition,
such reduction to become effective immediately after the
opening of business on the day following the date fixed for
such determination. However, upon the expiration of any right,
option or warrant to purchase Common Stock, the issuance of
which resulted in an adjustment in the Conversion Price
pursuant to this paragraph (e)(vii), if any such right, option
or warrant shall expire and shall not have been exercised, the
Conversion Price shall be recomputed immediately upon such
expiration and effectively immediately upon such expiration
shall be increased to the price it would have been (but
reflecting any other adjustments to the Conversion Price made
pursuant to the provisions of this paragraph (e) after the
issuance of such rights, options or warrants) had the
adjustment of the Conversion Price made upon the issuance of
such rights, options or warrants been made on the basis of
offering for subscription or purchase only that number of
shares of Common Stock actually purchased upon the exercise of
such rights, options or warrants. No further adjustment shall
be made upon exercise of any right, option or warrant if any
adjustment shall have been made upon the issuance of such
security. For the purposes of this paragraph (e)(vii), the
number of shares of Common Stock at any time outstanding shall
not include shares held in the treasury of the Company. The
Company will not issue any rights, options or warrants in
respect of shares of Common Stock held in the treasury of the
Company.
(viii) In case the outstanding shares of Common Stock
shall be subdivided into a greater number of shares of Common
Stock, the Conversion Price in effect at the opening of
business on the day following the day upon which such
subdivision becomes effective shall be reduced, and,
conversely, in case the outstanding shares of Common Stock
shall each be combined into a smaller number of shares of
Common Stock, the Conversion Price in effect at the opening of
business on the day following the day upon which such
combination becomes effective shall be increased to equal the
product of the Conversion Price in effect on such date and a
fraction the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such
subdivision or combination, as the case may be, and the
denominator of which shall be the number of shares of Common
Stock outstanding immediately after such subdivision or
combination, as the case may be. Such reduction or increase,
as the case may be, shall become effective immediately after
the opening of business on the day following the day upon
which such subdivision or combination becomes effective.
(ix) In case the Company shall, by dividend or
otherwise, distribute to all holders of its Common Stock (A)
evidences of its indebtedness or (B) shares of any class of
capital stock, cash or other assets (including securities, but
excluding (x) any rights, options or warrants referred to in
paragraph (e)(vii) above, (y) any dividend or distribution
referred to in paragraph (e)(vi) above, and (z) cash dividends
paid from the Company's retained earnings, unless the sum of
all such
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<PAGE> 9
cash dividends and distributions made within the preceding 12
months in respect of which no adjustment has been made and (2)
any cash and the fair market value of other consideration paid
in respect of any repurchases of Common Stock by the Company
or any of its subsidiaries within the preceding months in
respect of which no adjustment has been made, exceeds 20% of
the Company's market capitalization (being the product of the
then current market price per share (determined as provided in
paragraph (e)(xi) below) of the Common Stock times the
aggregate number of shares of Common Stock then outstanding)
on the record date for such distribution), then in each case,
the Conversion Price in effect at the opening of business on
the day following the date fixed for the determination of
holders of Common Stock entitled to receive such distribution
shall be adjusted by multiplying such Conversion Price by a
fraction of which the numerator shall be the current market
price per share (determined as provided in paragraph (e)(xi)
below) of the Common Stock on such date of determination (or,
if earlier, on the date on which the Common Stock goes
"ex-dividend" in respect of such distribution) less the then
fair market value as determined by the Board of Directors
(whose determination shall be conclusive and shall be
described in a statement filed with any conversion agent) of
the portion of the capital stock, cash or other assets or
evidences of indebtedness so distributed (and for which an
adjustment to the Conversion Price has not previously been
made pursuant to the terms of this paragraph (e)) applicable
to one share of Common Stock, and the denominator shall be
such current market price per share of the Common Stock, such
adjustment to become effective immediately after the opening
of business on the day following such date of determination.
The following transactions shall be excluded from the
foregoing clauses (1) and (2): (I) repurchases of Common Stock
issued under the Company's stock incentive programs; and (II)
dividends or distributions payable-in-kind in additional
shares of, or warrants, rights, calls or options exercisable
for or convertible into additional shares of Junior
Securities.
(x) The reclassification or change of Common Stock
into securities, including securities other than Common Stock
(other than any reclassification upon a consolidation or
merger to which paragraph (e)(xviii) below shall apply), shall
be deemed to involve (A) a distribution of such securities
other than Common Stock to all holders of Common Stock (and
the effective date of such reclassification shall be deemed to
be "the date fixed for the determination of the holders of
Common Stock entitled to receive such distribution" within the
meaning of paragraph (e)(ix) above), and (B) a division or
combination, as the case may be, of the number of shares of
Common Stock outstanding immediately prior to such
reclassification into the number of shares of Common Stock
outstanding immediately thereafter (and the effective date of
such reclassification shall be deemed to be "the day upon
which such subdivision becomes effective" or "the day upon
which such combination becomes effective," as the case may be,
and "the day upon which such subdivision or combination
becomes effective" within the meaning of paragraph (e)(viii)
above).
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<PAGE> 10
(xi) For the purpose of any computation under
paragraph (e)(vii) or (e)(ix) above, the current market price
per share of Common Stock on any day shall be deemed to be the
average of the Closing Prices of the Common Stock for the 20
consecutive Trading Days immediately preceding the fifth
Trading Day prior to the date for the determination of holders
of Common Stock entitled to receive such dividend or
distribution (or, if earlier, the date on which the Common
Stock goes "ex-dividend" in respect of such dividend or
distribution).
(xii) No adjustment in the Conversion Price need be
made until all cumulative adjustments amount to 1% or more of
the Conversion Price as last adjusted. Any adjustments that
are not made shall be carried forward and taken into account
in any subsequent adjustment. All calculations under this
paragraph (e) shall be made to the nearest cent or to the
nearest 1/100th of a share, as the case may be.
(xiii) For purposes of this paragraph (e), "Common
Stock" includes any stock of any class of the Company which
has no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Company and
which is not subject to redemption by the Company. However,
subject to the provisions of paragraph (e)(xviii) below,
shares issuable on conversion of shares of 6 1/2% Preferred
Stock shall include only shares of the class designated as
Common Stock of the Company on the Preferred Stock Issue Date
or shares of any class or classes resulting from any
reclassification thereof and which have no preferences in
respect of dividends or amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or
winding-up of the Company and which are not subject to
redemption by the Company; PROVIDED that, if at the time there
shall be more than one such resulting class, the shares of
each such class then so issuable shall be substantially in the
proportion which the total number of shares of such class
resulting from all such reclassifications bears to the total
number of shares of all such classes resulting from all such
reclassifications.
(xiv) No adjustment in the Conversion Price shall
reduce the Conversion Price below the then par value of the
Common Stock. No adjustment in the Conversion Price need be
made under paragraphs (e)(vi), (e)(viii) and (e)(ix) above if
the Company issues or distributes to each Holder of 6 1/2%
Preferred Stock the shares of Common Stock, evidences of
indebtedness, assets, rights, options or warrants referred to
in those paragraphs which each Holder would have been entitled
to receive had 6 1/2% Preferred Stock been converted into
Common Stock prior to the happening of such event or the
record date with respect thereto.
(xv) Whenever the Conversion Price is adjusted, the
Company shall promptly mail to Holders of 6 1/2% Preferred
Stock, first class, postage prepaid, a notice of the
adjustment. The Company shall file with the Transfer Agent for
the 6 1/2% Preferred Stock, if any, a certificate from the
Company's independent public
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<PAGE> 11
accountants briefly stating the facts requiring the adjustment
and the manner of computing it. Subject to paragraph (e)(xvi)
below, the certificate shall be conclusive evidence that the
adjustment is correct.
(xvi) The Company from time to time may reduce the
Conversion Price if it considers such reductions to be
advisable in order that any event treated for federal income
tax purposes as a dividend of stock rights will not be taxable
to the holders of Common Stock by any amount, but in no event
may the Conversion Price be less than the par value of a share
of Common Stock. Whenever the Conversion Price is reduced, the
Company shall mail to Holders of 6 1/2% Preferred Stock a
notice of the reduction. The Company shall mail, first class,
postage prepaid, the notice at least 15 days before the date
the reduced Conversion Price takes effect. The notice shall
state the reduced Conversion Price and the period it will be
in effect. A reduction of the Conversion Price does not change
or adjust the Conversion Price otherwise in effect for
purposes of paragraphs (e)(vi), (e) (vii), (e)(viii) and
(e)(ix) above.
(xvii) If:
(A) the Company takes any action which would
require an adjustment in the Conversion Price
pursuant to paragraph (e)(vii), (e)(ix) or (e)(x)
above;
(B) the Company consolidates or merges with,
or transfers all or substantially all of its assets
to, another corporation, and stockholders of the
Company must approve the transaction; or
(C) there is a dissolution or liquidation of
the Company;
the Company shall mail to Holders of the 6 1/2% Preferred
Stock, first class, postage prepaid, a notice stating the
proposed record or effective date, as the case may be. The
Company shall mail the notice at least 10 days before such
date. However, failure to mail the notice or any defect in it
shall not affect the validity of any transaction referred to
in clause (A), (B) or (C) of this paragraph (e)(xvii).
(xviii) In the case of any consolidation of the
Company or the merger of the Company with or into any other
entity or the sale or transfer of all or substantially all the
assets of the Company pursuant to which the Company's Common
Stock is converted into other securities, cash or assets, upon
consummation of the transaction, each share of 6 1/2%
Preferred Stock shall automatically become convertible into
the kind and amount of securities, cash or other assets
receivable upon the consolidation, merger, sale or transfer by
a holder of the number of shares of Common Stock into which
such share of 6 1/2% Preferred Stock might have been converted
immediately prior to such consolidation, merger, sale or
transfer (assuming such holder of Common Stock
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<PAGE> 12
failed to exercise any rights of election and received per
share the kind and amount receivable per share by a plurality
of non-electing shares). Appropriate adjustment (as determined
by the Board of Directors of the Company) shall be made in the
application of the provisions herein set forth with respect to
the rights and interests thereafter of the Holders of 6 1/2%
Preferred Stock, to the end that the provisions set forth
herein (including provisions with respect to changes in and
other adjustment of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any
shares of stock or other securities or property thereafter
deliverable upon the conversion of 6 1/2% Preferred Stock. If
this paragraph (e)(xviii) applies, paragraphs (e)(vi),
(e)(vii), (e)(viii), (e)(ix) and (e)(x) do not apply.
(xix) In any case in which this paragraph (e) shall
require that an adjustment as a result of any event become
effective from and after a record date, the Company may elect
to defer until after the occurrence of such event (A) the
issuance to the Holder of any shares of 6 1/2% Preferred Stock
converted after such record date and before the occurrence of
such event of the additional shares of Common Stock issuable
upon such conversion over and above the shares issuable on the
basis of the Conversion Price in effect immediately prior to
adjustment and (B) a cash payment for any remaining fractional
shares of Common Stock as provided in paragraph (e)(iii)
above; PROVIDED, HOWEVER, that if such event shall not have
occurred and authorization of such event shall be rescinded by
the Company, the Conversion Price shall be recomputed
immediately upon such rescission to the price that would have
been in effect had such event not been authorized, PROVIDED
that such rescission is permitted by and effective under
applicable laws.
(xx) All shares of 6 1/2% Preferred Stock converted
pursuant to this paragraph (e) shall be restored to the status
of authorized and unissued shares of preferred stock, without
designation as to series and may thereafter be reissued as
shares of any series of preferred stock.
(f) REDEMPTION.
(i) OPTIONAL REDEMPTION. (A) The Company may, at the
option of the Board of Directors, redeem at any time on or
after April 4, 2001, from any source of funds legally
available therefor, in whole or in part, in the manner
provided in paragraph (f)(ii) hereof, any or all of the shares
of the 6 1/2% Preferred Stock, at the redemption prices
(expressed as a percentage of the Liquidation Preference) set
forth below if redeemed during the 12-month period beginning
on April 4 of each of the years indicated below:
YEAR PERCENTAGE
---- ----------
2001............................... 103.71%
2002............................... 102.79%
2003............................... 101.86%
2004............................... 100.93%
2005 and thereafter................ 100.000%
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plus, in each case, an amount of cash, or shares of Common
Stock, equal to all accumulated and unpaid dividends per share
(including an amount equal to a prorated dividend for the
period from the Dividend Payment Date immediately prior to the
date fixed for redemption (the "Redemption Date")) and
Liquidated Damages, if any (the "Optional Redemption Price"),
PROVIDED, that no optional redemption pursuant to this
paragraph (f)(i)(A) shall be authorized or made unless prior
to the applicable Redemption Notice all accumulated and unpaid
dividends for Dividend Periods ended prior to the date of such
Redemption Notice shall have been paid.
(B) In the event of a redemption pursuant to
paragraph (f)(1)(A) hereof of only a portion of the
then outstanding shares of the 6 1/2% Preferred
Stock, the Company shall effect such redemption pro
rata according to the number of shares held by each
Holder of the 6 1/2% Preferred Stock or by lot, as
may be determined by the Company in its sole
discretion; PROVIDED that the Company may redeem all
shares held by Holders of fewer than ten shares of 6
1/2% Preferred Stock (or by Holders that would hold
fewer than ten shares of 6 1/2% Preferred Stock
following such redemption) prior to its redemption of
other shares of 6 1/2% Preferred Stock.
(ii) PROCEDURES FOR REDEMPTION. (A) At least 30 days and not
more than 60 days prior to the Redemption Date of the 6 1/2%
Preferred Stock, the Company shall make a public announcement
of the redemption, and shall mail written notice (the
"Redemption Notice") by first class mail, postage prepaid, to
each Holder of record on the record date fixed for such
redemption of the 6 1/2% Preferred Stock at the Holder's
address as the same appears on the stock register of the
Company, PROVIDED that no failure to give such notice nor any
deficiency therein shall affect the validity of the procedure
for the redemption of any shares of 6 1/2% Preferred Stock to
be redeemed except as to the Holder or Holders to whom the
Company has failed to give said notice or except as to the
Holder or Holders whose notice was defective. The Redemption
Notice shall state:
(1) that the redemption is pursuant to
paragraph (f)(i)(A) hereof,
(2) the Optional Redemption Price;
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<PAGE> 14
(3) whether all or less than all the
outstanding shares of the 6 1/2% Preferred Stock are
to be redeemed and the total number of shares of the
6 1/2% Preferred Stock being redeemed;
(4) the number of shares of 6 1/2% Preferred
Stock held, as of the appropriate record date, by the
Holder that the Company intends to redeem;
(5) the Redemption Date;
(6) that the Holder is to surrender to the
Company, at the place or places where certificates
for shares of 6 1/2% Preferred Stock are to be
surrendered for redemption, in the manner and at the
price designated, his certificate or certificates
representing the shares of 6 1/2% Preferred Stock to
be redeemed;
(7) the name of any bank or trust Company
performing the duties referred to in paragraph
(f)(ii)(D) hereof; and
(8) that dividends on the shares of the 6
1/2% Preferred Stock to be redeemed shall cease to
accrue on such Redemption Date unless the Company
defaults in the payment of the Optional Redemption
Price.
(B) Each Holder of 6 1/2% Preferred Stock
shall surrender the certificate or certificates
representing such shares of 6 1/2% Preferred Stock to
the Company, duly endorsed, in the manner and at the
place designated in the Redemption Notice, and on the
Redemption Date the full Optional Redemption Price
for such shares shall be payable in cash to the
Person whose name appears on such certificate or
certificates as the owner thereof, and each
surrendered certificate shall be canceled and
retired. In the event that less than all of the
shares represented by any such certificate are
redeemed, a new certificate shall be issued
representing the unredeemed shares.
(C) Unless the Company defaults in the
payment in full of the applicable redemption price,
dividends on the 6 1/2% Preferred Stock called for
redemption shall cease to accumulate on the
Redemption Date, and the Holders of such redeemed
shares shall cease to have any further rights with
respect thereto on the Redemption Date, other than
the right to receive the Optional Redemption Price
without interest.
(D) If a Redemption Notice shall have been
duly given or if the Company shall have given to the
bank or trust company hereinafter referred to
irrevocable authorization promptly to give such
notice, and if on or before the Redemption Date
specified therein the funds necessary for such
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<PAGE> 15
redemption shall have been deposited by the Company
with such bank or trust company in trust for the pro
rata benefit of the Holders of the 6 1/2% Preferred
Stock called for redemption, then, notwithstanding
that any certificate for shares so called for
redemption shall not have been surrendered for
cancellation, from and after the close of business on
the day on which such funds are so deposited, all
shares so called, or to be so called pursuant to such
irrevocable authorization, for redemption shall no
longer be deemed to be outstanding and all rights
with respect to such shares shall forthwith cease and
terminate and, for the purposes of paragraphs
(f)(ii)(A)(8) and (f)(ii)(C) above, the Company will
be deemed to have paid the Optional Redemption Price
on the Redemption Date, except only the right of
Holders thereof to received from such bank or trust
company at any time after the time of such deposit
the funds so deposited, without interest, and the
right of the Holders thereof to convert such shares
as provided in paragraph (f) hereof to the Business
Day preceding the Redemption Date. The aforesaid bank
or trust company shall be organized and in good
standing under the laws of the United States of
America or any state thereof, shall have capital,
surplus and undivided profits aggregating at least
$100,000,000 according to its last published
statement of condition, and shall be identified in
the Redemption Notice. Any interest accrued on such
funds shall be paid to the Company from time to time.
Any funds so set aside or deposited, as the case may
be, in respect of shares of the 6 1/2% Preferred
Stock that are subsequently converted shall be
promptly returned to the Company. Any funds so set
aside or deposited, as the case may be, and unclaimed
at the end of three years from such redemption shall,
to the extent permitted by law, be released or repaid
to the Company, after which repayment the Holders of
the shares so called for redemption shall look only
to the Company for payment thereof.
(g) VOTING RIGHTS.
(i) The holders of shares of 6 1/2% Preferred Stock,
except as otherwise required under Delaware law, the
Certificate of Incorporation or as set forth in paragraphs
(g)(ii), (g)(iii) and (g)(iv) below, shall not be entitled or
permitted to vote on any matter required or permitted to voted
upon by the stockholders of the Company.
(ii) (A) So long as any shares of the 6 1/2%
Preferred Stock are outstanding, the Company shall
not authorize any class of Senior Securities or
Parity Securities without the affirmative vote or
consent of Holders of at least 66 2/3% of the
outstanding shares of 6 1/2% Preferred Stock, voting
or consenting, as the case may be, as one class,
given in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting.
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<PAGE> 16
(B) So long as any shares of the 6 1/2%
Preferred Stock are outstanding, the Company shall
not amend this Certificate of Designations so as to
affect adversely the specified rights, preferences,
privileges or voting rights of Holders of shares of 6
1/2% Preferred Stock or to authorize the issuance of
any additional shares of 6 1/2% Preferred Stock
without the affirmative vote or consent of Holders of
at least 66 2/3% of the issued and outstanding shares
of 6 1/2% Preferred Stock, voting or consenting, as
the case may be, as one class, given in person or by
proxy, either in writing or by resolution adopted at
an annual or special meeting.
(C) Except as set forth in paragraph
(g)(ii)(A) above, (1) the creation, authorization or
issuance of any shares of any Junior Securities,
Parity Securities or Senior Securities or (2) the
increase or decrease in the amount of authorized
capital stock of any class, including any preferred
stock, shall not require the consent of the Holders
of 6 1/2% Preferred Stock and shall not be deemed to
affect adversely the rights, preferences, privileges
or voting rights of the 6 1/2% Preferred Stock.
(iii) (A) If dividends on the 6 1/2% Preferred Stock
are in arrears and unpaid for six quarterly Dividend
Periods (whether or not consecutive) (a "Voting
Rights Triggering Event"), then the number of
directors constituting the Board of Directors shall
be adjusted to permit the Holders of a majority of
the then outstanding 6 1/2% Preferred Stock, voting
separately as one class, to elect two directors.
Holders of a majority of the issued and outstanding
shares of the 6 1/2% Preferred Stock, voting
separately as one class, shall have the exclusive
right to elect such members of the Board of Directors
at a meeting therefor called upon occurrence of such
Voting Rights Triggering Event, and at every
subsequent meeting at which the terms of office of
the directors so elected by the Holders of the 6 1/2%
Preferred Stock expire (other than as described in
(g)(iii)(B) below).
(B) The right of the Holders of 6 1/2%
Preferred Stock voting separately as one class to
elect members of the Board of Directors as set forth
in paragraph (g)(iii)(A) above shall continue until
such time as all accumulated dividends and Liquidated
Damages, if any, that are in arrears on the 6 1/2%
Preferred Stock are paid in full and the Company has
paid dividends in full on two consecutive Dividend
Payment Dates following the payment of such
arrearage, at which time the term of any directors
elected pursuant to paragraph (g)(iii)(A) shall
terminate, subject always to the same provisions for
the renewal and divestment of such special voting
rights in the case of any future Voting Rights
Triggering Event. At any time after voting power to
elect directors shall have become vested and be
continuing in the Holders of shares of the 6 1/2%
Preferred Stock pursuant to paragraph (g)(iii)(A)
hereof, if vacancies shall exist in the office of
directors elected by the Holders of shares of the 6
1/2% Preferred Stock, a
16
<PAGE> 17
proper officer of the Company may, and upon the
written request of the Holders of record of at least
10% of the shares of 6 1/2% Preferred Stock then
outstanding addressed to the Secretary of the Company
shall, call a special meeting of the Holders of 6
1/2% Preferred Stock, for the purpose of electing the
directors that such Holders are entitled to elect. If
such meeting shall not be called by the proper
officer of the Company within 20 days after personal
service of said written request upon the Secretary of
the Company, or within 20 days after mailing the same
within the United States by certified mail, addressed
to the Secretary of the Company at its principal
executive offices, then the Holders of record of at
least 20% of the outstanding shares of the 6 1/2%
Preferred Stock may designate in writing one of their
number to call such meeting at the expense of the
Company, and such meeting may be called by the Person
so designated upon the notice required for the annual
meetings of stockholders of the Company and shall be
held at the place for holding the annual meetings of
stockholders or such other place in the United States
as shall be designated in such notice.
Notwithstanding the provisions of this paragraph
(g)(iii)(B), no such special meeting shall be called
if any such request is received less than 30 days
before the date fixed for the next ensuring annual or
special meeting of stockholders of the Company. Any
Holder of shares of the 6 1/2% Preferred Stock so
designated shall have, and the Company shall provide,
access to the lists of Holders of shares of the 6
1/2% Preferred Stock for purposes of calling a
meeting pursuant to the provisions of this paragraph
(g)(iii)(B).
(C) At any meeting held for the purpose of
electing directors at which the Holders of 6 1/2%
Preferred Stock shall have the right, voting
separately as one class, to elect directors as
aforesaid, the presence in person or by proxy of the
Holders of at least a majority of the outstanding 6
1/2% Preferred Stock shall be required to constitute
a quorum of such 6 1/2% Preferred Stock.
(D) Directors elected pursuant to this
paragraph (g) shall serve until the earlier of (1)
the next annual meeting of the stockholders and until
their successors are qualified or (2) the time
specified in paragraph (g)(iii)(B) above. Any vacancy
occurring in the office of a director elected by the
Holders of shares of the 6 1/2% Preferred Stock may
be filled by the remaining director elected by the
Holders of shares of the 6 1/2% Preferred Stock
unless and until such vacancy shall be filled by the
Holders of shares of the 6 1/2% Preferred Stock.
(iv) In any case in which the Holders of shares of
the 6 1/2% Preferred Stock shall be entitled to vote pursuant
to this paragraph (g) or pursuant to Delaware law, each Holder
of shares of the 6 1/2% Preferred Stock shall be entitled to
one vote for each share of 6 1/2% Preferred Stock held.
17
<PAGE> 18
(h) SPECIAL CONVERSION RIGHTS UPON CHANGE OF CONTROL.
(i) Upon the occurrence of a Change of Control, each
Holder shall have the right, at the Holder's option, during
the Special Conversion Exercise Period to convert all, but not
less than all, of such Holder's 6 1/2% Preferred Stock into
Common Stock at an adjusted Conversion Price per share equal
to the Special Conversion Price. 6 1/2% Preferred Stock which
becomes convertible pursuant to a special conversion right
shall, unless so converted, remain convertible into Common
Stock as provided pursuant to paragraph (e). If a Change of
Control involves a consolidation, merger or sale of assets of
the Company, the Holders of shares of the 6 1/2% Preferred
Stock exercising their conversion rights will be entitled to
receive the same consideration as would be received by a
Holder of the number of shares of Common Stock into which
their shares of 6 1/2% Preferred Stock would have been
converted pursuant to their special conversion rights.
(ii) Upon the occurrence of a Change of Control,
within 15 days after such occurrence, the Company shall mail
to each Holder of 6 1/2% Preferred Stock a notice of such
occurrence (the "Special Conversion Notice") setting forth the
following:
(A) the event constituting the Change of
Control, together with such other information as may
be required pursuant to the securities laws;
(B) the Special Conversion Exercise Period
and the Special Conversion Termination Date;
(C) the Special Conversion Price;
(D) the Conversion Price then in effect and
the continuing conversion rights, if any, under
paragraph (e);
(E) the name and address of the paying agent
and Transfer Agent;
(F) that the Holders who want to convert
shares of 6 1/2% Preferred Stock must exercise such
conversion right during the Special Conversion
Exercise Period; and
(G) that exercise of such special conversion
right shall be irrevocable except that Holders shall
have the right to withdraw their election to exercise
the special conversion right at any time prior to the
close of business on the Special Conversion
Termination Date by providing written or facsimile
transmission notice of withdrawal to the Transfer
Agent, which notice, to be effective, must be
received by the Transfer
18
<PAGE> 19
Agent prior to the close of business on the Special
Conversion Termination Date, and no dividends on
shares of 6 1/2% Preferred Stock (or portions
thereof) tendered for conversion shall accrue from
and after the Special Conversion Termination Date.
(ii) A Holder must exercise the special conversion
right during the Special Conversion Exercise Period or such
special conversion right shall expire. Such right must be
exercised in accordance with paragraph (e) to the extent the
procedures in paragraph (e) are consistent with the special
provisions of this paragraph (h). Exercise of such conversion
right shall, except as provided above, be irrevocable, and
dividends on 6 1/2% Preferred Stock tendered for conversion
shall cease to accrue from and after the Special Conversion
Termination Date. The conversion date with respect to the
exercise of a special conversion right arising upon a Change
of Control shall be the Special Conversion Termination Date.
(i) PREEMPTIVE RIGHTS. No share of 6 1/2% Preferred Stock
shall have any rights of preemption whatsoever as to any securities of
the Company, or any warrants, rights or options issued or granted with
respect thereto, regardless of how such securities or such warrants,
rights or options may be designated, issued or granted.
(j) REISSUANCE OF PREFERRED STOCK. Shares of 6 1/2% Preferred
Stock that have been issued and reacquired in any manner, including
shares purchased or redeemed or exchanged, shall (upon compliance with
any applicable provisions of the laws of Delaware) have the status of
authorized but unissued shares of preferred stock of the Company
undesignated as to series and may be designated or redesignated and
issued or reissued, as the case may be, as part of any series of
preferred stock of the Company, PROVIDED that any issuance of such
shares as 6 1/2% Preferred Stock must be in compliance with the terms
hereof.
(k) BUSINESS DAY. If any payment, redemption or exchange shall
be required by the terms hereof to be made on a day that is not a
Business Day, such payment, redemption or exchange shall be made on the
immediately succeeding Business Day.
(l) MERGER, CONSOLIDATION AND SALE OF ASSETS. Without the vote
or consent of the Holders of a majority of the then outstanding shares
of 6 1/2% Preferred Stock, the Company may not consolidate or merge
with or into, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its assets to any Person unless
(i) the entity formed by such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (in any such case,
the "resulting entity") is a corporation organized and existing under
the laws of the United States or any State thereof or the District of
Columbia; (ii) if the Company is not the resulting entity, the 6 1/2%
Preferred Stock is converted into or exchanged for and becomes shares
of such resulting entity, having in respect of such resulting entity
the same (or more favorable) powers, preferences and relative,
19
<PAGE> 20
participating, optional or other special rights thereof that the 6 1/2%
Preferred Stock had immediately prior to such transaction; and (iii)
immediately after giving effect to such transaction, no Voting Rights
Triggering Event has occurred and is continuing; provided, however,
that the provisions of this paragraph (l) shall not be applicable to
any transaction that constitutes a Change of Control. The resulting
entity of such transaction shall thereafter be deemed to be the
"Company" for all purposes of this Certificate of Designations.
(m) INFORMATION. The Company shall furnish to the Holders of
the 6 1/2% Preferred Stock, with reasonable promptness, such notices,
information and data with respect to the Company as the Company
delivers to the holders of its Common Stock and such other information
and data as such Holders may from time to time reasonably request. In
addition, the Company shall furnish to the Holders of the 6 1/2%
Preferred Stock, prospective purchasers of shares of 6 1/2% Preferred
Stock and securities analysts, upon their request, the information, if
any, required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
(n) MUTILATED OR MISSING PREFERRED STOCK CERTIFICATES. If any
of the 6 1/2% Preferred Stock certificates shall be mutilated, lost,
stolen or destroyed, the Company shall issue, in exchange and in
substitution for and upon cancellation of the mutilated 6 1/2%
Preferred Stock certificate, or in lieu of and substitution for the 6
1/2% Preferred Stock certificate lost, stolen or destroyed, a new 6
1/2% Preferred Stock certificate of like tenor and representing an
equivalent amount of shares of 6 1/2% Preferred Stock, but only upon
receipt of evidence of such loss, theft or destruction of such 6 1/2%
Preferred Stock certificate and indemnity, if requested, satisfactory
to the Company and the Transfer Agent (if other than the Company).
(o) HEADINGS OF SUBDIVISIONS. The headings of various
subdivisions hereof are for convenience of reference only and shall not
affect the interpretation of any of the provisions hereof.
(p) SEVERABILITY OF PROVISIONS. If any right, preference or
limitation of the 6 1/2% Preferred Stock set forth in this Certificate
of Designations filed pursuant hereto (as this Certificate of
Designations may be amended from time to time) is invalid, unlawful or
incapable of being enforced by reason of any rule or law or public
policy, all other rights, preferences and limitations set forth in this
Certificate of Designations, as amended, which can be given effect
without the invalid, unlawful or unenforceable right, preference or
limitation, shall nevertheless remain in full force and effect, and no
right, preference or limitation herein set forth shall be deemed
dependent upon any other such right, preference or limitation unless so
expressed herein.
(q) NOTICES. All notices or other communications required or
permitted to be given to the Company hereunder shall be made by
first-class mail, postage prepaid, to the Company at its principal
executive offices (currently located on the date of the adoption of
these Resolutions at the following address: Sensormatic Electronics
Corporation,
20
<PAGE> 21
951 Yamato Road, Boca Raton, Florida 33431-0700, Attention: Secretary).
All notices or other communications required or permitted to be given
by the Company to Holders of the 6 1/2% Preferred Stock shall be deemed
given when deposited in the United States mail, postage prepaid, and
addressed to each Holder of record at his or her address appearing on
the books of the Company, when personally delivered or sent by
overnight or other courier delivery or upon actual receipt (any of
which being deemed "mailed" for purposes of this Certificate of
Designations). Minor imperfections in any such notice shall not affect
the validity thereof.
(r) LIMITATIONS. Except as may otherwise be required by law,
the shares of 6 1/2% Preferred Stock shall not have any powers,
preferences or relative, participating, optional or other special
rights other than those specifically set forth in this Certificate of
Designations (as may be amended from time to time) or otherwise to the
Certificate of Incorporation of the Company.
(s) DEFINITIONS. As used in this Certificate of Designations,
the following terms shall have the following meanings (with terms
defined in the singular having comparable meanings when used in the
plural and vice versa), unless the context otherwise requires:
"Affiliate" of any specified Person means an
"affiliate" of such Person, as such term is defined for
purposes of Rule 144 under the Securities Act.
"Board of Directors" has the meaning set forth in the
first paragraph of this Certificate of Designations.
"Business Day" means any day except a Saturday, a
Sunday, or any day on which banking institutions in New York,
New York are required or authorized by law or other
governmental action to be closed.
"Certificate of Incorporation" has the meaning set
forth in the first paragraph of this Certificate of
Designations.
"Change of Control" means the occurrence of any of
the following: (i) the sale, lease, transfer, conveyance or
other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of
all or substantially all of the assets of the Company and its
subsidiaries, taken as a whole, (ii) the adoption of a plan
relating to the liquidation or dissolution of the Company,
(iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which
is that any "person" or "group" (as such terms are used in
Section 13(d)(3) of the Exchange Act) becomes the "beneficial
owner" (as that term is defined in Rule 13d-3 and Rule 13d-5
of the Exchange Act), directly or indirectly through one or
more intermediaries, of more than 50% of the voting power of
the outstanding voting stock of the Company, unless (A) the
Closing Price per share of Common Stock for any five Trading
Days within the period of ten consecutive Trading Days ending
immediately after
21
<PAGE> 22
the announcement of such Change of Control equals or exceeds
105% of the Conversion Price then in effect, or (B) at least
90% of the consideration in the transaction or transactions
constituting a Change of Control pursuant to clause (iii)
consists of shares of common stock traded or to be traded
immediately following such Change of Control on a national
securities exchange or the Nasdaq National Market and, as a
result of such transaction or transactions, the 6 1/2%
Preferred Stock become, convertible solely into such common
stock (and any rights attached thereto), or (iv) the first day
on which more than one-third of the Board of Directors
(excluding any directors elected by the holders of the
Preferred Stock following a Voting Rights Triggering Event)
are not Continuing Directors; PROVIDED, HOWEVER, that a
transaction in which the Company becomes a subsidiary of
another entity shall not constitute a Change of Control if (A)
the stockholders of the Company immediately prior to such
transaction "beneficially own" (as such term is defined in
Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly through one or more intermediaries, at least a
majority of the voting power of the outstanding voting stock
of the Company immediately following the consummation of such
transaction and (B) immediately following the consummation of
such transaction, no "person" or "group" (as such terms are
defined above), other than such other entity (but including
holders of equity interests of such other entity),
"beneficially owns" (as such term is defined above), directly
or indirectly through one or more intermediaries, more than
50% of the voting power of the outstanding voting stock of the
Company.
"Closing Price" means for each Trading Day, the last
reported sale price regular-way on the New York Stock Exchange
(or if the New York Stock Exchange is not the principal
national securities exchange on which the Common Stock is
listed or admitted for trading, on such other national
securities exchange or, if the Common Stock is not so listed
or admitted for trading on the New York Stock Exchange or any
other national securities exchange, on the Nasdaq National
Market or, if the Common Stock is not quoted on the Nasdaq
National Market, the average of the closing bid and asked
prices in the over-the-counter market as furnished by any New
York Stock Exchange member firm selected from time to time by
the Company for that purpose).
"Commission" means the Securities and Exchange
Commission.
"Common Stock" means the Common Stock, par value
$0.01 per share, of the Company.
"Continuing Directors" means, as of any date of
determination, any member of the Board of Directors of the
Company who (i) was a member of the Board of Directors on the
date of original issuance of the 6 1/2% Preferred Stock or
(ii) was nominated for election to the Board of Directors with
the approval of, or whose election to the Board of Directors
was ratified by, at least two-thirds of the Continuing
Directors who were members of the Board of Directors at the
time
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<PAGE> 23
of such nomination or election, but in any event excluding any
directors elected by the holders of the Preferred Stock
following a Voting Rights Triggering Event.
"Conversion Date" has the meaning set forth in
paragraph (e)(ii) hereof.
"Conversion Price" shall initially mean $19.52 and
thereafter shall be subject to adjustment from time to time
pursuant to the terms of paragraph (e) hereof.
"Dividend Payment Date" means January 1, April 1,
July 1, and October 1 of each year.
"Dividend Period" means the Initial Dividend Period
and, thereafter, each Quarterly Dividend Period.
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Holder" means a holder of shares of 6 1/2% Preferred
Stock as reflected in the stock records of the Company or the
Transfer Agent for the 6 1/2% Preferred Stock.
"Initial Dividend Period" means the dividend period
commencing on the Preferred Stock Issue Date and ending on the
day before the first Dividend Payment Date to occur
thereafter.
"Junior Securities" has the meaning set forth in
paragraph (b) hereof.
"Liquidated Damages" means all liquidated damages
then owing under the Registration Rights Agreement.
"Liquidation Preference" has the meaning set forth in
paragraph (a) hereof.
"Optional Redemption Price" has the meaning set forth
in paragraph (f)(i) of this Certificate of Designations.
"Person" means any individual, corporation,
partnership, joint venture, association, joint-stock company,
trust or unincorporated organization (including any
subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity,
subdivision or business).
"6 1/2% Preferred Stock" has the meaning set forth in
paragraph (a) hereof.
23
<PAGE> 24
"Preferred Stock Issue Date" means the date on which
the 6 1/2% Preferred Stock is originally issued by the Company
under this Certificate of Designations.
"Quoted Price" means the last reported sale price of
the applicable security on the principal exchange (including,
if applicable, the New York Stock Exchange) on which the
applicable security is listed or admitted for trading (which
shall be for consolidated trading if applicable to such
exchange), or if neither so reported or listed or admitted for
trading, the last reported bid price of the applicable
security in the over-the-counter market. In the event that the
Quoted Price cannot be determined as aforesaid, the Board of
Directors of the Company shall determine the Quoted Price on
the basis of such quotations as it in good faith considers
appropriate.
"Quarterly Dividend Period" shall mean the quarterly
period commencing on each January 1, April 1, July 1, and
October 1, and ending on the day before the following Dividend
Payment Date.
"Redemption Date" with respect to any shares of 6
1/2% Preferred Stock means the date on which such shares of 6
1/2% Preferred Stock are redeemed by the Company.
"Redemption Notice" has the meaning set forth in
paragraph (f)(ii) hereof.
"Registration Rights Agreement" means the
Registration Rights Agreement with respect to the 6 1/2%
Preferred Stock, dated as of April 13, 1998, by and between
the Company and Bear, Stearns & Co. Inc., Lehman Brothers
Inc., NationsBanc Montgomery Securities LLC and Schroder & Co.
Inc., as such agreement may be amended, modified or
supplemented from time to time.
"Resolution" has the meaning set forth in the first
paragraph of this Certificate of Designations.
"Senior Securities" has the meaning set forth in
paragraph (b) hereof.
"Special Conversion Exercise Period" means the period
commencing on the date of the mailing of a notice by the
Company that a Change of Control has occurred and ending on
the 45th day thereafter or, if such 45th day is not a Business
Day, the next succeeding Business Day.
"Special Conversion Notice" has the meaning specified
in paragraph (h) hereof.
"Special Conversion Termination Date" means the last
day of the Special Conversion Exercise Period.
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<PAGE> 25
"Special Conversion Price" means the greater of (1)
the Closing Price per share of Common Stock for the five
Trading Days ending on the last Business Day preceding the
date of a Change of Control and (2) $10.67 per share (which
amount is equal to 66 2/3% of the last reported sale price of
the Common Stock on April 6, 1998), each time the then
prevailing Conversion Price shall be adjusted as provided
elsewhere herein, shall likewise be adjusted so that the ratio
of such dollar amount to the then prevailing Conversion Price,
after giving effect to any such adjustment, shall always be
the same as the ratio of $10.67 to the Initial Conversion
Price (without giving effect to any adjustment)).
"Trading Day" means any day on which the New York
Stock Exchange or other applicable stock exchange or market is
open for business.
"Transfer Agent" means BankBoston, N.A., a national
banking association, or any successor transfer agent for the 6
1/2% Preferred Stock.
"Voting Rights Triggering Event" has the meaning set
forth in paragraph (g)(iii) hereof.
* * *
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<PAGE> 26
IN WITNESS WHEREOF, Sensormatic Electronics Corporation has caused this
Certificate of Designations to be signed by Robert A. Vanourek, its President,
and attested by Walter A. Engdahl, its Secretary, this 9th day of April, 1998.
SENSORMATIC ELECTRONICS CORPORATION
By:/s/ Garrett E. Pierce
---------------------------------
Garrett E. Pierce,
Senior Vice President and
Chief Financial Officer
Attest:
By:/s/ Walter A. Engdahl
---------------------------------
Walter A. Engdahl,
Secretary
[SEAL]
26
<PAGE> 1
Exhibit 10
- --------------------------------------------------------------------------------
SECOND AMENDMENT
TO AMENDED AND RESTATED MULTICURRENCY REVOLVING CREDIT
AGREEMENT
- --------------------------------------------------------------------------------
Second Amendment dated as of February 20, 1998 to Amended and Restated
Multicurrency Revolving Credit Agreement (the "Second Amendment"), by and among
SENSORMATIC ELECTRONICS CORPORATION, a Delaware corporation (the "Parent"),
BANKBOSTON, N.A. (formerly known as The First National Bank of Boston) and the
other lending institutions listed on SCHEDULE 1 to the Credit Agreement (as
hereinafter defined) (collectively, the "Banks"), amending certain provisions of
the Amended and Restated Multicurrency Revolving Credit Agreement dated as of
March 18, 1997 (as amended and in effect from time to time, the "Credit
Agreement") by and among the Parent, the other Borrowing Subsidiaries (as such
term is defined in the Credit Agreement) which may from time to time become
parties thereto in accordance with the terms thereof (collectively with the
Parent, the "Borrowers"), the Banks and BANKBOSTON, N.A. as agent for the Banks
(in such capacity, the "Agent"), with NATIONSBANK, N.A. as syndication agent
thereunder. Terms not otherwise defined herein which are defined in the Credit
Agreement shall have the same respective meanings herein as therein.
WHEREAS, the Borrowers and the Majority Banks have agreed to modify
certain terms and conditions of the Credit Agreement as specifically set forth
in this Second Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
SS.1. AMENDMENT TO SS.1 OF THE CREDIT AGREEMENT. Section 1 of the
Credit Agreement is hereby amended by deleting the definition of "Debt" in its
entirety and restating it as follows:
DEBT. With respect to any Person at any date, without
duplication, (a) all obligations of such Person for borrowed money, (b)
all obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments, (c) all obligations of such Person to pay
the deferred purchase price of property or services, except trade
accounts payable arising in the ordinary course of business, (d) all
obligations of such Person as lessee under capital leases, (e) all
obligations of such Person to reimburse any bank or other Person in
respect of amounts payable under a banker's acceptance, (f) all
Redeemable Preferred Stock of such Person (in the event such Person is
a corporation), (g) all obligations of such Person to reimburse any
bank or other Person in respect of amounts paid under a letter of
credit or similar instrument, (h) all Debt of others secured by a Lien
on any asset of such Person, even though such Debt is not assumed by
such Person, (i) all Debt of others Guaranteed by such Person, (j)
amounts of any reserves for doubtful accounts recorded on the
<PAGE> 2
-2-
books of such Person for leases, receivables and other accounts sold,
factored or otherwise disposed of by such Person, (k) solely for
purposes of ss.ss.10.1(d), 11.2 and 11.3 hereof, and without
duplication for amounts set forth in subparagraph (j) of this
definition, the aggregate principal amount of all advances against
Trade Receivables sold or factored by such Person in excess of
$75,000,000; (l) solely for purposes of ss.ss.10.1(d), 11.2 and 11.3
hereof, and without duplication for amounts set forth in subparagraph
(j) of this definition, the recourse portion of all Term Receivables
sold by such Person after January 1, 1997; (m) solely for purposes of
ss.10.1(e) hereof and without duplication for amounts set forth in
paragraph (j) of this definition, the recourse portion of all Term
Receivables and Trade Receivables sold or factored by any Subsidiary
after January 1, 1997; and (n) unfunded pension liabilities in
connection with any Plan; PROVIDED, that in no event shall "Debt"
include any Factored Receivables Obligations except as expressly
provided in subparagraph (k), (l) and (m) of this definition.
SS.2. CONDITIONS TO EFFECTIVENESS. This Second Amendment shall not
become effective until the Agent receives a counterpart of this Second Amendment
executed by the Borrowers and the Majority Banks.
SS.3. REPRESENTATIONS AND WARRANTIES. Each of the Borrowers hereby
repeats, on and as of the date hereof, each of the representations and
warranties made by it in ss.8 of the Credit Agreement (except to the extent that
such representations and warranties relate expressly to an earlier date),
PROVIDED, that all references therein to the Credit Agreement shall refer to
such Credit Agreement as amended hereby. In addition, each of the Borrowers
hereby represents and warrants that the execution and delivery by such Borrower
of this Second Amendment and the performance by such Borrower of all of its
agreements and obligations under the Credit Agreement as amended hereby are
within the corporate authority of such Borrower and have been duly authorized by
all necessary corporate action on the part of such Borrower, and further
represents and warrants that the execution and deliver by such Borrower of this
Second Amendment and the performance by such Borrower of the transactions
contemplated hereby will not contravene, or constitute a default under, any
material provision of applicable law or regulation or, to the best of the
Borrower's knowledge, of any material agreement relating to Debt, or other
material instrument relating to Debt, judgment, injunction, order or decree
binding upon the Borrower.
SS.4. RATIFICATION, ETC. Except as expressly amended hereby, the Credit
Agreement and all documents, instruments and agreements related thereto are
hereby ratified and confirmed in all respects and shall continue in full force
and effect. The Credit Agreement and this Second Amendment shall be read and
construed as a single agreement. All references in the Credit Agreement, the
Loan Documents or any related agreement or instrument to the Credit Agreement
shall hereafter refer to the Credit Agreement as amended hereby.
SS.5. NO WAIVER. Nothing contained herein shall constitute a waiver of,
impair or otherwise affect any Obligations, any other obligation of the
Borrowers or any rights of the Agent or the Banks consequent thereon.
<PAGE> 3
-3-
SS.6. COUNTERPARTS. This Second Amendment may be executed in one or
more counterparts, each of which shall be deemed an original but which together
shall constitute one and the same instrument.
SS.7. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT
REFERENCE TO CONFLICT OF LAWS).
<PAGE> 4
-4-
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as a document under seal as of the date first above written.
SENSORMATIC ELECTRONICS
CORPORATION
By:
---------------------------------
Name:
Title:
BANKBOSTON, N.A.
By:
---------------------------------
Name:
Title:
SUN TRUST BANK, SOUTH FLORIDA, N.A.
By:
---------------------------------
Name:
Title:
CITIBANK, N.A.
By:
---------------------------------
Name:
Title:
THE FUJI BANK LIMITED,
NEW YORK BRANCH
By:
---------------------------------
Name:
Title:
<PAGE> 5
-5-
CIBC, INC.
By:
---------------------------------
Name:
Title:
NATIONSBANK, N.A.
By:
---------------------------------
Name:
Title:
UNION BANK OF SWITZERLAND,
NEW YORK BRANCH
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
LTCB TRUST COMPANY
By:
---------------------------------
Name:
Title:
MITSUBISHI TRUST & BANKING
CORPORATION (U.S.A.)
By:
---------------------------------
Name:
Title:
<PAGE> 6
-6-
THE SUMITOMO BANK, LIMITED
By:
---------------------------------
Name:
Title:
THE YASUDA TRUST AND BANKING
COMPANY LIMITED, NEW YORK BRANCH
By:
---------------------------------
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, ATLANTA AGENCY
By:
---------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By:
---------------------------------
Name:
Title:
ISTITUTO BANCARIO SAN PAOLO DI
TORINO SPA
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
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